How to Start an International Trading Business – Part 2
As part of the well-received “How to…” series of blog posts we have published in the past few years, we wrote an article titled How to Start an International Trading Business. The attention it has garnered led us to prepare a series of more detailed posts on the topic of international trade. This article, the second in the series, talks about the regulatory issues that traders confront when importing or exporting goods from one country to another.
Nearly all countries have import and export restrictions in some form. These restrictions are put in place by governments to regulate the flow of goods and services across their borders, and they can vary widely from one country to another. Import and export restrictions can include tariffs (taxes on imports), quotas (limits on the quantity of goods that can be imported or exported), embargoes (complete bans on trade with specific countries), licensing requirements, and other trade barriers.
Governments impose these restrictions for various reasons, such as protecting domestic industries, ensuring national security, enforcing health and safety standards, and implementing trade policies that promote economic interests. The specific regulations and restrictions that apply to imports and exports depend on the country’s laws and regulations, as well as international agreements and treaties that countries may be a part of.
Common Import Regulations
Many countries enforce the following regulations on importers:
- Customs documentation: Importers are required to provide specific documents, including the commercial invoice, packing list, bill of lading and certificate of origin. These documents are always necessary for customs clearance. This helps countries keep track of the goods coming into their economies and compare the value of those imports with exports. Some countries have trade surpluses and some have trade deficits.
- Import licenses: Certain products require import licenses. These licenses are typically issued by relevant government authorities and must be obtained before the importation of goods.
- Tariffs and taxes: It is common for countries to impose tariffs and taxes on imported goods. The rates can vary based on the type of goods being imported and the country of origin. Importers are required to pay these duties to clear their goods through customs. Tariffs are often used to make the importing country’s products competitive with the products coming in from overseas.
- Restricted and prohibited items: Certain goods are restricted or limited from importation. These can include items such as weapons, drugs, and certain agricultural products.
- Quality standards: Imported goods are always subject to each country’s quality standards.
- Value added tax: Some countries apply a Value Added Tax (VAT) on most goods and services, including imports. Importers are required to pay VAT on the imported goods.
Common Export Regulations
The governments of most countries have laws, rules and restrictions on the export of goods and services. Some of these laws, rules and restrictions include:
- Export licenses: Some countries require exporters to obtain licenses or permits for certain goods or destinations. These licenses ensure that the exported items comply with specific regulations and do not pose a threat to national security. Military equipment and technology equipment often require export licenses.
- Embargoes and sanctions: Governments may impose embargoes or sanctions on specific countries’ individuals or entities, prohibiting the export of certain goods and services to them. These restrictions are often imposed for political, economic or security reasons.
- Export documentation: Exporters are typically required to provide accurate and complete export documentation including invoices, packing lists, bills of lading and export declarations. As with import documentation, this helps countries keep track of their trade volumes.
- Export controls: Certain goods such as military equipment and high tech electronics are often subject to strict export controls.
- Customs declarations: Exporters must declare their goods to customs authorities, providing detailed information about the products and their value and destination.
- Trade restrictions: Some countries impose quotas or limitations on the quantity of specific goods that can be exported within a certain period.
- Compliance with international agreements: Countries may be parties to international agreements, such as export regimes that impose specific export regulations.
- Export tariffs and taxes: Exporters may be required to pay export tariffs or taxes on certain goods.
- Quality and safety standards: Exported goods must often meet specific quality, safety and labeling standards established by the importing country.
Help Is Available
Understanding and complying with import and export regulations can be very challenging and non-compliance can be very punitive so it is important to know the specific rules that apply to your specific country-by-country activities. Most experienced importers are aware of the import regulations related to their country. On the other hand, exporters, especially when exporting to a new country or market, must ensure that they are in compliance with the rules and regs of the importing country. Help is available to international traders.
- Your logistics company: Logistics companies such as Ascent Logistics can handle virtually every aspect of an international trade transaction. You find the buyer and the seller of the transaction and an international logistics company can take care of getting the goods from point A to point B and that includes compliance with all regulations.
- Your insurers: Most, if not all cargoes or shipments are insured and insurance companies that specialize in international cargo insurance are an excellent resource when it comes to country-by-country trade regulations. C.H. Robinson provides an excellent guide to the types of insurance coverages available.
- Your attorney: Most traders engage international attorneys to assist with documentation and other matters and of course, that includes advice and compliance with all rules and regulations.
- Your banker: Most international trades are settled (paid) by letters of credit. Letters of credit are guarantees of payment that are issued by large international banks. Banks will only open (issue) letters of credit after they have confirmed that the trade transaction is compliant. In another article in this series, we will discuss in detail trade financing.
A Word About Customs
Customs administration, often referred to as Customs, refers to the rules, regulations and procedures that govern the movement of goods and services across national borders. Customs processes are essential for facilitating smooth and legal trade between countries. These processes are governed by the regulations provided above as well as the documentation requirements outlined in International Trade – Documentation Requirements (to be published soon). Customs clearance refers to the inspection, verification of documentation and payment of any applicable duties and taxes. Customs agencies have the authority to impose penalties for non-compliance with customs regulations and, indeed, prevent delivery of goods if necessary. Many countries now use e-Customs to streamline the process, reduce paperwork and approve efficiency in customs clearance.
Of course, the regulatory issues related to international trade are but one piece of the puzzle. While there are excellent opportunities in international trade, there is much to know about this complex business. If you are just beginning as an international trader, consider creating your own business plan that will help you set your goals and then detail how and when those goals will be achieved. And for that, we are here to help.
Up next: Documentation Requirements