International trade is a complicated world full of detailed policies and industry jargon. If you were asked what a distributor is, would you be able to define it? How about a duty or a domestic export? If you hesitated to answer, and your business is looking to expand into importing and exporting, you need to brush up on the foreign trade regulations. Here are some key definitions, along with how they might relate to your business.
What Is a Distributor?
According to the foreign trade regulations, a distributor is an agent who sells directly from a supplier and maintains an inventory of the supplier's products. A manufacturer and a distributor form an agreement that outlines terms of the relationship, such as manufacturing, distribution, ownership, duration, price, and intellectual rights, to name just a few. Distributors are essential in getting a product to market.
What Is a Duty?
A duty is a charge levied against the import of goods. Duties are generally based on the value of the goods (ad valorem duties), other factors such as weight or quantity (specific duties), or some combination of factors (compound duties). It's not always easy to tell which type of duty and rate your goods will incur, but the U.S. International Trade Commission's data website is a good place to start.
What Is a Domestic Export?
In their most obvious form, domestic exports are goods that are grown, produced, or manufactured in the United States. But this term also applies to commodities from outside the country that have been changed in some way in the United States, including any goods altered n a U.S. Foreign Trade Zone. Basically, if the goods have been enhanced in value or improved in condition by further processing or manufacturing in the U.S., they can become a domestic export.
What Are Incoterms?
Importers and exporters must agree in advance on their respective roles and the terms, conditions, and definitions of the sale. A buyer and seller should know where a risk begins and ends, who is responsible for what (e.g., costs and documentation), who owns what and at what geographical point they own it.
Incoterms are the most commonly used foreign trade terms provided by the International Chamber of Commerce's Incoterms rules. These terms offer an internationally recognized shorthand to communicate where goods change hands in the supply chain.
What Is the Automated Export System (AES)?
The Automated Export System (AES) is an electronic export information gathering and processing system developed through U.S. Customs and Border Protection, the export community, the U.S. Census Bureau, and other federal agencies. The AES collects and stores export information electronically in the system from preapproved participants. This applies to all goods exported from the U.S., Puerto Rico, or the U.S. Virgin Islands.
Know Your Terms
Why is it important to know these terms? Because the more you know, the better your chance of being successful and minimizing any misunderstandings when negotiating with overseas customers and foreign suppliers. The last thing you want to do is accidentally give away any competitive advantage that might result from a lack of knowledge.
You may not have all the answers, but if you know where to get them, you will boost your confidence level and communicate more effectively on import and export trade negotiations.