Step-by-Step Guide to Exporting
Appendix C: Glossary of International Trade Terms
Exporting is more complex than selling in a domestic market. It is important to understand key trade expressions, techniques and requirements, such as:
- The laws, regulations and practices governing your product or service in your target market
- Export documentation, including invoices, bills of lading, certificates of origin and health and safety certificates
- Tariffs, customs duties and processing fees, as well as taxes payable on your shipment
- Export-related services offered by brokers, trading houses, agents, freight forwarders and insurance companies
- How to label, pack, transport and store your products
- Payment options such as letters of credit, bills of exchange and open account transactions
International trade carries its own particular terminology. The following are general trade expressions that new exporters will encounter in published sources and trade discussions.
A special duty imposed to offset the price effect of dumping that has been determined to be materially harmful to domestic producers. (See also Dumping)
A general expression meaning the sale or barter of goods on a reciprocal basis. There may also be multilateral transactions involved.
Additional duties imposed by an importing country to offset government subsidies in an exporting country, when the subsidized imports cause material injury to domestic industry in the importing country.
The sale of an imported commodity at a price lower than that at which it is sold within the exporting country. Dumping is considered an actionable trade practice when it disrupts markets and injures producers of competitive products in the importing country. Article VI of the General Agreement on Tariffs and Trade permits the imposition of special anti-dumping duties against dumped goods equal to the difference between their export price and their normal value.
Specific restrictions or ceilings imposed by an exporting country on the value or volume of certain exports designed, for example, to protect domestic producers and consumers from temporary shortages of the goods affected or to bolster their prices in world markets.
Government payments or other financially quantifiable benefits provided to domestic producers or exporters contingent on the export of their goods and services.
GDP/GNP (Gross Domestic/National Product):
The total of goods and services produced by a country.
An economic benefit granted by a government to producers of goods, often to strengthen their competitive position. The subsidy may be direct (e.g. cash grant) or indirect (e.g. low-interest export credits guaranteed by a government agency).
Surcharge or Surtax:
A tariff or tax on imports in addition to the existing tariff, often used as a safeguard measure.
A duty (or tax) levied on goods transported from one customs area to another. Tariffs raise the prices of imported goods, making them less competitive within the market of the importing country. Under the North American Free Trade Agreement, most tariffs on Canadian goods and services to the United States and Mexico have been eliminated.
International commerce (INCO) terms
To provide a common terminology for international shipping, the following INCO terms have been developed under the auspices of the International Chamber of Commerce.
Cost and Freight (C&F):
The exporter pays the costs and freight necessary to get the goods to the named destination. The risk of loss or damage is assumed by the buyer once the goods are loaded at the port of embarkation.
Cost, Insurance and Freight (CIF):
The exporter pays the cost of goods, cargo and insurance plus all transportation charges to the named port of destination.
Delivered at Frontier:
The exporter/seller's obligations are met when the goods arrive at the frontier, but before they reach the "customs border" of the importing country named in the sales contract. The expression is commonly used when goods are carried by road or rail.
Delivered Duty Paid:
This expression puts maximum responsibility on the seller/exporter in terms of delivering the goods, assuming the risk of damage/loss and paying duty. It is at the other extreme from Delivered ExWorks (see below), under which the seller assumes the least responsibility.
Delivered Ex Quay:
The exporter/seller makes the goods available to the buyer on the quay or wharf at the destination named in the sales contract. There are two types of ex quay contracts in use: ex quay duty paid, whereby the seller incurs the liability to clear the goods for import, and ex quay duties on buyer's account, whereby the buyer assumes the responsibility.
Delivered Ex Ship:
The exporter/seller must make the goods available to the buyer on board the ship at the location stipulated in the contract. All responsibility/cost for bringing the goods up to this point falls on the seller.
This minimal obligation requires the seller only to make the goods available to the buyer at the seller's premises or factory. The seller is not responsible for loading the goods on the vehicle provided by the buyer, unless otherwise agreed. The buyer bears all responsibility for transporting the goods from the seller's place of business to their destination.
The price quoted applies only at the point of origin and the seller agrees to place the goods at the disposal of the buyer at the specified place on the date or within the period fixed. All other charges are for the account of the buyer.
Free Alongside Ship (FAS):
The seller quotes a price for the goods that includes charges for delivery of the goods alongside a vessel at the port. The seller handles the cost of unloading and wharfage; loading, ocean transportation, and insurance are left to the buyer.
Free Carrier... (named port):
Recognizing the requirements of modern transport, including multi-modal transport, this principle is similar to Free on Board (see below), except that the exporter's obligations are met when the goods are delivered into the custody of the carrier at the named port. The risk of loss/damage is transferred to the buyer at this time, and not at the ship's rail. The carrier can be any person contracted to transport the goods by road, sea, air, rail or a combination thereof.
Free of Particular Average (FPA):
This type of transportation insurance provides the narrowest type of coverage — total losses, and partial losses at sea if the vessel sinks, burns or is stranded, are covered.
Free on Board (FOB):
The goods are placed on board the vessel by the seller at the port of shipment specified in the sales contract. The risk of loss or damage is transferred to the buyer when the goods pass the ship's rail.
Free on Board Airport (FOB Airport):
Based on the same principles as the ordinary FOB expression, the seller's obligation is fulfilled by delivering the goods to the air carrier at the specified airport of departure, at which point the risk of loss or damage is transferred to the buyer.
Free on Rail and Free on Truck (FOR/FOT):
Again, the same principles apply as in the case of ordinary FOB, except that the goods are transported by rail or road.
With Average (WA):
This type of transportation insurance provides protection from partial losses at sea.
Transportation and delivery terms
The following are common terms used in packing, labelling, transporting and delivering goods to international markets. They are in addition to the above INCO terms.
Area Control List:
A list of countries to which any export (except humanitarian items) requires an export permit.
Bill of Lading (Ocean or Airway):
A contract prepared by the carrier or the freight forwarder with the owner of the goods. The foreign buyer needs this document to take possession of the goods.
Certificate of Origin:
A document that certifies the country where the product was made (i.e. its origin). A common export document, a certificate of origin is needed when exporting to many foreign markets. It must be used for Canadian-made goods to qualify for preferential tariff treatment under the North American Free Trade Agreement.
A document prepared by the exporter or freight forwarder, and required by the foreign buyer, to prove ownership and arrange for payment to the exporter. It should provide basic information about the transaction, including description of goods, address of shipper and seller as well as delivery and payment terms. In some cases, the commercial invoice is used to assess customs duties.
A statement issued by a foreign consul in the exporting nation describing the goods purchased. Some foreign governments require Canadian exporters to first obtain consular invoices from their consulate in Canada. A fee is usually charged.
A document that traditionally accompanies exported goods bearing such information as the nature of the goods, their value, the consignee and their ultimate destination. Required for statistical purposes, it accompanies all controlled goods being exported under the appropriate permit.
A document used to clear goods through customs in the importing country by providing documentary evidence of the value of goods. In some cases, the commercial invoice may be used for this purpose.
A receipt issued by an ocean carrier to acknowledge receipt of a shipment at the carrier's dock or warehouse facilities. (See also Warehouse Receipt)
Used in price quotations, an expression referring to the price of goods at the exporter's loading dock.
Export Control List:
A list of goods and technologies that require export permits to be exported from Canada, pursuant to the Export and Import Permits Act.
Export Permit: A legal document that is necessary for the export of goods controlled by the Government of Canada, specifically goods included on the Export Control List (see above) or goods destined for countries on the Area Control List).
A service company that handles all aspects of export shipping for a fee.
A document prepared by the exporter or freight forwarder to provide evidence that insurance against loss or damage has been obtained for the goods.
The cost of the exported product at the port or point of entry into the foreign market, but before the addition of foreign tariffs, taxes, local packaging/assembly costs and local distributors' margins. Product modifications prior to shipment are included in the landed cost.
A document prepared by the exporter showing the quantity and type of merchandise being shipped to the foreign customer.
Pro Forma Invoice:
An invoice prepared by the exporter prior to shipping the goods, informing the buyer of the goods to be sent, their value and other key specifications.
An offer by the exporter to sell the goods at a stated price and under certain conditions.
A receipt identifying the commodities deposited in a recognized warehouse. A non-negotiable warehouse receipt specifies to whom the deposited goods will be delivered or released. A negotiable receipt states that the commodities will be released to the bearer of the receipt.
Financial and insurance terms
The following are the most commonly used terms in international trade financing.
This is the most comprehensive type of transportation insurance, providing protection against all physical loss or damage from external causes.
When an exporter is bidding on a foreign contract, a bid bond guarantees that the exporter will take the contract if the bid succeeds. An exporter who refuses the contract must pay a penalty equal to the amount of the bond.
Cash in Advance (Advance Payment):
A foreign customer pays a Canadian exporter prior to actually receiving the exporter's product(s). It is the least-risk form of payment from the exporter's perspective.
A company, based in a foreign country, that acts as a foreign buyer's agent and places confirmed orders with Canadian exporters. They guarantee payment to the exporters.
Delivery of merchandise to the buyer or distributor, whereby the latter agrees to sell it and only then pay the Canadian exporter. The seller retains ownership of the goods until they are sold, but also carries all of the financial burden and risk.
Document of Title:
A document that provides evidence of entitlement to ownership of goods, e.g.. carrier's bill of lading.
The exporter ships the goods to the foreign buyer without a confirmed letter of credit or any other form of payment guarantee.
Documentary Credit (sight and term):
A documentary credit calling for a sight draft means the exporter is entitled to receive payment on sight, i.e. upon presenting the draft to the bank. A term documentary credit may allow for payments to be made over terms of 30, 60, or 90 days, or at some specified future date.
Draft (Bill of Exchange):
A written, unconditional order for payment from one party (the drawer) to another (the drawee). It directs the drawee to pay an indicated amount to the drawer. A sight draft calls for immediate payment. A term draft requires payment over a specified period.
Export Financing House:
A company that purchases a Canadian exporter's foreign receivables on a non-recourse basis upon presentation of proper documentation. It then organizes export arrangements and provides front-end financing to the foreign buyer.
A company that buys export receivables at a discount.
Letter of Credit:
An instrument issued by a bank on behalf of an importer that guarantees an exporter payment for goods or services, provided the terms of the credit are met.
Letter of Credit (Confirmed):
A Canadian bank confirms the validity of a letter of credit issued by a foreign bank on behalf of the foreign importer, guaranteeing payment to the Canadian exporter provided that all terms in the document have been met. An unconfirmed letter of credit does not guarantee payment so, if the foreign bank defaults, the Canadian exporter will not be paid. Canadian exporters should accept only confirmed letters of credit as a form of payment.
Letter of Credit (Irrevocable):
A financial institution agrees to pay an exporter once all terms and conditions of the transaction are met. No terms or conditions can be modified without consent of all parties.
An arrangement in which goods are shipped to the foreign buyer before the Canadian exporter receives payment.
Partnership, alliance and market entry terms
The following expressions define the various types of partnership or alliance arrangements as well as methods of market entry common in international trade.
A foreign representative who tries to sell your product in the target market. The agent does not take possession of — and assumes no responsibility for — the goods. Agents are paid on a commission basis.
Carried out on the basis of a fee or percentage of sales, co-marketing is an effective way to take advantage of existing distribution networks and a partner's knowledge of local markets.
This arrangement involves the joint production of goods, enabling firms to optimize their own skills and resources as well as take advantage of economies of scale.
In this form of partnership, each firm licenses products or services to the other. It is a relatively straightforward way for companies to share products or expertise.
This is a form of cross-licensing in which companies agree to manufacture each other's products. It can also be combined with co-marketing or co-promotion agreements.
A foreign company that agrees to purchase a Canadian exporter's product(s), and then takes responsibility for storing, marketing and selling them.
This is a more specific form of licensing. The franchise is given the right to use a set of manufacturing or service delivery processes, along with established business systems or trademarks, and to control their use by contractual agreement.
An independent business formed cooperatively by two or more parent firms. This type of partnership is often used to avoid restrictions on foreign ownership and for longer-term arrangements that require joint product development, manufacturing and marketing.
Although not usually considered to be a form of partnership, licensing can lead to partnerships. In licensing arrangements, a firm sells the rights to use its products or services but retains some control.
A company specializing in the exporting and importing of goods produced or provided by other companies.
The following are some of the more common legal terms encountered in international transactions.
The process of resolving a dispute or a grievance outside of the court system by presenting it to an impartial third party or panel for a decision that may or may not be binding.
A written or oral agreement which the law will enforce.
Protection granted to the authors and creators of literary, artistic, dramatic and musical works, and sound recordings.
A collective term used to refer to new ideas, inventions, designs, writings, films, and so on, protected by copyright, patents and trademarks.
A right that entitles the patent holder, within the country which granted or recognizes the patent, to prevent all others for a set period of time, from using, making or selling the subject matter of the patent.
A word, logo, shape or design, or type of lettering which reflects the goodwill or customer recognition that companies have in a particular product.