International Trade (Intl Trade) 101: Export Import Operations Import Licensing and Restrictions

What This Is

Import Licensing and Restrictions refer to the regulations and requirements that govern the importation of goods into a country. These regulations can include licensing requirements, customs duties, taxes, and other restrictions that must be complied with to avoid penalties, fines, or even the rejection of shipments. For example, a US importer may need to obtain a license to import certain types of electronics from China, and failure to do so could result in the shipment being held at the border.

Key Terms & Rules

• Import License: A permit issued by a government agency that allows a company to import specific goods into a country. Importers must comply with licensing requirements to avoid penalties.
• Customs Duty: A tax levied on imported goods by a country's government. Customs duties can vary depending on the type of goods, their value, and the country of origin.
• Harmonized System (HS) Codes: A standardized system used to classify goods for customs purposes. HS codes are used to determine customs duties and other taxes.
• Export Control: Regulations that govern the export of goods from one country to another. Export controls can include restrictions on the type of goods that can be exported, as well as the countries to which they can be exported.
• Embargo: A government-imposed ban on the importation or exportation of goods to or from a specific country or region.
• Free Trade Agreement (FTA): An agreement between two or more countries that reduces or eliminates tariffs and other trade barriers.
• Incoterms: A set of international trade terms that define the responsibilities of buyers and sellers in the delivery of goods. Incoterms include EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAP, DPU, and DAT.
• UCP 600: Uniform Customs and Practice for Documentary Credits – governs LC transactions globally.
• LC Discrepancy: A discrepancy that arises when the terms of the letter of credit (LC) do not match the terms of the sales contract.

Step-by-Step Process

1. Determine Import Licensing Requirements: Research the licensing requirements for the goods being imported and the country of import.
2. Classify Goods Using HS Codes: Use the Harmonized System (HS) codes to classify the goods for customs purposes.
3. Calculate Customs Duties: Calculate the customs duties and other taxes owed on the goods.
4. Obtain Necessary Permits: Obtain any necessary permits or licenses to import the goods.
5. Comply with Export Controls: Comply with export controls and regulations when exporting goods.
6. Verify Incoterms: Verify the Incoterms used in the sales contract to ensure they match the terms of the letter of credit (LC).

Common Mistakes

• Mistake: Confusing CIF and CIP.
• Correction: CIF (Cost, Insurance, and Freight) means the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated port of discharge. CIP (Carriage and Insurance Paid to) means the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated place of destination.
• Mistake: Assuming "open account" is risk-free.
• Correction: Open account means the buyer pays the seller without a letter of credit (LC) or other payment guarantee. This can be a high-risk payment method, as the buyer may not pay the seller.
• Mistake: Misusing "free on board" with air freight.
• Correction: Free on board (FOB) means the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated port of departure. FOB is typically used with sea or inland waterway transportation, not air freight.

Exam / Certification Tips

• FOB vs FCA: FOB (Free on Board) means the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated port of departure. FCA (Free Carrier) means the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated place of delivery.
• Confirmed vs Unconfirmed LC: A confirmed letter of credit (LC) is guaranteed by a bank, while an unconfirmed LC is not guaranteed.
• DPU Successor to DAT: DPU (Delivered at Place Unloaded) is a successor to DAT (Delivered at Terminal), which means the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated place of destination.

Quick Practice Scenario

A Chinese exporter sells goods to a US importer under FOB Shanghai. Who pays for the main carriage?

Answer: The buyer pays for the main carriage.

Explanation: Under FOB, the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated port of departure. The buyer is responsible for arranging and paying for the main carriage from the port of departure to the final destination.

Last-Minute Cram Sheet

• Import License: A permit issued by a government agency that allows a company to import specific goods into a country.
• Customs Duty: A tax levied on imported goods by a country's government.
• Harmonized System (HS) Codes: A standardized system used to classify goods for customs purposes.
• Export Control: Regulations that govern the export of goods from one country to another.
• Embargo: A government-imposed ban on the importation or exportation of goods to or from a specific country or region.
• Free Trade Agreement (FTA): An agreement between two or more countries that reduces or eliminates tariffs and other trade barriers.
• Incoterms: A set of international trade terms that define the responsibilities of buyers and sellers in the delivery of goods.
• UCP 600: Uniform Customs and Practice for Documentary Credits – governs LC transactions globally.
• LC Discrepancy: A discrepancy that arises when the terms of the letter of credit (LC) do not match the terms of the sales contract.
• FOB: Free on Board – means the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated port of departure.
• CIF: Cost, Insurance, and Freight – means the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated port of discharge.
• CIP: Carriage and Insurance Paid to – means the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated place of destination.
• DPU: Delivered at Place Unloaded – means the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated place of destination.
• DAT: Delivered at Terminal – means the seller bears the risk of loss or damage to the goods until they are delivered to the buyer's nominated terminal.
• Confirmed LC: A letter of credit (LC) that is guaranteed by a bank.
• Unconfirmed LC: A letter of credit (LC) that is not guaranteed by a bank.