International Trade Forms

1. International Trade Forms Week 16&17

2. Background information • The adoption of open foreign trade policy has widened the horizon for international economic and technical exchange. • In recent years, the FTCs (Foreign Trade Corporations) have moved forward in the direction of using different forms of flexible trade to create better conditions and more opportunities for the development of international trade. Along with big increase of normal trade, the total volume of flexible trade has multiplied remarkably.

3. Background information • We are not only import and export normal commodities like computers, fruits etc. But also import and export technologies, services etc. • The relationship between business partners from different countries could be variety, and the way of co-operation could be variety.

4. Trade forms we are going to talk about: • Processing trade (加工贸易), • Joint Venture (合资公司）, • Leasing Trade （国际租赁）, • Compensation Trade （补偿贸易）, • Barter Trade （易货）, • Consignment Trade （寄售）, • Agency （中介） These are not include all the forms !

5. Processing Trade • Definition: Processing trade is a company through different ways to import resources, raw materials, or components, the use its own technology and labor to produce, and then export the product to other countries, to earn the profit.

6. There are mainly two different arrangements 1. Overseas manufacturers provide the essential raw materials and design samples while the processing work is carried out in factories and workshops in China in accordance with the design, format, quality and quantity specifically required by the overseas manufacturers. After processing, the finished products are sent back to the overseas partners; therefore the Chinese FTCs will receive the processing fee in return. (来料加工) 例子：服装行业，外贸原单

7. 2. Sometimes, processing partakes of assembling supplied parts, e.g. assembling components into mechanical, electrical and electronic products, to say a but few; in such cases we may call this arrangement assembling trade which has a similar meaning to processing trade. The only difference lies in the fact that overseas manufacturers provide not only samples, models, essential components and parts, but also equipment and essential production lines. After assembling completed, the Chinese FTCs receive processing fee, which enables the factories which undertake the processing job to pay back the cost of supplied equipment (from overseas) by installments.

8. Objective: For the companies from developed countries: Save the cost (Labor, resources) For the companies from developing countries: Earn the processing fees, and learn new technology.

9. Sample Letter

10. Dear Sirs, Re: Processing Trade on Stereo Sets After several months’ negotiation, we have at long last （eventually, finally） succeeded in reaching an agreement the proposed contract for assembling supplied components. Now we wish to summarize those essential points of our proposition as follows. 1. Shanghai Electronics Factory (alias SEF) shall assemble 50 000 Stereo Sets within a period of five years with the components, auxiliary materials(辅料) and necessary equipment and tools supplied by Adlar Electronics Inc., Hong Kong (alias AE). 2. AE shall provide SEF with all components, auxiliary materials, necessary equipment and tools, as well as technical data and blue prints as specified in Appendix I, and SEF shall assemble these components into finished products (stereo sets) and ship them to AE in Hong Kong or any other port as instructed by AE. All the shipping expenses for the finished products shall be for the account of AE.

11. 3. Both SEF and AE agree that the fees of assembly for each set is HK$10 000 not including insurance premium. 4. The components and auxiliary materials supplied by AE are to be shipped from Japan to Shanghai and the finished products are to be carried by railway from Shanghai to Hong Kong or shipped to the western ports of USA as based on the shipping instructions’ given by AE one month in advance. Shipment of the finished products is to be effected once or twice a month, which is to be arranged on a quarterly basis. 5. Payment for the processing fee and shipping expenses is to be made by sight L/C to be opened by AE or its affiliate（分公司） in the USA not later than 30 days before the shipping schedule.

12. 6. Insurance for the components and auxiliary materials, etc. during their storage in Shanghai and the finished products during transit from Shanghai to destination are to be taken care of by SEF on behalf of AE. 7. Packing: 1 set to a cardboard box. 50 sets to a wooden ease suitable for export， packing charges are for AE’s account, on cost basis. 8. Compensation for loss arising from default(…..所引起的). Should（here means “if”） AE fail to supply the components and auxiliary materials or SEF fail to deliver Stereo Sets in time as contracted, as a result of which loss is incurred, the responsible party shall compensate the party affected for the entire loss thus sustained.

13. 9. After signing the contract, AE shall send at its own expense 15 technicians and 3-5 administrative staff members to SEFs factory render（means give assistance） technical assistance during assembly and inspect the finished products before delivery. 10. The allowance for damage to components and auxiliary materials during the process of assembly is 2.5%. If any damage or defect is found in the components and auxiliary material supplied by AE, SEF shall advise AE immediately to that effect, so as to enable AE to rush replacements in time. Please give the above your best consideration and if you fall in with us on these essential points, let us have your tele-reply, so that we can get the contract ready for your signature when you come to Shanghai. Awaiting with keen interest your early reply. Yours faithfully

14. Useful Expressions • processing trade加工贸易 • stereo sets立体声收音机 • at long last最后，最终 • assembling supplied components提供配件 • Alias 别名，又名，假名 • auxiliary materials辅料 • Appendix 附录 • for the account of AE费用由AE 方承担 • insurance premium保险费用 • in advance预先，事先

15. Useful Expressions • affiliate n.隶属的机构，分公司 • arising from default 所引起的违约 • incur v. 遭受，蒙受，导致 • the responsible party 责任方

16. Exercises • Translate the following sentences 1. 我们的工程包括建一个水果加工厂和一个食品加工厂。 2. 来料加工和来件装配对扩大我国的对外贸易有着重大作用。 3. 加工和装配业务是我国对外贸易的一个组成部分。 4. Through a series of discussions, we have reached substantial agreement on the processing and assembling business. 5. Party B has agreed to process and assemble for Party A 30 000 video recorders within a period of two years. 6. Party A has agreed to provide Party B with materials, components, necessary equipment and tools as well as the relevant technical data and blue prints needed for the processing and assembling.

17. Joint Venture

18. Definition • A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.

19. Background Information • A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept. • Reasons of the exits of JV: A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits.

20. Since money is involved in a joint venture, it is necessary to have a strategic plan in place. In short, both parties must be committed to focusing on the future of the partnership, rather than just the immediate returns. Ultimately, short term and long term successes are both important. In order to achieve this success, honesty, integrity, and communication within the joint venture are necessary.

21. Sample Letter • This letter talked about the agreements between two corporations who wants start a JV together.

22. Dear Sirs, Further to our discussions in Melbourne and the messages exchanged thereafter on wholesale joint venture in Australia, we were very pleased to receive your letter of December 12 and the enclosed memorandum with detailed proposals on the subject. We have studied your memorandum carefully and would like to respond to your proposals as follows. 1. The memorandum is generally acceptable and may serve as a basis for further discussions.

23. 2. We suggest the inclusion of two more clauses: a. Settlement of disputes Any dispute arising from the execution of, or in connection with the agreement shall be settled through friendly consultations between the two Parties. In case no settlement can be reached through consultations, the disputes shall be submitted to the Foreign Economic and Trade Arbitration Commission of the China Council for the Promotion of International Trade in Beijing for arbitration in accordance with its rules of procedure. The arbitral award is final and binding upon both parties.

24. b. This agreement is subject to ratification by the authorities of both parties. We look forward to welcoming you and Mr. Harvey in Beijing and discussing matters in detail from the 2nd to the 5th February, and hope that a provisional agreement can then be signed. Yours sincerely,

25. Leasing Trade

26. Background Information • Definition: Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments. • The lessee is the receiver of the services or the assets under the lease contract and the lessor is the owner of the assets.

27. The relationship between the tenant and the landlord is called a tenancy, and can be for a fixed or an indefinite period of time (called the term of the lease). The consideration for the lease is called rent. • The objective of leasing trade is to earn the rent.

28. Sample Letters • These two letters is about rent a answer machine.

29. Dear Sirs, We were very impressed with the performance of your answering machine at the demonstration and wish to lease ten C786 Answering Machines. We are prepared to sign your standard 3-year agreement as explained by Mr. Reed at your demonstration. We understand that the agreement takes some weeks to prepare but that the machines can be installed at once. This would be very convenient for us indeed. Thank you for your cooperation. Yours faithfully,

30. Dear Sirs, Thank you for your recent order for ten C786 Answering Machines. I understand from our local representative that the machines were installed on 8 March. I hope they meet your expectations. We enclose the Leasing Agreement, and a direct mandate(授权） for the charge. We will not make any demand on this direct debit mandate other than the actual annual charge. We have entered into an indemnity（保障；赔偿） agreement with our bankers for any claims you might make against them alleging unfair debiting of your account: accordingly you may have no hesitation in completing the mandate. If you will sign both copies of the agreement and return them to us together with the completed direct debiting mandate, we shall be happy to complete the agreements and send you a copy forthwith. Yours faithfully

31. Agency

32. Background Information • Definition: A vast amount of international trade is handled not by direct negotiation between buyer and seller but by means of agencies. An agent is a person or firm who buys, sells, or does other business for the account of, and according to the orders of another person or firm called the principal. • Once an agency relationship exists, the law imposes certain duties and obligations of that relationship on both parties. The principal has certain responsibilities to the agent. And, the agent, in turn, owes certain duties to the principal.

33. Types of agency • Buying agent: There are Buying Agents who purchase goods for and under instruction from principals in their own country or abroad • Selling agent: 1.Sole/Exclusive agent: 独家代理 2. Ordinary agent：一般代理 3. General agent: 总代理

34. Selling agent • 1.Sole/Exclusive agent: A sole/exclusive agency enjoys the sole/exclusive rights to promote sales of certain commodities for the principal in a certain area; • 2. Ordinary agent: An agent does not have the sole/exclusive rights of selling commodities in a certain area, but the entrusted by the principal to promote sales of commodities on the basis of commission;

35. 3. General agent: With more extensive rights than sole/exclusive agent entitled by the principal, they will act as a representative of the principal in a certain area not only in promoting sales of commodities, signing contracts but also executing other non-commercial business, for which the principal will be responsible in law.

36. How an agent does works? • When an agent is appointed, an agency agreement should be signed by and between the principal and the agent. Great care is necessary when drawing up an agency agreement and the questions of responsibilities and basis of remuneration should be fully covered. It is also very important to be familiar with the laws relating to agencies in the overseas territory, as these can vary considerably from country to country.

37. the contents of agency agreement • The nature and duration of the agency; • The territory to be covered; • The duties of the agent and principal; • Details of commission and expenses to be allowed; • The law of the country by which the agreement is governed; • The sending of reports, accounts and payments; • The arrangements of arbitration in the event of disputes.

38. Letters about agency • letter seeking for agent • letter asking for agent

39. letter seeking for agent • 1. Express your wishes to appoint an agent; • 2. State the reason why you choose this company to represent for you; • 3. Favorable terms that you can provide for the agency.

40. Sample letter • 继与王先生商议之后，我们决定委托贵方作为我方为该地区的独家代理商。委托期限为12个月的尝试期，我方将根据从贵方获得的订单按所有销售份额的净值支付贵方5%的佣金。 • Key Points: 1.委托作为独家代理 2.12个月尝试 3.向北美地区的客户发通函

41. Dear Sirs, Further to our discussion with Mr. Wang when he called on us on the 23rd, we have decided to entrust you with the sole agency for our Machinery Equipment in the territory of North America. The appointment will be for a trial period of twelve months in the first instance. We shall pay you a commission of 5% on the net value of all sales against orders received through you. If you find these terms and conditions acceptable, we will arrange for a formal agreement to be drawn up and, when this is signed, prepare a circular for distribution to our customers in North America, announcing your appointment as our agent. Yours faithfully,

42. letter asking for agent • 1. Express your wishes to represent as their sole agent; • 2. State your abilities serving as an agent; • 3. What terms you can accept.

43. Sample Letter 从B/C公司得知贵方正在寻找一家在机械设备方面具有广泛业务联系的商号作为北美地区的代理。我公司拥有宽敞且设备良好的的展室，并拥有经验丰富的工作人员，，一定能有效地促进贵方的业务。 Key Points: • 请求作为代理 • 介绍自己的能力 • 资信状况查询

44. Dear Sirs, We learn from B/C Corporation that you are looking for a reliable firm with good connections in Machinery Equipment trade to represent you in North America. We are experienced dealers in marketing Machinery Equipment, having been in the business for more than twenty years and enjoying good business relations with all the leading wholesalers and retailers in this line. Furthermore, we have spacious and well-equipped showrooms and experienced staff of sales representatives who could push your business effectively. If you have interest in our proposal, please inform us of your requirement and on what terms you would be willing to conclude an agency agreement. For our credit standing and integrity in the trade, please refer to B/C Corporation. Your immediate reply would be highly appreciated. Yours faithfully,

45. Exercises • Translate the following sentences 1.我们很高兴能够作为你的独家代理，这对我们双方都是双赢的。 2.作为独家代理，你可以很容易控制整个市场。 3. The agency agreement has been drawn up for the duration for one year, automatically renewable on expiration for similar period unless written notice is given to the contrary. 4. To be our sole agent, you could not sell similar products from other manufactures without our prior approval.

46. Compensation Trade (补偿贸易）

47. Compensation trade is for overseas enterprises to provide technology, equipment and essential production materials for use by Chinese enterprises in the course of developing mining resources, agriculture, forestry and fishing, etc. • Output produced by the Chinese enterprises will be sent to their overseas partners as compensation for their provision of technology and equipment. But in certain cases, if the overseas enterprises have difficulties in marketing the products of direct compensation, compensation can be in the form of other products which are mutually agreed upon by both parties. • This is called indirect compensation. This job is rather complex and requires a lot of knowledge, investigation and patience to pass a judgment or make a decision on settlement.

48. 国际贸易中以产品偿付进口设备、技术等费用的贸易方式。它既是一种贸易方式也是一种利用外资的形式。其基本特点是 ：买方以赊购形式向 卖方购进机器设备、技术知识等 ，兴建工厂企业 ，投产后以所生产的全部产品、部分产品或双方商定的其他商品，在一定期限内，逐步偿还贷款本息。 • 早期的补偿贸易主要用于兴建大型工业企业。如当时苏联从日本引进价值8.6亿美元的采矿设备，以1亿吨煤偿还；波兰从美国进口价值4亿美元的化工设备和技术，以相关工业产品返销抵偿。

49. Barter Trade （易货）

50. Barter means doing business by exchanging goods of one sort for goods of another sort without using money.