1 st Lecture. Basics of Imports and Exports Operation

1. 1st Lecture. Basics of Imports and Exports Operation 1. Outline of Imports and Exports Operation (1)Concept of Imports and Exports (2)Characteristics of Imports and Exports Transaction (3)International Custom and Regulation related to Trading 2. Procedures of Imports and Exports Operation (1)Importation (2)Exportation 3. Settlement Methods of Imports and Exports (1)Terms of Payment (2)Preliminary Remittance Method (3)Simultaneous Remittance Method (4)Non L/C method (5)L/C Method (6)Other Settlement Methods 4. Imports and Exports Contract (1)Terms of Contract in Imports and Exports

2. 1회. imports and exports업무 기초 1. imports and exports 업무의 개요 (1)Concept of Imports and Exports What is Imports and Exports ? Transaction of goods between nations (International Trade) Moving goods from domestic market to overseas market according to sales, exchange, or lease contract, and receiving equivalent Moving goods from overseas market to domestic market according to sales contract between, and receiving equivalent Exportation Importation Recently, the concept of imports and exports includes transaction of ‘services’ such as management, legal counseling, accounting operation and ‘electrical immaterial things’ transferred through information communication network. Electrical Immaterial Tings Indicatesoftware, digitally recorded movies, games, animations, E-books and databases International Trade : Imports and exports of goods, services approved by presidential decree, or electrical immaterial things (2) Characteristics of Imports and Exports Transaction • Difference in legislation, custom, values between two countries • Stiff international custom caused by unified international regulation • Risk caused by volatile change in exchange rate • Difficulty in evaluating credibility of the partner • Difficulty in solving problems In case of troubles • Exporter: Possibility of not being able to recover money (credit risk) • Importer: Possibility of not being able to receive the goods within appointed date of delivery (mercantile risk) (3) Regulations or Custom related to International Trading • Incoterms2000 (Abbreviation of International Commercial Terms) • Official Title : International Rules for the Interpretation of Trade Terms UCP 600 - Uniform Customs and Practice for Documentary Credit ICC Pub.No.600, 2007 URC 522 - Uniform Rules for Collection ICC Pub.no.522, 1995 • URR 525 • Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credit ICC • Pub.No.525,1995

3. 2. Procedures of Imports and Exports Operation (1) Importation Procedures of Importation Contract Import Approval (if necessary) Open L/C Transport Documents Delivered to Issuing Bank Pay Import Bill Receive Transport Document Claim Goods and Customs Inspection • Settlement of Import Bill : importer can transfers money in advance or transfers money after • receiving transport documents or goods if L/C is not used (2) Exportation Procedures of Exportation Export Approval (If Necessary) Inquiry Offer Contract Advice of L/C Manufacture, Purchase Shipping Contract Insurance Contract Export Inspection Export Declaration and Customs Inspection Shipment Sell Transport Documents to Negotiating Bank *Selling Transport Documents : Exporter can receive money before shipping goods or sending the transport document to directly to importer, and vice versa 3. Payment Methods of Imports and Exports (1)Variety of payment methods D/P Method Sight L/C Collection Method L/C Method D/A Method Usance L/C 사전송금방식 Factoring Remittance Method Other Methods 동시송금방식 OAT(Open Account Transaction) 사후송금방식 Current Account

4. (2) Preliminary Remittance Method Importer sends all the money before exporter ships the goods Importer’s Bank 3. Remittance Exporter’s Bank 4. Notification of Payment 2. Request for Remittance 1. Sales Contract Importer Exporter 6. Send Transport Document 7. Claim Goods 5. Shipment ※ On the contrary, post facto remittance method is very advantageous to importer because he transfers money after receiving transport documents. (3)Simultaneous Remittance Method Transport document is exchanged directly between importer and exporter, not through bank (Transportation document has to be transferred through bank in collection method and L/C method so banker in charge has to be careful on handling documents) In this method, importer send money after inspecting quality of goods by himself. ※Used mainly in transaction of high-priced good that need thorough inspection in order to confirm the product before making the deal such as jewelry and etc,. COD Method (Cash on Delivery) 1. Contract Importer Exporter 2. Shipment 5. Money 6. Goods Exporter’s Agent 4. Goods 3. Transport Document

5. Exporter ships the goods and submits the transport document to agent of importer in his own country or to importer himself, exchanging document with money. Usually, branch office or importer’s agent inspects the manufacturing process within exporter’s country, and double checks before the goods are shipped. CAD Method (Cash against Documents) 1. Contract Importer Exporter 2. Shipment 6. Claim Goods 4. Payment 3. Submit Transport Document 5. Deliver Transport Document Importer’s Agent (4)Collection Method importer and exporter exchanges transport document and money through their main banks D/P (Documents against Payment) Settle as soon as receiving transport document Moving directions of documents and money is opposite. 9. Remit Import Bill Collecting Bank Remitting Bank 6. Send Bill of Exchange and Transport Document 8. Settle Import Bill and Receive Transport Document 7. Notify and Present Transport Document 5. Remit Bill of Exchange and Transport Document 12. Pay Export Bill Importer Exporter 1. Sales Contract 11. Claim Goods 10. Submit B/L 2. Shipment 3. Issue B/L 4. Deliver Goods Shipping Company Shipping Company

6. D/A (Documents against Acceptance) Settle a while after receiving transport document 12. Remit Import Bill Collecting Bank Remitting Bank 6. Send Transport Document 7. Notify and Present Transport Document 8. Receive Bill of Exchange and Transport Document 11. Settle Import Bill on the due date 5. Entrust a Collection of Bill of Exchange and Transport Document 13. Settle Export Bill Importer Exporter 1. Sales Contract 10. Claim Goods 9. Submit B/L 2. Shipment 3. Issue B/L 4. Deliver Goods Shipping Company Shipping Company (5) L/C Method L/C Method (Reimbursement L/C) (Exporting Country) (Importing Country) Settling Bank 11. Reimbursement Claim 15. Send Settlement Fund 12.Settle Payment 4.Issue R/A 10. Send Transport Document Negotiating Bank (Advising Bank) Issuing Bank 3. Issue L/C 8. Request Purchase of Transport Document 5.Advice L/C 13. Notify Arrival of Transport Document 14. Pay Bills / Receive Transport Document 9. Pay Purchase Bill 2.Request L/C Publication Exporter (Beneficiary) Importer (Applicant) 1. Sales Contract 17. Submit B/L 18. Deliver Goods 16.Notify Arrival of Goods 7.Issue B/L 6. Shipment Shipping Company Shipping Company Deliver Goods

7. * Characteristics, merits and demerits of each payment method *Preference of Importer and Exporter for each method Preliminary Remittance > L/C (Sight) > L/C (Usance) > D/P, Simultaneous Remittane > D/A > Post-facto Remittance Importer Exporter (6) Other Payment Methods Factoring, OAT, Setoff and Current Account. Factoring Factoring company provides services like inspecting credibility, undertaking credit risk, providing money, and collecting money 1.Consult Factoring Method Exporter Importer 5. Export Contract and Shipment 2. Request Credit Approval 3. Credit Inquiry and Set Approval Limit 6. Convey Export Bond and Settle Payment 9. Settle Import Bill 2.Request Credit Approval 4.Notify Credit Approval 8. Transfer Transport Document 7. Deliver Transport Document and Export Bond Export Factor Import Factor 4. Notify Credit Approval 10. Send Export Bill ※Importer can import on credit and exporter can raise capital by selling credit sales bond to factoring company OAT (Open Account Transaction) 8. Settlement (Designated Account) 1.Sales Contract Importer Exporter 5.Send Transport Document 6.Submit B/L 7.Claim Goods 2.Shipment 3.Issue B/L Shipping Company Shipping Company 4.Deliver Goods ※Exporter can raise capital by selling export bonds with copy of transport documents to bank

8. Setoff and Current Account Setoff Settling money directly between importer and exporter – Report to the governor of the Bank of Korea Current Account Settling money periodically after receiving confirmation from exchange bank where importer and exporter open current account 4. Imports and Exports Contract (1) Terms of Contract in Imports and Exports 1 Price Terms 2. Quality Terms 3. Quantity Terms 4. Shipping Terms 5. Packing Terms 6. Insurance Terms 7. Settlement Terms 8. Claim and Arbitration Terms 1 Price Terms According to how price terms is decided, the responsibility of transaction such as delivery of goods, shipping contract, duty to sign insurance contract, and taking risk is divided between importer and exporter. Price Terms of Imports and Exports Goods ▷ Manufacturing Cost + Profit + Factor Cost (Incidental Expenses) ▷ Factor Cost : Packing Cost, Inspection Fee, Transportation Fee, Quayage, Customs Duties, Shipping Fee, Goods Rate, Insurance Fee, and various Foreign Exchange Expenses, etc, ◆ Quality Agreement Terms 2. Quality Terms FAQ : Average quality of all products produced in the year GMQ : Used in transaction of material wood, frozen fish, ore, etc, 3. Quantity Terms

9. 4. Shipping Terms • Shipping Date • Shipping Methods : Partial shipment, installment shipment, transshipment • Choosing packing materials and packing units • SHIPPING MARK: Mark put on boxes or packing units in order to identify the contents easily • Essential Shipping Marks : Main mark, port mark, box mark and origin mark • If shipping mark is mentioned in L/C, it also has to be precisely described on transport documents • NM, No Mark Cargo : High possibility of mishap in shipping 5. Packing Terms Main Mark : Use specific symbol and put abbreviated words of importer within it Counter Mark : Put abbreviated words of manufacturer under main mark Case Number : Number put on outside of box Port Mark Weight Mark Origin Mark Caution Mark : Fragile, keep Dry, etc, 6. Insurance Terms • Terms of insurance to compensate the loss caused during shipment • Terms of payment in INCOTERMS 2000 • - FOB, FAS: Insurability falls to importer • - CIF CIP: Insurability falls to exorter • In order to compensate the loss caused during marine transport, ICC (institute cargo clause) enacted by Institute of London Underwriters is used • - Old Stipulation : Transcribed as ICC(A/R), ICC(WA), ICC(FPA) • - New Stipulation : Transcribed as ICC(A), ICC(B), ICC(C) • ICC(A/R = All Risk) Covers the widest range of risks excluding only a few exception clauses Marine Transport Cover All Risks : ICC(A/R) = ICC(A) Free From Particular Average : ICC(WA) = ICC(B) Free From Single Average : ICC(FPA) = ICC(C) Total Loss Only (TLO) : ICC(TLO) – Total Loss Cover small range of loss * Air Transport : ICC(AIR) => Apply ICC(A) to air transport 7. Payment Terms • Remittance Method (Preliminary, Post-facto) • Collection Method (D/P, D/A) • L/C Method 8. Claim and Mediation Terms • Claim clauses, Mediation clauses, and other statutes are cited (2)Price Terms Price Terms of Imports and Exports Contract What is INCOTERMS 2000? Unified rule about translation of terms and conditions of international commerce has been established in 1936 at International Chamber of Commerce (ICC) and after several amendments, ‘INCOTERMS 2000’ revised at year 2000, is currently being used

10. * Constitution of INCOTERMS 2000 * Terms of Price + the last point of seller’s cost defrayment (port) Methods of Price Indication e.g.) Price indication in case the goods are transported from Pusan to Hong Kong under FOB condition→ FOB Pusan Diverging Point of Risk and Cost Defrayment ※ Summary of Cost Defrayment (Exporter Basis) E F C D