10 Explanation On Why Certificates Of Origin Is Important

Some countries require that goods shipped to the country be accompanied by a certificate of origin designating the place of manufacture or production of the goods. This is signed by the exporter, and, usually, a local chamber of commerce that is used to performing this service (again, for a fee) certifies to the best of its knowledge that the products are products of the country specified by the exporter. The exporter may exports to or imports from Canada or Mexico. In general, in order to be eligible for the duty-free or reduced duty rates under NAFTA, all items imported from outside of North America must have undergone the ‘‘tariff shift’’ specified in Annex 401 during the manufacturing process for that product.

Certificates of Free Sale 

Sometimes an importer will request that an exporter provide a certificate of free Sale. Loosely speaking, this is a certification that a product being purchased by the Importer complies with any U.S. government regulations for marketing the product And may be freely sold within the United States. Sometimes, depending upon the Type of product involved, the importer will be able to accept a self-certification by the Exporter. Frequently, however, the importer seeks the certificate of free sale because the importer’s own government requires it. For example, these requests are common With regard to food, beverages, pharmaceuticals, and medical devices. The foreign Government may or may not require the importer to conduct its own testing of the Products for safety but may, either as a primary source or as backup for its own testing, Seek confirmation that the products are in compliance with the U.S. Food, Drug and Cosmetics Act.

Delivery Instructions and Delivery Orders  

The Delivery Instructions form is usually issued by the freight forwarding company to the inland transportation carrier (the trucking or rail company), indicating to the inland carrier which pier or steamship company has been selected for the ocean transportation and giving specific instructions to the inland carrier as to where to deliver the goods at the port of export. This must be distinguished from the Delivery Order , which is a document used to instruct the customs broker at the foreign port of destination what to do with the goods, in particular, the method of foreign inland transportation to the buyer’s place of business.

Shipper’s Declarations for Dangerous Goods  

Under the U.S. Hazardous Materials Transportation Act, the International Air Transport Association Dangerous Goods Regulations, and the International Maritime Dangerous Goods Code, exporters are required to provide special declarations or notices to the inland and ocean transportation companies when the goods are hazardous. This includes explosives, radioactive materials, etiological agents, flammable liquids or solids, combustible liquids or solids, poisons, oxidizing or corrosive materials, and Compressed gases. These include aerosols, dry ice, batteries, cotton, anti-freeze, cigarette Lighters, motor vehicles, diesel fuel, disinfectants, cleaning liquids, fire extinguishers, Pesticides, animal or vegetable fabrics or fibres, matches, paints, and many Other products. The shipper must certify on the invoice that the goods are properly Classed, described, packaged, marked and labelled, and are in proper condition for Transportation in accordance with the regulations of the Department of Transportation

Precursor and Essential Chemical Exports  

Those who export (or import) ‘‘precursor’’ chemicals and ‘‘essential’’ chemicals that can be used to manufacture illegal drugs are required to file Drug Enforcement Administration (DEA) Form 486 In some cases, this form must be filed fifteen days in advance of exportation (or importation).

Animal, Plant, and Food Export Certificates  

The U.S. Department of Agriculture is supportive of companies that want to export Livestock, animal products, and plants and plant products. Often, the destination Country will have specific requirements in order to permit import to that country, But sometimes the foreign country will accept or require inspections performed and Certificates issued in the United States. In general, the U.S. Department of Agriculture Offers inspection services and a variety of certificates to enable exporters to satisfy Foreign government requirements.

Drafts for Payment  

If payment for the sale is going to be made under a letter of credit or by documentary Collection, such as documents against payment (‘‘DP’’ or sight draft) or documents against acceptance (‘‘DA’’ or time draft), the exporter will draw a draft on the buyer’s bank in a letter of credit transaction or the buyer in a documentary collection transaction payable to itself (sometimes it will be payable to the seller’s bank on a confirmed letter of credit) in the amount of the sale. This draft will be sent to the seller’s bank along with the instructions for collection, or sometimes the seller will send it directly to the buyer’s bank . If the payment agreement between the seller and buyer is at sight, the buyer will pay the draft when it is received, or if issued under a letter of credit, the buyer’s bank will pay the draft when it is received. 

If the agreement between the seller and the buyer is that the buyer will have some grace period before making payment, the amount of the delay, called the usance, will be written on the draft (time draft), and the buyer will usually be responsible for payment of interest to the seller during the usance period unless the parties agree otherwise. The time period may also be specified as some period after a fixed date, such as ninety days after the bill of lading or commercial invoice date, or payment simply may be due on a fixed date.

Freight Forwarder’s Invoices 

The freight forwarder will issue a bill to the exporter for its services. Sometimes The forwarder will include certain services in its standard quotation while other services. Will be add-ons. It is important to make clear at the outset of the transaction Which services will be performed by the exporter, the freight forwarder, and others, Such as the bank.

Shipper’s Export Declarations  

 The Shipper’s Export Declaration (SED) is important because it is the only one of all of the export documents that is filed with and U.S. governmental agency. The SED is given to the exporting steamship carrier or air carrier and is filed by them with the U.S. Customs Service prior to clearing the port. This document may be prepared by the exporter, or it may be prepared by the exporter’s agent, the freight forwarder, and the exporter may not see it. Nevertheless, the SED form specifically states that any false statements in the form (which is interpreted to include accidentally false statements as well as intentionally false statements) will subject the exporter to various civil and criminal penalties, including a $10,000 fine and up to five years’ imprisonment.

Letters of Credit 

When the buyer has agreed to provide a letter of credit as part of the payment terms, the buyer will apply to its local bank in its home country and a letter of credit will be issued. The seller should send instructions to the buyer before the letter of credit is opened, advising the seller as to the terms and conditions it desires. The seller should always specify that the letter of credit must be irrevocable. The bank in the buyer’s country is called the issuing bank. The buyer’s bank will contact a correspondent bank near the seller in the United States, and the U.S. bank will send a notice or advice to the exporter that the letter of credit has been opened. If the letter of credit is a confirmed letter of credit, the U.S. bank is called the confirming bank; otherwise, it is called the advising bank. The advice will specify the exact documents that the exporter must provide to the bank in order to receive payment. Since the foreign and U.S. banks are acting as agent and subagent, respectively, for the buyer, the U.S. bank will refuse to pay unless the exact documents specified in the letter of credit are provided. The banks never see the actual shipment or inspect the goods; therefore, they are extremely meticulous about not releasing payment unless the documents required have been provided. The issuing bank and advising bank each have up to seven banking days to review the documents presented before making payment. When the exporter receives the advice of the opening of a letter of credit, the exporter should review in detail the exact documents required in order to be paid under the letter of credit.

Introduction to Letters of Credit  

Letters of credit are a payment mechanism, particularly used in international trade. The Seller gets paid, not after the Buyer has inspected the goods and approved them, but when the Seller presents certain documents (typically a bill of lading evidencing shipment of the goods, an insurance policy for the goods, commercial invoice, etc.) to his bank. The bank does not verify that the documents presented are true, but only whether they “on their face” appear to be consistent with each other and comply with the terms of the credit. After examination the bank will pay the Seller (or in LC terms the beneficiary of the letter of credit).

Example :

1. Buyer and Seller sign a purchase contract that stipulates payment by letter of credit. It is good practice to agree already in the purchase contract which documents the Seller/Beneficiary has to present.
2. The Buyer goes to his bank (so called issuing bank) opening the credit to the benefit of the Seller, in particular the Buyer tells his bank which documents the Beneficiary has to present, where and how, and the amount of the credit and details of payment (by sight, deferred sight payment, against acceptance or negotiation of drafts). 
3. The Issuing Bank, which is normally located in a foreign country, advises the Beneficiary through a correspondence bank located in the country of the Beneficiary of the credit.
4. The Buyer ships the goods and presents the necessary documents to his local bank which pays him after examining them. 

The obligation of the bank is independent of the rights of the parties under the purchase/service contract. This means that, absent fraud, the bank has to pay when conforming documents are presented, even though the goods are not of the contractually agreed quality or quantity. 

The Seller can strengthen his position by requesting a “confirmed” letter of credit. The confirmation of a bank in the Seller’s country means that the payment obligation of the confirming bank is independent of the issuing bank. If the issuing bank cannot wire funds outside the country due to governmental restrictions, the confirming bank still has to pay, even though it will not be reimbursed by the issuing bank. The Seller thus can avoid currency transfer restrictions which are sometimes found in developing countries. 

A standby letter of credit is basically a bank guarantee. Previously US banks were not allowed to issue guarantees and circumvented this limitation by issuing standby letters of credit where the beneficiary basically has to present his face to get paid. 

Most letters of credit, particularly in international transactions, are subject to the Uniform Customs and Practices (UCP) issued and published by the International Chamber of Commerce (ICC). The current revision UCP 600 is publication No. 600 of the ICC and takes effect as of July 1, 2007. Since the ICC lacks legislative authority, meaning it is not the arm of or authorized by any government but rather a trade association, the UCP are no laws and have to be explicitly incorporated into individual transaction. 

Some countries and states have enacted statutes regarding letters of credit (see eg Article 5 US Uniform Commercial Code). In international trade however, most parties choose to use the UCP.