Import / Export Kit For Dummies. Capela John J.

Chile, under the United States–Chile Free Trade Agreement; Colombia, under the United States–Colombia Trade Promotion Agreement; Peru, under the United States–Peru Trade Promotion Agreement

      ✔ Australia: Australia, under the United States–Australia Free Trade Agreement

      ✔ Asia: Korea, under the United States–Korea Free Trade Agreement; Singapore, under the United States–Singapore Trade Agreement

      ✔ Middle East/North Africa: Bahrain, under the United States–Bahrain Free Trade Agreement; Israel, under the United States–Israel Free Trade Agreement; Jordan, under the United States–Jordan Free Trade Agreement; Morocco, under the United States–Morocco Free Trade Agreement; Oman, under the United States–Oman Free Trade Agreement

      At the time of publication, the United States was also in the process of negotiating a regional FTA, the Trans-Pacific Partnership, with Australia, Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

      You can access complete details on these trade agreements at http://export.gov/fta/ or https://ustr.gov/trade-agreements. Or if you’d like additional information on exporting to any FTA partner country, contact the Trade Information Center at 800-872-8723.

      

In order for an importer to take advantage of the preferential duty rates offered by free-trade agreements, the following conditions must apply:

      ✔ The goods must be imported directly from the beneficiary country (the country that has signed and is part of the agreement) to the U.S.

      ✔ The goods must be manufactured in the beneficiary country. This condition is met if the goods are wholly produced or manufactured in the country or if the goods have been substantially transformed into a new article in the country.

      

In order for an item to change its country of origin, the value added in the beneficiary country needs to be 35 percent. For example, say a company in Mexico imports absorbent gauze from China. Upon receipt of the gauze, the Mexican company cuts the gauze into pieces and sews the pieces into medical sponges used in the operating room. Then the Mexican company washes, wraps, and sterilizes the sponges. Now, even though the initial gauze came from China, it has been redefined as a product from Mexico – as long as someone can show that at least 35 percent of the sponges’ value was added during the production process in Mexico. A U.S. importer of those sponges would then be able to benefit from preferential duty rates.

A winery success story with KORUS

      Here’s an example of how a trade agreement created an opportunity to sell American goods abroad.

      Andrew Will Winery, established in 1989, is a family-owned winery on Vashon Island, in Yakima, Washington. The winery, which started exporting to Asia over a decade ago, now distributes its wines to 12 countries around the world. The winery began exporting to Korea two years ago, after receiving interest from importer Inquen Lee of Wine 2U Korea. In the past two years, Wine 2U Korea has imported 150 cases of Andrew Will wines.

      Following the implementation of the United States–Korea Free Trade Agreement (KORUS FTA), Andrew Will Winery took steps to expand its presence in Korea. With cost reductions from the KORUS FTA and increased interest in Washington wines, the winery sees opportunities to grow its business there. The implementation of the KORUS FTA creates an opportunity for Washington wines by increasing awareness of American products and lowering costs.

       Lowering manufacturing costs

      Most businesses go overseas to obtain lower manufacturing costs and protect themselves from lower-priced imports being sold in their own country. There are many arguments for and against sourcing goods from overseas suppliers. Sourcing products from overseas can give you the following advantages:

      ✔ Lower costs: A company can go abroad and enjoy the benefits of lower labor and material costs.

      ✔ Access to products and technologies not available domestically: Overseas suppliers may provide access to products that aren’t readily available from a domestic supplier.

      ✔ More product variety: A foreign supplier may offer a greater variety because it has lower carrying costs (lower warehousing and storage costs) and can keep a more extensive product line in stock.

      ✔ Better-quality products: In some instances, the perception of many buyers is that foreign products are of a higher quality.

      ✔ The ability to overcome domestic shortages: Having alternative sources of supply is important in case domestic suppliers can’t satisfy your requirements (for example, because of labor or equipment problems).

      ✔ Less dependency on a limited domestic supplier base: At times, the number of domestic suppliers for a particular good may be limited. Sourcing from overseas can not only give you better prices but also serve as a backup and put you in a better situation when negotiating with your domestic supplier.

      

Importing is not without risks. If you’re considering importing as a way to lower your manufacturing costs, keep the following in mind:

      ✔ Currency exchange rates fluctuate. What may work in your favor today because of the exchange rate may not work in your favor next year. Remember: Importers benefit from a strong U.S. dollar, which makes foreign products cheaper in the U.S. market.

      ✔ Trade barriers in the form of tariffs may make importing difficult or impossible.

      ✔ Goods can arrive late or damaged.

      ✔ Negotiations can fail or be delayed because of language and cultural barriers.

Starting from scratch: The entrepreneurial approach

      What if you haven’t yet started a business and you’re interested in import/export? You stand to gain all the benefits that an existing business gains by going global. And you don’t have to be a huge business to make a go of importing or exporting; according to the U.S. Department of Commerce, big companies make up about 4 percent of U.S. exporters, which means that 96 percent of exporters are small or mid-size companies.

      Still, starting a new business – any new business – is a challenge. Throw in the complexities of international trade, and you’re in for an even bigger challenge. If you’re up for the challenge, here’s what you need:

      ✔ Knowledge: In addition to finding out what it takes to start a business, you need to be up on everything from documentation and shipping to communications and government regulations. I cover all these issues in this book, but you’ll also want to check out books like Small Business For Dummies, 4th Edition, by Eric Tyson and Jim Schell, and Business Plans Kit For Dummies, 4th Edition, by Steven D. Peterson, Peter E. Jaret, and Barbara Findlay Schenck (Wiley).

      ✔ Enthusiasm: You need to be an enthusiastic salesperson, someone who likes to spend time tracking things like invoices and shipping receipts. You need to get excited at the thought of seeing where new ideas and products will take you. And you need to enjoy working with people from different cultures. Your enthusiasm will carry you through some of the challenges along the way, so the more enthusiasm you have, the better.

      ✔ Consideration: Establishing a solid relationship with your supplier or buyer is important in any business, but it’s even more important in the import/export business. Cultural differences play a huge part in buying or selling and in establishing ongoing relationships. The hard sell that’s effective in the U.S. may not produce the same results in foreign markets.

      ✔ Commitment: You won’t be successful in any venture unless you’re personally committed to its success. As with most businesses, you’ll encounter peaks and valleys, good times and bad. People who are