International Trade Transaction – Business Transaction

Dr. Phan Thi Thu Hien - [email protected]

Grading:

Small tests and questions for checking attendance

Midterm test: Case study and Written test

Final exam: 20-25 multiple choice questions (difficult, understand all lessons, no rote memorization) + 2
case studies (analysis)

Main contents:

Highlight the main parties/ actors in a transaction (seller/buyer/processor/ processee)

Understand the transaction (the method, goods)

International factors of that transaction (what differentiate it from domestic transactions)

Why they participate/ conduct these activities? (Core principle: to gain profit)

Chapters (5)
Chapter 1:

!. concept:

2. principles:

Commercial activity

Movement of g&s, Flow of money across borders:

1. Customs Border

The customs border refers to the boundary at which goods entering or leaving a country are subject to
customs control. This includes the inspection, regulation, and taxing of goods, as well as the
enforcement of trade rules and restrictions. Customs borders can be physical, such as at ports or land
borders, or virtual, as in the case of e-commerce where goods cross borders electronically.

2. EPZ (Export Processing Zone)

An Export Processing Zone (EPZ) is a designated area within a country where goods can be imported,
manufactured, and re-exported without the intervention of the customs authorities. EPZs offer
incentives like tax exemptions, lower tariffs, and streamlined customs procedures to attract foreign
investment and promote exports. The goal is to stimulate industrialization and economic growth
through international trade. However, goods leaving the EPZ for domestic markets are usually subject to
regular customs duties.

3. IP/IZ (Industrial Park/Industrial Zone)

An Industrial Park (IP) or Industrial Zone (IZ) is a specially designated area designed for industrial
activities, where the infrastructure and facilities are developed to support manufacturing and related
services. These parks or zones typically attract investment by offering favorable conditions such as tax
incentives, easy access to resources, and simplified regulatory processes. Some countries designate
these zones to focus on specific industries, and like EPZs, they may provide customs advantages for
goods exported or imported into the zone.

3. Factors:

Contracting factors: Legal Institutional/ Company Trader

Currency: foreign

Applicable Contract Laws: What will you do to claim your money when returning goods back to foreign
seller/ Stuck in the middle of the road while delivering goods? -> Use international laws

Goods transition:

4. Key principles:

Goodwill and freedom

5. Transaction mode:
5.1. Direct transactions: Enquiry -> Offer-offer -> Counter offer -> Acceptance -> Confirmation (Valid
when you know the payment and delivery terms)

- With counter offer disagreeing primary conditions, a firm’s offer becomes a free offer with no
commitment about all terms and conditions negotiated

- The final offer: acceptance (offer + acceptance is enough)

- If the receiver keeps silent or replies with an acceptance offer, it means an acceptance. When
communication through electronic means, a signal (like) does not mean an acceptance

CISG: the primary conditions of an offer (3): commodity, quantity and price -> we know the contract
value, delivery and payment terms, quality

- Confirmation: Vietnam complies all terms and conditions of CISG except 1 article about the
requirement of presenting contracts in written forms

When A make an offer to B, B give acceptance indirectly through actions, A keeps silent -> that also
means an acceptance.

When A send an offer letter to B, it becomes valid when B receive the letter. If A want to revoke that
offer, A must either send a revoke notice immediately and make sure it is delivered before or at the
same time with the offer letter. Otherwise, it has to be earlier than when the acceptance letter from B
reaches A.
Class 2:

Physical movement of goods and money, not electric ways of communication

Format of the contract/ agreement according to CISG:

- Flexible based on the situation: contracts for the sales of goods may not be required to be in written
form (can be presented orally, through actions and evidence). But for international sales of goods, it
must be in the written forms. Thus, at the end of the negotiation, a contract is a must (for Vietnamese as
well).

- The contract is only a part, others like enquiry, performance invoice or purchase order is also
important.

2. Intermediary Transactions:

Domestic transactions: Industrial manufactures (Piaggio motorbike) merely focus on the product quality,
but do not trade directly with the end customers; they assigned the commercial and advertising
intermediaries to promote and trade with end consumers. Panasonic showrooms are not available in
VN, as an institutional buyer (FPT) cam import products from Japan through 2 ways:

- making purchase order in e-commerce platforms

- making a contract directly with Panasonic in Japan

VN Commercial Law 2005, Article 3: (on 4 types of intermediaries)

Classification (by the world)

a. Based on relationship:
1. Broker: exchange information and negotiate a contract. Gaining commission from the seller
and/or the buyers. Not involve in making and implementing the final signed contract. The roles
of brokers are limited to his work only, not to the transaction.
Customs brokerage in the US and Canada involves licensed brokers assisting importers with
clearing goods through customs by preparing documents, calculating duties, and ensuring
regulatory compliance. Brokers help facilitate smooth customs clearance, handling any issues
that arise with authorities such as the CBP in the US or the CBSA in Canada.
2. Agency: Agent is the trader who acts under the authorization of the principal, it is stipulated in
the Agency Agreement. Based on the contract, the agent has to conduct some activities for the
Principle:
2.1. Mandatory Agent: A mandatory agent carries out all trade activities on behalf of
the principal, acting in the principal's name while the principal covers all related
costs and expenses. (Prudential)
2.2. Commission Agent: A commission agent sells goods on behalf of the principal but
acts in their own name. They receive a commission for their services, and the
principal may not be liable for all the costs (like marketing and sales fee).
Example: Đại lý hoa hồng.
2.3. Merchantable Agent: A merchantable agent purchases or sells goods in their own
name but for the account of the principal (may pay back a part of revenue to the
 shop owners), taking on ownership risks and acting independently in commercial
dealings. Example: Winwart chain. (cannot make all decisions freely without
manufacturer’s permission), Xuan Cau – Piaggio: homogenous price?
b. Based on
1. Off-trade agent
c. Based on specialization

4. Agency Contract:

Formation: VN Commercial Law 2005, Article 168: Agency contracts must be made in writing or in other
forms of equivalent legal visibility. Legally regulated contents

IV. International Processing

International Processing = Commercial Processing Performance + International Factors

(1) Principal -> Raw/ Semi products materials + standards -> Processor
(2) Processor -> Finished goods -> Principal
(3) Principal -> Processing changes and or costs -> Processors

All countries contribute to the manufacture of Iphone increases their export turnover
proportionally. (China: 1%)

 Value Chain: A value chain represents the full range of activities a company performs to deliver a
product or service, from raw materials, production, and marketing to delivery and customer service.
Each step in the chain adds value to the product, enhancing its final worth to the customer.

 Value Creation: This refers to the process of improving a product, service, or business through
innovation, efficiency, or customer satisfaction, resulting in increased worth. It often involves
developing new features, reducing costs, or enhancing quality to deliver more value to customers or
stakeholders.

 Value Added: Value added is the extra worth created at each step of production or service
delivery. It is the difference between the input costs (e.g., raw materials, labor) and the final selling
price of the product or service.

 Export Turnover: Export turnover refers to the total revenue or sales generated from exporting
goods or services to foreign markets during a specific period. It is an important indicator of a
company's international trade performance.

1.3.2. Materials ownerships:

1.3.3. Processing price:

Cost Plus

Target Price

1.3.4. Processing Contract:

Parties of Transactions: Principal vs Processor

Commercial processing: commercial activity

When to play? (based on national comparative advantage -> Cost leading strategies/ Differentiation
features)

How to win?

III. Re-export

Commercial activity in which the trader import a goods then re-export that with higher price

Export Country -> Re-export Country (custom procedures for import and export) -> Import Country

(DO NOT let them know each other)

Classification:

1. Transfer of goods through border gates (No export and import in the intermediary -> just the
transition)

Performance of re-export trading

1. Back to back L/C (L/C is the letter of credits raised to finance a single

Re-export is independent and Intermediaries are dependent on supplier

Students should master:

- Division of obligations between parties

- Division of costs and expenses

- Transfer of risks or damages

- Implications for users of the terms

First term: Ex work:

- the minimum obligations for the sellers, maximum for the buyers

The buyer must take delivery, bear all cost, risk with respect to “pre-mature delivery”

The buyer must do the export clearance, import clearance; sign or arrange a transportation contract. It
is up to the buyers to sign an insurance contract.

The seller dominate the market power, has the ability/ experience in booking carriage, insurance.

Explanatory notes for users:

1. Delivery and risk (A6)

2.
Class 3:

V. Auction of goods

2. Characteristics:

- Special transactions: public sales of goods, demand higher than supply

- Goods characteristics: precious, non-standardized, high value

- Transacted price: usually higher than market price

3. Classification:

- Trading auctions

- Non-trading auction

4. Mode of auction performance:

4.1. Speak-out auction:

- German way: upward price

- Dutch way: downward price

4.2. Silent auction

VI. Bidding for goods:

3.Classification:

3.1. According to form of selection of the contract

- Open bidding: number of participating teachers, investors shall be restricted

- Limited bidding:

+ procurement has highly technical requirements

+ only a limited number of bidders are capable of satisfying the arguments

- Direct appointment of contractor urgent cases, ensure national secret

+ to protect national sovereignty

+ to ensuring the capability of technologies, copyright

+ authors of designs of works architectures

+ ground clearance procurement price in the limitation allowed in each period

International Supply Chain

Incoterm is not law, so it is not compulsory, you can apply whatever version you want.

4 groups of incoterms rules: E, F Groups (1-3 rules each), C and D groups. The principle to apply each
rules/ The method to study: everything covers only the seller’s obligations

* E Groups:

* F Groups: the name started with F (free from the seller) to the contract of sth: the buyer would
appoint people to receive goods at the departures. It is important to determine the point of delivery
accurately.

* C Groups: mode of transportation: through sea

* CFR: Cost and Freight (sea transportation): main obligation of the seller: core: making the delivery,
make the contract of delivery and pay the freight cost. The point where risk is transferred/ where sellers
fulfill their responsibility is the loading port, the transfer of the cost is the final destination, thus, shoulf
choose the suitable and prestigious carrier, if you don’t, you as a seller must be responsible for
compensation of the damage. Must make a contract of right purchase, everything beyond theat loading
port is purchasers’ responsibility. At the loading port, the carrier can state about the performance of the
seller.

Contract for sales of goods connects the carrier to the buyers. The BL would specify the quantity and
quality of the goods, terms of contracts and rating on the seller’s performance -> Very important.

BL: Bill of Lading

Functions:

- Proof of goods receipt

- Ownership document (sometimes not necessarily hold the goods physically)

- Proof of carriage contract

The buyer’s obligation: customs clearance, receive of the goods,

CIF: Cost, Insurance, and Freight. The main obligations of the sellers: (insurance contract is compulsory,
while CFR makes insurance contracts optional -> buyers would prefer CFR, because they are given the
choice whether to issue the insurance contract or not, it would be easier for you to contract the
insurance companies to claim, especially difficult with foreign insurance firm)

- Transfer of risk point from the seller:

- Sellers will make insurance contract for the commodity, make sure that counterparty is capable of
making compensation in times of damage. Seller also make the purchase contract. At the destination, if
buyer found goods missing or unqualified. The insured value is minimum 110% of the commodity’s fair
value. Contract value.
- Normal profit margin: 10% of the total cost (COGs). The currency

CPT first carrier, 2 places of delivery, the carrier would be the appointed the sellers, similar to CFR.

CIP similar to CIP: the same about insurance contracts – belong to the A clause, not C clause.
Chapter 4: Exportation

Business strategies:

(1) Corporate Strategy: The highest-level strategy defining the organization's overall direction,
industries, markets, and resource allocation. Example: Expanding into renewable energy.
(2) Business Strategy: Focused on competing effectively in specific markets or industries through
cost leadership, differentiation, or niche strategies. Example: Launching electric vehicles to
capture EV market share.
(3) Functional Business Strategies: Departmental strategies to support business goals, focusing on
operational efficiency and alignment. Example: Optimizing supply chains or launching targeted
marketing campaigns.

II. Preparation of export contracts:

1. Sources of Goods Supplying

Objective: Identify reliable sources for the goods to be exported.

Steps:

Evaluate potential suppliers or manufacturers based on quality, cost, and delivery capabilities.

Confirm product compliance with the target market’s standards and regulations (e.g., certifications,
safety requirements).

Secure supply agreements or contracts to ensure consistent availability.

Example: An exporter identifies a factory that can produce 10,000 units of textiles monthly, meeting EU
safety standards.

2. Quotation

Objective: Provide a clear and competitive quote to the potential buyer.

Steps:

Calculate all costs associated with production, packaging, transportation, and tariffs.

Choose an appropriate Incoterm (e.g., FOB, CIF) to specify the responsibilities of the buyer and seller.

Present the final price, including delivery timelines and payment terms.

Example: Quoting a price of $20/unit FOB (Free on Board), meaning the seller covers costs until the
goods are loaded onto the shipping vessel.

3. Offer

Objective: Formalize the proposal with specific terms and conditions.

Steps:

Prepare an official offer document, including product specifications, quantity, price, and delivery terms.

Specify payment methods (e.g., Letter of Credit, advance payment) and conditions.

Include clauses for dispute resolution, penalties for delays, and liability.

Example: Offering 5,000 units of machinery at $10,000 per unit CIF (Cost, Insurance, and Freight) to the
buyer’s port.

4. Price Conversion

Objective: Convert the product’s price into the buyer’s currency while factoring in all relevant costs and
risks.

Formula:

export

export

=C+T+M+R

Where:
𝑃

export

export

: Export price in the target currency.

C: Cost of goods (manufacturing or purchase cost).

T: Taxes, tariffs, and duties.

M: Margins (profit and risk premium).

R: Additional costs (transportation, insurance, documentation fees).

Currency Conversion: Adjust the price to the buyer's currency using the prevailing exchange rate:

converted

export

converted

=P

export
×X

Where

is the exchange rate (foreign currency per unit of local currency).

Example:

Cost of goods: $100/unit.

Transportation + Insurance: $20/unit.

Margin: $30/unit.

Total export price = $150/unit.

Exchange rate: 1 USD = 0.85 EUR.

Price in EUR = $150 × 0.85 = €127.50/unit.

5. International Trade Negotiation

Objective: Finalize terms through negotiation with the buyer.

Steps:

Discuss and agree on product specifications, delivery schedules, and payment terms.

Negotiate on price, considering discounts for bulk orders or long-term partnerships.

Address buyer concerns related to quality, warranties, or after-sales service.

Ensure both parties sign off on a detailed and binding contract.

Example: Negotiating a 5% discount on the total order if the buyer agrees to make a 50% advance
payment.
Order 1 (CIF Singapore Port):

 Price: USD 1,800/MT (CIF)

 Payment Terms:

o 60% (USD 1,080/MT) paid 2 months after delivery.

o 20% (USD 360/MT) paid 8 months after delivery.

o 20% (USD 360/MT) paid 10 months after delivery.

 Interest Rate: 6% per year.

Step 1: Calculate the present value of payments:

Using the formula for present value PV=P/ (1+r)n , where:

 PPP: Payment amount.

  rrr: Monthly interest rate (6% annually = 0.5% per month).

 nnn: Time in months.

Total Present Value per MT:

PVOrder 1=1,069.2+345.7+342.5

Order 2 (FOB Ho Chi Minh Port):

 Price: USD 1,700/MT (FOB)

 Additional Costs:

o Freight: USD 50/MT.

o Insurance Premium Rate: 0.25% of CIF value (CIF = FOB - Freight = 1,700 - 50 = 1,650
USD/MT).

Step 2: Calculate the total cost per MT:

1. Insurance Cost:

Insurance=1,650×0.0025=4.375 USD

Total Cost per MT:

Total Cost (Order 2)=1,700-50-4.375=1,708 USD

Comparison:

 Order 1 Present Value: USD 1,757.4/MT.

 Order 2 Total Cost: USD 1,754.375/MT.

Conclusion:

 Choose Order 2 (FOB Ho Chi Minh Port): It has a lower total cost (USD 1,754.375/MT) compared
to the present value of Order 1 (USD 1,757.4/MT).

 Additionally, Order 2 offers immediate payment, avoiding the risk of delayed payments and
currency fluctuations.
Hướng dẫn: chưa clear, chunky -> ngợp vì quá nhiều thông tin -> chunk instruction thành phần nhỏ ->
lấy ví dụ, visualize (lấy tiếng anh, illustration)

Kỹ năng đứng bảng, nghiêng người Vị trí đứng (block 1 phần của bảng)(đững đối diện các nhóm ở xa)

Cấu trúc bảng (chia bảng: kiến thức cố định và practice)

Filler words: be mindful ngay từ đầu (học viên có đặc điểm, và trình độ nào)

Logical transition, khen nhiều (đặc biệt người lớn, mất tự tin) = small win

Chữ h và k, r và v giống nhau

Cân đối ielts speaking part 1: 1 vài cách phổ biến nhất (cung cấp them, đỡ ngợp)

Khiên cưỡng cách chia nhóm, chia nhóm nhỏ để involvement (nhóm 2-3 người, nên chia để tất cả các
bạn cùng involve)
III. Implementation of Export Transaction

1. Asking for a L/C opened: make sure that you can fulfill all obligations mentioned in the
contracts
2. Asking for export license: Export Program keeps extra attention to goods with dual
functions
3. Prepare the export goods: how to collect/ prepare your commodities for your
exportation?
 If you are a trader: compromise with other shareholders
4. Gathering, packing, labeling and marking (marking signal, warehouse and inventory
management)
5. Pre-shipment inspection (PSI): special for agricultural products, special places/
procedure for inspecting and checking the commodity -> can be costly for your
exportation -> modernize and standardize
6. Booking for a shipping space
7. Find the carrier and do the custom obligation. Traders concern about this
Step1: Submit the information/ declaration ( can be online in Vietnam: VNACCS)
Risk management tools to classify into 3 levels: level 1: green with no or low risk, strict
compliance with little violation, level 2: yellow, just trying the consistency of the
information and level 3: very risky, if we don’t have any amendment to control the
situation, we may violate -> need to submit physical commodities to inspect.
Step 2: Focus more on the origin of the goods, get physical inspection and the officer/
custom authority will check. Sometimes, the buyer have special preferiential treatment/
policies for each transaction.
Some words used to describe the commodity when you submit it to the custom can
make your commodity highly suspicious, despite your good compliance
Sometimes, just random inspection -> thus randomly transfer goods from green to red
level to check the effectiveness of risk management system
Step 3: Collection of tax and duty
- How to calculate the tax payables (do not depend on CIF, but only FOB, do not include
insurance and freight cost, but add local transport cost to FOB for export
- Import tax or duty: FOB, destination is HP port, calculate all fees, but for each cases
would require different fee calculation.
E.g. If you are the buyer and you pay the freight cost and the insurance cost, you need
to add it on top of FOB -> CIF. If you do not use, do not include them. When the freight
cost is recognized when the commodities reach delivery point, the freight cost is
included in the price)
VAT: send the invoice to the customers, commercial invoice is not VAT invoice; the seller
claim, the custom authority doesn’t collect the tax, only kho bac. -> Shorten time until
making the decision and checking post-custom-clearance becomes very strict and
important.
While goods are transferred in containers
After that, they consolidate commodities with other and issue their master deal, some
forwarding commodities, the new terms. The goods of delivery will be lost, it will be the
responsibility of the forwarder or the seller.
 Incoterm 2010 mút be C, and Incoterm 2020: it would be A

The bank makes ít decision to reject the buyer’s request not to pay.

IV. International Trade Transactions Risk Management