Certificate of origin.

This is not a special form, and it is not required by all

countries. U.S. law requires that commercial invoices and/or exporters’
declarations contain a statement as to the origin of the goods. A few
countries, however, do have formal paperwork that must be completed to
attest to the origin of the goods and fair market prices.

Clean collection. Collection involving only “financial” documents, including a

draft (also referred to as a bill of exchange), promissory note, or check. The
most common financial document is a draft.

Commercial invoices. The standard invoices a seller would normally issue

upon making a shipment to a domestic customer. Their context may vary
from country to country, depending on U.S. export control regulations and
local legal requirements.

Documentary collection. A form of collection that transmits “commercial” (or

shipping) documents. A financial document (draft) may be included as well.

Documentation. Legal documents that describe the nature and value of a

particular shipment. They also identify the exporter and importer, along with
the carrier, insurer, banks, and all other parties participating in a
transaction. Without the proper documentation, obviously shipments cannot
be completed and payment cannot be rendered.

Draft. Known generically as a bill of exchange, it is the critical document

without which payment by importer to exporter cannot be made, what-ever
the payment terms may be. It is a written order by the drawer (exporter)
directing the drawee (importer) to make payment at sight or at a
CHAPTER12 determinable future date. The draft contains all the instructions to the
Bill of lading (or other transport document). A receipt given by a common exporter’s bank and the importer’s bank as to who pays whom, how much,
carrier (a transportation company that uses trucks, planes, boats, or any where, and when.
other form of conveyance) to a seller for goods physically consigned for
shipment. The old axiom that a bill of lading is a negotiable instrument is Shipper's Export Declaration. A U.S. government form that describes the
subject to much qualification today. merchandise exported in accordance with official commodity definitions and
commodity numbers. The form also indicates the quantity and value of what
Certificate of insurance. Written proof that goods being shipped the seller exported.
internationally are insured against theft, loss, or damage. Many orders
covered by letter-of-credit payment terms require the exporter to cover the Shipping documentation. A typical set of export shipping documents might
shipment with insurance while the goods are in transit. The requirement is include commercial invoices, shipper’s Export Declaration, a sight or time
waived in most other cases. Some countries require the importer to buy draft, a bill of lading or other transport document, certificate of origin, and
insurance locally in order to conserve scarce foreign exchange reserves insurance policies or certificates.
CHAPTER 14
Irrevocable confirmed letter of credit. This type of L/C represents the least risk
for an exporter, but it commits the foreign buyer to see the transaction
through to its end. The promise to pay shifts from the issuing bank to the
U.S. correspondent bank that confirms the document.

Irrevocable letter of credit Most L/Cs that involve single orders with no
contracted repeat business are of this variety. The L/C is irrevocable by the
issuing bank. This means that neither the buyer nor the opening bank can
cancel the commitments made under the documents as long as the seller
(exporter) performs as specified in the L/C.

Letter of credit. An issuing or opening bank’s promise to pay a certain amount

of money to a beneficiary, subject to specific performance by that
beneficiary within a given period of time. The issuing bank is the importer’s
bank, also known as the remitting bank. Its correspondent bank is usually
the exporter’s bank, also called the collecting bank.
CHAPTER 15 CHAPTER 16

Contract manufacturing agreement. The typical arrangement calls for a

Business name. The mere act of initially registering a trade or business name
contract manufacturer to produce a fixed amount of inventory from given
at the city, county, or state level for tax purposes also protects against the
specifications at a negotiated total cost. A 50% prepayment of the total cost
infringement of that name without the consent of the business owner.
is often required; the balance is payable on completion of the production
run. Contract manufacturers can agree to warehouse and sometimes
distribute the finished run upon receipt of shipping instructions from the Company/product logos and names. Similar to the overall business name are
contracting firm. the symbols and derived names that are used as identifiers for a company
and its specific products. Sometimes referred to as trade names, they are
Turnkey agreement. Commonly used in emerging markets during the design, usually called trademarks.
procurement, assembly, and construction phases of a capital project. They
are also widely used for complex industrial projects through-out the world. Corporate "goodwill" basket. These “goodwill” assets, or intellectual
Companies that have the critical skills needed to coordinate the building of properties as they are more aptly called, consist mainly of patents, trade-
large capital projects (e.g., steel mills, petrochemical refining and marks, trade names, copyrights, know-how, and so-called “curbside”
processing facilities, resort and housing developments, commercial air recognition and appeal to which firms can claim ownership.
terminals, etc.) become known as turnkey contractors.
Franchising agreement. A franchisor sells or leases limited rights for the use
of its name, know-how, and international advertising to a franchisee in
return for a lump sum payment, a royalty, and a share of the franchise
profits.

International licensing. An arrangement whereby a foreign company, called

the licensee, leases from a U.S. company (the licensor) the temporary right
to use its intellectual properties for the purpose of manufacturing and
sometimes selling its products in the foreign country. In return for the
license, a fee or royalty is paid to the licensor, distributed throughout the life
of the agreement.

Know-how. The magic that makes a company live and prosper. It is the most
difficult of all intellectual properties to protect because it describes a
company's valued human resources. Short of bringing back slavery, it is
virtually impossible to keep people from moving from company to company,
even in a small business environment.
CHAPTER 17 CHAPTER 18

Foreign direct investment and foreign portfolio investment An investment into

Horizontal integration. This process is intended to achieve market control another country with the objective of owning partially or entirely an
economic enterprise for the purpose of establishing market share and
through understandings or cooperation agreements designed to allocate
generating revenue and profits that can ultimately be trans-formed into
and maintain market share.
stockholders’ dividends. Foreign direct investments differ from foreign
portfolio investments, which are investments into financial instruments such
Strategic alliance. An inter-corporate agreement between two or more as stocks and bonds, where the objective is not to engage in business but to
companies designed to achieve various degrees of vertical and horizontal generate dividend income, interest income, and capital gains.
integration. This vertical-horizontal integration is also possible with wholly
owned subsidiaries, where expansion takes place through merger,
acquisition, and joint ventures.
Joint venture. A highly structured and formal strategic alliance that involves
Vertical integration. The process of vertical integration establishes control two or more partners. Sometimes the alliance is strictly voluntary, but often
over sources of production (e.g., supplies, technology, financing, labor, and it is mandated by the laws of the host country.
other resources). It can also be used to establish control over distribution,
marketing, sales, and after-sales service. Wholly owned subsidiary. A wholly owned subsidiary abroad comes into
existence when a business in Germany, Grenada, the Bahamas, or any-
where else is incorporated in that country with all (better than 75%) of its
shares owned by residents (U.S.) domiciled (living) outside the nation of
incorporation. Thus, a U.S. company that owns 100% of the stock of a
company in Grenada has a “sub” in that country. The U.S. company
becomes popularly known as the “parent” and the overseas entity be-comes
called the “sub.” The creation of a foreign sub can be from start-up (e.g.,
registering and capitalizing a new company in a country). A U.S. firm can
also acquire an existing company and use it as a base of operations.
CHAPTER 19

Export quotas. Restrictions on the quantity of product that can be ex-ported CHAPTER 20
from a country. The purpose of these quotas is to conserve scarce resources
by ensuring that enough stocks or inventories are retained to meet
Expropriation/nationalization. A takeover of ownership of foreign-owned
assets (such as plant and equipment, inventories, accounts receivables,
domestic needs before meeting foreign demand.
intellectual properties, bank accounts, and private residences) by a host
government.
Export taxes. Imposed on an ad hoc basis by governments not so much to
prevent exports but to generate revenue or encourage value-adding Regulating incoming investments. The United States imposes little federal
changes to a product before it is exported. regulation on investments from abroad except to issue somewhat
ambiguous definitions of what constitutes a “made-in-the-USA” product as
Import quotas. Restrictions on the quantity of product that can be imported opposed to a “foreign-made” product. There have also been attempts to
from overseas. They often create great difficulties for importers that depend define by statute an “American” company as opposed to an “American
entirely on offshore sources for their supplies. The rationale for import subsidiary” of a foreign-based firm.
quotas stems from a desire to protect domestic producers from being
overwhelmed by foreign competition. This is accomplished by dividing Reulating outgoing investments. Governments tend to classify all other
market share on an allocation basis. countries as either “friendly” or “unfriendly” and “low risk” or “high risk.”
The United States in particular prohibits investments in countries such as
Import taxes. Value-added excise taxes. They exist in three formats: a Libya and Cuba, which it regards as definitely “unfriendly.”
percentage-based value-added tariff, a fixed-rate tariff, and a combination
percentage and fixed-rate tariff. The emphasis in the United States is mostly
on the first and second formats.

Technical restrictions. Restrictions imposed by governments on imports that

allegedly do not meet local standards. Some are legitimately intended to
maintain high quality standards, but many are used as a means of
restricting imports, even when the superiority of the imported item can be
demonstrated
 United States Agency for International Development (USAID). The USAID program
makes it possible for smaller companies to export to developing areas that
are friendly to the United States without having to worry about non-
payment, as all monies are fully funded through congressional
appropriations.

U.S. worldwide income rule. Under U.S. law, a resident of the United States
CHAPTER 21 must pay taxes on all income earned in the United States and in other
countries. In other words, a U.S. resident must pay federal income taxes on
Export-Import Bank of the United States (Ex-lm Bank). This quasi-government worldwide income.
bank offers large and small business exporters political and credit risk CHAPTER 22
insurance on their shipments to overseas customers. It also provides at or
below market loans to specific direct foreign investments. Export-Import Bank of the United States (Ex-lm Bank). A quasi-independent U.S.
government agency that aids in financing and insuring the foreign sale of
Foreign Sales Corporation Act of 1983. This U.S. law provides a tax incentive to U.S. goods and services. The Ex-lm Bank was established in 1934 by
corporations that conduct export operations from offices based in offshore presidential order and remains active today.
possessions such as the U.S. Virgin Islands and Guam.

Foreign tax haven. A country or region offering an income-tax-free Overseas Private Investment Corporation (OPIC). This insurance and investment
environment. financing company was created by Congress in 1969 as a quasi-private-
public corporation. Its mission was to insure the foreign direct investments
Free trade zone (FTZ). A geographical enclosure within the customs area of a of U.S.-based corporations against losses from host government acts of
country (that is to say, within the United States) into which goods may be property expropriation (nationalization).
imported without the payment of import taxes.

Overseas Private Investment Corporation (OPIC). A government-chartered United States Agency for International Development (USAID). This agency was
insurance company that enables companies with foreign assets committed created by Congress in 1961 and charged with the mission of combating
to wholly owned subsidiaries, joint ventures, and other strategic alliances to communism by promoting economic development. USAID’s initial mission
insure those assets against expropriation by a host government. was to provide loans and grants to developing areas that were friendly to
the United States. During the Cold War, the feeling was that economic aid
Residency. Who pays taxes to whom is determined by the concept of could help stem the expansion of communism by promoting democracy
residency. The term “resident” in the United States has nothing to do with through economic growth. The communist threat a la the Soviet Union is
one’s citizenship. Residency refers to an individual’s or a business’s physical long gone, but the fundamental mission of USAID re-mains largely
presence in an area for a prescribed time period. unchanged. It is still to provide loans to friendly developing areas to
encourage economic growth.
Small Business Administration (SBA). This government agency arranges for low-
cost loans to small business to help them finance export inventories and U.S. Small Business Administration (SBA). The SBA was created in 1953 as a
foreign receivables. federal agency to help small businesses raise operating capital. Over the
years, it has become the government’s major source of support for small
Tax treaties and double taxation. All firms doing business in other countries are business and small business issues.
vulnerable to double taxation unless a bilateral tax treaty is in place.
Foreign branch offices are most obviously affected because their taxable
income could be payable twice, in the host country and again in the United
States.
 outside the member countries. A common policy may also be established
with regard to goods produced within the region.

World Bank. The mission of the World Bank is to lend funds to Third World
countries for economic development purposes. Although the World Bank is
dependent on high-income countries for its capitalization, the fact remains
that the allocation of these funds to specific projects means business with a
guaranteed payment structure to companies selected as corporate vendors
and contractors.

CHAPTER 23

Customs union (the Benelux model). A customs union incorporates the concept
of a free trade association. In addition, member countries agree to a
common tariff structure against non-members.

Economic Integration. The idea of economic integration is to merge the

economic activities of member countries to accelerate the processes of
growth and development by maximizing market size, production capacity,
and technological advancement. Trade blocs are often seen as a stepping-
stone on the path toward economic integration.

Economic integration association or common market A common market, as in the

case of the European Economic Community, incorporates all the features of
a free trade association and a customs union. It also allows for the free
mobility of production factors such as labor, capital, and technology.

Free trade association (FTA). An FTA, based on the Belgium-Luxembourg

model, is an association of two or more countries that agree to engage in
duty-free or borderless trade for goods produced within the association
area. The member nations, however, maintain their own customs
regulations and specific tariff structures against non-member imports.

International Monetary Fund (IMF). Its charter was laid down at the Bretton
Woods Conference in July of 1944. The fund itself was established in
December 1945 to promote international monetary cooperation, to facilitate
the expansion and balanced growth of international trade, and to promote
stability in foreign exchange.

Special drawing rights (SDRs). These were created as a reserve asset by the
International Monetary Fund in 1970. It is the right of a country holding
SDRs to access resources from the fund equivalent to its book entries.

Trade bloc. A trade bloc can be loosely defined as a group of two or more
nations that agree to a common policy with regard to goods imported from