Exporting, Importing,

and Countertrade
Introduction

 Both large and small firms can benefit

from exporting
 The volume of export activity in the
world economy is increasing as
exporting has become easier thanks to
 the decline in trade barriers under the WTO
 regional economic agreements such as the
European Union and the North American
Free Trade Agreement
Introduction
 Firms wishing to export must
 identify export opportunities
 avoid a host of unanticipated problems
associated with doing business in a foreign
market
 become familiar with the mechanics of
export and import financing
 learn where to get financing and export
credit insurance
 learn how to deal with foreign exchange
risk
The Promise and Pitfalls of
Exporting
 The benefits from exporting can be
great--the rest of the world is a much
larger market than the domestic market
 Larger firms may be proactive in seeking
out new export opportunities, but many
smaller firms take a reactive approach to
exporting
 Many beginner exporters have run into
significant problems when first trying to
do business abroad, souring them on
following up on subsequent
The Promise and Pitfalls of
Exporting
Common pitfalls for exporters include
 poor market analysis
 poor understanding of competitive

conditions
 a lack of customization for local markets,

poor distribution arrangements, bad

promotional campaigns
 a general underestimation of the

differences and expertise required for

foreign market penetration
 difficulty dealing with the paperwork and

formalities involved
Improving Export Performance

 To improve their success,

exporters should
 acquire more knowledge of foreign
market opportunities
 consider using an export
management company
 adopt a successful export strategy
 An International Comparison
 Many firms fail to consider export
opportunities simply because they lack
knowledge of the opportunities available
 both Germany and Japan have developed
extensive institutional structures or
promoting exports
 Germany one of the world’s most
successful exporting nations—trade
associations, government agencies, and
commercial banks gather information,
helping small firms identify export
opportunities.
 Japanese exporters can also take
Information Sources
 The U.S. Department of Commerce is the
most comprehensive source of
information for U.S. firms
 firms can get a “best prospects” list of
potential foreign distributors
 firms can also participate in trade fairs or
get assistance from the Small Business
Administration
Trade Development Authority
of Pakistan (TDAP)
 The main objective of the TDAP is to
promote Pakistani products and services
in the international market. TDAP
sponsors the participation of Pakistani
exporters in international exhibitions,
arranges exhibitions in Pakistan,
facilitates trade delegations and
establishes display centers in Pakistan
and abroad.
Activities of TDAP
• Participates in 100 to 120 international trade
exhibitions annually.
• Sent & received 40 to 60 trade delegations from
abroad every year.
• Organizes the EXPO PAKISTAN annually in
Pakistan, which is well-attended by foreign
buyers.
• Runs the Expo Centre, Karachi providing a
permanent exhibition space for holding trade
events.
• Implements various Trade Policy
Initiatives announced by the Commerce Ministry.
• Undertakes various sector-
 Trade Agreements
• Trade & Investment Framework Agreement (TIFA)
between Pakistan and USA
• Pak-Afghanistan Transit Trade Agreement
• Agreement on South Asian Free Trade Area
• Pak-Malaysia Trade Agreements
• Pak-China Free Trade Agreement in Goods &
Investment
• Pak-China Free Trade Agreement in Services
• Pak-Sri Lanka Free Trade Agreement
• Pak-Iran Preferential Trade Agreement
• Pak-Indonesia Preferential Trade Agreement
Utilizing Export Management
Companies
 Export management companies - export
specialists that act as the export
marketing department or international
department for client firms
 EMCs
1. start exporting operations for a firm with
the understanding that the firm will take
over operations after they are well
established
Export Strategy
 Exporters
 can hire an EMC to help identify
opportunities and navigate paperwork and
regulations
 start by focusing initially on just one or a
few markets
 enter a foreign market on a fairly small
scale in order to reduce the costs of any
subsequent failures
Export Strategy
 Exporters should also
 recognize the time and managerial
commitment involved in building export
sales
 devote attention to building strong and
enduring relationships with local
distributors and customers
 hire local personnel to help the firm
establish itself in a foreign market
 keep the option of local production
Regulations and Requirements
for Export
Exporting from Pakistan involves adhering to
various regulations and requirements set forth by
the government. Can vary depending on the
specific type of goods being exported, as well as
any trade agreements in place. Here's an overview:
1. Registration with Export Promotion Bureau
(EPB)
2. Obtaining an Export License: Depending on
the nature of the products being exported, an
export license may be required from the relevant
authorities.
3. Customs Clearance: Exporters need to comply
with customs regulations for documentation and
Regulations and Requirements
for Export
4. Quality Standards: Product exported from
Pakistan must meet quality standards specified by
the Pakistan Standards and Quality Control Authority
(PSQCA) or other relevant regulatory bodies.
Compliance with international quality standards may
also be necessary depending on the target market.
5. Packaging and Labeling Requirements:
Goods must be packaged and labeled according to
relevant regulations and standards. This includes
providing information such as product specifications,
country of origin, care instructions, and any required
labeling in multiple languages.
6. Documentation: Exporters need to prepare
various documents including commercial invoices,
Regulations and
Requirements for Export
7. Compliance with Trade Agreements: Pakistan
is a member of various trade agreements and
organizations such as the World Trade Organization
(WTO) and the South Asian Free Trade Area (SAFTA).
Exporters should ensure compliance with any trade
agreements that may affect their exports.
8. Sanitary and Phytosanitary (SPS) Measures:
For certain Products, exporters may need to comply
with SPS measures to ensure that the products meet
health and safety standards.
9. Export Documentation System (EDS): Pakistan
has implemented an electronic system for issuance of
export documents called the EDS. Exporters need to
register with EDS for obtaining necessary export
Regulations and
Requirements for Export
10. Export Restrictions: Exporters should be
aware of any specific restrictions or bans on the
export of certain textile items imposed by the
government.
Export and Import Financing

 Various mechanisms for financing

exports and imports have evolved over
the centuries in response to lack of trust
that exists in export transactions
Lack of Trust
 Exporters and importers have to trust
someone who may be very difficult to
track down if they default on an
obligation
 Each party has a different set of
preferences regarding the configuration
of the transaction
 exporters prefer to be paid in advance,
while importers prefer to pay after
shipment arrives
 Problems arising from the lack of trust
can be solved by using a third party who
is trusted by both - normally a reputable
A Typical International Transaction
Letter of Credit
 A letter of credit: A financial contract
that states that the importers bank will
pay a specific sum of money to the
exporter upon delivery of the goods.
 this system is attractive because both
parties are likely to trust a reputable bank
even if they do not trust each other
Draft
 Most export transactions involve a draft,
also called a bill of exchange
 A draft is an order written by an exporter
instructing an importer, or an importer's
agent, to pay a specified amount of
money at a specified time
Export Assistance
 U.S. exporters can draw on two forms
of government-backed assistance to
help their export programs
1. they can get financing aid from the
Export-Import Bank
2. they can get export credit insurance from
the Foreign Credit Insurance Association
Export Finance Scheme
(EFS)
The SBP introduced the Refinance Scheme in 1973 to provide
concessionary export finance to promote the exports.
 The commercial banks provide export finance to the
exporters on case‐to‐case basis at pre‐shipment
and/or post‐shipment stage.
 Finance from banks under the Scheme is available
to Direct Exporters to the extent of 100% of the
value of a firm export order / contract / letter of
credit both at pre‐ shipment and post‐shipment
stages against eligible goods.
 The State Bank of Pakistan will refinance to banks in
the form of either purchase / rediscount of such bills
of exchange / promissory notes as are eligible for
purchase / rediscount by the State Bank of Pakistan
under Section 17(2) (a) of the State Bank of
Pakistan Act, 1956 or as loans against such bills
Export Finance Scheme
(EFS)
mark‐up rate under EFS for the borrower stands at
11 % (banks get re‐finance from SBP at 10% and
are permitted a maximum spread of 1%).
 Indirect Exporters who supply inputs i.e. materials
and goods to a Direct Exporter to be used for
further processing and / or to be exported, are also
eligible to avail finance from banks under the
Scheme at pre‐shipment stage.
Countertrade
Exporters can use countertrade when
conventional means of payment are
difficult, costly, or nonexistent
 Countertrade - a range of barter-like
agreements that facilitate the trade of
goods and services for other goods and
services when they cannot be traded for
money
Examples of Countertrade
 Saudi Arabia agreed to buy 10 747 jets from Boeing with
payment in crude oil, discounted at 10 percent below
posted world oil prices.
 General Electric won a contract for a $150 million electric
generator project in Romania by agreeing to market $150
million of Romanian products in markets to which Romania
did not have access.
 Albania offered such items as spring water, tomato juice,
and chrome ore in exchange for a $60 million fertilizer and
methanol complex.
 Philip Morris ships cigarettes to Russia, for which it receives
chemicals that can be used to make fertilizer. Philip Morris
ships the chemicals to China, and in return, China ships
glassware to North America for retail sale by Philip Morris
The Incidence of Countertrade
 In the 1960s the Soviet Union and the
Communist states of Eastern Europe,
whose currencies were generally
nonconvertible, turned to countertrade
to purchase imports
 Many developing nations that lacked the
foreign exchange reserves required to
purchase necessary imports turned to
countertrade during the 1980s
Types of Countertrade
 There are five types of countertrade
1. barter
2. counterpurchase
3. switch trading
4. offset
5. compensation or buyback
 Types of Countertrade
1. Barter - a direct exchange of goods and/or
services between two parties without a cash
transaction
 the most restrictive countertrade
arrangement
 used primarily for one-time-only deals in
transactions with trading partners who are
not creditworthy or trustworthy
 Example:
 Pros and Cons
2. Counter purchase - a reciprocal buying
agreement

 Types of Countertrade
3. Offset - similar to counterpurchase insofar as one party agrees to
purchase goods and services with a specified percentage of the
proceeds from the original sale
 the difference is that this party can fulfill the obligation with any

firm in the country to which the sale is being made

o Example:

o Pros and Cons

4. Switch Trading - when a specialized third-party trading house buys

a firm’s counterpurchase credits and sells them to another firm
o Example:

o Pros and Cons

5. Compensation or Buybacks - occurs when a firm builds a plant in a

country—or supplies technology, equipment, training, or other
services to the country—and agrees to take a certain percentage
of the plant’s output as a partial payment for the contract
o Example:
The Pros and Cons of
COUNTERTRADE