Analysing the process of exporting wooden products in ansoco, ltd

Namely starting with theonly term whereby the seller makes the goods available to the buyer at the seller's ownpremises the "E" term: Ex-work; followed by the second group whereby the se

HOCHIMINH aIYUNIVERSIIY OF FOREIGN lANGUAGES - INFORMATIONlEQINOLOGY

SCHOOL OF FOREIGN LANGUAGES

GRADUATION PAPER

TOPIC:

:

HeM JULY 2000

I would like to express my many thanks for the lecturers and professors of

been taught during the past four years

I am deeply indebted to my advisor, Mr Truong Quang Tuan, MBA for his

especially Mrs Nguyen Thi Thu for their assistance in providing me with necessary materials and sample documents.

encouragement for me during the preparation of this paper.

CAO CU CHUCJuly 2000

••

The knowledge, procedures and steps necessary to perform an international sales contractarc quite complicated The basic knowledge on international trade is given as a first part ofthe paper which provides some issues about international delivery terms of salesrecognized and accepted worldwide Some means of international payment arc also givenhere; namely Bill of Exchange and Promissory Note; they are analyzed in detail on how touse them Next, the modes of payment are discussed; they are ranked from the most secureterm: Cash in Advance to the least secure term: Open Account Careful analysis isfocussed on Letter of Credit (LC) as the most popular and most complicated mode ofpayment used in international payment

The second part of the paper deals with all the technical aspects relating to theestablishment and performance of an international sales contract at An Suong Producingand Trading company , LTD a brief introduction to ANSOCO activities and its product line

is given first, then the most important and most frequently used clauses in a contract areanalyzed in detail there Next, shipping and payment documents such as CommercialInvoice, Packing List, Bill of Lading etc are defined and instructed to prepare on thepurpose of fulfilling shipment delivery and getting paid Common errors and mistakeswhich occur during the preparation of these documents are identified and the ways tocorrect them are also introduced To affect shipment, customs declaration and customsinspection must be carried out; so the procedure o.f these processes are briet1y presented

To obtain payment, which is the most important thing and the final purpose of exporting, isleft at the end of the exporting process as the result of a lot of hard work and efforts

Although disputes occurring during the execution of the contract are unexpected, they doexist in most of the business transaction The last part of the paper points out typicaldisputes and some suggestions to settle these disputes as well as the ways to reduce them

to a minimum level Further research needs to be conducted to find methods to minimizerisks in the exporting field and expand the scope to other foreign market entries

As a Vietnamese saying goes: "Phi thltong bilt phil", it means that without trade wealth isimpossible The saying may, more or less, exaggerate the importance of trade but thegeneralization is an excellent conclusion drawn from the practice and experience of ourforefathers and is well proven in today reality

In the primary stage of human society, there was no trade; prehistory men had to consumewhatever food they found He may get a lot of grain, fruits and could catch big animals at atime or get nothing at another When he got much food he had to eat all or otherwise itwould be spoilt by the open air, humidity, heat and sun light Gradually, they knew that theyshould barter what they had with other people to get things that they could not obtain bythemselves That process enabled them to get a variety of goods and it's the primary form oftrade

For a larger extent, that is in national scope, there are two economic factors that makeinternational trade possible and popular:

First, countries have different factor endowments on land, material resources, labor, capitaland technology; therefore, each country may specialize in producing the goods that they canproduce with the least cost in exchange for other goods produced by other countries Thistheory, developed by Adam Smith in 18 century, is called the theory of absolute advantage.Second, the difference in productive condition among countries also leads to comparativeadvantage International trade plays an important role, because it is able to increase theconsumption of a country, it allows a country to consume all the products with larger quantitycompared with the amount that it uses within the limit of its own production capacity if itdoes not participate in international trade International trade also plays an important role inthe growth and development of a country

Specialization will lead to an increase in world output and; therefore, via world trade, to anincrease in the welfare of the countries involved This is the answer to the question whytrade takes play across international boundaries

As mentioned above, gains can be made from international trade or there is aninterdependence among nations in the process of existing and developing However,participating in international trade is not a decision made overnight, it depends very much onthe knowledge, the experience, the capital and the most important factor: human resource

In order to enter the foreign markets, there are three modes of entry, namely exporting, jointventuring and direct investment; the below figure will illustrate the market entry strategies

Page 1

AMQUNTQF CQMMITMENTS,RISK, CONTROL AND PROFIT POTENTIAL

DIRECT INVESTMENT

ASSEMBLY FACILITIES MANUFACTURING FACILITIES

It's obvious that the more descending to the left, the more amount of commitment, risk,control and profit potential we get So exporting is the simplest way to enter a foreignmarket, to take part in international trade Nevertheless, although it is the simplest method

of the three, there is much complication in practice

Penetrating a foreign market usually begins with the market research, the analysis of marketopportunities must be carefully conducted, as people of different cultures, locations will not

ha ve the same taste toward the same product For example we can not export beef to India

or pork to Iran, Iraq, because of religious belief People in these countries consider thesefoods as a taboo

We must also be aware that the foodstuff, especially seafood exported to ED market mustobtain a very high hygiene condition to be accepted

The process of negotiating and signing a sales contract, method of export financing,transporting the goods can be very complex that requires great care, and expertise

Due' to limited ability and knowledge, and this field is very complicated and broad, theresearch only focuses on the most basic knowledge relating to the process of performing aninternational sales contract, the issue and documents involved

Page 2

~ CHAPER I:

COMMON KNOWLEDGE ON FOREIGN TRADE & INTERNATIONAL PAYMENT

l.WHAT ARE INCOTERMS?

It is absolutely necessary for the seller and the buyer to have a very clear understanding ofterm of delivery they involve themselves in since different laws contain different solutionsfor the pertaining to who will arrange and pay for the carriage of the goods from the seller'sworks/factory/warehouse to the buyer's premises, who bear the risk if these operationscannot be carried out and who will bear the risk of loss of or damage to the goods in transit.The International Chamber of Commerce (ICC) has set out the Incoterms to overcome theproblems of conflicting national laws and interpretations by establishing a standard set oftrade terms and definitions that offers "neutral rules and practices" As such, the Incotermsare used world-wide, and have become part of the sales contract if agreed between theseller and the buyer by simple reference to one of the trade terms expressly stating that itshould be interpreted according to Incoterms

Thus, uncertainties of different interpretations of such terms in different countries can bereduced to a considerable degree It helps the parties involved to reach a compromise So,Incoterms are internationally accepted trade terms which determine the passing of risk andthe passing of costs under an international sales contract

The terms have been grouped in four basically different categories Namely starting with theonly term whereby the seller makes the goods available to the buyer at the seller's ownpremises (the "E" term: Ex-work); followed by the second group whereby the seller iscalled upon to deliver the goods to a carrier appointed by the buyer (the "F" term, FCA,FAS &FOB); continuing with the "C" terms where the seller has to contract for caniage, butwithout assuming the risk of loss of or damage to the goods or additional cost due to theevents occurring after shipment and dispatch (CFR, CIF, CPT and CIP); and finally the "D"terms whereby the seller has to bear all costs and terms and risks needed to bring the goods

to the country of destination (DAF, DES, DEQ, DDU and DDP)

Incoterms were first published in 1936, amendments and additions were later made in 1953,

1967, 1976, 1980, 1990 in order to bring the rules in line with current international tradepractice However, Incoterms haven't been perfect, the revised edition called Incoterms

2000 has come into effect on 01-01-2000 A chart setting out the current classification ofIncoterms 2000 is as follows:

Page 3

Graduation Paper Advisor: Truong Quang Tuan, MBA

Group E

De arture

INCOTERMS 2000EXW

FCAFASFOB

Ex-workFree carrierFree alongside shipFree on board

Group C

Group DArrival

CFR Cost & freightCIF Costs, insurance and freight

CIP Carria e and insuranceDAF Delivered at frontier

The figures illustrated the division of risks and costs and other expenses between the buyerand the seller is given hereafter:

~EXW Risks, costs .1

PAS Risks, costs

•

PCA Risks, costs

•

PCA Risks, costs • i

POB Risks, costs

RisksCPR

[~osts

[RiSkSCIF

Costs, premium

DES

Risks, costsDEQ Risks, costs (duty paid)DDU

Risks, costs (duty unpaid)DDP

Risks, costs, (duty paid)

Page 4

2.POPULAR INTERNATIONAL TRADE TERMS OF DELIVERY USED IN VIETNAM

As mentioned above, there are 13 terms of delivery used worldwide, but due to limitedspace and the popularity of some terms in Vietnam, the presentation of Incoterms will rather

be confined to FOB, CIF, and C&F

a FOB (Free On Board '" named port of shipment)

Free on board means that the seller fulfils his obligation to deliver when the goods havepassed over the ship's rail at the named port of shipment This means that the buyer has tobear all costs and risks of loss or damage to the goods from that point In this term theresponsibility of the seller and the buyer are stipulated in the following:

The Seller Must:

Provide the goods and the commercial invoice or its equivalent electronic massage inconformity with the contract of sale and any evidence of conformity which may be required

in order to load the goods on board

Give the buyer sufficient notice that the goods have been delivered on board

Pay the costs of packing, any checking operation, checking quality, measuring, weighing,counting which are necessary for the purpose of delivery the goods

At the buyer's request, risks an expense, assists him in obtain any documents or equivalentelectronic messages issued or transmitted in the country of shipment and/or origin which thebuyer may require for the important of the goods, where necessary, for their transit throughanother country Provide the buyer upon request, with the necessary information forprocunng msurance

The Buyer Must:

Pay the price as provided in the contract of sale

Obtain at his own risk and expense any import license or other official authorization andcarry out all customs formalities for the importance of goods and where necessary for theirtransit through another country

At his own expense, charter a vessel or reserve the necessary space on board a vessel andgive the seller due notice of the name, loading berth of and delivery dates to the vessel

Graduation Paper Advisor: Truong Quang Tuan, MBA

Bear all costs and risks of the goods from the time when they shall have effectively passedthe ship's rail at the named port of shipment, from the agreed date or the expiry date of theagreed period for delivery which arise because he fails to give notice to the seller of thevessel name, loading point and required delivery time or because the vessel nominated byhim fails to arrive on time, or unable to take the goods or closes for cargo earlier that thetime notified; provided, however, that the goods have been clearly appropriated to thecontract, that is to say, clearly set aside or otherwise identified as the contract goods

b C&F (Cost and Freight named port destination)

"Cost and Freight" means that the seller delivers when the goods pass the ship's rail in theport of shipment

The Seller Must:

Pay the costs and freight necessary to bring goods to the named ort of destination but the risk

of loss of or damage to the goods, as well as any addition costs due to events occurring afterthe time of delivery are transferred from the seller to the buyer That means he must bear allrisks of loss of or damage to the goods until such time as they have passed the ship's rail atthe port of shipment

Contract on usual term at his own expenses for the caniage of the goods to named port ofdestination by the usual route in seagoing vessel for the type normally used for the transport

of goods of the contract description

The seller must at his own expense provide the buyer without delay with the usual transportdocument for the agreed port of destination

This document (for example a negotiable Bill of Lading) must cover the contract goods, bedated within the period agreed for shipment, enable the buyer to claim the goods from thecarrier at the port of destination, unless otherwise agreed, enable the buyer to sell the goods

in transit by the transfer of the document to subsequent buyer (the negotiable Bill of Lading)

or by notification to the carrier

The Buyer Must:

Whenever he is entitled to determine the time for shipping the goods and/or the port ofdestination, give the seller sufficient notice thereof

Accept delivery of the goods when they have been delivered on board the vessel at the port

of shipment of the dated or within the agreed period and receive them from the carrier at thenamed port of destination

Bear all risk of loss or damage to the goods from the time they have passed the ship's rail atthe port of shipment

Pay all coast relating to the goods from the time they have been delivered and all costs andcharges relating to the goods whilst in transit until their arrival at the port of destination,unless such cost and charge were for the seller account under the contract of carriage

Page 6

Unloading costs, including lighterage and wharfage charges, unless such cost and chargeswere for the seller's account under the contract of carriage.

All additional costs incurred if he fails to give notice to the seller, for the goods from theagreed dates or the expiry date of the period fixed for shipment, provided, however, that thegoods have been duly appropriated to the contract, that to say, clearly set aside or otherwiseidentified as the contract goods, and when applicable, all duties, taxes and other charges aswell as the contract of carrying out customs formalities payable upon import of the goodsand, where necessary, for their transit through any country unless included within the cost ofthe contract of carriage

c CIF (Cost, Insurance and Freight named port destination)The CIF term is similar with the C&F term, however, in this term the seller has to contractfor insurance and pay the insurance premium, the buyer should note that under CIF term theseller is required to obtain insurance only on minimum cover of the Institute Cargo Clauses.Should the buyer wish to have the protection of greater cover, he would either need to agree

as much expressly with the seller or to make his own extra insurance arrangement Theminimum insurance shall cover the price provided in the contract plus ten per cent (110%)and shall be provided in the currency of the contract

So we can see that Incoterms are critical for developing an export or import-costing sheet Inaddition, should a dispute arise, Incoterms are the only international trade terms recognized

in a court of law Feasibility of any transaction (profit) requires exporters and importers tounderstand the costs and risk associated with any international transaction: responsibility forshipping costs, purchasing insurance, customs clearance and duties, etc If something should

go wrong during transportation (risk), who has title to the goods and where, exactly, doestitle (risk) transfer?

,

I

Free On Board(FOB)

Cost andFreight (CF)

All costs and risks until the goodspass the ship's rail (loading ontoship)

Costs to port of destination (freightand other charges, additionaldocumentation and freightforwarder's fees)

Costs and risks transfer to thebuyer when goods pass the ship'srail

Risks assumed once the goods areloaded at the exporter's port ofshipment Must consider marineinsurance plus all costs after shiparrives at port of destination

Graduation Paper Advisor: Truong Quang Tuan, MBA

Cost, All transportation costs and marine Marine insurance has been

Insurance and insurance against buyers risk of loss handled by seller All costs andFreight (CIF) to port of destination risks after ship arrives at port of

The parties involve in a Bill of Exchange:

Basically, there are three relevant parties

• The drawer, the person who draws the Bill

• The drawee is the person on whom a Bill is drawn, he becomes the party

primarily responsible for paying it

• The payee or the beneficiary is frequently the same person as the drawer of

the Bill

• Characteristics of Bill of Exchange

sum of money to whom the payment will be made; who will pay the due date of paymentetc that means there is no need to state the reason of payment

requirement, he can't refuse to settle the payment because of personal reasons, except forthe fact that the Bill drawn doesn't match with its rules

Circulation: the Bill can be circulated from one person to another within its due date, the

drawee has to pay to the bearer although the contract is not completely performed Thanks

to this feature, the Bill of Exchange is considered a means of payment

• The content of Bill of Exchange

A Bill of Exchange must be in form of a document; it may be written, typed or printedand made out into two copies with the same value, so the payer can choose one of the two topay There is one language only used on the Bill, it must be written in ink that can't befaded; pencil or red pens can't be used in writing Bill

The Bill has to have a title: " Bill of Exchange" or "Exchange" or "Draft"

Bill of Exchange number: the number is for the drawer's reference only

The place where the Bill is drawn

Ex: Singapore 22 March 2000

The value of Bill of Exchange:

• In number: For

• In word: the sum of :

The maturity of Bill of Exchange:

At sight

• If it is an at sight Bill of Exchange, the drawee must pay for the goods when the Bill of Exchange is represented, so the space between at -sight can be presented in either form as follows:

.:. At 45 days fromBIL date

If the Bill of Exchange is a nameless or nominal Bill, the bearer will be the beneficiary; the drawee must pay the bearer whoever he is.

A named Bill or nominal Bill has the name of a specific beneficiary, the Bill can't

be circulated to the other, it is written as: "Pay to the Rose Enterprise"

Order Bill of Exchange: the drawee must pay to the order of the person whose

name is on the Bill of Exchange, such as " pay to the order of Sunflower Co., LTD".

A simple figure illustrated the process of payment by Bill of Exchange

Endorsement is an action of signing in the back of the Bill of Exchange to confirm thetransfer of the title of the Bill of Exchange to another person by the beneficiary.Endorsement is a very popular transaction in Bill of Exchange circulation, it has an abstractcharacteristic, as the beneficiary doesn't have to explain the reason why endorsement ismade or notifying the drawee either.

There are as many signatures as how many times the endorsement is carried out.Endorsement must be a consecutive process, from the first endorser to the last one, if thisprocess misses one endorser, the subsequent endorsement will be null

The action of transfer a Bill of Exchange indicates the three following functions:

passed from the present beneficiary to a new beneficiary who has the full control over it

endorsers toward the Bill of Exchange, that means when the Bill of Exchange is represented

on its maturity and the payer refuses to honor it then the endorsers or the drawer may berequired to pay for the Bill of Exchange value

Endorsement can be made in the following forms:

indicate the next beneficiary, the endorser only signs his name at

the back of the Bill of Exchange With this kind of endorsement

the next title transfers are performed by hand to hand After

being endorsed, it becomes nominal Bill; the holder will be the

beneficiary

a specific beneficiary, but it doesn't mean that he is the last

beneficiary, it's only an anticipation If he endorses for another

person that person will be the next beneficiary

made, the endorsee will be the last beneficiary, endorsement

can't be made any more

Without recourse endorsement: the application of " without recourse endorsement" willlead to a situation in which the holder can't exercise an immediate right of recourse against

transfer the Bill to a person if he fulfills the endorser's

requirements It may be written: " Payable to my son when he

get married"

• Bill of Exchange guarantee:

- Guarantee is the commitment of the third party (usually a

prestigious bank) to pay for the Bill of Exchange when it reaches the maturity and thedrawee can't pay for the Bill himself

• Protest for non-payment:

- When the holder presents the Bill of Exchange to the drawee and it is dishonored by acceptance or non-payment, so legal action is reasonably quick and payment can beenforced, the beneficiary can protest against the drawer according to applicable law Non-payment must be confirmed by "Protest for non-payment statement" made within two daysafter maturity The statement must specify all the details of the Bill of Exchange and thereason of non-payment, then the copies of this statement are sent to the parties involved andthe economic court

non-• Discount of Bill of Exchange:

Bill of Exchange is a negotiable instrument; therefore, it can be discounted at the bankbefore its maturity in case the Bill holder is in need of money When the two parties reach

an agreement on the discount rate, endorsement is made and the Bill is transferred to thebank

The use and legal status of the Bill of Exchange vary from county to country, 111

Vietnam the beneficiary is always the banks

No BILL OF EXCHANGE

NO • • • •• t~ •• , •.••••••••••••••••••••••

I

.H OCHlilINlf.; MA:Y.,lit,T99 9

tenor and date being unpaid) Pay to the order of :

The sum of :US.DOLLARS.FIVETHOUSAND.THREKHUNDRED FTFTY.FOUR AND

Drawn under letter of crediLN07E7904NS000791 dated .)O/04;199.9.

!ssu e d by KOOKHIN BANK (HE.t\D OIi'FIC E) SEOUL • :

b PROMISSORY NOTE

Promissory note, in the law of negotiable instrument, is a written instrument contallllllg aunconditional promise by a party, called the maker, who signs the instrument to pay toanother, called the payee, a definite sum of money either on demand or at a specified orascertainable future date The note may be made payable to the bearer, to a party named inthe note, or to the order of the party named in the note

The content of the promissory note must contains all the following information:

It's not compulsory to have a title "Promissory note" but the statement: " I promise topay to Mr./Mrs._ or to the order of Mr./Mrs "

It contains an unconditional promise to pay a definite sum of money

The detail of payment

Place of payment

Name and address of the payer (the maker)

Place and the date of making a promissory note

The signature of the maker

The value of the promissory note can be fully paid once at the maturity or itcan be made by partial payment or installment until the full amOUnt of the note andthe accrued interest is fully paid

The following are examples of promissory note:

PROMISSORY NOTE

[Demand]

FOR VALUE RECEIVED, the undersigned jointly and severally Promise to pay to the order of ,the sum of [$ ] Dollars, Together with interest of _% per annum on the unpaid

Balance The entire unpaid principal and any accrued interest Shall be immediately payable UPON DEMAND of any holder of this note.

Upon default in making payment within days of demand, the undersigned agree to pay all reasonable legal fees and costs of collection to the extent permitted by state law This note shall take effect as a sealed instrument and be enforced

in accordance with the laws of the payee's state.

Dated:

Net DOLLARS for value received with interest of percent per _ from _ until paid bothprincipal and interest payable only in LAWFUL MONEY OF THE UNITED STATES.

Payable at

[signature]

Promissory note is not as popular as the Bill of Exchange in international payment because

of its more restrictive legal status

4 TERMS OF INTERNATIONAL PAYMENT

There are several methods of receiving payment for products sold abroad As with domesticsales, a major factor that is buyer's ability and willingness to pay For export sales, thefollowing methods, which are ranked in order from most secure for the exporter to the leastsecure, are often used in international trade:

a.CASH IN ADVANCE

While cash in advance is the most attractive to the exporter and does away with collectionand payment problems, it is a significant cash flow consideration for the buyer who may bereluctant to make payment before the service or product is even available There may also

be competing supplier that offer more liberal credit terms which make them more attractive

in the market these term inadvisable This may be the most practical method if:

• The buyer lacks creditworthiness

• The buyer is not able to offer sufficient security for payment

• The buyer is located in a region of political and/or economic instability

• The product is so specialized that it is specifically made for the customer and is notreadily salable to another

'. In some instances, this payment method can be modified to a partial payment in advance

with agreement upon progress payment or additional term available

b LETTER OF CREDIT

When a contract between the seller and the buyer comes into effect, the basis for a debt is

created In the context of modern international trade, this basis buyer - seller relationshipbecomes increasingly complicated Due to distance, time, economic or political conditions inthe buyers' country and vagaries of international relation, the seller wants to protect himselfagainst the buyer risk, especially if the buyer is of unknown credit worthiness, the paymentwill be made by the buyer

To exempt the seller from potential risks in foreign trade, the commercial letter of credit isdesigned to deal with

A letter of credit (Lie) is a written undertaking by a bank (the issuing bank) given to theseller (exporter or beneficiary) at the request of the buyer (importer or applicant) to pay atsight of at a future date (time letter of credit) up to a stated sum of money The LlC is onlygood for a stated period of time (through the expiration date) and is payable uponrepresentation of stipulated documents, the issuing bank is substituting its credit for that ofthe buyer

All letters of credit contain these elements:

• a payment undertaking given by the bank (issuing bank)

• on behalf of the buyer (applicant)

• to pay a seller (beneficiary)

• a given amount of money

• on presentation of specified documents representing the supply of goods

• within specific time limits

• these documents conforming to terms and conditions set out in the letter of creditDocuments to be presented at a specified place

Prime parties involve in Letter of Credit:

• Buyer - also called account party, accountee or applicant, usually the party importinggoods

• Seller - The exporter or the party to whom the credit is issued, also called theBeneficiary

• The opening bank - the issuer of the Letter of Credit, often called the issuing bank

• Advising bank - Usually a corresponding bank of the issuing bank which does not put itsown credit on the line but serves to relay information or assist in the performance ofsome of the bank's duties

• Confirming bank - an advising bank or corresponding bank that pledges its credit inplace of or in addition to the issuing bank

Graduation Paper Advisor: Truong Quang Tuan, MBA

". • The paying bank - the bank on which the drafts are to be drawn

THE BANKS:

following are banks with their roles and functions:

- The issuing bank is the bank that issues the LlC itself The seller should try to getthe buyer to use a bank of the seller's choice to issue the LlC the seller should findout from it own bank, preferably a bank with a substantial international presence,what corespondent bank it uses in the country of the buyer if the buyer can have theLlC issued by that corespondent bank, the process can proceed more expeditiously.Put simply, the issuing bank's roles are:

- To modify the LlC upon request by mutual agreement of the seller and the buyer

- To guarantee to the seller that if compliant document are presented, the bank willpay the seller the amount due This offers security to the seller - the bank says ineffect: "we will pay you if you present document (XYZ)"

- To exam the document and only pay if these comply with the terms and conditionsset out in the Letter of Credit This protects the buyer's interests The bank says:" Wewill only pay you supplier on you behalf if the present documents (XYZ) that youhave asked for It is to be noted that, however, the LlC refers to documentsrepresenting the goods - not the goods themselves Banks are not in the business ofexaming goods on behalf of their customers That means Letters of Credit deal indocuments, not to goods

It's normally a branch of the issuing bank in the country of the buyer When the LlC hasbeen opened in seller's favor, the LlC is then addressed to the advising bank Uponreceiving the LlC, the advising bank transmits the LlC to the buyer in the form of aprinted document

The advising bank is only responsible to the issuing bank for accurate transmittal of allinformation it receives Itis important, nevertheless, to emphasize that the advising bankmay never be involved in actual negotiating of the Lie its role is of an agent of theopening bank in bringing the instrument to the attention of the exporter-beneficiary

The letter of advice to the beneficiary should bear a clause indicating clearly that it ismerely an advice of credit opened and no engagement on the part of the bank, thatclause says:" please note that we assume no responsibility for any error or omission inthe transmission and translation of the cable "

Paying bank is the bank that honors a draft when it is presented; it will either payoraccept the draft, the paying bank may either be the issuing bank, the confirming bank, or

a third bank named in the LIe

If the seller does not have confidence in the bank of the buyer's choice, or if there is anyquestion about the political stability of the foreign country where the issuing bank islocated, then the LlC should be confirmed by a big and prestigious bank, it is usually ainternational known bank, when a bank confirms a LlC issued by a foreign bank, it takesupon itself the payment obligation Thus, if a bank confirms a LlC and subsequently, forpolitical or economic reasons, the foreign bank could not reimburse the paying bank, theconfirm bank us nonetheless on the hook to pay the beneficiary under the LlC there is acharge for confirmation, which becomes more expensive in proportion to how big a riskthe confirming bank believes is taking in confirming the LIe

To negotiate means to "sell", the beneficiary may present the draft to the paying bankfor honoring or he may simply negotiate his draft by purchasing it with recourse to theseller The negotiating bank becomes a holder of value of the draft and will subsequentlypresent the draft to the drawee's bank The negotiating bank mayor may not bedesignated in the LlC by the opening bank

Settlement process:

Settlement process in Letter of Credit can be complex, and there are many variations onthis The two process described and illustrated below are for a sigh Letter of Credit:

Graduation Paper Advisor: Truong Quang Tuan, MBA

Letter of Credit Flow ChaIt

8 DoCUI'Mmts

7 PaymCt\l

6., £lil o:f Ltlt"!M'tQ, Truck.

Rall or1\11\\'3Y aill

2, Reqveli.is

UC

1 Sales Contract between Exporter and Importer

2 Importer requests LlC from their bank overseas

3 Issuing Bank overseas sends LlC issuance instructions to USAdvising/Confirming bank

4 LlC is opened and advised to Exporter or Beneficiary

5 Goods are shipped via a Carrier (plane, boat, truck or rail) to the Importer

6 Exporter and Carrier provide various documents to Freight Forwarder who isthe party that usually presents these to the Bank In some cases the Exporterpresents to the Bank

7 Upon approval that the documents are in order, money is sent from the IssuingBank either direct to the Advising/Confirming Bank or through a USReimbursement Bank The Reimbursement Bank is where the Issuing Bankkeeps their money in the US

'. 8, Documents are released to the Importer's Bank where they are checked again

and then released to the customer so they can clear customs in their country

uyer and seller agree terms, including means ofransport, period of credit offered (if any), latest dat

f shipment, Incoterms to be used

uyer applies to bank for issue of letter of credit.ank will evaluate buyer's credit standing, and rnaequire cash cover and/or reduction of other lendinimits

ssuing bank issues LlC, sending it to the Advisingank by airmail or (more commonly) electronic meansuch as telex or SWIFT

dvising bank establishes authenticity of the letter 0

redit using signature books or test codes, thennforms seller (beneficiary), Advising bank MAY

confirm LlC, i.e add its own payment undertaking

eller should now check that LlC matches commerciagreement, and that all its terms and conditions can batisfied, (e.g all documents can be obtained in gooime.) If there is anything that may cause a problem,

n AMENDMENT must be requested

Advisor: Truong Quang Tuan, MBA

he Issuing bank debits the buyer and releases thocuments (including transport document), so that theuyer can claim the goods from the carrier

he Issuing bank now checks the documents itself I

hey are in order (and it is a sight LlC), it reimburse

he seller's bank immediately

eller ships the goods, then assembles the documentaIled for the LlC (invoice, transport document etc.Before presenting the documents to the bank, th

eller should check them for discrepancies with the

IC, and correct the documents where necessary

he documents are presented to a bank, often thdvising bank The Advising bank checks thocuments against the LlC If the documents arompliant; the bank pays the seller and forwards thdocuments to the Issuing bank

Graduation Paper

prior notice to the beneficiary, it's obvious that the seller must rely fully on the buyer of hisgoods, so this type of credit is rarely in use in international trade because of its uncertainty

of payment

issuing bank which guarantees payment to the beneficiary against specified documentsdrawn in accordance with the terms of the credit An irrevocable LlC can be confirmed orunconfirmed according to the mutual agreement between the buyer and the seller

An irrevocable credit may not be amended or cancelled without the consent of all partiedconcerned

Irrevocable without recourse LlC: in this kind of LlC, the issuing bank cannot claim its

money back after the payment has been made to the beneficiary

credit in whole or in part to a third party, this credit must be marked "irrevocabletransferable" Transfer can be easily effected by giving instruction in writing to the advisingbank; a transferable credit can be transferred once only Charges and expensed arising fromsuch transfer are usual borne by the first beneficiary

Back to back LlC: this type of LlC is opened when the Master LlC has been opened When

the importer opens a \master LlC in favor of the exporter, the exporter instructs his bank toissuing a back to back LlC that relies on the master LlC for the supplier It is used as amethod of finance to enable an export agent to buy goods from a supplier or a manufacturerand sell them to a final buyer

original amount This kind of LlC is used for a large quantity of goods; the delivery of thegoods is made in installments at stipulated times in a long period

bank takes on a commitment to pay the LlC value in installments in its validity period.Deferred LlC is used in case of big deferred amount, long payment period, partial paymentand goods of different kinds, quantity and value Upon presentation of the properdocuments, the bank (issuing or confirming) will automatically pay the beneficiary on thedue date (specified in the LlC)

bank to make an advance to a beneficiary in order to enable him to prepare the goods forwhich the credit is opened Under this red clause credit, the beneficiary can draw a certainsum of the credit amount before delivery of the required document

importer if the exporter cannot fulfill his duty of delivery the goods as the LlC opened in hisfavor

LlC which reciprocates it is opened Reciprocal LlC is mostly used in the sales-purchaserelationship based on barter

The Content of LlC

The content of a LlC must comply with the document required for payment; the details will

be discussed later in the relating documents

Although the seller is ensured the security of the bank payment undertaking, LlCtransactions are the bane of existence to quite a few exporters because of the difficulty ofcomplying with the documentation requirement s within them Statistics show that in as 50%

/NGAN liANG NGOJl.1TlIlMN(; VI~T NAIll

Chi nh;\ nh TIP H6 Chf Minh

e(\llg lion Xii II<}i Cllli Nghin Vi~l Nnll1

I J(\e III p • TIf do • 1Ii,Iull plllie

'uc s6 I L/C No : M07E7904NS00079fgaylDnt.ed I 'JdI0411999

s6 tig nlValue VSt5 , "' "'S>710': atY ,., , ,.,., , '30 lash 999"

Chung toi xin thong bao vui Qui Cong ty chung toi dfi nh~n du'lfc thu'/di.;\n rna

UC/sua d6i UC voi nqi.dung theo ban dinh kern

Please be aduiced that we haue receiued the Letter I Swi(t M cssage/ Telex O(Credit I

Amendment o( Credit in your (auour, reading in s/lbs/ance a.5shown on the attached sheet

Dg nghi Qui ddn vi ki~m tra elin th~n Thu' tin dlJ-ng/Sua dc3i thu' tin dlJ-ng nay

Trong tru'ang hqp khong d6ng y voi bilt eu mqt digu ki~n hay digu khmin nao ho~c

vi mqt Iy do gi hay khong co khB nang thtje hi.;\n bilt eu mQt di~u khoB.n nao Clin

Thu' tin dlJ-ng/Sua d6i thu' tin dlJ-ng nay, d6 nghi Qui ddn vi Wln h.;\ ngay voi ngu'ai

rna Thu' tin dlJ-ng va yeu diu sua dc3ieho phti hqp

You are requested to check care(ully all terms and conditions o( this Letter Credit I

Amendment In the event that you do not agree or (eel unable to comply with any terms and

conditions, please contact with the Applicant (or the Credit to reach a satisfted Credit I

Amendment.

Thong bao nay tuan thu "Qui uie va thtje himh th6ng nhilt vt\ tin dlJ-ngchung tll'

ban sua d6i nam 1993 s6500 cun phong Thu'dng ITIl"iQu6e te'''

This advice is subject to the Uni(orm Clls/oms olld practice (or Documentary Credits

1993 revision, ICC publication NO.500

D Kh6ng co sljxac nh~n cua chUng.t6i

Without adding our con[irmati/JIl

o Phi ThOng bao la

oPhi xac nh~n la

o C6sV xac nh~n cua chung Wi

Adding our confirmation

c

: /

/(

, /;,- X030599.101 -*- Page :

BANK RECEIVE :(BFIVVNVXUOI)BANK FOil FOIIEIGNIRAOE UF VIETNAM (HO

CHI MINH CITY BRANCH) HO CHI MINH CITY

OUTPUT TIME/DATE/MT :08:00 U3/U5/99 Ml/OO

OATE/AMDUNT/CURRENCY :03/05/99 S,llO.OO US[) ,

PREFIX/TESTKEY/STATUS:xxxxxxx TESI OK (1[ll2)

FILE NAME :07510305.781 Dal:e:()j/OS/99 lill,e:1o:oI:53

NOTE (added by TTTT) :M07E7904NS000791

MT 700 ISSUE OF DOCUMENTARY CREDIT

:40A /FORM OF DOCUt1ENTARY eRI':UJ T: llillf.,VUCAI3I.F

:20 /DOCUMENTARY CREDIT NUMBEll :MU/EJ904NSOUUJ91j

:310 /OATE AND PLACE OF EXPIRY :990530 AI TilE NEGO

:50 /APPLICANT' :SHIN YOUNG TRADING CO.,I.ID

962 ,DOH~IA-DONG, NAJ1-GU, INCHON

:328 /CURRENCY CDDE,AMOUNI :U5U5J10,00 /

:410 /AVAILABLE WITH BY

:44A /SHIPMENT FROM:HCM PURT

:44B /FOR TRANSPORTATION TO :INCliON PORr /

:44C /LATEST DATE OF SHIPMENT :990520 /

:45A /DESCRIPTION OF GOODS AND lOR SERVICES:

FURNITURE MADE OF RUBBERWOOO

ROUND TABLE 400PCS USD7.40 USD2,'i60.00

ROUND CHAIR 1,aaOPCs US[)2.7~ U502,750.00

TOTAL QUANT1TY 1,400PCS AMOUNI USD~,!IO.OO

COUNTRY OF ORIGIN:VIETNAM

PRICE TERM:FOB HCM PORT /

~:46A /DOCUMENTS REQUIREO

A)FULL SET OF CLEAN ON BOr-,rWOCEAN BH,Ls Of IJW[NG 11M)E our 10 THE

ORDER OF KOOKMIN BANK, SEOUL KOREA

MARKED FREIGHT COLLECT AND NOTIFY ACCOUNIE~

.z)SIGNED COMt1ERCIAL INVOICE IN HIREE FOLD

; YPACKING LIST IN THREE FOl.D

~4' CERTIFICATE OF ORIGIN_"

ORIGINAL INSPECTION CEHTIFICATE SIGNED SEAI.ED BY SHIN YOUNG

.: TRADING CO.,LTD.IS REQUIRED

' :47A /ADOITIONAL CONDITIONS: /

I •

Graduation Paper Advisor: Truong Quang Tuan, MBA

of LlC transactions, the seller's documents will be rejected by the balk at presentation Atthe heart of the problem is the very limited discretion available to bank in the matching oftheir terms and conditions of the credit against the documents presented They must so this

in a very literal way, with no room for the exercise of judgement

In order to be paid under a Letter of Credit, great care must be paid to the LlC transaction

To maximize the chance for payment under a LlC, a seller/beneficiary must know the rules

of the games, the rules are codified in a publication sponsored by the International Chamber

of Commerce (ICC), known as the uniform customs and practice for documentary credit.The latest version of the rule is ICC publication NO.500, 1993 revision (theUCP 500) which

is in force as of January 1, 1994

c.COLLECTION

Collection is a method of payment in which after delivering goods to the buyer, the sellerdraws a bill of exchange to claim payment from the buyer and the bank will collect themoney for the seller

+ Clean collection

With regard to clean collection, the exporter delivers the goods and then sends the shippingdocuments directly to the importer After that the exporter draws a draft and instructs thebank to collect money for the contract goods without any conditions

6 TTR

eycr

collectipg bank 3 Draft &collection instruction ~ bank

The clean collection flow chart

1 Goods are shipped and documents are sent to foreign buyer

2 A draft is drawn and transferred to the domestic collecting bank of the exporter

3 The domestic collecting bank send the draft and a collection instruction to the foreignbank

4 The draft is sent to the importer

5 The importer orders his bank to transfer the money to the exporter

6 Payment is made by TTR or MT

7 The domestic collecting bank credits the seller's account and sends a letter ofnotification to him

A documentary collection is simply a bank cover letter that accompanies your shippingdocuments to your overseas buyer's bank The cover letter instructs the bank on how toremit funds once received from the buyer and also provides instructions to the bank on

Documentary Collection Flow Chart

3 PaymentorAcceptance

1 Goods are shipped to foreign buyer

2 Exporter gives documents to forwarder who combines with others to deliver tobuyer's bank overseas Exporter may also send by themselves Included with thisdocument set is a copy of a bank documentary collection letter

3 Foreign bank notifies buyer that documents are in and buyer either pays for them(sight collection) or agrees to accept an obligation to pay in the future (time draft

or time collection)

Graduation Paper Advisor: Truong Quang Tuan, MBA

4 Upon payment or acceptance of obligation to pay in the future, documents arereleased to buyer

5 Funds are sent to the exporter's bank in the VN as per the payment instructions onthe collection form Status messages or notifications of maturity or acceptance ofthe time draft also go to the VN collecting bank

Draft and payment typically processed by a third party, usually a bank, that assumes thatnecessary documentation and delivery a made prior to payment Documentary collectionmay be either against payment or acceptance

doesn't receive possession of the negotiable documents and control of the goods until thebank receives payment

Acceptance, the buyer receives the goods in return for a draft agreeing to make payment

at a future date This document is essentially an account receivable which results in ahigher degree of risk for the seller since he or she is essentially providing short termfinancing for the buyer This procedure has a disadvantage that the buyer can takepossession of the goods before actual payment is made

d BARTER

Perhaps the oldest form of trade, barter is the trading of goods or services for other goods orservices at an agreed upon rate, no currency or currency account are involved modernpractice pure rare However, barter may be tied in with other considerations, particularlywhen liked with services to be rendered or with political requirement or commitment

d.TELEGRAPIDC TRANSFER REMITTANCE (ITR)

The buyer instructs his bank to transfer a fixed sum of money to the beneficiary (the buyer,the exporter, the payee) at a specified place in a definite period of time

The TTR flow chart

ney fel'

1 On the basis of the signed contract, the seller proceeds to deliver the goods as well astransmits the shipping documents to the importer

2 After checking the documents, if they match the terms and conditions agreed on thesale contract then the buyer orders his bank to transfer money to pay the seller

3 The bank will debit the buyer's account and forward that amount to its branch in theseller's country to pay the seller

4 The bank credits the seller's account and gives him a letter of notification

5 The bank notifies the buyer of the result of payment

The money transfer in step 3 can be done by either TTR or MT

TTR form: the bank serving the buyer gives order for transferring money to thebeneficiary to its branch by cable

MT form: mail is used instead of cable in this case

TTR is preferred to MT due to promptness, although it's charged a higher fee

The advantage of this method is simple procedure but it's risky to the exporter andthere is no control available to the exporter So this method should be only applied forsmall-value contract and with a business partner of a long relationship

e. OPEN ACCOUNT

In this method, the two parties come to a mutual agreement that the exporter delivers thegoods to the importer, and the importer's responsibility is to open an account on the name ofthe exporter with the same value as in the contract of sale When reaching maturity,payment will be made to the exporter by the importer

satisfactory if the buyer is well established, has demonstrated a long and favorable paymentrecord, or has been thoroughly checked for creditworthiness Under open account, theexporter simply bills the customer, who is expected to pay under agreed terms at a futuredate Some of the largest firms abroad make purchases only on open account

Open account sales do pose risks, however The absence of documents and bankingchannels may make legal enforcement of claims difficult to pursue The exporter may have

to pursue collection abroad, which can be difficult and costly Also, receivables may beharder to finance, since drafts or other evidence of indebtedness are unavailable

Before issuing a pro forma invoice to a buyer, exporters contemplating a sale on openaccount terms should thoroughly examine the political, economic, and commercial risks andconsult with their bankers if financing will be needed for the transaction

Graduation Paper

CHAPTER II:

Advisor: Truong Quang Tuan, MBA

STEPS, PROCEDURES & DOCUMENTS REQUIRED FOR EXPORTING WOODEN PRODUCTS

1.A BRIEF INTRODUCTION TO AN SUONG PRODUCING & TRADING COMPANY, LTD

An Suong Producing & Trading Company LTD (ANSOCO) was established under licenseno: 041750 issued by the HCM city - Department of Planning and Investment on October

15th 1998 Its main scope activities include processing wood, producing furniture, and trading(engaging in import-export activity for itself and its customers) The charter capital when itwas founded was VND 200 million There are three members in the councils' member: Mrs

HO THI HIEP, director and chairwoman of the councils' member, Mr NGUYEN HIEPHOA, vice director who is responsible for technical issues, Ms NGUYN HIEP HAO vicedirector, responsible for sales

THE PERSONNEL STRUCTURE OF THE COMPANY:

NGUYEN HIEP HAO

VICE DIRECTOR

SALESDEPARTMENTThe company main office is at 149X22 To Hien Thanh District 10 HeM city; when the itwas established, it had a workshop in Trung My Tay ward 12 district and up to now, it hasexpanded to three more workshops in Cay Dau commune, Tan Phu ward, district 9 HCMcity

The company's turnover was VND 4.3 billion in 1999 and is on increase in the year 2000.Since the renovation process started and especially the "Open door" policy have beenapplied, our country has lessened its control upon international trade and coorperation tointegrate ourselves to the global economy The company founders are those who activelygrasped the new trend, and quickly took the opportunity to take part in the business world.There are quite a few methods of market entry including exporting, joint venturing anddirect investment; the method chosen depends on a variety of factors including the nature ofproducts or services, the financial capability, the management experience, the human

resource and the conditions for market penetration which exist in the foreign target market.

so exporting was considered the most suitable method to the company at that time, and themembers has a high agreement on exporting

As someone has said: "failure to plan is plan for failure", the company founders havecompletely understood that an international business plan is an essential tool to properlyevaluate all the factors that would affect their company ability to go international

They had an international business plan with some features like this:

• Commitment to international trade

• Exporting pricing strategy

• Reason for exporting

• Potential export markets and customers

• Methods of foreign market entry

• Exporting cost and projected revenues

• Exporting financing alternatives

• Legal requirements

• Transpontation method, and

• Overseas partnership and foreign investment capacitiesCreating an international business plan is important for difining the company present status,internal goals and commitment Completing and analyzing an international business planhelps anticipate future goals, assemble facts, identify constraints and create an missionstatement It should also set forth specific objectives, an implementation timetable andmilesstones to access their markets Besides making use of the existing business relationshippartners in Taiwan, Korea, Singapore the company is also interested in expanding itsmarkets to Europe, especially ED market There are several ways to find potential buyers,the company uses only two methods: they are oveseas business trips and participating incatalogue exhibitions Although the company is newly established and there are a lot ofdifficulties to overcome, it is finding its firm position in the business world and has apromissing future

2.PREPARING PRODUCTS FOR EXPORT

To enter a foreign market successfully, the company has to modify its products to conform togovernment regulations, geographic and climatic conditions, buyer preferences, or standard

of living Factors such as topography, humidity and energy costs can effect the performance

of the product or even its use

Frequently, only a small change may be required to successfully market the product Thecolor of the product, the design of the package, the size of the product all may needadjustment

-. Graduation Paper Advisor: Truong Quang Tuan, MBA

Consideration should be given to the product name (it may inadvertently have a negativeconnotation in the local language), cultural and/or religious connotations, appearance ofcontainer, compliance to standards (different electrical power, metric dimensions and localproduct regulations)

Local customs, such as the use of leisure time, often determine whether a product will sell The level of income, the level of education, and the availability of energy are all factors thathelp predict the acceptance of a product in a foreign market Understanding the above issuesthoroughly, the technicians in the company have done their best to make a wide range ofproduct variations to meet different tastes of each market; in addition, the company alsoadapts its products as required in the orders of the customers; there are about 3-5 buyer'stechnicians residing in the company for technical instruction and inspection

The company products are chairs, tables, armchairs, and wardrobes of different sizes andkinds Following are some of them (see pictures of the others):

HENLEY ARM CHAIRCOVENTRY TEAK CHAIRCAMBRIDGE TEAK CHAIRCLASSIC TEAK 5 POSITION CHAIRCOVENTRY TEAK TABLE

CAMBRIDGE TEAK TABLEThese products are produced from the wood that are imported from Malaysia, Indonesia,and Thailand, and bought in domestic market The timbers and logs are of different kindssuch as rubber wood, cashew wood, andjackfruit wood

The trunks are sawn into pieces then processed with chemical to protect them from theclimatic conditions from harmful insects and to increase their endurance After that thosepieces are processed into finished products under the supervision of the buyer's and thecompany's technicians, the finished products are then packed in carton boxes, or cratesaccording to the type of products

3 FORMATION OF CONTRACT

a NEGOTIATING AND CONTRACT SIGNING

International contract can be defined as a mutual agreement between the seller and thebuyer in which stipulating that the seller has the obligation to deliver the goods, to transferthe title to the goods, and the buyer has to take delivery of the goods and pay the price

The aim of the contract is to create a basis for the parties involved to fulfil their duties, tosettle the disputes, the lawsuit if there are any and as the formality The contract thatdescribes the agreement must be precise in each term All the details of a commercialcontract such as payment, delivery, term of sale, etc should be spelled out as specific andaccurate as possible

WINDSOR DECK CHAIR

I

Ten chi tict s~lnphim Qui deh chi tict KhC,i hlgng

Nan trong khay tren & t1u',~i 8 x 42 x 435 mm (26th) 0.00380

Cha n san 24 x 42 X 840 mm (2th) 0.00169

Nan hong khav Iren 19 x 57 x 675 mm (2Ih) 0.00146

Chan tni,k 24 x 42 x 1()40 mm (2th) 0.00210

Nan df,II khay cltrui 19 x I 11) \ 455 mOl ( Ith) 0.O{){)')5

Nan chi) II chili fU\111 9 x 5-1 \ -115 mOl (2th) O.I)I){)-I2

:"Jan hong khil: dlf~-ji I') x Illl x ()75 mill 12th) 1).1)l12X2

Nan d,111khay clU'lli 1') x 57 x -155 mOl 11th) 1).111)1)-1')

Nan ch.1n ell,in 'ial1 "_J X 23 \ 495 mOl 12th) D.OO052

Nan eh.1 n ch;i II IrUt-fl _.'" :\ ~,_.' x 55:) mm 12th) 0.0005')

Nan Ime h,inh ,,: 2) x 23 :\ hii mOl 11th) O.DOn:; 5

Nan 2 di"l klta'; Ir0n 19 \ X5 :\ -+.15 mm 12tlt) 0.(1)1-1';'

f3,i nil xc lun 25 x 250 \ 250 mill 12tlt) D.OO.11.1

Clttllt h,inh \c l<in 12 x 70 :\ 71) mm 1-1111 ) o.I)O()2-1

Liii

()uy USD

C(>ng (1) & (2) Ddn gi~i

Hao h\!l : 28.5';; (X 1.4)

Haoh\It:47.39i (xl.';i)'

YC - 517 (TEA TROLLEY).

Quy each to?ng tId: 810 x 650 X 780l1l11l

Tcin~ cae chi phi (1)

Basing on the orders of the customers the company and the buyer begin to negotiate to set

up a contract Ansoco's customers are foreign companies that have a representative office inVietnam; the representatives of the two companies meet each other directly for contractnegotiation in either ANSOCO head office or in the customer's representative office

The first element is the name of the parties to a contract; on the first page of most contracts

is the name of each party, when it first appears, the name is normally the full, registeredname of the company It is essential to discover the exact name of the company with whom

we sign the contract to avoid confusion or even fraud on the part of the foreign partner

b ClAUSES IN AN INTERNATIONAL CONTRACT

There are usually more than 10 articles in a contract of sales, but the following six majorarticles must be included to make the contract legal:

.: Commodity.: Quality.: Quantity.: Price.: Shipment.: PaymentFollowing are the detailed analysis of each article

Commodity is the object of the contract that enables the parties to determine the goods ofsale So, it is an indispensable clause to help the parties avoid regretful misunderstandingthat may lead to the disputes later as well as to identify goods of the same category

Name of the goods can be specified as in the following method:

Name of the goods is included with its commercial name

Name of goods and its scientific nameEx: Urea Fertilizer

Name of the goods and its use

Ex: Rice paste (base element for preparation of spring roll)

Name of the goods and its quality description

Ex: Skinless Whole Dried Squid

Name of the goods and its technical specification

Ex: Tiger brand home appliances made in Japan (220V, 50HZ)

This article describes the specification, measurement, and technical data of the goods.Accurate and detailed description is the basis to determine selling price, as well as, to have

-. Graduation Paper Advisor: Truong Quang Tuan, MBA

the seller deliver the right goods stipulated in the contract If the description is ambiguous,either the seller or the buyer may suffer from losses

The contracting parties should agree with each other on the method of describing quality andchoose one of the following methods to use in the contract:

• The quality of goods is similar with that of the sample:

This method is used for the goods whose quality is difficult to describe such as productsmade of gold, silver, lacquer-wares etc, which have complicated design

There must be three sets of sample when using this method; the seller keeps one set, thebuyer keeps one and the last is kept by an intermediary to ensure that there is nodiscrepancy between the goods and the sample

• Description of quality is based on the main element of goods

This method is often used for agricultural products, chemical, minerals The descriptionmust meet the following requirements:

- The useful matter: the minimum amount acceptable

- The useless matter: the maximum amount allowed

Ex: This clause for "Vietnam Rice Type Pearl"

Foreign matter Broken

Whole grain Damaged kernel Chalky kernel Red kernel Immature kernel

• The goods are described the same as their actual condition; this method is used forselling/buying second hand products

• Description of quality is based on technical design or catalogue People use this methodfor machinery which has many components

• Description of quality is based on existing standard; it may be international standard orthe standard of the importer or the exporter

Ex: export standard, as per approved samples

There are other methods used to describe the quality of goods, but they are not popular sothe are not mentioned here

The quantity of the contracting goods must be indicated clearly, so the parties must agreewith each other on the use of the calculation unit and the measurement system

There are some measurement systems applicable; for example:

The quantity or weight used in approximate number, it means there is a tolerance

from 95,000 MT to ]0,500 MT at the seller option

If the tolerance is not indicated in the contract, then the current international customs isused:

0.5% for cereal0.2% for coffee10% for wooden productsThe quantity/weight is used as a fixed number:

15,000 barrels only1,000 cottons3,500 pieces (chair, table components)

It is necessary to be noted that most of our exported products are raw materials, cereal,wooden furniture, and foodstuff Therefore, tolerance is essential to comply with the Lie

In the execution of the contract, there may be something that happens beyond thecontracting parties' control, causing a loss of or damage to the goods such as war, riots,insurrections, acts of God etc The unexpected losses are regarded as force majeures whichare not held responsible for any parties; hence, it is unimportant to include this provision inthe contract to avoid unnecessary disputes if possible