Trade Terms

Responsibilities of Buyer and Seller

1. Seller's Responsibilities:

• Prepare and package goods for shipment
• Clear goods for export in the origin country
• Arrange and pay for transportation of goods to the destination port
• Purchase minimum insurance to cover the goods in transit to the destination port

2. Buyer’s Responsibilities:

• Unload goods from the vessel at the destination port.
• Cover import duties, taxes, and any additional costs after the goods reach the destination port.
• Manage customs clearance and inland transport from the destination port to the final destination.

Insurance Coverage

Under CIF terms, the seller is required to obtain insurance for the shipment, but only a minimum level of coverage is required. This means that the seller’s insurance might not cover all potential losses, and buyers often choose to purchase additional insurance to fully protect the goods. The insurance policy typically covers up to 110% of the goods' value.

Cost Implications

CIF terms are beneficial for buyers who want reduced upfront responsibility for shipping and insurance. The cost of freight and insurance is included in the price the buyer pays to the seller. However, CIF can be slightly more expensive than FOB due to the additional costs the seller assumes. Buyers should carefully evaluate whether the CIF cost structure fits their needs and budget.

Example Scenario

Consider a buyer in Germany purchasing electronic components from a supplier in Japan under CIF terms. In this case:

• The Japanese supplier handles transportation, insurance, and costs to deliver the goods to the port in Hamburg, Germany
• The supplier ensures the goods are insured during transit but is only required to provide minimum coverage
• Once the shipment arrives at Hamburg port, the German buyer takes responsibility for unloading, import customs, and any additional costs

Key Considerations

• Transfer of Risk: Although the seller pays for freight and insurance, the risk transfers to the buyer once the goods are on board the shipping vessel at the port of origin.
• Insurance Limits: The seller is obligated only to provide minimum insurance. Buyers should consider additional insurance if they want full coverage.
• Documentation: The seller must provide essential documents to the buyer, including the Bill of Lading, insurance certificate, and a commercial invoice for customs.

CIF vs. FOB

In CIF, the seller assumes more responsibilities (freight and insurance) up to the destination port, whereas in FOB (Free on Board) terms, the buyer assumes responsibility and cost once the goods are loaded onto the vessel at the origin port. CIF is generally more favorable for buyers looking to minimize risk during transit, while FOB is preferred by buyers who want control over shipping arrangements and costs.

When to Use CIF

CIF is ideal for buyers who:

• Prefer not to handle logistics or insurance arrangements up to the destination port.
• Are less experienced with international shipping and want the seller to take more responsibility.
• Seek reduced risk and administrative burden during the initial stages of shipping.

Responsibilities of Buyer and Seller

1. Seller's Responsibilities:

• Prepare and package the goods for pickup
• Make the goods available at the agreed location on the agreed date
• Provide any necessary documentation to assist with export clearance (if requested), although export duties and formalities are the buyer’s responsibility

2. Buyer’s Responsibilities:

• Arrange and cover all transportation costs from the seller’s premises to the destination
• Handle export clearance, including export licenses, duties, and documentation
• Arrange import clearance, including any necessary duties, taxes, and customs formalities at the destination
• Assume all risks and insurance coverage for the goods from the moment they leave the seller's location

Cost Implications

EXW terms place minimal financial and logistical responsibilities on the seller, making it one of the least expensive Incoterms for the seller. However, for the buyer, EXW can be costly and complex because they bear the full cost of transportation, export and import formalities, and insurance. EXW terms are often more suitable for buyers with h3 logistics capabilities and experience in international trade.

Example Scenario

A U.S.-based buyer purchases agricultural machinery from a manufacturer in Italy under EXW terms. Here’s how it works:

• The Italian manufacturer makes the machinery available for pickup at their factory
• The U.S. buyer arranges for a freight forwarder to pick up the machinery and handle export formalities, transportation to the port, and all necessary documentation
• The buyer also arranges and pays for sea freight, insurance, import customs clearance, and transportation to the final location in the U.S
• In this case, the buyer has full control over the logistics but also assumes all associated costs and risks

Key Considerations

• Minimum Seller Responsibility: EXW places almost no responsibility on the seller, who only needs to make the goods available at their premises.
• Full Buyer Responsibility: The buyer bears all risks, costs, and responsibilities for transportation, export, import, and delivery to the final destination.
• Documentation: The seller typically provides a commercial invoice and packaging details but is not required to assist with export clearance. Buyers may need to coordinate closely with a customs broker or freight forwarder for export and import processes.

EXW vs. DDP

In contrast to EXW, DDP (Delivered Duty Paid) is an Incoterm where the seller takes on maximum responsibility, covering all costs and logistics from their premises to the buyer’s designated destination, including import clearance and duties. EXW places almost all responsibility on the buyer, while DDP places almost all responsibility on the seller.

When to Use EXW

EXW is best suited for buyers who:

• Have the expertise and resources to manage transportation, insurance, and customs independently.
• Prefer full control over the logistics chain and costs from the seller's location to the final destination.
• Are experienced in handling export and import formalities, including documentation, duties, and other logistics.

Responsibilities of Buyer and Seller

1. Seller's Responsibilities:

• Prepare and package goods for shipment
• Handle all transportation, including export and import logistics
• Cover all costs, including transportation, insurance, export and import duties, and any necessary fees or taxes
• Complete all export and import customs clearance processes and provide necessary documentation
• Ensure the goods reach the buyer’s specified location

2. Buyer’s Responsibilities:

• Provide a clear destination address and be available to receive the goods
• Take responsibility for unloading the goods once they arrive
• Minimal responsibility otherwise, as the seller takes on all other obligations

Cost Implications

DDP terms place the greatest financial and logistical responsibility on the seller, making it the most expensive Incoterm for the seller. The seller must pay for all transportation, customs clearance, duties, and taxes, which can significantly increase costs, especially for international shipments with high duties. For buyers, DDP provides convenience as they receive the goods at the destination without the need to manage import formalities or additional costs.

Example Scenario

A U.K.-based buyer orders industrial machinery from a U.S. manufacturer under DDP terms. Here’s how the process works:

• The U.S. manufacturer arranges for transportation from their facility to the U.K., covering shipping, insurance, and other logistics
• The manufacturer handles both export clearance in the U.S. and import customs clearance in the U.K., paying all associated taxes and duties
• The machinery is delivered directly to the buyer’s specified location in the U.K., and the buyer is only responsible for unloading
• This arrangement minimizes the buyer’s involvement, as they don’t need to manage customs clearance or cover any additional costs beyond the purchase price

Key Considerations

• Seller Bears Full Responsibility: The seller assumes the highest level of responsibility under DDP, covering all transportation, taxes, and duties, ensuring the goods are delivered to the buyer’s specified location.
• Higher Seller Costs: DDP can be significantly more expensive for the seller, especially if the destination country has high import duties and taxes.
• Risk Transfer: Although the seller handles the goods until they arrive at the destination, risk may transfer to the buyer once the goods are ready for unloading. The buyer should ensure proper unloading facilities if the items are heavy or complex to unload.

DDP vs. EXW

DDP and EXW (Ex Works) are essentially opposites in terms of responsibility. Under EXW, the seller has minimal responsibility, as the buyer arranges all logistics from the seller’s location onward. In contrast, under DDP, the seller manages the entire process, from export to import, and covers all associated costs and risks up to the destination.

When to Use DDP

DDP is ideal for buyers who:

• Prefer minimal involvement in logistics, customs, and import procedures.
• Lack the expertise or resources to handle customs and shipping in the destination country.
• Value convenience over cost, as DDP may be more expensive but allows for a smooth, hands-off receiving process.

DDP is suitable for sellers who:

• Have experience managing international logistics, including export and import formalities.
• Are prepared to cover all costs and handle customs processes in the buyer’s country.
• Want to provide a hassle-free experience for the buyer, especially for complex goods.

Responsibilities of Buyer and Seller

The responsibilities under Incoterms vary based on the specific term chosen. Here are examples of responsibilities for buyers and sellers under commonly used Incoterms:

1. EXW (Ex Works)

• Seller’s Responsibilities: The seller prepares the goods and makes them available at their premises. No further obligations for shipping or customs.
• Buyer’s Responsibilities: The buyer is responsible for picking up the goods from the seller’s location, handling export and import formalities, and covering all costs and risks from the seller’s premises to the final destination.

2. FOB (Free on Board)

• Seller’s Responsibilities: The seller delivers the goods onto the vessel chosen by the buyer at the port of shipment and clears the goods for export.
• Buyer’s Responsibilities: The buyer covers transportation from the port of origin, as well as insurance and any additional costs once the goods are on board the vessel.

3. CIF (Cost, Insurance, and Freight)

• Seller’s Responsibilities: The seller pays for the cost of transportation and insurance to the port of destination.
• Buyer’s Responsibilities: The buyer assumes risk once the goods are loaded onto the vessel at the port of origin and is responsible for unloading, import duties, and transport from the port of destination to the final location.

4. DDP (Delivered Duty Paid)

• Seller’s Responsibilities: The seller covers all costs and handles all logistics, including import customs clearance and delivery to the buyer’s location.
• Buyer’s Responsibilities: The buyer is only responsible for unloading the goods at their location. All other responsibilities fall to the seller.

Cost Implications

Incoterms have varying cost implications based on the chosen term:

• Seller-Bearing Costs: Terms like DDP (Delivered Duty Paid) are the most expensive for the seller, as they include all costs up to the buyer’s final location.
• Buyer-Bearing Costs: Terms like EXW (Ex Works) put the cost burden on the buyer, who must arrange for all shipping, export, and import requirements from the seller’s premises onward.

The choice of Incoterm directly impacts both parties’ costs, so selecting the right term can optimize expenses and logistics for each party.

Example Scenario

Suppose a buyer in Canada orders textile materials from a supplier in India under CFR (Cost and Freight) terms. In this case:

• The Indian supplier arranges and pays for transportation to the port in Vancouver, Canada.
• The risk transfers to the Canadian buyer once the goods are loaded onto the vessel in India.
• The Canadian buyer handles unloading, import customs, and further transport within Canada.

This arrangement allows the buyer to have the materials transported to their destination port without having to arrange overseas shipping but requires them to manage and pay for the final stages of transportation and customs clearance.

Key Considerations

• Risk Transfer Point: Incoterms specify the point at which risk transfers from the seller to the buyer, helping both parties understand who is liable at each stage.
• Cost Responsibility: Incoterms define who pays for transportation, duties, insurance, and customs, which helps avoid confusion and ensures clear cost distribution.
• Customs and Compliance: Some Incoterms specify which party handles export and import customs clearance. For example, under DDP, the seller manages all customs requirements, while under EXW, the buyer is responsible.

When to Use Incoterms

Incoterms should be used in any international trade agreement involving the sale and transportation of goods. They are especially useful to:

• Clarify each party’s obligations and responsibilities.
• Provide clear cost and risk allocations.
• Minimize the likelihood of disputes by defining standardized terms that are recognized globally.

In practice, Incoterms should be specified in the trade contract along with the location (e.g., FOB Mumbai Port), so both parties are aware of their obligations.

Purpose of a Proforma Invoice

The primary purpose of a proforma invoice is to inform the buyer of the estimated costs and terms of a transaction, allowing them to review and agree upon these details before proceeding. It is particularly useful in international trade to help the buyer with import procedures, such as securing financing, arranging customs clearance, or obtaining permits.

Key Contents of a Proforma Invoice

A proforma invoice typically includes:

• Seller Information: Name, address, contact details, and tax information
• Buyer Information: Name, address, and contact details
• Invoice Date: The date the proforma invoice is issued
• Proforma Invoice Number: A unique identifier for tracking
• Description of Goods or Services: Detailed information about the products or services being provided
• Quantity: The quantity of each product or service
• Unit Price: The price per unit for each product or service
• Total Price: The total cost for the goods or services, including applicable taxes, shipping, and handling fees
• Currency: The currency in which the transaction is conducted
• Terms of Sale: Information on the Incoterms used, payment terms, and delivery terms
• Estimated Shipping Date: The anticipated date of shipment
• Validity Period: The time period during which the prices and terms remain valid

Responsibilities of Buyer and Seller

1. Seller's Responsibilities:

• Prepare and issue the proforma invoice with accurate and detailed information
• Clearly outline terms of sale, payment conditions, and delivery timelines
• Provide any additional documents or clarifications needed to help the buyer understand the costs and terms

2. Buyer’s Responsibilities:

• Review the proforma invoice carefully to ensure all details are correct
• Confirm acceptance of the prices, terms, and conditions outlined in the invoice
• Use the proforma invoice for budgeting, obtaining financing, or securing import permits if necessary
• Arrange for payment as per the agreed terms once the proforma invoice is approved

Cost Implications

A proforma invoice provides the buyer with a detailed breakdown of costs, which helps in budgeting and planning. While it is not a final or legally binding invoice, it helps both parties agree on the costs before the goods are shipped or services are provided. Once the buyer agrees to the proforma invoice, the seller can move forward with fulfilling the order, and the buyer can arrange for any necessary payments or financing.

Example Scenario

Suppose a buyer in Japan is interested in purchasing electronic components from a supplier in the United States. The U.S. supplier issues a proforma invoice to the Japanese buyer. This invoice includes details such as:

• The types and quantities of electronic components
• The unit and total prices
• Estimated shipping costs and insurance
• Payment terms (e.g., 50% advance, 50% upon shipment)
• Incoterms (e.g., CIF Tokyo Port)
• Expected shipment date

The Japanese buyer reviews the proforma invoice and uses it to secure financing from their bank. After agreeing to the terms, the buyer confirms the order, and the supplier proceeds with preparing the goods for shipment. The final commercial invoice will reflect the details agreed upon in the proforma invoice, but may include adjustments for actual shipping costs or other fees if applicable.

Key Considerations

• Non-Binding Document: A proforma invoice is not legally binding and does not demand immediate payment. It is an estimate and an offer for sale.
• Helps with Import Requirements: Buyers often use proforma invoices to prepare for customs, secure financing, and obtain necessary import permits.
• Basis for Final Invoice: The final commercial invoice usually reflects the agreed terms in the proforma invoice, though minor adjustments may occur.

When to Use a Proforma Invoice

A proforma invoice is commonly used in situations where:

• The buyer needs a cost estimate before finalizing the purchase.
• Import regulations require an invoice to obtain permits or financing.
• The buyer needs to understand total costs, including duties, taxes, and fees, before proceeding.
• Both parties want to confirm terms and conditions before a formal sale is initiated.

Purpose of a Commercial Invoice

The commercial invoice serves multiple purposes:

• Proof of Sale: It is a binding document that shows the transfer of ownership from the seller to the buyer.
• Customs Clearance: Customs authorities use the commercial invoice to assess the value of goods and determine applicable duties and taxes.
• Payment Documentation: The commercial invoice specifies payment terms and acts as a final request for payment from the buyer.

Key Contents of a Commercial Invoice

A commercial invoice typically includes the following information:

• Seller Information: Name, address, and contact details of the seller.
• Buyer Information: Name, address, and contact details of the buyer.
• Invoice Number: A unique identifier for tracking the invoice.
• Invoice Date: The date the invoice is issued.
• Description of Goods: Detailed description of the products, including model numbers, specifications, and origin.
• Quantity: The number of units for each item.
• Unit Price and Total Price: The price per unit and the total price for each item.
• Total Invoice Amount: The total value of the goods, including applicable taxes and fees.
• Currency: The currency in which the transaction is conducted.
• Terms of Sale (Incoterms): Specifies the Incoterm used (e.g., FOB, CIF) to indicate the responsibilities of buyer and seller.
• Payment Terms:Specifies when and how the payment should be made (e.g., net 30 days, cash in advance).
• Shipping Information: Details about the shipping method, destination port, and estimated arrival date.
• Country of Origin: Specifies the country where the goods were produced.

Responsibilities of Buyer and Seller

1. Seller's Responsibilities:

• Prepare and issue the commercial invoice with accurate details.
• Ensure all required information is included to facilitate customs clearance.
• Send the commercial invoice to the buyer and relevant parties, such as customs or the freight forwarder.
• Comply with any additional documentation requirements as per the buyer’s country regulations.

2. Buyer’s Responsibilities:

• Review the commercial invoice for accuracy and ensure it matches the terms agreed upon.
• Use the commercial invoice to facilitate import customs clearance in their country.
• Arrange payment as per the terms specified in the invoice.
• Keep a record of the commercial invoice for accounting and tax purposes.

Cost Implications

The commercial invoice reflects the final agreed price for the goods and any additional charges (e.g., insurance, freight) depending on the Incoterm used. It is the document customs authorities rely on to assess import duties, so an accurate and complete commercial invoice is essential to avoid delays and unexpected costs. Buyers should ensure they understand all charges on the invoice to prevent disputes.

Example Scenario

Imagine a Canadian buyer purchases clothing from a supplier in India. The supplier issues a commercial invoice for the shipment. The invoice includes:

• Detailed descriptions of each clothing item, including sizes, materials, and quantities.
• Unit price and total price for each type of item.
• The total invoice amount in USD.
• Incoterms (e.g., FOB Mumbai Port) indicating that the buyer is responsible for freight and insurance from Mumbai.
• Payment terms specifying that payment is due within 30 days of invoice issuance.

The Canadian buyer uses this commercial invoice to clear customs in Canada, where it is reviewed to assess the applicable duties and taxes. The buyer then arranges for payment based on the terms specified in the invoice.

Key Considerations

• Accuracy: A commercial invoice must be accurate and match the terms and conditions agreed upon in the purchase contract. Any discrepancies could cause customs delays or issues with payment.
• Legal Binding Document: Unlike a proforma invoice, a commercial invoice is legally binding and reflects the final sale of goods.
• Required for Customs Clearance: The commercial invoice is essential for customs authorities to calculate duties and taxes. An incomplete or incorrect invoice can lead to clearance delays and additional fees.
• Basis for Payment: The buyer uses the commercial invoice as the final basis for making payment according to the agreed terms.

When to Use a Commercial Invoice

A commercial invoice is required in all international transactions where goods are exported or imported. It should be used to:

• Provide an official and final record of the sale transaction.
• Enable customs authorities to calculate import duties and taxes.
• Formalize payment terms between the buyer and the seller.
• Confirm the transfer of ownership from the seller to the buyer.

Purpose of an Open Account

The purpose of an open account is to facilitate trade by offering flexible payment terms that benefit the buyer, who doesn’t need to provide payment upfront. Open account arrangements are often used to strengthen business relationships and gain a competitive advantage, as they allow buyers to manage their cash flow more effectively. However, they also carry a higher risk for the seller, who is dependent on the buyer’s ability and willingness to pay after the goods have been delivered.

Key Features of an Open Account Transaction

• Extended Payment Period: The buyer has a set credit period (e.g., 30, 60, or 90 days) to make payment after receiving the goods.
• Higher Seller Risk: The seller bears the risk of non-payment, as goods are shipped without receiving immediate payment.
• Enhanced Buyer Flexibility: The buyer can receive, use, or sell the goods before payment is due, which helps with cash flow.

Responsibilities of Buyer and Seller

Seller's Responsibilities:

• Ship the goods as per the agreed terms and provide the necessary shipping and customs documents.
• Issue an invoice with payment terms specifying the due date and any applicable interest on late payments.
• Follow up with the buyer if payment is not received by the due date.
• May choose to obtain export credit insurance to mitigate the risk of non-payment.

2. Buyer’s Responsibilities:

• Accept the goods upon arrival and ensure they meet the agreed specifications.
• Make the payment within the agreed credit period as per the terms stated on the invoice.
• Notify the seller promptly in case of any issues with the goods or delays in payment.
• Manage cash flow effectively to ensure timely payment, especially if goods are resold.

Cost Implications

The open account payment method has specific financial implications for both parties:

• For the Seller: The open account increases the seller's risk of non-payment and can impact cash flow, as payment is not immediate. Sellers may choose to offset this risk with export credit insurance, which can add to the cost. Additionally, sellers need to manage potential delays in receiving funds, which could impact their own working capital.
• For the Buyer: Open account terms are favorable, as they provide the buyer with time to use or resell the goods before payment is due, improving cash flow and liquidity. However, late payments may incur additional charges or impact the buyer's creditworthiness in future transactions.

Example Scenario

Suppose a clothing manufacturer in Italy exports garments to a retailer in France under open account terms with a 60-day credit period. Here’s how the transaction proceeds:

The Italian manufacturer ships the garments to the French retailer and provides an invoice with a 60-day payment term.

The French retailer receives the goods and starts selling them in stores to generate revenue.

Within 60 days, the retailer is required to pay the full invoice amount to the manufacturer.

If payment is not made within the specified time, the retailer may be subject to late fees or risk damaging their credit relationship with the manufacturer.

In this scenario, the Italian manufacturer assumes a level of financial risk by extending credit to the retailer, but the favorable payment terms may encourage a long-term partnership and repeat business.

Key Considerations

• Creditworthiness: The seller should assess the buyer’s creditworthiness before agreeing to open account terms. This can be done through credit reports, trade references, or past transaction history.
• Credit Insurance: Sellers may consider export credit insurance to protect against the risk of non-payment. This insurance covers a portion of potential losses if the buyer fails to pay.
• Payment Terms Clarity: The seller must clearly specify the payment terms, including the due date and any penalties for late payment, to avoid misunderstandings.
• Collections Process: If payment is not received on time, the seller should have a process in place for following up with the buyer and, if necessary, escalating to collections.

When to Use Open Account

An open account is best suited for transactions where:

• There is an established, trusting relationship between the buyer and seller.
• The buyer has a good credit history and reliable payment record.
• The seller wants to remain competitive by offering favorable payment terms to the buyer.
• The seller is willing to assume the risk or can obtain insurance to protect against non-payment.

Purpose of Re-Export

The primary purpose of re-exporting is to facilitate international trade by using intermediary countries for logistical or economic advantages. Re-exports can help companies bypass high import duties, make use of free trade zones, or take advantage of geographic proximity to end markets. Re-exporting can also occur when goods are temporarily imported for trade fairs, exhibitions, or processing before being sent to their final destination.

Key Reasons for Re-Exporting

• Logistics and Distribution: Companies use re-export to consolidate shipments in one location and then distribute them to various markets, reducing transportation costs.
• Duty and Tax Benefits: Many countries allow goods to be stored in bonded warehouses or free trade zones without paying import duties, allowing them to be re-exported without incurring additional costs.
• Trade Agreements: Re-exporting through countries with favorable trade agreements can reduce tariffs and simplify customs procedures.
• Market Access: Re-exporting allows companies to take advantage of strategic locations to reach new or restricted markets.

Process of Re-Exporting

The re-export process typically involves the following steps:

• Import: Goods are imported into an intermediary country and stored in a bonded warehouse or free trade zone. No import duties are paid as the goods are not intended for sale within the intermediary country.
• Documentation: Import and export documentation is prepared, indicating that the goods are intended for re-export. Common documents include the import declaration, export license (if required), and re-export certificate.
• Customs Procedures: Customs authorities inspect and approve the re-export. The intermediary country’s customs regulations must be followed, but no import duties are applied.
• Export: Goods are then shipped to the final destination. Any applicable export documentation and licenses are submitted, and the goods leave the intermediary country.

Responsibilities of Buyer and Seller

Seller's Responsibilities:

• Arrange for the initial shipment of goods to the intermediary country.
• Provide all necessary documentation, such as the commercial invoice, bill of lading, and any required re-export permits.
• Coordinate with the bonded warehouse or free trade zone to store the goods if required.
• Ensure that the goods are re-exported according to the agreed terms with the buyer.

2. Buyer’s Responsibilities:

• Arrange for the receipt of goods in the final destination country.
• Handle customs clearance, duties, and any other import requirements in the final destination.
• Provide any additional documentation needed for import into the final destination country.
• If the buyer is also involved in the re-export process, they may need to coordinate with customs and the bonded warehouse or free trade zone.

Cost Implications

The re-export process has specific cost considerations:

• For the Seller: The seller might incur costs related to transportation, warehousing in bonded facilities, and any associated handling fees. However, re-exporting from a free trade zone or bonded warehouse can help avoid import duties in the intermediary country.
• For the Buyer: The buyer may be responsible for import duties and taxes in the final destination country. Re-exporting through specific countries with trade agreements may help reduce overall costs due to lower tariffs or customs exemptions.

Example Scenario

Imagine a company in Japan sells electronic components to a distributor in Singapore. The distributor stores the components in a bonded warehouse in Singapore. Later, a buyer in India purchases these components from the Singapore distributor. The distributor in Singapore then re-exports the components to India.

In this case:

• The distributor in Singapore imports the goods without paying import duties, as they are intended for re-export.
• The distributor provides re-export documentation to Singaporean customs when shipping the goods to India.
• The buyer in India is responsible for import duties and taxes upon arrival.

This scenario illustrates how companies can use re-exporting to strategically move goods through countries with favorable customs arrangements.

Key Considerations

• Customs Compliance: Re-exporting requires strict adherence to customs regulations in both the intermediary and final destination countries. Accurate documentation and compliance with re-export procedures are essential to avoid fines or delays.
• Free Trade Zones and Bonded Warehouses: Using bonded warehouses or free trade zones allows goods to be stored duty-free until they are re-exported, reducing the financial burden on the seller or intermediary.
• Trade Agreements: Exporting from an intermediary country with favorable trade agreements can help reduce duties and tariffs, making the goods more competitive in the destination market.
• Non-Modification: In most cases, goods must remain unaltered or minimally processed in the intermediary country to qualify for re-export without incurring duties. If goods undergo significant transformation, they may no longer qualify as re-exports and may be subject to regular import/export duties.

When to Use Re-Export

Re-exporting is most suitable in situations where:

• Goods need to be temporarily stored in an intermediary country before reaching their final destination.
• The seller wants to avoid import duties in the intermediary country by using free trade zones or bonded warehouses.
• The transaction involves multiple destinations, and re-exporting from a central location optimizes logistics and reduces costs.
• The buyer is located in a restricted market that requires the use of an intermediary country to access it.