IMPORT MANAGEMENT 2009

Cameron Gordon is International Manager at the Auckland Chamber of Commerce. The New Zealand Chamber of Commerce network provides advice and services to importers  throughout the country. If you would like advice about importing goods into New Zealand contact: int@chamber.co.nz One of the major advantages of importing is that it provides a relatively low cost entry point for businesses into international trade. It is possible to begin importing with the minimal of financial investment in premises and other assets. Some successful importers have started out with little more than a telephone line and computer. Achieving success as an importer is very similar to achieving success in any field. A professional approach to the way that you do business will go a long way to ensuring that you manage the risks inherent in international trade transactions. Ideally, each of the parties involved in the transaction, which will typically include the importer, a banker, carrier, insurer, inspector and customs officials, should have an understanding of the entire process and its component sub-processes. In reality, however, it is not always the case that the overall process is understood by all parties involved in the transaction. Traders, for example, often have expertise in the calculation of costs and the identification of opportunities, but prefer to outsource other roles to specialists in different industries. No one can be an expert about everything, but being familiar with the basics of the entire transaction will help alert traders to those areas where they need to consult specialists such as trade bankers, lawyers, insurers or customs agents.  Intelligent risk management is paramount when importing goods from international markets. Some risks that need to be considered if you are new to importing include: Transport-related risks Because of the geographical distances that goods are travelling within the transaction when importing goods into New Zealand, the risk of the goods being damaged is greater than with domestic trade. The extent of the liability of carriers should goods be damaged is dependent on the contractual provisions and shipping information set out in the bill of lading. The bill of lading is a document issued when goods are entrusted to a shipping company for carriage. It can serve as a formal receipt for the goods by the ship owner, a memorandum of the contract of carriage, and documentary evidence of control over the goods. The holder or consignee of the bill has the right to claim delivery of the goods from the shipping company when they arrive at the port of destination. In addition to the importer needing to pay very careful attention to the contractual obligations of carriers, insurance should also be carefully considered as the importer may need to claim under its provisions if goods are damaged during transportation to New Zealand. It is recommended that importers have a good understanding of international standard trade terms. Incoterms 2000 are a set of thirteen delivery standards. Incoterms allow the parties involved in an international trade transaction to designate a point at which the costs and risks of transport are precisely divided between seller and buyer. Incoterms allocate responsibility for the handling of customs clearance and duties between the parties. Incoterms 2000, a publication of the International Chambers of Commerce, provides a detailed interpretation of these terms, and can be purchased from the Auckland Chamber of Commerce. (Also see the Glossary in the back of this publication) Quality of goods risks Importers may find it very difficult to check the quality of goods before they are shipped to New Zealand, and thus the quality of the goods may not meet the expectations of the importer upon arrival. One way of avoiding this issue is for the importer to insist on provision of an inspection certificate. One way to ensure that the quality of goods you are importing is consistently high is to build relationships with reputable suppliers. There are a number of ways that you can identify potential suppliers without having to leave New Zealand. The Ministry of Foreign Affairs keeps an updated list of contact details for MFAT representatives abroad, as well as for representatives of other countries’ Governments based in New Zealand. This information can be found at www.mfat.govt.nz. Given that one role of these representatives is often to promote trade linkages between New Zealand and the country they are representing, these offices will usually either have up to date listings of exporters from their countries or know where to access this information. A number of business organisations, including the Chambers of Commerce in New Zealand, often receive enquiries from businesses abroad looking to supply New Zealand importers. In the case of the Auckland Chamber of Commerce, these enquiries are listed on its website, www.aucklandchamber.co.nz. If these organisations are part of an international body, such as is the case with New Zealand Chambers of Commerce, organisations can use these links for the benefit of the New Zealand importer. One of the most up to date and comprehensive online databases in which you can locate potential suppliers is KOMPASS. KOMPASS allows you as an importer to search for possible suppliers and request quotations and any other specific information such as the time frame that it takes to ship the goods from receipt of the order. Trade expos and fairs provide your business with a great medium for locating potential suppliers of goods that you would like to import into New Zealand. The best trade shows are targeted industry shows because these attract only the appropriate parties that you will want to discuss potential supply arrangements with. Trade shows provide a forum for you to make face to face meetings with a number of potential suppliers and allow you to make comparisons between suppliers in the specific market that you are looking to procure goods from. Exchange rate risk Exchange rate risk can fall into three categories. Firstly, transaction risk refers to the risk to each of the counterparts in the international transaction that the exchange rate will move in a disadvantageous direction between the time the price is agreed to in the contract and the time payment is made or received. Both the exporter and the importer in the transaction are exposed to transaction risk. Secondly, translation risk or balance sheet exposure comes as a result of a company needing to report in its balance sheet assets and liabilities denominated in different currencies. In between two reporting periods the relative values of two currencies may have changed and thus affect the financial situation of a company on paper. Finally, economic risk is the risk of currency fluctuations over the long term. Given that over time it is difficult and inconvenient for importers to continue changing suppliers, importers grow to rely on procuring goods from a particular market. As a result of this dependence the importer will inevitably be affected by substantial exchange rate fluctuations between the two nations’ currencies. The most straightforward solution to managing exchange rate risk for the importer is to set the transaction currency in their own home currency. (Note: this simple method does not fully avoid currency risk as the home currency may weaken between the time that the contract is entered into and the time of payment). Quoting prices in the home currency is useful for importers as it standardises the currency of payment. This allows the importer to make accounting and cash flow projections. In cases where the importer cannot use their home currency they will seek to protect themselves from currency fluctuations by purchasing foreign exchange forward or option contracts, sometimes referred to as hedge contracts.

Unforeseen events A strike, natural disaster or war may make delivery of goods impossible. Unexpected events may also dramatically change the cost of transporting goods to New Zealand by raising the price of shipping fuel or by closing the most economical routes. Importers need to be aware of well-drafted force majeure provisions that can help protect the exporter during these types of unforeseen events. Under most systems of law, an exporter can be excused from a failure to perform a contract obligation that is caused by the intervention of a totally unforeseeable event. Importers need to carefully read their contract to ensure that the exporter has entered a reasonable force majeure clause and not one that will allow the seller to unreasonably fail to deliver on the agreement with the buyer. Legal risks Foreign laws or regulations may change or be applied differently over time, causing disagreement and frustration during the transaction. Whenever a contract is subject to the jurisdiction of foreign courts under foreign law, the risk exists that it may prove impossible for the other party to receive a just result in the event of a dispute. This is one reason why importers often seek to impose choice of law and choice of forum clauses, which enforce that if disputes arise they will be settled under their own national laws in their own countries’ courts. Properly drafted contracts are the first step in managing the risks inherent when importing goods into New Zealand. Since the contract of sale plays the role of “master” contract, it is particularly important that it be drafted carefully and completely. Traders are well advised to rely on expert legal counsel and should go through a checklist of basic legal questions before signing a contract or concluding a deal. In particular, parties should be clear about the legal and dispute settlement provisions within the contract.   Import advice The Auckland Chamber of Commerce The International Division at the Auckland Chamber of Commerce provides advice to new and seasoned importers and exporters. The Auckland and New Zealand Chambers of Commerce also lobby Government on behalf of New Zealand business to ensure that New Zealand trade policy takes into consideration the needs and concerns of those who are trading. www.aucklandchamber.co.nz The Importers Institute The Importers Institute is an informal national association of New Zealand importing companies. The Institute aims to keep their members informed about topical issues of interest and to represent importers’ interests before policy makers. www.importers.org.nz/ Import Regulatory Organisations Customs Perhaps the most important organisation to align your business with as an importer is the New Zealand Customs Service. Whenever a business is involved in the importation of goods for commercial purposes into New Zealand, that business is responsible for making an import entry with Customs that details the nature of goods that are being bought into the country. Import entries are a legal declaration under the Customs and Excise Act 1996. It is really important to get the process right from the start with the lodging of your import entries to ensure that you do not experience hold ups with receiving your goods. Under the Customs and Excise Act of 1996 it is illegal to make an erroneous import entry or declaration to Customs; an offence can carry with it a penalty and in some cases prosecution. The New Zealand Customs Service is responsible for collecting payment of tariffs on imported goods. Customs considers a number of factors in determining the tariff rate for an imported good. Firstly, Customs consider tariff classification. The New Zealand Customs Service Working Tariff document is based on the World Customs Organisation International Convention on the Harmonised Commodity Description and Coding system, and identifies the tariffs payable on specific imported goods. Secondly, concession applicability is considered. Concessions provide flexibility to the tariff which group items together. The importer is required to pay differing tariff rates on goods which are classified together into specific tariff categories. Finally, preference is considered. As a result of New Zealand signing preferential trade agreements with other countries, New Zealand grants preferential tariff access to goods which are manufactured, grown or produced in these countries. The New Zealand Customs Service can provide written tariff classifications, specified duty concessions and excise classification rulings on goods that you are considering importing. Although these rulings will cost $40 per ruling, rulings are legally biding for three years. Source: www.customs.govt.nz The New Zealand Food Safety Authority In the food sector it is important that importers take note of the regulations in place for the importation of food products into New Zealand. The New Zealand Food Safety Authority sets policies, criteria and procedures to ensure that all food that gets past the border into New Zealand is fit for human consumption and will not damage the environment. All food and food related products imported into New Zealand for sale must comply with the Food Act 1981 and delegated legislation under that Act. It is the importer’s responsibility to ensure that all legal requirements are met. Import requirements specific to high and medium regulatory interest foods are set down in Imported Food Requirements (IFRs) for each food. For a list of foods regarded as being of high and medium regulatory interest and the IFRs for each of these foods, visit www.nzfsa.govt.nz. These foods are released into the market place once their safety has been verified as complying with all relevant import requirements. Source: www.nzfsa.govt.nz MAF Biosecurity New Zealand The importation of goods from overseas provides an avenue for the arrival of new pests into New Zealand. Our agricultural market which is responsible for a significant percentage of the countries export earnings is at risk from the introduction of organisms to New Zealand as a result of containers, food, animal products, plants or their packaging coming into the country. New pests and diseases do not only impact human health, but can also damage agriculture or horticultural production, forestry and tourism and affect trade in international markets. The economic consequences of failing to protect New Zealand are dire: it could affect our jobs, our health or our lifestyle. Importers are among the most important people in defending against the potential biosecurity dangers that pose the greatest environmental and economic threats. If you are looking at importing a good into New Zealand that could potentially be a threat to the biosecurity of the country the first thing you should do is contact MAF Biosecurity New Zealand to see if a health standard exists for the product, or whether a new standard might be necessary. Source: www.biosecurity.govt.nz