International Trade Risk: Regulatory Issues and Market Access

This is the ninth part of my series of articles on assessing risk in international trade. In my last article, I made some comments about chambers of commerce and trade consulates.

In this article, I focus on certain aspects of regulatory issues that affect market access. As this is a very big topic covering a multitude of issues, I will limit my comments to regulations and documentation.

Complying with Customs Regulations

Without exception, all international transactions need to comply with customs regulations, which vary from one nation to another. Care must be taken by the seller to ensure that they provide the necessary documentation to the buyer to avoid expensive delays and a souring relationship.

I have always found the easiest and best option for ensuring compliance is to enlist the assistance of the buyer. A simple question usually does the trick: What documents do you need from me to complete the customs formalities at your end?

The buyer usually answers with a quick and comprehensive list of all the documents required. This ought to be the case since the importer is presumed to know more about their national barrier requirements than other foreign parties if for no other reason than they deal with their authorities regularly.

Not only should the exporter provide all the necessary documents, they should be in the correct format and include accurate data. Special requirements may also apply due to free trade agreement (FTA) considerations. The ability to secure preferential duty treatment is often dependent on being able to prove the origin of the good, and this is often subject to the presentation of specific documentation at the time of import.

While it may be possible to find import requirements for foreign nations by accessing their official websites, this information may not be easily found, and nations that are not members of the World Trade Organization (WTO) have no obligation to make this information publicly and transparently available. That's why I favor cooperation between seller and buyer to ensure customs compliance.

Questions related to documentation for customs purposes should, of course, be asked during the negotiations, as ultimately documentary compliance becomes part of the contractual obligations.

Import Permits and Other Restrictions

Apart from customs, other considerations may arise depending on the product and destination.

In addition to customs, most countries have government permit-issuing agencies that may become involved in an export-import transaction depending on the nature of the product being traded.

These permits may specifically include restrictions on the marketing, sales and distribution of products, and may include extensive documentation requirements before permission is granted to import. These permits may be relatively expensive and can take considerable time to obtain.

Examples of these include:

• Food and Drug Administration (FDA) or their equivalent counterparts, such as the European Medicine Evaluation Agency (EMEA) or the Therapeutic Goods Administration (TGA) in Australia, regulate medical and pharmaceutical products primarily, but may also extend their control to medical devices and cosmetics, depending on the nation in question.
• Quarantine authorities across the world have different foci on pests and diseases and have vastly varying requirements for importing consignments ranging from simple self-assessment declarations to fumigation to mandatory export-import consignment inspections.
• Defense concerns for equipment that may have dual use (both civil and military use) such as wireless modem devices.
• Industrial chemicals may be subjected not only to transport restrictions because of their hazardous nature but may also be controlled with special licenses and subjected to distribution and warehousing restrictions in the importing country.

You should always ensure that permits can be obtained before entering into the sales contract. This requires investigation. The Incoterms 2020 term chosen will determine who is responsible for obtaining import permits.

Regardless of who has the actual responsibility, there will need to be a level of cooperation between the parties. It may be a good risk-management approach to specify in the contract of sale not only who is responsible for obtaining permits, but also what penalties or remedies will be in place should something go wrong.

It is not difficult to imagine a situation where a product arrives at its destination and no permit is available, meaning the consignment is stuck at customs. The cost of storing the goods somewhere needs to be borne by someone, and depending on the product, the integrity of the consignment may be jeopardized if it is a highly perishable, time-sensitive, or temperature-sensitive product. Always think about mitigating risk in your transactions.

Labeling and Language Requirements

Apart from the barrier control regulations mentioned above, there are also considerations of market access that enable the product to be legitimately sold in the foreign nation. For example, special labeling may be required to show specific information and be in a specific language. In some nations, multi-language labeling is allowed, but not in others.

The logistics impact of such regulations is not to be underestimated since different labeling leads to split production runs with additional costs and the inability to divert products from one nation to another in situations where a spike in demand arises.

Traders should also be aware that sometimes governments purposely interfere with the flow of goods, seemingly for good reasons, such as in cases of unfair competition—dumping—or to protect a strategic industry from foreign competition. Usually, these measures are imposed on a financially punitive basis through the imposition of additional duties that may be called by a variety of names. Of course, the outbreak of a disease may be another reason that a restriction could be imposed.

I have only provided a small snippet of the issues relevant to market access, but hopefully, this provides readers with some food for thought. To ensure that a transaction proceeds smoothly, sellers and buyers must explore all relevant issues during the negotiations that precede the contract signing.

Early, open communication is still the best solution. Virtually all of the approaches designed to manage business risk incorporate a communication section; this is vital because you cannot manage what you do not know.

Like what you read? Join thousands of exporters and importers who subscribe to Passages: The International Trade Blog. You'll get the latest news and tips for exporters and importers delivered right to your inbox.

This article was first published in May 2014 and has been updated to include current information, links and formatting.