Michigan State University Extension
Extenstion International Trade Res. - 03289601
03/31/96
Although the traditional farm commodities--soybeans, wheat, corn, rice--still account for three-fourths of U.S. agricultural export tonnage, a wide variety of high value products (HVP) are exported and these are growing in number and importance. As a share of the dollar value of U.S. agricultural and forestry exports, products such as beef, fresh fruits and vegetables, softwood lumber, and other HVP's represent almost one-half of the total.
Why Export?
* Expanding world population and higher per capita incomes abroad should lead to greater export marketing opportunities, outpacing growth in the domestic market. Developing countries of the Third World represent future markets for U. S. agricultural exports. For some U. S. agricultural products, export markets already are crucial and for many others increased U. S. production will not be absorbed domestically and must be exported.
*Trade Barriers 1.Language and cultural differences. 2. Foreign exchange rates; 3. Import regulations, requirements and restrictions; transportation; and payment are other differences to contend with.
Is there a Market for my Product?
The world market is incredibly diverse but market research can narrow the field to the countries with the greatest potential. Vital information about market size, major competition, recent trends in consumption and economic growth, exchange rates, prices,transport costs, seasonal factors, distribution, product form, sanitary and health regulations, and political stability should be obtained. The Foreign Agricultural Service, USDA, the U.S. Department of Commerce, state departments of agriculture, state departments of commerce, the Cooperative Extension Service and others can help answer many of these questions.
There are two basic approaches to exporting direct and indirect. Direct exporting involves selling the product directly to the foreign customer or through a company representative in another country who makes the sale to the foreign buyers. The risks are higher with direct exporting since the exporter is financially responsible for the entire process up to the final sale to the foreign customer.
The export sales agreement is of prime importance. Some key elements in any export sales contract include: product definition, packaging and labeling requirements, currency to be used, and type of price quote. The product name, weight, quality, and grade should be specified, and other considerations may be included, such as procedures for dispute settlement and delivery instructions.
There are four main types of price quote or terms of sale, each with a different set of obligations. The F.A.S.(free alongside ship) quote specifies that the selling price includes cost of product plus export packing, inland freight to port of export, and risk of loss or insurance until cargo is accepted at the port and delivered to the dock. The F.O.B.(free on board) vessel quote indicates that the exporter assumes all responsibilities and costs up to and including placement of the cargo on the vessel. C&F,(cost and freight) includes cost of product plus transport costs to the port of import. The buyer is responsible for insuring the shipment. A price quote of C.I.F. (cost, insurance, and freight) means that the seller's price includes cost of product plus the cost of marine insurance and transportation to the foreign port. Most new exporters prefer the F.A.S. or F.O.B. quote because there is less risk associated with them. C&F and C.I.F. sales are normally made by larger, more sophisticated firms with expertise in managing ocean or air freight, insurance, and foreign exchange.
Getting Paid:
Getting paid must be on the top of every exporter checklist. One of the first things to undertake, usually through a bank with an international department, is a credit check on potential customers. This may turn up some very useful information and warn of potential payment problems. Most foreign customers, properly verified, pose very little threat of payment default. Clearly there are risks of non-payment when doing business in areas where economic stress, or social or political disorder exist. Insurance coverage is available if sales are made to those countries.
Promotion and Market Development
USDA has been promoting agricultural products in foreign markets for over thirty years. Most efforts include industry and individual firm opportunities to present their products to potential customers. Major activities include food shows, trade fairs, product technical assistance, and trade and retail promotion. Key sectors of the foreign market such as wholesalers, brokers, and retailers are involved.Individual firms can receive assistance from agricultural attaches and foreign commercial officers in over 65 countries.
ISSUES IN NAFTA
In August, 1992 the United States, Mexico and Canada completed negotiations on the North American Free Trade Agreement.
The purpose of the agreement is to improve the flow of goods, services and investment across their borders in the expectation that all three countries will benefit. Canada and Mexico are two very important U.S. trading partners. Canada is both the largest U.S. export market and the largest supplier of U.S. imports. U.S.-Canada trade was liberalized under a bilateral agreement that came into effect on January 1, 1989.
Mexico ranks third both in imports to and exports from the United States. Trade has grown steadily over the last ten years as a result of major changes in Mexican economic and trade policies, including reduced government intervention, lower barriers to trade, and fewer restrictions on foreign investment. If these policies continue, U.S.-Mexico trade and investment flows are likely to increase with or without NAFTA.
Under the proposed agreement, market access would be improved by eliminating tariffs and many nontariff border measures such as quotas and import licences. Some tariffs would be eliminated immediately, others phased out over 5, 10 or 15 years, depending on the severity of the expected impact.
Also, selected terms of the agreement can be suspended if an unexpected surge of imports causes serious damage to NAFTA participants. Rules of origin specify which goods qualify for preferential treatment to deny benefits on goods produced by non-member countries.
Restrictions on NAFTA member investment and financial and other services would be eased, but some restrictions would remain. Land transportation would be opened up over a 10 year period to allow cross-border trucking and bus services, and telecommunications access between the member countries would be improved. Intellectual property rights such as patents and copyrighted materials would receive more protection and rules would be more strictly enforced. Dispute settlement procedures are specified. The agreement can be extended to other countries if the original members agree.
Terms of the agreement will become effective on January 1, 1994 if approved by the governments of all three countries. In the United States, the President must formally sign the trade agreement, but legislation must be drafted and submitted to Congress for approval. Before the trade negotiations began, Congress agreed to consider NAFTA under a so-called "fast track" procedure whereby it votes for or against the agreement but cannot change any of its terms. A vote is expected in the summer of 1993.
The U.S. Gross National Product (GNP) dwarfs those of the other two trading partners, being ten times as large as Canada's and 20 times as large as Mexico's. The population of the United States is approximately 250 million, compared to Canada's 27 million and Mexico's 88 million. Therefore, the impact on the U.S. economy is likely to be small, with GNP at most one-half of 1 percent larger once the terms of the agreement are fully implemented.
There would be winners and losers from the agreement because of the different benefits accruing to each NAFTA member. The United States has an advantage in skilled labor and advanced technology while Mexico has an abundance of unskilled labor. Research studies disagree about the relative size of the increase in jobs in U.S. export industries relative to losses in sectors that will suffer increased competition from imports. The U.S. apparel industry likely will face increased competition but there is little agreement on the impact on other sectors of the U.S. economy. Uncertainty also surrounds the long term impact of increased U.S. investment in Mexico.
There are concerns that Mexico's weak enforcement labor laws and lack of emphasis on environmental quality will give Mexican employers an unfair advantage. It is unclear whether NAFTA would aggravate these problems or whether a healthier Mexican economy would make them easier to solve. NAFTA is seen by some as important way to reinforce the open market policies adopted by the Mexican government and to encourage a more democratic political process. The United States has a vested interest in reducing the large gap beween U.S. and Mexican living standards as well as in promoting and maintaining a stable and friendly government south of our border.