Pamela Cifuentes (DUOC-UC): Basic steps for importing from Asia

When it comes to importing, albeit from a country with which we have a free trade agreement (FTA), there are a number of procedures and technical data that not everyone is aware of. For large companies, it is easier to have specialized staff to manage out the customs and legal details. These bureaucratic details can be a real headache for small and medium-sized enterprises, if not more so for individual entrepreneurs .

The jumble of laws and treaties can be problematic, especially when combined with the associated bureaucracy and taxes. An FTA does not mean freedom from paying taxes. Instead, it means paperwork and reducing tariffs, often to 0%. Other obligatory taxes remain, however. As can be seen, these issues are critically important for anyone involved in imports and exports. Failure to understand their implications can result in costly errors.

In the case of Asia, the scenario is further complicated by distance. Logistics challenges are compounded by language barriers. This is exactly why many consulting firms have emerged. They serve as intermediaries for import-export firms. Their high cost makes them difficult to afford.

That is why degree programs in this area have been gaining in popularity and relevance lately. The sector is seeking personnel that can deal with these issues and reduce operating costs, thereby increasing a firm’s value. The DUOC-UC Institute offers a degree in International Business Engineering.

Pamela Cifuentes is the director of business administration degree programs at the DUOC main campus (Antonio Varas). She answered some questions in order to guide small entrepreneurs wishing to import from Asia.

How does one find out where to buy in Asia?

This may be done through Asian trade offices in Chile, chambers of commerce and Chilean trade promotion offices, such as ProChile. The Asia-Pacific Chamber of Commerce, for example, promotes trade between Latin America and the countries/economies of the region.

Where can Chilean firms get information on Asian companies?

With the embassies’ trade officials. Also at the bilateral chambers of commerce.

Where can information on the certifications of the products be found?

In the case of WTO countries, at the WTO webpage. The Ministries of Finance and/or Economy of each country usually offer information, too.

Is it true that firms should "haggle" with Asians when negotiating prices?

Asia is a continent of immense diversity. Therefore, any answer to this question would be very generic. Negotiating styles among Chinese can be as diverse as those of an Indian, an Iraqi or Jordanian.

For example, the Chinese negotiating style. They generally demonstrate very good control in times of crisis. For them, verbal communication is as relevant as non-verbal during negotiation. Regarding prices, the Chinese are quite persistent, and do not change their minds easily. They are characterized by replacing the negotiation process representatives once an accord is reached, because they prefer a clean slate. Decisions are not made by consensus because an unspecified leader decides issues.

Koreans, however, are accustomed to negotiating. They are very committed to any commitments and loyal to business relationships.

In fact, even the forms of payment differ from country to country. For a clearer picture of business in these countries, I recommend Geert Hofstede’s webpage.

How does one obtain insurance for shipments?

Open or floating policies are usually used under the terms of Chilean coverage for cargo type A-B-C (coverage for remnant shipments). They insure a specified, or unspecified, number of shipments or items during a given, period with or without a specified value.

As regards obtaining coverage, you must first complete an application for issuance of an insurance certificate (Type-format emitted by each insurance company) to begin the process, detailing the characteristics of the shipment:

- Method and mode of transport used.
- Existence of transhipments
- Points of origin and destination.
- Type of goods. Estimated risk of damage during shipment
- Packaging
- Number of items
- FOB freight cost
- Any additional information deemed relevant

Remember to accurately calculate the CIF cost of the shipment when obtaining insurance coverage. CIF includes the cost of the item, the insurance for the item in transit and the freight costs, up to, and including the buyer’s warehouse. With this type of coverage, maximum compensation for a total loss of shipment will be made to the policy holder.

This is of utmost importance, whereas CIF cost ensures the payment of the amount insured. It is best to remain objective when declaring the percentage, that is, adjust it to the real estimated cost, including CIF through to the buyer's warehouse. Regardless of the INCOTERMS agreed upon by the parties, the buyer bears all costs of the process.

If the company accepts the application, it issues a policy number which includes the total amount of the premium. This document is called a Certificate of Insurance.

ProChile has guidelines on the subject, which explain the steps to follow in a given case.

How can I find the most suitable carrier for the shipment?

Nowadays, the internet provides quite a lot of information about shipping companies and integrated, international cargo companies. It is preferable to receive quotes based on price versus services. If you have a company in mind, you should find out if their authorized agent is registered on the Registro Nacional as required by the Chilean customs service. If they are listed, they have the right to intervene, on your behalf, in shipment operations (delivery, etc.) at the port.

What customs regulations must be followed?

If value of the shipment exceeds $1,000 FOB, a customs agency must be hired. It will warehouse the shipment upon receipt on behalf of the importer and then file the relevant paperwork with the National Customs Service (bill of lading, invoice, any required certificates, packing list and certificate of insurance).

Many of these documents are provided by the seller. The customs agent then files the DIN declaration form (required for all imports) with Customs. Once this declaration is accepted, taxes and duties (VAT, ad valorem, special charges) are paid. The imported goods are then released (approved for import) and withdrawn by the agent on behalf of the importer, to be sold on the local market or wherever else the importer deems fit.

How will the Asian free trade treaties help the Chilean economy?

In general, FTAs reduce tariffs to 0% on trade between countries. This can occur over time for all or certain products. The ultimate goal is to encourage free trade between countries. Some FTAs have additional features such as exchange of knowledge, cooperation in strategic areas, etc.

FTAs also force an economy to compete in more sophisticated markets. Since FTAs favor both our exporters and imported (Asian) products, Chilean industry must be prepared to compete with these new products internally.

What happens when imported products, covered by a given FTA, contain components manufactured in a third-party economy?

In this case, the value of the intervention of a third country is expressed in the cost of a given product. For example, if you buy a Chinese car, the vehicle’s final price is covered by FTA,. Thus, the components (engine, radio, tires) from a third country are already included in the price of the car. An FTA reduces or eliminates tariffs, which are taxes, but does not affect the value of the good.

What is the cost and tariff structure on a product as it travels through purchase in Asia to sale in Chile?

In relation to Chile, if it is a country with which we have an FTA, the tariff is paid in Chile. From the standpoint of a country with which Chile trades, this issue will depend on said nation’s economic policy, which varies in each country and according to the product involved. ProChile has a list of tariffs, and other costs, by country.