Chapter 12

Modes of International Trade

Objectives

After studying this chapter，you should be able to

1. explain what exclusive sales and agency are.

2. indicate types of agency.

3. describe the procedures of invitation for tender and submission of tender.

4. indicate the types of international bidding.

5. identify the difference between the processing-assembling and processing of imported materials.

6. indicate the kinds of auction.

7. describe the features of consignment.

Key terms

Exclusive sales　　　　　　　　　　　　  Exclusive agency

Invitation to tenderSubmission of tender

Counter tradeCompensation trade

Barter tradeAssembling and processing trade

Auction

12.1Exclusive sales and agency

12.1.1 Exclusive sales 

 Features of the exclusive sales 

The relationship between the seller and the exclusive distributor is solely that of the seller and the buyer，which means the exclusive distributor purchases the products with its own money，sells them on the market，and assumes sole responsibility for profits and losses. The distributor is not the agent or representative of the seller and has no authority to contract in the name of，and to create any liability against the seller.

Exclusive sales agreement 

• The name of the agreement and the relationship between two parties.  

• •The right of exclusive sales and counter condition.  

• •Commodity，territory and time limit.

• •Quantity and amount

12.1.2 Agency

Agency is a common practice in the international trade.It means that the agent signs contract with a third party on behalf of the principal or does other matters relating to the sales in compliance with the instructions from his principal，while the principal shall be responsible for the agent's business activities and the obligations incurred. The rights and obligations of both parties are determined by the agency agreement. Their relationship is that of sales by proxy on a commission basis.

   The differences between the exclusive sales and the sole agency are： 

•The relationship between two parties is solely that of the seller and the buyer as to the exclusive sales，while the relationship is that of sale by proxy as to the sole agency  .  

•The exclusive distributor will purchase and sell the goods in his own name，and assume solely the responsibility for his own profits or losses. As to the sole agency，the agent resells the goods in the agreed territory according to the trade terms stipulated by the principal. The agent charges a certain amount of commission and does not undertake any risks.

•After the exclusive distributor has purchased the goods，he shall open an L/C by himself or pay the purchase price by other methods. In the case of sole agency，after the agent has introduced the goods to the buyer，the actual buyer shall open an L/C to the principal.

Questions

（1）What is exclusive sales？ What is agency？ 

（2）What's the difference between exclusive sales and sole agency？ 

（3）What are the commonly used types of agencies？ 

Terminology practice  

The following terms appeared in the text. Select one correct term for each of the following statements.

Distributor  Proxy  Principal  Capacity  Exclusive

（1）A retailer who has arranged with one or more suppliers to sell a product or range of products.

（2）A person who authorizes another person to be his agent or broker.

（3）Authority to represent somebody else.

（4）The amount that anything can hold.

（5）Not admitting something else，rejecting other considerations.

12.2Invitation to tender and submission of tender

Invitation to tender and submission of tender are two aspects of one mode of trade by which the inviter sends out an announcement of tender in order to call bidders to bid within the time limit. The bidders fill in applications for tenders within the time limit and submit tenders through an agent. Finally，the inviter chooses the most suitable bidder and concludes the transaction with him.

This kind of mode is usually a common practice in international trade and procurement；especially in the procurement of goods，exploration，mining and procurement of works etc. 

12.2.1 Types of international bidding

International bidding is classified into three categories.

International competitive bidding（ICB） 

International competitive bidding is the process in which the owner invites a number of bidders to compete for the bid，and the owner will select the bidder with the most favorable conditions to award the contract. And international competitive bidding includes open bidding and limited bidding.

•Open Bidding.

•Limited Bidding.

Negotiated bidding 

It is a bidding method through negotiation instead of competitive bidding. Under this method，the owner does not invite a number of bidders to compete for the bid，but just selects one company which the owner thinks most suitable，then negotiates with this company for the contract. This method is suitable for small and specialized project.

Two-stage bidding

This kind of bidding is to divide the bidding process into two stages. First of all，the owner selects several bidders with low price，favorable conditions and strong ability through open bidding，and then invites them to compete for the final award of the contract. This kind of bidding is often used for large and complex project.

12.2.2 Procedures of invitation to tender and submission of tender 

Prequalification

The inviter issues announcement of prequalification and invites the interested eligible bidders for the evaluation of the qualification. The interested bidders shall purchase the prequalification documents with the time and date and at the place stipulated in the announcement of prequalification，and fill in the prequalification form and documents and then submit them to the inviter.

Drawing up invitation documents 

（1）Instruction to bidders.

（2）Technical specifications.

（3）Contract conditions.

（4）Data sheet.

（5）Drawings.

Issuing announcement of Invitation to Tender   

（1）Name of goods or works.

（2）Location of project.

（3）Description of works or the specifications of the goods to be purchased.

（4）Time，date and place for getting the bidding documents.

（5）Cost and terms of payment for the bidding documents.

（6）Source of fund for the goods or works to be purchased.

（7）Instructions to bidders.

（8）Time，date and place for the submission of the bidding documents.

Reviewing and filling in the tender documents

After getting the tender documents，the bidders shall review the documents carefully，and fully understand the contract conditions，technical specifications and standards，forms of contract and then make careful calculation for the bid price，fill in the tender document according to the requirements and the actual situation of the bidder. Because the submission of tender is in fact a firm bid whose validity is long，it cannot be withdrawn before the award，so the bidders must take into consideration the changes of the market price and various expenses.

Providing bid bond 

In order to prevent the bidders from refusing to sign the contract after getting the award of the contract，the inviter usually requires the bidders to provide bid bonds. The amount of the bid bond is based on the bidding price，and the rate varies in different projects. The bid bond will be refunded if the bidder fails to get the award. But if the bidder refuses to sign the contract with the inviter after getting the award，the bid bond will be called by the inviter.

Submitting application for tender 

After the tender documents are finished，checked，signed and stamped，they should be sealed in the envelop. Sealed documents will be submitted to the place at or before the time and date stipulated in the invitation to bids. The tender documents received later than the above-mentioned time and date will be rejected. The tender documents are usually delivered to the inviter via registered mail or by the courier.

Opening bids and awarding the bid 

There are two ways of opening of bids，e.g.，the public opening of bids and non-public opening of bids. By the public opening of bids，all the tender documents received are opened and the bidding prices are announced in public，and the tender documents are also checked to see whether they are in accordance with the stipulations and valid. After opening，the inviter will designate specialists to evaluate the bids submitted by the bidders.The bids will be evaluated comprehensively，and the inviter will select the bidder with the most favorable conditions to award the contract. All bidders may send public representatives to keep watch over the opening of bids. By non-public opening of bids，the inviter will decide the successful bidder by himself.

Signing the contract 

After the award of the contract，the inviter and the bidder will sign the contract according to the contract form stipulated in the tender documents.

Questions

（1）What do invitation documents include？ 

（2）What are the contents of invitation to tender？ 

Terminology practice

The following terms appeared in the text. Select one correct term for each of the following statements.

Tender（Bid）  Award  Submission  Bid bond

（1）Presenting something for consideration，a decision，etc.

（2）A written offer by a supplier to supply certain goods and services at a stated price，usually in competition with other tenderers.

（3）A type of indemnity bond. A safety guarantee often required to be established by a bidder to guarantee fulfillment of his offer if accepted.

（4）A decision of a tender-inviter giving the result that the winning bidder is chosen as the subject for signing the contract.

12.3Auction and consignment

12.3.1 Auction 

General procedures of auction 

• （1）Preparation.

• （2）Inspection by the buyers.

• （3）Formal auction.

• （4）Making payment and taking delivery of the goods.

 12.3.2 Consignment

Consignment means that the consignor（the exporter）delivers the goods to the named place of consignment abroad first，then entrusts the consignee（agent）with the task to sell the goods according to the conditions and methods stipulated in the agreement of consignment.

Features of consignment 

• （1）The consignor shall first deliver the goods to the commission agent or consignment agent.

• （2）The consignor retains title of the goods before the goods are sold out by the commission agent.

• （3）The consignee（agent）sells the goods for the consignor and he deals with the goods according to the order of the consignor.

• （4）The consignment agent will not undertake any risks and expenses and he only charges commission for his service.

• （5）The consignment agent is entitled to sign a contract with local purchasers in his own name. This is the major difference between consignment and agency.

Advantages and disadvantages of consignm

• （1）Advantages of consignment.

• •By the means of consignment，the seller may sell spot goods or newly developed products at the local market abroad，so the seller can market his goods according to the demand and supply of the market.

• •The consignment agent does not need to undertake any risks and expenses or to pay for the goods in advance.

• （2）Disadvantages of consignment.

• •There is much risk for the seller because they are not paid until all goods are sold out in the foreign market，and this may turn out to be a long period of time.

• •If the goods don't sell well on the foreign market，the seller may have to get the goods sold on discount.

• Questions 

• （1）What are procedures of auction？ 

• （2）What are advantages and disadvantages of consignment？ 

• Terminology practice

• The following terms appeared in the text. Select one correct term for each of the following statements.

• Auctioneer Spot goods Verification Title of goods

• （1）Making sure that something is true or accurate.

• （2）A person whose job is conducting auctions.

• （3）A legal right to ownership of goods.

• （4）Goods ready for immediate delivery.

12.4Counter trade and processing and assembling trade

12.4.1 Counter trade 

Counter trade is a mode of trade which makes use of the agreed commodity or service as a mode of payment for the equipment，technology imported from abroad. There are two basic forms of counter trade：barter trade and compensation trade.

Barter trade.Traditional barter trade is generally carried out by means of commodities of the same value.

Compensation trade.It means that one party provides the other with equipment and technology，the payment of which is made by the goods manufactured with the equipment and technology，or by other goods. Forms of compensation trade mainly include products buy-back and counter purchase.

Product buy-back. It means that the payment is supposed to be made against the imported machines，equipments and the imported technological know-how by the manufactured products made of or from such imports. This kind of compensation trade is also called direct compensation trade since it requires that the goods exported must be manufactured directly by the imported machines and equipments with the imported technological know-how. So the application of this method has its own limitations.

Counter purchase. It means that the payment is supposed to be made against the imported machines，equipments and the imported technological know-how by some other products or services that are unrelated to the manufactured products made of or from such imports. This kind of compensation trade is also called indirect compensation trade.

12.4.2 Processing and assembling trade

Processing and assembling trade includes assembling with parts supplied by customers and processing with customer's materials and processing with customer's draft and samples.

Features of processing and assembling trade

• （1）Processing and assembling trade is different from general import and export trade.

• （2）The processing and assembling trade is different from the processing of imported materials.

Key words，phrases and special terms

n Administerv.管理， 执行

n Agencyn.代理

n Agentn.代理人

n Announcement of tender投标公告

n Auctionn.拍卖

n Auctioneern.拍卖人

n Authorizedadj. 经授权的，权威认可的

n Award of bid 决标

n Barter trade 易货贸易

n Biddern. 投标者

n Bid bond 投标保证金

n Beneficialadj.受益的，有益的

n Be subject to ...以……为准

n Compensation trade 补偿贸易

n Consignmentn.寄售

n Counter purchase 反购

n Distributorn.经销商

n Drilling Tools钻探工具

n Eligibleadj.合格的，符合条件的

n Entitlev.授权

n Exclusive agency （sole agency） 独家代理

n Exclusive sales 独家经销

n Future markets 期货市场

n Future trading 期货贸易

n General agency 总代理

n Indemnityn.保证，补偿，赔款

n Installmentn.分期（付款）

n International competitive bidding 国际竞争性招标

n Invitation to tender招标

n Limited bidding 限制性招标

n Mark⁃up auction增价拍卖

n Mark⁃down auction减价拍卖

n Negotiated bidding 谈判招标

n Open bidding 公开招标

n Ordinary agency 一般代理

n Prequalificationn.资格预审

n Principaln.委托人

n Proceduren.程序

n Processing and assembling trade 加工和装配贸易

n Procurement 获得，取得，采购

n Product buy⁃back 回购

n Provisionsn.规定，条款，供应

n Proxyn.代理的权限

n Reimbursev.偿还

n Rendering services 提供服务

n Representativen.代理

n Sealed bids （closed bids）密封递价

n Spot goods现货

n Submission of tender 投标

n Territoryn. 领土，领域

n Two⁃stage bidding 两段式招标

n Undertakev.保证，许诺