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Topic 8: Documentation & Procedures

Introduction to Export Documentation & Procedures
Differences Between Exporting and Domestic Business
The Pro Forma Invoice - First Step
The Commercial Invoice
The Shipper's Letter of Instruction
Customs and Consular Invoices
Product Specification Documentation
Certificates of Origin
The Shipper's Export Declaration
The Bill of Lading
The Packing List
Introduction to Export Documentation & Procedures
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Export documentation is far more than just shipping paperwork; it includes all of the important records of an international transaction. Using the correct trade terminology, clearly defining the transfer of interest and liability, selecting the right method of payment and sending the best quotation possible are the keys to effective exporting. After the sale has been made, proper and timely selection, preparation and distribution of documents are essential.

Documents used in international trade are a reflection of the understanding of the agreement between the seller, the buyer, and third party service and regulatory agencies. It is vital for the seller to understand that any document produced with their name as a party to the document is totally responsible for the actions of the service provider in the course of their performance.

Although often underrated and overlooked, export documentation and procedural concerns are an integral part of the export process and should be considered as important as anything else related to the sale. The term “export” documentation is actually a relative misnomer, as most paperwork is really being prepared on behalf of the buyer, and is used for customs clearance and other legalities at the port of import, and thus are really “import” documents.

Successful exporters usually are very adept at preparing export documents, or else use service providers who are. Problems with documentation can lead to delay in shipment, penalties, unwanted storage costs and an aggravated buyer. An exporter should always put themselves in the importer’s shoes. Consider what you would do, if as an importer, your supplier caused delays and extra expenses due to a lack of proper paperwork. Eventually, you would probably find a new supplier.

Differences Between Exporting and Domestic Business
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The basic intent of a quotation for international trade is the same as it is for quotes made in the U.S.; but the rules and procedures are different. The following are examples of the difference between international and domestic quotations.

  • Trade terms: Domestic sales use trade terms such as “FOB Factory” as defined under the Uniform Commercial Code of the United States. One of the benefits of this trade term is that title of the goods passes to the buyer at our dock. When businesses engage in international trade, they cannot rely on the Uniform Commercial Code or domestic trade terms and should use the trade terms recognized by international traders, the Incoterms as described in Module 6.
  • Methods of payment: Where open account or cash in advance are the primary ways businesses have of collecting domestic accounts receivable, they may not be as common in international trade. Equally as common in international trade are letters of credit and drafts. The document preparation and procedures on these “consignment controlled” shipments requires careful analysis and handling.
  • Methods of packaging: Shipping goods internationally exposes the in-transit product to risks it would not otherwise encounter. Among the greatest risks for damage to goods in foreign trade are: theft; environmental risks such as heat, cold and moisture; transportation by ocean freight or rail; and lack of mechanized physical handling equipment in some of the lesser developed countries. There may be certain documentation required in international trade that would reflect the proper packaging, packing, handling and stowing of goods in order to satisfy the importers’ requirements as well as their governments’.
  • Methods of shipment: Businesses normally ship goods by mail, truck or airfreight to their customers in the United States. In international trade, truck shipments are limited to Canada and Mexico and most processed food products are shipped by air or ocean freight. Air freight differs only in the bill of lading used. Meanwhile, ocean freight can include drayage to move ocean containers to your facility, railroads to get the cargo to the port of export and another drayage trucking to transport your products to the ocean carrier at the pier. Because these modes of transportation differ a great deal, particularly in the area of carrier’s liability, they need to be understood thoroughly before making a quotation. There are specific documents for international shipments that vary in detail, handling and distribution from the domestic equivalent.
  • Insurance covering damage or loss: The seller has primary responsibility for loss or damage to the goods, in most cases, all the way to the port of unloading in the foreign country. Insurance coverage is therefore a must for all international transactions. Insurance certificates are required for proof of coverage on many exports, especially those that are being paid under a letter of credit.
  • Validity period: The validity period of an international quotation is usually 90 days. This allows the buyer to arrange for payment and any import permits that may be necessary to make the purchase decision of your product. Any changes to the quotation during that time must also be reflected in the documentation.
  • Import laws in the foreign country: Before making a quotation to a buyer in a foreign country, it will be necessary to determine what restrictions exist. Common considerations are availability of exchange, country of origin of the product you are offering, import permits, certificates and inspections. The importer may also have documentary requirements in the destination market that must be matched with the exporters’ prior to customs clearance.
  • Banking fees: Unless the importer used U.S. dollars as their currency, international sales generally begin with payment by the buyer in their own currency. The buyer’s bank will then make arrangements to pay the exporter through a U.S. bank in U.S. dollars. The banks charge a fee for this process, part of which will be for the seller’s account. These fees vary depending on the method of payment being used.
The Pro Forma Invoice - First Step
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The pro forma invoice is usually the first export document prepared. It is generated by the exporter in response to an opportunity for export business; often from a trade lead, whether from an unsolicited direct inquiry or as follow-up from a trade event. Virtually nothing is accomplished in an export transaction without the issuance and acceptance of a pro forma invoice. Pro forma invoices can be either formal or informal documents depending on the requirements of the destination country.

Formal quotations usually require a letter of credit as the method of payment. For the buyer to obtain permission to exchange or to import the product, they will need to receive a quotation in the pro forma format. A pro forma invoice is a “snapshot” of the offer as it stands at the moment. The seller should carefully develop the quote, because once the buyer accepts the offer to sell at a certain price, a formal contract for the exact amount exists.

Informal quotations are usually prepared for exports to industrialized countries that have few exchange restrictions and no regulation-requiring amount of product or value for import. This means that the quotation could be adjusted without penalty during the course of negotiating the sale.

To review the pro forma invoice, click here.

The Commercial Invoice
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The commercial invoice is considered to be the most important international trade document and should be prepared as accurately as possible. It is the main document used by customs to accept or reject the customs entry prepared by the customs broker. Even with a sample shipment, a commercial invoice is required, and needs to state the fact that the goods are not for resale - are samples only - and have little commercial value.

The commercial invoice should reflect the exact nature and terms of the agreement that exist between the buyer and the seller. Most duties are applied at an Ad Valorem rate, which are on the value of the goods upon their arrival, usually “CIF,” Cost Insurance and Freight. The invoice would be totaled to that amount and the duties paid accordingly, so it is key in most customs clearances. Often, the commercial invoice will be prepared by the seller and totaled to the desired trade term, then depending on the method of payment, submitted through banking channels or sent directly to the importer for payment. These arrangements need to be agreed upon between the seller and the freight forwarder prior to shipping the goods.

Although there is no standard form for a commercial invoice, the following information should be included:

  • Seller’s name and address
  • Buyer’s name and address
  • Exact description of goods (kind, grade, quality, weight)
  • Agreed-upon price in U.S. dollars (in order to reduce foreign exchange risk)
  • Description of packages (number, kind, markings, dimensions)
  • Type of container
  • Delivery point
  • Terms of payment
  • Date and place of shipment
  • Method of shipment
  • Signature of shipper/seller

Parties to the Transaction and the Commercial Invoice

The parties involved in the export transaction that need an original or copy of the document underscores the importance of the commercial invoice. They are:

  • The Exporter: As a record of the shipment and the payment mechanism.
  • The Importer: Also a record of shipment and payment mechanism.
  • The Freight Forwarder: Uses the invoice in part to prepare the documentation they provide as part of their services.
  • The Customs Broker: Uses the invoice to prepare the customs entry forms at the point of import.
  • U.S. Customs: May require a document evaluation if they have concerns about the shipment’s integrity.
  • Foreign Customs: May also require a document evaluation in order to allow the customs clearance at the point of import.
  • The Seller’s Bank: If the bank is involved in the payment, they would evaluate the invoice as part of their document review.
  • The Buyer’s Bank: If the buyer’s bank is making the payment on behalf of the importer, they would require an invoice as part of their document review.
  • The Insurance Company: The company that provides the marine cargo insurance for the shipment may also require an invoice as part of their file.
In order to review a commercial invoice that includes instructions on completion, click here.
The Shipper's Letter of Instruction
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This document is completed by the shipper and includes all of the information necessary for the freight forwarder or carrier to make transportation arrangements and complete the bill of lading and other related documents. Like the shipper’s export declaration, the SLI does not leave the United States. The shipper’s letter of instruction should include:

  • Shipper’s company name, address, phone, fax and contact name
  • Shipper employee identification number
  • Shipper reference numbers (bill of lading, invoice, purchase order, etc.)
  • Product information (description of goods, product quantity, number of packages, weight in pounds, cubic feet, marks)
  • Consignee information
  • Notify party – Importer, Agent, Customs Broker
  • Product invoice value
  • Schedule B number
  • Freight and documentation billing information
  • Special instructions
  • Signature and date

To see an example of a shipper’s letter of instruction, click here.

Customs and Consular Invoices
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Some countries require country-specific invoices that should be submitted along with the exporter’s commercial invoice. A prime example of this is the “Canadian Customs Invoice” that is required for shipments exceeding a specific Canadian dollar amount, currently at C$1600. Because this amount and the exchange rates vary from time to time, you should check at the time of shipment, or prepare the Canadian Customs Invoice as a matter of policy for each and every shipment.

The Canadian government uses the more detailed information on the invoice to evaluate trade relations, ports of import, statistical data and trends in business between the U.S. and Canada. To review a Canadian Customs Invoice (CCI), including instructions for completing it, click here.

A consular invoice could also be required along with the regular commercial invoice. The consulate of the destination country often sells these documents, or they might be available through your freight forwarder. The forwarder not only prepares and validates the consular invoice, but also handles the courier delivery and pick-up of the documents with the consulate. Check with your forwarder for an updated list of which countries require consular invoices or pre-shipment inspections.

The consular invoice is used along with the other export documents by the consulate to screen the transaction for fraud, and could be part of the pre-shipment inspection process many developing countries use to verify the description and value of the shipment prior to export.

Customs fraud is a serious problem in the world. Many importers may ask the seller for a “dummy” invoice at a much lower value to avoid paying the proper duty on the goods. This is not a wise procedure to get involved in and can get an exporter into trouble if he/she is identified as a party to defraud customs in another country.

Product Specific Documentation
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Some food and agricultural products require product specific documentation certifying their safety, purity and accordance with U.S. or foreign government regulations. The Foreign Agricultural Service, FAS, has a portal for companies to access a variety of regulatory sites for food products, which is a good place to start evaluating your document requirements in this area. These rules need to be used in conjunction with the regulations at destination as well, and they all recommend confirmation with the buyer or their customs broker in order to arrive at the correct compliance prior to shipment. In this site, you will find the following:

  • U.S. Trade Restrictions: The list of trade restrictions that may require an export license application. These rules may apply for embargoes of foreign countries, domestic shortages or other reasons.
  • Shipper’s Export Declaration: This is the main document required by the U.S. government, and is covered later in this section. The Bureau of the Census and International Trade Administration uses it for compiling U.S. export statistics and it is also used by customs for export control purposes.
  • USDA Food Safety Inspection Service:The FSIS includes the “Library of Export Requirements” for products such as red meat and poultry.
  • Export permits for alcoholic beverages:The Bureau of Alcohol, Tobacco and Firearms, ATF, requires a Wholesalers Basic Permit for any resale, domestic or foreign.
  • Food and Agricultural Regulations & Standards:The “FAIRS” reports, which were reviewed in an earlier section, describe import requirements and contacts for assistance. These reports are focused on consumer-ready products.
  • USDA/APHIS: The Animal and Plant Health Inspection Service provides inspection and veterinary services for plants, meat, poultry, live animals and animal products to help ensure the product meets foreign import requirements. To review an example of a phytosanitary certificate, click here.
  • USDA National Organic Program:The NOP has information on export certificates and trade issues for organic products.
  • Seafood and Aquaculture: The Seafood Inspection Program offers information on import requirements for seafood products.
  • Food and Drug Administration: The FDA issues export certificates for various products that may have that requirement.

To access the FAS portal to review these regulations, click here.

Certificates of Origin
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The certificate of origin is used by a neutral third party to identify the origin of manufacture of the good. The origin of manufacture, not the origin of export, is important to determine the proper duties to be applied by customs at the destination. Many chambers of commerce in areas around ports of export sell and prepare the certificate of origin, or allow local freight forwarders to do so on their behalf. Some countries have specific certificates of origin, but many will allow the “general use” certificate to satisfy their requirements. Shipments paid by letters of credit may require one as mandated by the issuing bank. In this case, the certificate of origin will need to be prepared exactly to the letter of credit requirements.

To review a “General Use” Certificate of Origin click here.

However, there are some specific requirements for certain countries. For example, shipments to Canada and Mexico require a NAFTA Certificate of Origin for preferential duty treatment under the NAFTA to apply. Chambers of Commerce and freight forwarders are not allowed to prepare NAFTA Certificate of Origin on behalf of the exporter or producer who must self-certify. The most frequently issued certificate of origin in the U.S. is the NAFTA, based on the tremendous volume and value of goods crossing the North American borders each day.

NAFTA Certificate of Origin

Customs Form 434, or the NAFTA Certificate of Origin, as it is commonly known, is uniform in all three countries and printed in Spanish, French and English. At the exporter’s discretion, it can be completed in the language of the origin or destination country. Importers shall submit a translation of the certificate to their own customs administration when requested. An understanding of the Harmonized System (HS) and the NAFTA Rules of Origin are imperative for an exporter to legally and correctly prepare the documents. The HS number for each product needs to be placed on the NAFTA Certificate of Origin. This document must be completed and signed by the manufacturer of or the exporter of the goods. Where the exporter is not the producer of the goods, the exporter may complete the certificate on the basis of:

  • Your knowledge that the product originates under NAFTA; or
  • Reasonable reliance on the producer’s written representation that the good originates; or
  • A completed and signed Certificate of Origin for the good voluntarily provided to the exporting company by the producer.

Where no claim for preferential tariff treatment is made at the time of the importation, your buyer may request preferential tariff treatment no later than one year after the date on which the goods were imported, provided a valid certificate of origin is obtained and presented. If the certificate is not presented at the point of import, the most-favored nation (MFN) tariff will apply. MFN rates are reserved for members of the WTO, World Trade Organization, of which the North American countries are members. If the product does not qualify for NAFTA tariff preference, the certificate should not be submitted. In this case the product is subject to the MFN tariff rate. The completed NAFTA Certificate of Origin certifies that the product meets the NAFTA Rules of Origin.

A certificate of origin may cover a single importation of goods or multiple importations of identical goods. The NAFTA defines identical goods as “goods that are the same in all respects, including physical characteristics, quality and reputation, irrespective of minor differences in appearance and that are not relevant to the determination of origin of those goods under the NAFTA Rules of Origin. Certificates that cover multiple shipments are called blanket certificates and may apply to goods imported within any twelve-month period on the certificate.

A NAFTA Certificate of Origin is not required for shipments to Mexico or Canada. The exporter should only prepare a NAFTA Certificate if the product qualifies for preferential tariff treatment under the NAFTA rules of origin.

A NAFTA Certificate of Origin is not required for the commercial importation of a good valued at less than US$1,000. However, for goods to qualify for NAFTA preferential duties, the invoice accompanying the commercial importation must include a statement certifying that they qualify as originating goods under the NAFTA rules of origin. The statement should be handwritten, stamped, typed on or attached to the commercial invoice.

In order to review a NAFTA Certificate of Origin, including the instructions on how to complete it, click here.

In order to review the NAFTA Rules of Origin, the interactive website for completing the Certificate of Origin, click here.

The Shipper's Export Declaration
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The shipper’s export declaration is required on shipments valued greater than $2,500 (per Schedule B number) or shipments, regardless of value, of goods requiring permission from the U.S. government to sell outside the U.S. (i.e. export licenses), and shipment to certain countries regardless of value. The lone exception to the requirement is for exports to Canada that are not on an export license and terminating there. The U.S. obtains its export data for Canada from Canadian Customs.The export declaration is a form designed and approved by the Bureau of Census, and is used to collect census information regarding exports.

This document goes by multiple names. Customs Form 7525-V is the technical name, but it is also known as the “SED,” “EX-DEC,” or Shipper’s Export Declaration. It can be prepared by the international freight forwarder handling your shipment and submitted electronically prior to export. This is a legal record of the shipment and a copy of the SED should be placed in the shipment file. You can obtain a copy from the forwarder, or save your own if you complete it yourself. In order to review the export declaration,

Starting October 1, 2008, the Census Bureau requires mandatory filing of export information through the Automated Export System (AES) or through the AESDirect for all shipments where a paper Shipper’s Export Declaration is required. Penalties may be imposed per violation from $1,100 to $10,000—both civil and criminal—for the delayed filing, failure to file, false filing of export information, and/or using the AES to further any illegal activity. Also, all AES filers will face new filing dead lines by mode of transportation for reporting export information.

For many filers, one option may be to use AESDirect, the free Internet filing alternative available at their website (http://www.aesdirect.gov/) At that site, you can also download their AESPcLink software, which is a standalone version of AESDirect. Other options include purchasing customized software from a certified software vendor, or developing your own in-house software application. You may file to the AES from a Value-Added Network (VAN), through a service center, or you may authorize an agent to file on your behalf. The cost of the software and equipment will be proportional to the sophistication of the system you choose.

In order to access the locations of the AES or Automated Export System click here.

In order to review the shippers export declaration, click here.

The Bill of Lading
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A bill of lading is a contract of carriage between an exporter and a service provider, such as an airline, steamship line, freight forwarder or shipping company. It identifies the parties to the transaction and their responsibility for payment of transportation and other accessorial fees, such as transfers and delivery. In international trade, the origin and destination of the bill of lading are usually for the “main carriage.” This is usually the transportation from the port of export to the port of importation. Trucking services may also provide bills of lading for export, if they are leaving under that mode of transport.

To look at a standardized bill of lading, click here.

The International Air Waybill

The air waybill is the contract for carriage (bill of lading) for shipments made by airfreight. The air waybill is normally issued by a freight forwarder acting as the agent for the airline who transports the goods, or an airfreight consolidator, who may use the airline to transport the goods of several companies under its own master bill of lading. The airline air waybill is known as the “master air waybill” or “Mawb.” If your shipment is consolidated with other cargo, the forwarder will issue his “house” air waybill. The house bills are then consolidated into the master air waybill.

The most important things to know about the air waybill are:

  • If you consign the air waybill directly to the buyer in the foreign country, the buyer can clear the goods immediately upon arrival at the destination port. If the air waybill is consigned to a third party (normally the buyer’s bank), you can control possession of the goods until the buyer pays or signs a promissory note, or time draft, to pay at a later date.
  • Options for declared value for carriage are best discussed with the freight forwarder who is handling your shipment. A minimum cost per kilo will be charged based on either weight or volume, depending on the density of the cargo. (Density is calculated as the amount of pounds per cubic foot. The higher the density usually means more attractive pricing for the shipment.)

To review an example of an air waybill, click here.

International Ocean Bill of Lading

The ocean bill of lading is the contract for carriage, or bill of lading, for shipments made by ocean freight. The ocean bill of lading is normally issued by a freight forwarder acting as the agent for the ocean carrier who transports the goods, or by an ocean freight consolidator, who will use the ocean carrier to transport the goods of several companies under its own master bill of lading. The most important points regarding the ocean bill of lading are:

  • If you consign the ocean bill of lading directly to the buyer in the foreign country, the buyer can clear the goods immediately upon arrival at the destination port.
  • If you consign the ocean bill of lading “to the order of the shipper,” you can control the title or possession of the goods until the buyer pays or signs a promissory note to pay at a later date. A “To Order” bill of lading makes the document negotiable, as it also includes an endorsement on the back by the shipper or their agent. This is quite similar to your paycheck or the checks you write, which say “To the order of” instead of “To”. Negotiable bills of lading, when signed, represent ownership of the goods and need to be protected from any other party obtaining them other than as directed by the shipper.
  • The carrier’s liability and where the liability begins. For example, if the carrier picks the goods up from the exporter’s dock, the ocean carrier’s liability for loss or damage will be limited by the amount of liability stated in the ocean bill of lading.
  • If less than a container load, LCL, shipment, and the charges will be based on either weight or volume depending on the density of the cargo. The carrier will charge the higher of the two costs.

To review an example of an ocean bill of lading, click here.

Differences between Air Waybills and Ocean Bills of Lading

The primary difference between the air waybills and ocean bills of lading (other than the obvious) is that ocean bills of lading can be made negotiable and air waybills cannot. Negotiable bills of lading are a common practice in international trade, designed to protect the seller by allowing them to consign the document to their “order,” instead of the consignee, or buyer. In this case, the seller may transfer the document to or through a third party, usually a bank, who then would collect the funds from the buyer before turning the documents over to them. The transit time in ocean freight may allow the bill of lading to be bought and resold, which in a sense, gives the document a distinct value. If you consign a bill of lading to the buyer directly, you have in a sense turned title to the goods over to them, which is not advisable unless you have been paid already or have assurance you will be paid. A negotiable bill of lading is most often used when a letter of credit is the payment mechanism. In other cases, ocean bills of lading may be consigned to the buyer’s bank, if not negotiable, in order to control title to the goods.

An air waybill is not negotiable, and is mostly consigned directly to the consignee. It is not negotiable or transferable because of the rather limited transit time. There is no time to transfer the title between parties in the limited amount of time it takes for the goods to arrive.

The Packing List
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The packing list is used by customs to apply certain types of duties, and is a required document for customs clearance. Most duties are applied on a basis of value, known as “Ad Valorem” duties, and the commercial invoice is key for those. There are also two other types of duties applied to imports; specific and compound. Specific duties require the packing list as they are applied on the physical nature of the goods, such as their pieces, weight or measure and this information comes from the packing list. Compound duties are applied as both Ad Valorem and Specific tariffs together and thus both the commercial invoice and packing list would be required for customs clearance.

It is also used by shipping companies to identify the weight and dimensions of your product, and should be completed in metric form. It does not usually require any value for the merchandise, but a very complete list of all the products, their packing (example: cartons, boxes, crates, barrels, bags) their gross and net weights, their cubic feet and cubic meters and any markings or handling issues.

Many exporters simply block out the price on their commercial invoices and use it as a packing list, but this is not recommended. You would not want foreign customers to confuse your commercial invoice and packing list, as they may consider your document package to be incomplete. It is recommended to create your commercial invoice in portrait form and your packing list in landscape form to clearly point out the differences.

The export packing list is considerably more detailed and informative than a standard domestic packing list. An export packing list itemizes the material in each individual package and indicates the type of package—box, crate, drum, carton, etc. It shows the individual net, legal, tare and gross weights and measurements for each package (in both imperial and metric units).

Package markings should be shown along with the shippers and buyer’s references. The packing list should either be included in or attached to the outside of the package in a waterproof envelope marked “packing list enclosed.” The shipper or forwarding agent to ascertain the total weight and volume in addition to determining whether the correct cargo is being shipped uses the list.

To review an example of a packing list, click here.

The average international shipment involves 46 separate documents. The specific documents required for any given shipment depend on U.S. Government regulations, the importing country’s regulations, the importer’s requirements, terms of sale, method of payment and mode of transportation.

Slight discrepancies or omissions in documentation may prevent goods from being exported, may result in the shipper not getting paid or may even result in seizure of the goods by customs agents. Completion of much of the documentation is routine for freight forwarders or customs brokers, but the exporter is ultimately responsible for the accuracy of the documentation. As such, documentation becomes a crucial function of the export process.

To review the standard documents for export chart, which identifies the 20 most frequently used documents, click here.

So what’s the next step?

For more detailed exporting information relative to your specific business please register for our Food Export Helpline™ service. There are always specific issues and questions that are unique to your company, products, and export markets. With the Food Export Helpline™, you’ll speak with an industry expert who’ll put his more than 20 years of experience to work for you. There are no canned answers, only insightful, customized advice specifically for you.
Click here for the Food Export Helpline.

Or, register for our Market Builder program. This service provides customized, in-market research to help you determine if a market is right for your product. Exporters can find new distributors or importers, receive valuable feedback about their product and gain industry insights on topics such as the distribution process and import regulations and restrictions for 18 international markets.

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