Foreign Trade

Introduction

Foreign economic activity is an important component of the global economy, enabling countries to establish external economic relations and participate in international trade.

General Information on Foreign Economic Activity: Definition and Essence

What is Foreign Economic Activity?

Foreign economic activity (FEA) is a set of economic relations between countries that involve the movement of goods, services, capital, and labor resources across borders.

Importance of Foreign Economic Activity for the Economy

Foreign economic activity plays a crucial role in economic development as it contributes to increased production and sales of goods, efficient resource utilization, improved quality of goods and services, and higher employment levels and income for the population.

Furthermore, FEA enables companies to access new markets and technologies, leading to enhanced product quality and competitiveness. It also serves as a source of attracting investments and technologies from abroad, fostering economic growth and development.

FEA is an integral part of the modern economy and requires management and regulation by governments to have a favorable impact on the country's economy.

Preparation for Foreign Economic Activity

Benefits and Drawbacks of Participating in Foreign Economic Activity

Prior to engaging in foreign economic activity, it is important to conduct an analysis of the benefits and risks involved. Among the main advantages of participating in FEA are increased sales volume, expanded geographic reach, access to new technologies and markets, increased profitability, and risk diversification.

Despite the significance of FEA, it carries risks that should be taken into account during its implementation. Here are some of the most significant risks associated with FEA:

• Political risks: changes in legislation and trade rules, geopolitical crises, wars, and conflicts between countries;
• Economic risks: currency instability, financial crises, imbalances in the balance of trade, fluctuations in prices of goods and services;
• Technical risks: disruptions in transportation and logistics chains, product quality issues, lack of quality control for goods and services, absence of standards and certification;
• Legal risks: violations of customs and tax regulations, infringement of intellectual property rights, inadequate protection of property rights on assets and investments;
• Environmental risks: ecological disasters, non-compliance with environmental safety standards and requirements, threats to human and animal health.

How to Start Engaging in Foreign Economic Activity

To initiate involvement in foreign economic activity (FEA), it is necessary to register with the relevant authorities and obtain the necessary permits and documents, such as conformity certificates and declarations. Additionally, it is crucial to choose the right strategy and methods of international trade, determine market and product choices, and select suitable suppliers and partners.

Selection of Suppliers and Market Channels

Factors to consider when choosing suppliers and market channels include:

• Product quality;
• Pricing;
• Delivery timelines;
• Payment terms;
• Logistical capabilities;
• Level of risks involved;
• Cultural and legal aspects.

Organizational and Legal Forms for FEA

Organizational and legal forms for FEA in Russia can be divided into several categories.

The first category includes legal entities registered in Russia, such as joint-stock companies, limited liability companies, and economic partnerships, among others.

The second category encompasses branches of foreign companies, which also have legal entity status in Russia.

The third category comprises individual entrepreneurs and individuals engaged in FEA without forming a legal entity.

Furthermore, participants in FEA can be involved in different types of activities: producers, intermediaries, and facilitating organizations. The choice of organizational and legal form should consider the company's objectives and its needs for legislative protection.

When selecting an organizational and legal form, it is necessary to consider tax and accounting aspects, as well as the principles of FEA regulation in Russia.

Establishing a trading company is one of the most popular ways to engage in FEA. A trading company can be registered as a legal entity, providing greater protection and guarantees during business operations. Alternatively, an agency-based approach can be utilized, where an agent acts on behalf and at the expense of their client. This approach is convenient for those who do not want to deal with customs and logistics matters or risk their own resources.

Registration as a Participant in FEA

Legal Aspects of Engaging in FEA

To participate in FEA, it is necessary to register as a participant. A participant in FEA can be a legal entity or an individual with the relevant documentation. Registration as a participant in FEA is mandatory and requires compliance with specific legal formalities.

The legal framework for FEA in Russia is governed by legislation on foreign trade activities and customs regulation. According to the law, participants in FEA must register with customs authorities, which will oversee the movement of goods across borders.

How to Become a Participant in FEA

To become a participant in FEA, certain conditions must be met, and the necessary documents, licenses, and permits for conducting foreign economic activity must be obtained.

Documents for Registering as a Participant in FEA

To register a new participant in foreign economic activity (FEA), the following copies of documents need to be provided:

• Taxpayer Identification Number (INN) certificate;
• Primary State Registration Number (OGRN) certificate;
• Charter;
• Order or decision appointing the director.

If the FEA participant plans to declare goods through a customs representative, a service agreement must be concluded.

It is also important to register in the Federal Customs Service's electronic service "Personal Account of FEA Participant." To verify and authorize access to the personal account, a confirmed account on the Government Services Portal or an electronic signature is required.

Registration as a new FEA participant occurs automatically with the customs authority upon submitting the first customs declaration for goods.

These procedures will assist a novice FEA participant in successfully commencing their activities.

Forms of FEA

Forms of foreign economic activity (FEA) represent methods of interaction among participants in foreign trade operations. There are various forms of FEA that can be used depending on the objectives and needs of the participants.

Foreign economic activity has three main forms:

• Government regulation;
• Foreign trade activities of enterprises and organizations;
• International production cooperation.

Types of Foreign Trade Operations

Foreign trade operations involve economic transactions between participants from different countries, aimed at the exchange of goods, services, intellectual property, and other assets. Some types of foreign trade operations are as follows:

• Export and import of goods. These are the primary types of foreign trade operations involving the movement of goods across borders.
• Services. This type of foreign trade operation involves providing services beyond the country's borders.
• Investments. This type of foreign trade operation involves investing in the economy of another country.
• Licensing and franchising. These are types of foreign trade operations that involve the transfer of rights to use technologies and brands.

Characteristics of Foreign Economic Activity

The main characteristics of foreign economic activity include:

1. International nature: FEA encompasses numerous countries and requires consideration of differences in legislation, culture, and traditions.
2. Customs procedures: FEA is associated with document processing, payment of customs duties, application of anti-dumping duties, and other customs measures.
3. Currency risks: FEA can be exposed to currency fluctuations and requires the use of instruments to minimize them.
4. Political risks: FEA can be subject to changes in legislation and the political situation in a country.
5. Specifics of goods and operations: FEA includes a wide range of goods and types of operations, each with its own characteristics and requiring specific knowledge and skills.
6. Market access difficulties: Some countries may impose trade barriers, which can hinder access to the markets of other countries and require specific knowledge and skills to overcome.
7. Adaptation requirement: Successful FEA necessitates considering factors such as language, culture, traditions, and customs of other countries, which may require additional preparation and adaptation.
8. Complexity: FEA is a complex and multif aceted area of business that requires thorough preparation and analysis to achieve success.

Terms of Foreign Economic Activity

Delivery Terms

Delivery terms are rules that define the process of delivering goods from the seller to the buyer, as well as the obligations and responsibilities of the parties in this regard. The main delivery terms include:

• Place of delivery;
• Method of transportation;
• Responsibility for delivery;
• Delivery time;
• Cost of delivery;
• Packaging obligations.

There are different types of delivery terms, such as EXW (Ex Works), FCA (Free Carrier), CIF (Cost, Insurance, and Freight), and others.

Payment Terms and Guarantees

Payment for goods and services is an important aspect of foreign economic activity. Determining payment terms should be based on principles of mutual benefit and protection of the parties' interests.

There are several types of payment terms, with the most common ones being:

• Cash on Delivery (COD);
• Prepayment;
• Payment after delivery;
• Deferred payment;
• Letter of Credit (L/C).

In addition, guarantees are often used in foreign trade operations, such as bank guarantees and insurance.

Customs and Tariff Regulation

Customs duties and taxes are an important source of revenue for governments. Customs and tariff regulation is a system of measures and methods applied by a country to regulate the import and export of goods, services, and capital, as well as ensure customs security and compliance with customs clearance rules.

The main elements of customs and tariff regulation include:

• Customs value of goods: the amount determined as the value of goods subject to customs duties and value-added tax.
• Customs duties: payments levied on goods crossing the border, based on their value or quantity.
• Value-added tax on imported goods: a tax paid upon importation of goods into a country.
• Prohibitions and restrictions on the import and export of goods: measures implemented by a country to limit or prohibit the import or export of certain goods to protect national interests and ensure security.
• Customs clearance procedures: the process of completing the necessary documents for the movement of goods across the border and ensuring compliance with regulations.

Customs procedures and customs clearance rules also have their specific characteristics depending on the type of goods and terms of delivery. A good understanding of customs and tariff regulation is essential for participating in foreign economic activity to correctly handle documentation, select delivery and payment terms, and avoid potential violations related to customs legislation.

Logistics in Foreign Economic Activity

What is Logistics

Logistics is a set of activities involved in managing the flow of materials, information, and financial resources in the process of producing and delivering goods, as well as managing reverse flows. In the context of foreign economic activity, logistics plays a crucial role in organizing supply and transportation of goods, managing warehouse inventory, facilitating customs clearance, and overseeing logistics infrastructure.

Functions of Logistics

The key functions of logistics in foreign economic activity include:

• Inventory management;
• Transportation;
• Warehousing;
• Customs clearance;
• Management of logistics infrastructure.

Infrastructure, Transportation, Warehousing, Inventory Management

When organizing the transportation of goods, factors such as transportation mode, logistics schemes, and delivery routes are considered. Distance, speed, cost, and product preservation requirements are taken into account.

For storage of goods, the type and size of warehouses and equipment are selected to ensure proper storage and accessibility of goods, as well as to minimize storage costs.

Inventory management helps determine the optimal inventory level and distribution across warehouses.

Quality logistics in foreign economic activity relies on robust infrastructure, including roads, ports, airports, warehouses, and more.

Government Regulation of Foreign Economic Activity

Participants in Foreign Economic Activity

Participants in foreign economic activity include legal entities and individuals engaged in the import or export of goods, services, and intellectual property. Additionally, participants can be countries or their organizations that enter into international agreements and treaties.

Objectives of Government Regulation in Foreign Economic Activity

Government regulation in foreign economic activity aims to achieve the following objectives:

1. Economic security: The government protects its domestic market from cheap imported goods that may harm domestic producers. It also controls the export of strategically important goods.
2. Strengthening international relations: The government stimulates the export of goods and services, which contributes to strengthening economic relationships with other countries.
3. Enhancing economic competitiveness: The government supports domestic producers, creates conditions for export development, and attracts foreign investments.
4. Diversification of goods and services in the market: The government regulates the quality of imported goods, which leads to an improvement in the quality of goods and services available in the market.

Authorities Responsible for Government Regulation in Foreign Economic Activity

In each country, government regulation in foreign economic activity is carried out by specialized agencies.

In Russia, the authorities responsible for government regulation in foreign economic activity are the Ministry of Finance, the Central Bank of Russia, and the Federal Customs Service (FCS).

The Ministry of Finance regulates the financial sphere, establishes the methodological basis for the development of the balance of payments, determines the rates of import and export customs duties, and establishes the tax system.

The Central Bank of Russia, in collaboration with the Ministry of Finance, determines the terms and conditions for financing foreign economic activity, regulates currency transactions and the exchange rate of the ruble, issues licenses for currency operations, and participates in export and import control.

The Federal Customs Service controls the crossing of the Russian border by individuals and goods, determines the rates of customs duties and fees, collects customs duties, fees, and penalties, confiscates goods, financial resources, and property of individuals. It also protects Russia's economic and other interests by combating illegal exports, preventing the illegal import of weapons, waste, etc. The FCS is responsible for customs statistics, participates in currency and export control, and contributes to the development of customs legislation and policies in Russia.

The Customs Union and Its Significance for Government Regulation in Foreign Economic Activity

The Customs Union is a form of economic cooperation between countries that establishes common rules for trade and customs regulation. Currently, the Customs Union consists of Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan.

The Customs Union plays a significant role in government regulation in foreign economic activity by establishing common rules and procedures for the movement of goods among its members. This reduces trade barriers and simplifies procedures, which, in turn, promotes international trade and strengthens economic relationships among the Customs Union members.

Required Documents for Foreign Economic Activity

Various documents are necessary for conducting operations in foreign economic activity, including:

• Sales contract (purchase agreement)
• Invoice
• Transportation documents (bills of lading, transport documents)
• Certificates of conformity and other documents for goods subject to certification
• Customs documents (customs declaration, transit documents)
• Licenses and permits for the export and import of specific goods

Each operation requires its own set of documents, so it is important to carefully study the legislation related to foreign economic activity and seek advice from specialists to avoid errors and minimize risks.

Independent Work as a Participant in Foreign Economic Activity

One way for a participant in foreign economic activity to interact with customs authorities is to handle the process of customs declarations and necessary procedures independently. This can be beneficial for companies that engage in foreign trade regularly and have sufficient experience and qualifications for such work. However, it is important to consider that when working independently, all risks are borne by the participant in foreign economic activity, and a lack of knowledge of customs legislation can lead to border delays and financial losses.

For those who lack sufficient experience in foreign economic activity or who do not wish to bear all the risks of independent work with customs authorities, there is an option to work with a customs broker. A customs broker represents the interests of the participant in foreign economic activity in customs authorities, ensures proper documentation, and assists in selecting the most advantageous customs clearance scheme. Additionally, when working with a customs broker, the participant can receive consultations on matters related to customs regulations and foreign economic activity as a whole.

Conclusion

Foreign economic activity is an important component for many companies, especially those engaged in manufacturing and exporting goods. To successfully conduct foreign economic activity, it is necessary to have not only a good understanding of customs clearance procedures but also to stay updated on changes in legislation, have qualified personnel, and be prepared for possible risks and obstacles.