| A GUIDE TO EXPORTING SOLID WOOD PRODUCTS |
BUSINESS ORGANIZATION OF FIRMS INVOLVED IN EXPORTING
"In House"
Export Management Companies (EMC's or agents)
Export Trading Companies (ETC's)
Export
Merchants (EM's)
Foreign
Sales Corporation (FSC)
"In House"
The organization of a firm and how its wood products are sold overseas are related to and depend on several factors including the size of the company, productive capacity, types of wood products, degree of processing, previous exporting experience, and business conditions overseas. "In-house" organization of the business involves direct selling of wood products by the U.S. producer to the foreign importer. The producer is usually responsible for shipping the product overseas.
Traditional and customary marketing and business practices in a foreign country will dictate how the products will be sold. Depending on the country, direct selling may involve working with foreign sales representatives, agents, or distributors. For example, agents are very active in the wood products trade in the United Kingdom and other European countries. In Japan, trading companies are the primary contacts.
"In-house" organization will provide the company greater control over the export marketing procedures for the firm's products. In general, there are higher start-up costs and fewer economies of scale under this organizational structure than with the others described below.
Export Management Companies (EMC's or agents)
EMCs are generally small, closely held companies which represent wood products manufacturers in export marketing. The EMC may represent a number of small, unrelated companies and provide benefits (economies of scale) relating to foreign sales, marketing missions, and scheduling or shipping products for export. The EMC often retains the identity of the manufacturer when dealing with foreign importers, whereas agents work under their own names.
Export Trading Companies (ETC's)
The largest domestic obstacles to exporting—lack of knowledge of foreign marketing, limited credit facilities, and legal restrictions in cooperating with other U.S. companies (antitrust violations)—may be overcome by forming an export trading company (ETC). ETCs may assume the risks involved with international trade by taking title to the products and assuming responsibility for marketing and selling the products overseas.
One publication, the Export Trading Company Guidebook, is available for sale from the U.S. Government Printing Office, Tel. (202) 512-1800. Additional assistance may be obtained from the Office of Export Trading Company Affairs, International Trade Administration, Herbert C. Hoover Building, 14th and Constitution Ave., NW, Washington, DC 20230; Tel. (202) 482-5131, Fax (202) 482-1790, also at: http://www.ita.doc.gov/td/oetca/
Similar to an ETC, an export merchant (EM) may take title to a producer's goods and be responsible for selling to the foreign importer. The advantages of using an export merchant include:
1. Wood products are sold to an export merchant domestically. Producers do not need to be familiar with foreign business practices—this is the responsibility of the EM.
2. The EM may handle all intermediate processing and handling functions, such as pressure treatments or kiln-drying of lumber prior to export.
3. The EM may serve as a "sorter" or distribution yard for lumber and other products. This permits lumber to be regraded specifically for export and specialty markets. Lower volume, high-quality products may become more marketable as a result of using an EM.
4. EMs may become familiar with the operation of small lumber mills and wood producers and may provide valuable assistance in producing wood products for the export market.
Foreign Sales Corporation (FSC)
Under the Foreign Sales Corporation (FSC) Act of 1984, an FSC is a corporation established in a foreign country or U.S. possession, excluding Puerto Rico, which may obtain a tax exemption on a portion of the earnings generated by the sale or lease of export property and the performance of some services. As a general rule, 15 percent of the profits from qualifying export transactions are treated as tax-free income.
The FSC program was intended to replace the Domestic International Sales Corporation (DISC) program which had been interpreted by members of the councils of the General Agreement of Tariffs and Trade (GATT) as an illegal tax subsidy for exports. In February 2000, the appellate body of the WTO ruled that FSCs are an unfair export subsidy which violate WTO rules. The United States was given until October 1, 2000 to reach compliance. For further information about FSCs, contact the Office of Export Trading Company Affairs by telephone at (202) 482-5131, or on the web at http://www.ita.doc.gov/td/oetca/
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