Trade Terminology Basics – Part 2 – BSA Trade Academy
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📚 Module 1: Basic Trade English • Lesson 1-02

Trade Terminology Basics – Part 2

Continue mastering essential import-export vocabulary with additional specialized terms for international trade operations.

📖 Learning Objectives
This lesson covers additional essential trade terms that complement Part 1. Each term includes pronunciation, definition, three professional annotations, real-world examples, and practical scenarios to ensure comprehensive understanding.

📚 Essential Trade Vocabulary (Part 2 of 2)

Drawback
/ˈdrɔːbæk/
A refund of import duties paid on goods that are subsequently re-exported or used in manufacturing exported products
Note 1: Duty Recovery
Drawback programs allow businesses to recover 99% of duties paid on imported materials used in export production. This significantly improves export competitiveness by reducing the effective cost of imported inputs.
Note 2: Application Process
To claim drawback, companies must maintain detailed records linking imported materials to exported finished goods, file claims within specified timeframes (typically 3-5 years), and comply with customs documentation requirements.
Note 3: Types of Drawback
Main types include: manufacturing drawback (imported components in exported products), unused merchandise drawback (re-exporting imported goods), and rejected merchandise drawback (defective imports returned to origin).
Example Sentence
“We filed for duty drawback of $125,000 on steel imported from Germany that was used in manufacturing machinery exported to Brazil.”
Practical Scenario
A CFO instructs the compliance team: “We paid $500,000 in import duties last year on electronic components from Taiwan. Since 80% were used in products we exported to Europe, we should file drawback claims to recover approximately $400,000. Ensure all production records and export documentation are properly linked.”
Expatriate
/eksˈpeɪtriət/
An employee sent by a company to work in a foreign country for a specified period, typically on an international assignment
Note 1: Assignment Structure
Expatriate assignments typically last 2-5 years and include enhanced compensation packages covering housing allowances, education for children, home leave flights, and cost-of-living adjustments to offset higher expenses abroad.
Note 2: Business Purpose
Companies deploy expatriates to establish foreign operations, transfer knowledge and corporate culture, manage key projects, develop international markets, or train local staff. They serve as crucial links between headquarters and overseas subsidiaries.
Note 3: Legal Considerations
Expatriate employment involves complex tax implications (avoiding double taxation), work permits, visa requirements, social security agreements, and compliance with both home and host country labor laws.
Example Sentence
“Our company is sending three expatriates to establish and manage our new manufacturing facility in Vietnam.”
Practical Scenario
An HR director announces: “We’re seeking an experienced supply chain manager for a 3-year expatriate assignment in Shanghai to oversee our Asian sourcing operations. The package includes base salary plus 25% hardship allowance, furnished housing, annual home leave for family, international school fees, and language training.”
Expiration
/ˌekspəˈreɪʃn/
The end date or termination point of a contract, letter of credit, insurance policy, or other time-limited agreement
Note 1: Critical Deadlines
Missing expiration dates can result in serious consequences: expired L/Cs cannot be negotiated, lapsed insurance leaves cargo unprotected, and expired licenses may halt shipments. Tracking systems and advance warnings are essential.
Note 2: Extension Procedures
L/C expirations can be extended through amendments requiring beneficiary and issuing bank agreement. Contract expirations may be extended by mutual consent. Early communication is crucial as last-minute extensions are often difficult or expensive.
Note 3: Grace Periods
Some instruments include grace periods allowing presentation after expiration (typically 7-21 days for shipping documents). However, relying on grace periods is risky – banks may refuse documents, and penalties often apply.
Example Sentence
“The letter of credit expiration is January 31st – we must ship and present documents to the bank before this date.”
Practical Scenario
An export coordinator alerts management: “Our L/C expires in 10 days, but production won’t finish for another 15 days. We need to immediately request an amendment extending the expiration and latest shipment date by 30 days. Delay will cost us the entire order as we cannot ship against an expired L/C.”
Face (Value)
/feɪs/
The nominal or stated value printed on a financial instrument, such as a bill of exchange, bond, or promissory note
Note 1: Versus Market Value
Face value differs from market value or discounted value. A $100,000 face value draft due in 90 days might be sold (discounted) for $97,000 today, reflecting time value of money and credit risk.
Note 2: Payment Obligation
The face value represents the exact amount the drawee must pay at maturity. No adjustments are made for market conditions, interest rates, or exchange rate fluctuations unless specifically provided in the instrument.
Note 3: Documentation Accuracy
Face values on drafts must match L/C amounts and invoice values exactly. Discrepancies, even minor arithmetic errors, can cause document rejection and payment delays.
Example Sentence
“The draft has a face value of $250,000 payable 60 days after sight.”
Practical Scenario
A finance manager explains to sales: “We issued a time draft with face value $500,000, maturing in 90 days. Rather than wait for payment, we discounted it with our bank for $485,000 cash today. The $15,000 difference represents the bank’s discount for immediate payment plus their risk premium.”
Factor
/ˈfæktər/
A financial intermediary that purchases accounts receivable from businesses at a discount, providing immediate cash and assuming collection risk
Note 1: Factoring Process
In export factoring, the factor advances 70-90% of invoice value immediately, holds 10-30% as reserve, charges 1-5% discount fee, and assumes responsibility for collecting payment from overseas buyers. This improves cash flow dramatically.
Note 2: Types of Factoring
Recourse factoring leaves credit risk with seller; non-recourse factoring transfers risk to factor. International factoring often involves two-factor systems where export and import factors cooperate across borders.
Note 3: When to Use
Factoring suits companies with: cash flow constraints, rapid growth requiring working capital, concern about buyer creditworthiness, or desire to outsource credit management and collections while focusing on core business.
Example Sentence
“We sold our $2 million receivables portfolio to a factor, receiving $1.8 million immediate cash instead of waiting 90 days for customer payments.”
Practical Scenario
A CFO proposes: “Our export sales to European customers are $5 million quarterly with 60-day payment terms, creating severe cash flow pressure. I recommend engaging an international factor who will advance 80% immediately ($4 million), charge 2.5% factoring fee ($125,000), and assume non-payment risk. This frees up working capital for production and eliminates bad debt exposure.”
Flotsam
/ˈflɑːtsəm/
Cargo or wreckage found floating on the sea after a shipwreck or jettisoned from a vessel
Note 1: Legal Distinction
Flotsam (floating wreckage) differs from jetsam (deliberately thrown overboard) and lagan (goods on seabed marked by buoy). These distinctions affect salvage rights, insurance claims, and liability determinations in maritime law.
Note 2: Insurance Implications
Marine cargo insurance covers loss of flotsam under total loss claims. If flotsam is recovered, insurers may reduce claim payout by salvage value. Proper documentation and surveys are crucial for substantiating claims.
Note 3: Environmental Concerns
Modern shipping emphasizes preventing flotsam through better container securing and load planning. Lost containers create navigation hazards, environmental damage, and potential liability for pollution or coastal cleanup costs.
Example Sentence
“After the storm, several containers became flotsam – we filed an insurance claim for total loss as recovery was impossible.”
Practical Scenario
A claims adjuster reports: “During Typhoon Haiyan, 20 containers washed overboard. Three became flotsam, drifting 50 nautical miles before sinking. We’ve declared total loss on these three ($750,000). The other 17 containers were jetsam, deliberately thrown overboard to save the vessel – covered under general average. Claimants must contribute proportionally to the total loss.”
Formality
/fɔːrˈmæləti/
Official procedures, documentation, or compliance requirements that must be completed to satisfy legal or regulatory obligations in trade
Note 1: Customs Formalities
Import/export formalities include filing declarations, obtaining licenses, paying duties, presenting certificates, and securing clearances. Each country has specific requirements – non-compliance causes delays, penalties, or cargo seizure.
Note 2: Banking Formalities
L/C transactions require strict documentary formalities: exact compliance with terms, proper endorsements, timely presentation, and complete documentation sets. Banks examine formalities literally – even trivial deviations may cause rejection.
Note 3: Streamlining Efforts
Modern trade facilitation reduces formalities through: authorized economic operator programs, pre-clearance systems, single window platforms, and electronic documentation. These initiatives significantly reduce administrative burdens and transit times.
Example Sentence
“We must complete all customs formalities before the cargo can be released from the port.”
Practical Scenario
A logistics manager briefs the team: “Our first shipment to Saudi Arabia requires extensive formalities: commercial invoice legalized by Saudi embassy, certificate of origin authenticated by Chamber of Commerce, halal certification for food products, SABER conformity certificate, and detailed packing list. Start this process 30 days before shipment – last-minute applications will delay clearance and incur demurrage.”
Foul (Bill of Lading)
/faʊl/
A bill of lading with notations indicating damage, defects, or discrepancies in the cargo’s condition or packaging at the time of loading
Note 1: Versus Clean B/L
Clean B/L states goods received in apparent good order without reservations. Foul (dirty/claused) B/L includes remarks like “cartons crushed,” “rusty,” or “packages wet.” These notations protect carriers from liability but create problems for shippers.
Note 2: Banking Impact
L/Cs typically require clean B/Ls. Presenting foul B/Ls results in document discrepancies and payment refusal. Shippers may negotiate with carriers for letters of indemnity to obtain clean B/Ls, but this transfers risk to the shipper.
Note 3: Prevention Strategies
Avoid foul B/Ls through: proper packaging meeting carrier requirements, pre-shipment inspections, refusing to load damaged goods, supervising loading operations, and immediate protests if carriers make unwarranted notations.
Example Sentence
“The carrier issued a foul bill of lading noting ‘5 cartons water-damaged’ – this will prevent us from negotiating the L/C.”
Practical Scenario
An export manager faces a crisis: “The shipping line issued a foul B/L stating ’15 wooden crates show cracks and exposed contents.’ Our L/C requires clean B/L. Options: (1) Re-pack damaged crates immediately before vessel sails, (2) Request carrier accept letter of indemnity for clean B/L (risky – we assume all liability), or (3) Request L/C amendment accepting foul B/L (unlikely buyer will agree). Must decide within 4 hours.”
Franchising
/ˈfræntʃaɪzɪŋ/
A business expansion model where a franchisor grants rights to franchisees to operate using its brand, products, systems, and business methods in exchange for fees and royalties
Note 1: International Franchising
Cross-border franchising enables rapid global expansion with minimal capital investment. Franchisors provide brand, training, and operational support while franchisees supply local market knowledge, capital, and management. Common in food service, retail, and hospitality sectors.
Note 2: Fee Structure
Typical fees include: initial franchise fee ($20,000-$500,000), ongoing royalties (4-8% of gross revenue), marketing contributions (2-3%), and sometimes supply markup if franchisor controls procurement. Master franchise agreements for territories command premium fees.
Note 3: Legal Framework
Franchise agreements must address: intellectual property protection, quality standards, territorial rights, dispute resolution, currency conversion for fee payments, and compliance with local franchise disclosure laws and competition regulations.
Example Sentence
“Our company is expanding into Southeast Asia through franchising rather than direct investment to minimize risk and leverage local partners.”
Practical Scenario
A business development director proposes: “We’ve received an offer to become master franchisee for Brand X in China for $2 million upfront plus 5% royalties. As master franchisee, we’d develop the market, recruit sub-franchisees (keeping 40% of their fees), and earn supply margins. Market research shows 50-unit potential within 5 years, projecting $15 million revenue and 25% ROI.”

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