Imports and Importers
This chapter discusses imports and importers in the context of Utopian societies, the Utopian Financial Infrastructure and the Foreign Trade chapter in the Building Utopia book. Buying goods and services from some other country is called Imports. This is regardless of whether those goods are brought into the society in bulk or as individual items. In this chapter, when we say "imports", we are implying "bulk imports". Importers are the organizations that specialize in the task of importing goods in bulk into our society.
This chapter has two major goals. The first goal is to discuss the importance of "Import Duty" and the second goal is to elaborate, at a conceptual level, the mechanisms of Imports.
The first major goal is addressed in the section "Imports, Gold and Import Duty". It specifies the need for import duty and points out its subtle and unbiased nature in spurring local investments.
The remaining sections deal with the second major goal of specifying the mechanism of imports. It starts with the section "The Global Supply Chain". In this we will discuss the important participants in the global supply chain; importers being one kind of participant in it. The purpose of this section is to provide a broad context; and that context is not much different from how it is in present times; but there are differences. The differences are related to the involvement of the Administration and the Utopian Financial Infrastructure.
The discussion about "The Global Supply Chain" culminates with the introduction of three topics which are the subject matter of the next three sections. In the section "Imports and Product Entries", we will discuss the role that importers play in creating product records within a society. In the section "Imports and Payments", we will discuss the significance of the payment method and mechanism that are in play for the payments that importers receive and make. In the section "Imports and Ownership Transfer", we will discuss the concepts involved in transferring the ownership of imported goods. That completes the discussion about the mechanism of Imports.
After that, we will briefly outline the "Benefits to Citizens" that accrue from the role that importers play. This is to contrast it from what citizens don't get when they engage in international online purchases. And, finally, we will mention "Other Requirements" associated with Importers and the Utopian Financial Infrastructure.
Imports, Gold and Import Duty
Imports could either be raw materials or they could be finished goods. The raw materials or the finished goods flow into the society. These represent some natural resources flowing into the society. Imports are paid in gold. The gold represents some natural resource flowing out.
Imports cause some natural resources to flow into a society and gold to flow out of a society. Similarly, exports cause some natural resources to flow out of the society and these exports get paid in gold. This gold flows into society.
When finished goods flow into a society due to imports, that flow is permanent. When gold flows out to pay for the imported finished goods, that flow is permanent. When raw materials flow out of a society due to exports, they contribute in the production of some finished goods in the other society. These finished goods may later enter the society as imports and need to be paid in gold. Thus we should consider a flow of raw materials out of the society as permanent.
Consider the situation in which some raw materials flow out of a society, get converted into finished products, and these finished products are imported into the society. Usually the finished products cost more than the raw materials that went into the making of the finished products. This higher price is justified to a certain extent by the "value added" by the producer or manufacturer to the raw materials to create the finished products.
But, if the finished products cost much more than the raw materials that went into their making, then from a society's perspective, it is a bad deal. This is because the society gets much less for the raw materials than what it pays for the finished products made using those same raw materials. If this continues for a long time, the society will lose all its gold.
For any society, it is desirable to maintain the flow of natural resources flowing in and out of the society in a nearly balanced state. The flow of gold in and out of the society is a proxy for the flow of natural resources flowing in and out of the society. Thus, for any society, it is desirable to maintain the gold flowing in and out of the society at nearly balanced level forever.
When imports exceed exports, more gold flows out than it flows in; it results in an imbalance. Import duties exist to dissuade imports and encourage local production and that in turn encourages local investment. As the imbalance increases, so does the import duty; this was discussed in the Foreign Trade chapter in Building Utopia.
The presence of import duties, is a subtle nudge to the citizens to invest in one's own society and create the goods and services locally; instead of obtaining them from some other society.
It is a subtle nudge, for two reasons. First, because the import duty applies to all imported products and services; it is unbiased. Citizens have total freedom to choose the specific local industries that they wish to invest in. Second, the percentage of import duty depends on the size of imbalance. So a slight imbalance results in a small import duty, but a larger imbalance results in a larger import duty. This increases the strength of the nudge. As the strength of the nudge increases, more local industries will start to appear as likely candidates for additional investments. The citizens still have to decide which industry their society is most capable of expanding with additional investments.
The Global Supply Chain
The global supply chain is equally relevant in Utopian societies as it is in current societies. Importers are a part of the global supply chain for goods. Let us start the discussion with imports and importers.
In a Utopian society, most of the society's imports would be in the form of goods. These goods will either be raw materials or finished products. Almost all services required within a society can be supplied locally within a society and hence there should be no strong need to import services; but they also can be imported.
Importing is a specialized activity and specialized organizations conduct it with the permission from the administration of the society. Any organization can have the permission; it is more like setting up the organization to do just imports and then informing the administration of the intent and satisfying the administration that the organization has the personnel who are competent in doing this specialized activity. These organizations are the Importers.
The importers are the specialized organizations that facilitate importing goods from other societies and making them available in our society. They derive their profit from this kind of work and that is fine. After all, why would they do it if there is nothing in it for them?
The importers are required to deal with the regulations and restrictions associated with questions like "should this kind of product really be imported?" and only import those things that are consistent with those regulations and restrictions. After all, why would we allow the importers to function if they are not willing to abide by the regulations we set for them?
Importers either import something with their own capital and sell them later to their customers or they import something on behalf of some client who places an order for some goods to be imported.
The clients or customers of the importers are always organizations. These organizations could be manufacturers or wholesalers or large retailing chains or individual retailers. All these kinds of organizations are an important part of the global supply chain because these organizations are the ones driving the demand for imported goods. When the imported goods are bought by one of these supply-chain businesses, they eventually take possession and ownership of those goods, and this implies that these organizations also take responsibility for those goods. The responsibilities include quality assurances and warranties, among other things.
Within the global supply chain, there are organizations that assist in the movement of goods. Some specialize in local movement of goods and others specialize in cross-border movement. Within the industry of "moving goods", there are many other areas of specialization besides local and cross-border movement of goods.
Beyond the clients and customers of the importers lies a much larger web of organizations each consuming some raw materials and producing or manufacturing something that moves to the next set of players in the supply chain.
The supply chain may seem to terminate when a consumer buys some finished product for use or consumption. All entities (citizens, organizations and self-owning entities) in a society play the role of consumers.
However, consumers are just an intermediate link. The next set of players in the global supply chain are the recyclers and garbage disposers. Then there are those entities that specialize in cleanup of environmental disasters caused by any player in the entire supply chain. One could say that the supply chain terminates with these kinds of players.
On the other side of the border are the exporters. Within the global supply chain, exporters in other societies are the immediate link to the importers in our society. Exporters in other societies perform a role in their own society that is complementary to the role of importers in our society. They either buy something from within their society using their own capital for an opportunistic export or they act on behalf of their clients to export something that the client produces or manufactures. Just like importers, exporters are specialized organizations authorized to conduct the business of exporting by their society.
Beyond the suppliers and clients of exporters is the web of organizations whose collective actions contribute to these suppliers and clients eventually producing or manufacturing something worth exporting.
Some of these suppliers or clients are directly involved in harvesting some natural resource within that society. The harvesting could take any form of mining or farming. These harvested natural resources could be used within the society to manufacture something or they could be exported directly out of the society as raw materials.
Right in the middle of this global supply chain are the Administrations (what is called as Governments in present times) and the Financial Infrastructures of the Utopian societies. The administration represents the citizens. From that perspective, citizens are involved in deciding what sort of things are allowed to happen within the supply chain.
Citizens and their representatives formulate the regulations, restrictions and limits. Administration is in charge of authorizing organizations to engage in the export and import activities and it is also in charge of enforcing regulations, restrictions and limits.
The Utopian Financial Infrastructure is just one part of Administration that deals with the money aspects and any enforcement aspects that can be implemented on a purely objective basis (that is implemented using software ... like enforcing limits).
From a society's perspective, the importers and the Utopian Financial Infrastructure are both significantly involved in the following:
- Productize the goods to be imported.
- Pay for the goods and import duties.
- Transfer the ownership of goods across society boundaries.
These three aspects are discussed in the next three sections.
Imports and Product Entries
In the export-import process, since there is an exporter exporting something, at least in that society the thing that is being exported has a ProductId with a lot of information about the product. Within the importing society there may not be an equivalent product.
We mentioned previously that importers need to productize the goods before they can be imported. To productize means to create the appropriate records in the product registry of our society and provide adequate information about these products. This information includes name, description and detailed specifications. From a monetary value perspective, it must specify the depreciation period. Such newly created records would have a freshly generated ProductId. Every such created product must be approved by the administration. The administration officials verify that the depreciation period is consistent with the name, description and detailed specifications of the product.
After that, the product with its product Id serves many purposes in the export-import process. Here are the most important ones:
Having a local ProductId in both the societies enables the two financial infrastructures to ascertain that in a proposed import-export order, the thing that is being exported is the same as the thing that is being exported. For instance, if the exporter claims that he is exporting "a thousand hammers" and the importer claims that he is importing "a thousand screwdrivers", then obviously there is a problem with the proposed export-import. To enable automated comparison, the actual requirement is that the to-be-exported product and the to-be-imported product should have exactly the same name, description, detailed specification and depreciation period. This same requirement is also intended to enable ownership transfer.
Having a local ProductId enables the exporting society's financial infrastructure to assess whether products of that specification should be allowed for exports based on restrictions.
Having a local ProductId enables the importing society's financial infrastructure to assess whether products of that specification should be allowed for import based on restrictions.
Having a local ProductId enables the exporting society's financial infrastructure to physically check that "what is being exported is the thing that was intended to be exported".
Having a local ProductId enables the importing society's financial infrastructure to physically check that "what is being imported is the thing that was intended to be imported".
When importers are importing some internationally standardized commodity, that standardized commodity will have a product specification and that specification will be identical across all societies. Each society will have its own ProductId associated with the standardized commodity; and the ProductIds will be different across societies. But, the information contained in the product records will be exactly the same because the commodity is "internationally standardized". Thus, when an importer desires to import such a standardized commodity, the importer simply mentions the local ProductId; the importer does not have to do anything to "productize the to-be-imported goods".
If an importer wants to import something other than such internationally standardized commodities, then they need to productize it. There are two cases.
In the first case, the goods to be imported were previously productized within the importing society and the importer can use those ProductIds.
In the second case, the goods to be imported are completely new and don't have a ProductId record in the importing society. These goods exist in the exporting society and have a ProductId there. An importer could simply copy all the product specifications about the product from the society that the importer is planning to import from and make a local ProductId with that exact product specification. Doing so is to "productize the to-be-imported goods".
From the discussion about the Utopian Payment Model in Building Utopia, all products have a categorization and some products may be categorized as "essentials". The to-be-imported products cannot be categorized as "essentials". Selling products that are categorized as "essentials" is a privilege of non-importer organizations.
Imports and Payments
When importers use their own capital, they decide what to import, they get all required approvals, then they import and then sell these imports and receive payments from their customers.
When clients place orders with an importer to import goods, importers do all the work to get necessary approvals, then import and then deliver the imported goods to their clients. Somewhere within this process, the importer's client pays the importer in their local currency.
When importers are working on behalf of clients, the schedule of payment from the client to the importer to the exporter on the other side needs to be part of the order placed by the importer to the exporter. The exporters, if they are working on behalf of their clients, will also add to the order their own schedule to make payments to their suppliers.
The stipulation of the schedule of payments is necessary so that such orders can be enforced across society boundaries. An order may go through several edits before both the importer and exporter accept it and confirm it. For orders on behalf of clients, the acceptance and confirmation of such orders is also required by the client of the importer and the client of the exporter.
A final point about the schedule of payments is this: all payments must be scheduled to be paid only after a shipment arrives in the importing society and the payment can only be for the contents of that shipment. In Utopian societies, there is no such thing as prepaying for an official bulk import. There are two reasons for this. The first reason is: because the payment is in a physical resource - gold. In order to part with that physical resource, the commensurate import should arrive within the borders of the society. The second reason is: a prepayment, in terms of financial reality, is funding the working capital of some organization in the other society. Utopian societies make raising capital easy, hence this kind of funding is not required.
Enforcement of such orders involves the following:
- Transfer of ownership of the goods across society boundaries.
- Switching of the product ids when the goods cross society boundaries.
- Payment for such orders between exporters and importers in units of gold ETFs
- Local currency payments between exporters or importers and their clients or customers.
The importers pay for the imports in units of local gold ETF. This payment is addressed to the exporter and handled by the local financial infrastructure. Upon receipt of this payment, the local financial infrastructure instructs the exporter's financial infrastructure to pay the exporter the same number of units of gold ETF in that other society. The exporter's financial infrastructure honors the instruction and credits the exporter with the specified number of units of their local gold ETF. And thus, the exporters get paid for their exports in units of local gold ETF.
The importer's financial infrastructure can instruct to exporter's financial infrastructure to pay the exporter in units of the exporter's local gold ETF because Utopian financial infrastructures agree to honor and coordinate such payments and settle any imbalance in such mutual payments in physical gold in bulk at a predetermined schedule or when certain imbalance thresholds are breached.
In the chapter on "Investments" we mentioned that the financial infrastructure is the sole authorized manager of precious metal ETFs and that includes the gold ETF. The basis of each "unit of gold ETF" in both the societies is exactly the same. Financial infrastructures of societies coordinate and use the same unit for their respective gold ETFs. A single unit of gold ETF will represent the same weight and purity of gold across all societies. It could be 1 gram or 10 grams or 100 grams or 1 ounce or 10 ounces or some other convenient unit that is collectively agreed upon by Utopian societies.
The payment from importer to the exporter is merely changes to records. At the time of payment there is no transfer of physical gold. Being just record changes, such payments are almost instantaneous. We said "almost instantaneous" and not "instantaneous" because there are actually three separate transactions that together complete the conceptual transaction of "payment by importer to exporter". The first transaction is the transfer of units of gold ETF from importer to an Export-Import account within the financial infrastructure. The second transaction is the transfer of units of gold ETF between the Export-Import accounts of the two financial infrastructures. The third transaction is the transfer of units of gold ETF from the Export-Import account of the exporter's financial infrastructure to the exporter.
Sometimes, such payments can involve fractional units of gold ETF. The importer always pays in full units of gold ETF that covers the fractional unit as well. The importer's financial infrastructure pays the excess fraction back to the importer in local currency. On the exporter's side, the local financial infrastructure pays the exporter in units of local gold ETF for the non-fractional units and pays the fractional unit in local currency. The two financial infrastructures account for the payment in exact fractional units.
If our society has an excess of imports over our own exports to other societies, then our society will charge an import duty on all imports.
When importers are subject to an import duty, they must pay that duty to the local financial infrastructure in units of the local gold ETF. Fractional units of gold ETF for import duty are dealt with in the same way as they are dealt with for the actual payment of imports.
Every unit of the local gold ETF in any Utopian society is backed by physical gold held in the national vault. This vault also contains additional gold; this is the gold reserves. The gold units used to pay for the import duty adds to the gold reserves which are eventually sold back into the local market.
Because the importers receive payments from their clients in local currency and they have to pay the exporters in units of local gold ETF, they are net buyers of units of gold ETF.
Because the exporters receive payments from importers in units of local gold ETF and they have to pay their suppliers in local currency, they are net sellers of units of gold ETF.
Any Utopian society has both importers and exporters. Their activity in buying and selling units of gold ETF determines the net demand for gold ETF in their society. Excess of imports over exports will tend to increase the price of a unit of gold ETF and make the import more expensive. Excess of exports over imports will tend to decrease the price of a unit of gold ETF and make the export less attractive. This is the primary mechanism to maintain the balance between imports and exports.
While on this topic of payments, gold ETF and gold reserves, note that the payments for the imports never involve the gold reserves.
Imports and Ownership Transfer
We have already discussed that the to-be-imported products must be productized in the importing society and the product name, description, detailed specification and depreciation period must match between the product in the exporting and importing society. This is required not just for checking what is being exported and imported but also for the transfer of ownership of those items.
We have also discussed many specifics about payments. Those payments could have a schedule as well. That schedule can be different from when actually the ownership gets transferred.
If the exporter is acting on behalf of a supplier, then the supplier owns the product and the exporter is merely an agent. Alternatively, a well capitalized exporter could buy some products from some organization in their society and then the exporter is the owner of the product at the beginning of the export-import transaction.
If the importer is acting on behalf of a client, then the client is the actual buyer and the importer is merely an agent. Alternatively, a well capitalized importer could buy some products from an exporter and hence the importer is the actual buyer.
The transfer of ownership needs to occur between the original owner and the actual buyer.
In the export-import process, for an export-import order, at some point in time a shipment gets created. A shipment has a manifest that lists all the items that are being shipped. A shipment must be for exactly one export-import order. An export-import order can be fulfilled in multiple shipments. All information about a single shipment (including the manifest, who is moving the goods, the moving schedule, etc.) is recorded in reference to the export-import order and conveyed to the two financial infrastructures.
The shipper (those who move the goods) picks the shipment from the original owner and brings the shipment at the port of exit in the exporting society. Here the financial infrastructure may check the contents of the shipment.
If everything is "OK", the shipment leaves the port and travels to the port of entry in the importing society. Here the financial infrastructure may check the contents of the shipment. If everything is "OK", it is at this point in time the financial infrastructure in the importing society initiates the transfer of ownership.
The financial infrastructure in the importing society communicates with the exporting society's financial infrastructure and together they accomplish the ownership transfer for this shipment. Transfer of ownership of the shipment is simply a matter of decreasing the quantity of items (the ProductId in the exporting society mentioned in the manifest) in the account books of the original owner and increasing the quantity of that particular item (the ProductId in the importing society for the item mentioned in the manifest) in the account books of the actual buyer. That's it.
The shipper is still responsible for delivering the shipment to the actual buyer at the promised location. Hence after clearance at the port of entry, the shipper continues with the delivery. The shipper may contract out the movement of the shipment in parts to different contractors (essentially organizations specializing in moving goods) and this does not impact the tracking of the shipment. The financial infrastructures of both the importing and exporting societies are interested in knowing that the shipment was delivered to the actual owner.
Since a single export-import order may be composed of multiple shipments, each such shipment needs a transfer of ownership when the shipment "gets clearance" at the port of entry in the importing society.
According to the payment schedule specified in the export-import order, if the payments are linked to ownership transfer, then the message to make the payment is sent to the appropriate parties and there is a time limit for making those payments.
Benefits to Citizens
Once something is imported by importers, the imported product will move through the local supply chain and may eventually reach a physical retail store or an online retail store. When buying locally, consumers do not have to deal with any import restrictions and limits.
When buying locally, consumers do not have to deal with import duty, but they pay that import duty indirectly and to the extent of the foreign content in the products that they buy.
Since importers import goods in bulk, the transport costs associated with these imports are relatively small on a per item basis when compared to importing one item at a time. Even after accounting for the importer's profit, it can provide lower cost due to economies of scale.
When the goods imported by importers are finished products, they still have a local ProductId and are sold locally by some local organizations. These products would have some quality claims associated with them and these claims are enforceable. Society is interested in ensuring that local organizations do not make false claims about the products they sell. Since these products are supplied by local organizations, society has a jurisdiction over them and hence society can deal with violations of honesty in products' claimed quality and durability.
The goods that importers import have a ProductId locally. Importers cannot classify these imported products as essentials. But such products can contribute to the making of essentials. This typically happens when these products go through the local supply chain and some processing to make products out of the imported things. In this case the imported things are treated as raw materials. Thus imported goods can eventually be part of essentials and citizens could use the Utopian Payment Model and Social Credit to buy them. With International Online Purchases, this is impossible and undesirable.
Other Requirements
We mentioned that importers and exporters need "permission" before they can operate in the import and export business respectively. What are these permissions? These are really the implementation details and eventually they will need to be specified.
We mentioned quite a few things that the importers and exporters have to do. Some of the things are in the category of "use the system and the system only to operate the business". Others are in the category of "regulations"; this is where the system cannot make it happen. These regulations will need to be specified eventually, but that is really an implementation detail.
The Utopian Financial Infrastructure of each society publishes statistics about imports and exports. This is a very rich topic. A lot can be thought about it. A huge variety of policy decisions can be made in deciding what to publish and to what level of detail. It needs to be done.
There will be restrictions on the size of an export-import order in terms of the worth of such an order in units of gold ETF. There will be a minimum size below which the export-import order cannot be considered as a bulk export-import. There will also be a maximum size for such bulk export-import orders. The maximum size is intended to smooth out the flow of payments which are in terms of gold ETF units.
There can be regulations about how much information must be provided by the importers when they create a product entry in the product registry. For example, one such regulation would stipulate that all products need to mention the foreign content. For imported products, this would be 100%. The same regulation would also require the manufacturers within our society to specify the "foreign content". Such a regulation is intended to make citizens aware of the foreign content in the goods that they purchase locally. Since the current rate of import duty is always known, citizens can do their part in balancing imports and exports by choosing to buy things with lesser foreign content.