Unit-1

Introduction to EXIM policies and procedures

Export Import Policy, or Exim Policy, is a collection of guidelines and instructions
governing the import and export of products. Section 5 of the Foreign Trade (Development
and Regulation Act) of 1992 gives the Indian government the authority to announce its Exim
Policy for five years. Each year on March 31, import and export policies in India have
amendments, enhancements, and new programs take effect on April 1. In collaboration with
the Directorate General of Foreign Trade, the Ministry of Finance, and its network of regional
offices, the Union Minister of Commerce and Industry announces any changes or
amendments to the Exim Policy.
Objectives of the Exim Policy:

 To increase India’s export and import growth.

 To stimulate long-term economic growth by increasing access to intermediates,

components, consumables, essential raw materials, and capital goods.

 To improve the competitiveness of the agriculture industry and services, create new
employment opportunities and encourage the attainment of internationally accepted
quality standards.

 To supply high-quality services and goods at an affordable cost. Canalization is a

critical component of Exim Policy, as it restricts the import of certain goods to
designated agencies. For example, only SBI and a few foreign banks or recognised
organisations may import gold in bulk.

Foreign trade’s role in economic development

Foreign trade and economic development

Economic development is mainly dependent on trade with other nations. As a result, a

country’s economic progress is dependent on foreign trade.

Foreign exchange earning

Foreign trade gives foreign exchange for poverty alleviation and other purposes.

Market expansion

Demand plays a vital role in increasing a country’s production. As a result of foreign trade,
the market for goods and services expands and encourages the producers to increase
production.
Increase in investment

Foreign trade promotes investment. As a result, the investment rate rises.

Foreign investment

In addition to promoting local investment, foreign trade encourages foreign investors to

invest in countries with a shortage of investment.

Increase in national income

Foreign trade boosts country production and income, and to meet foreign demand, we
increase production, which also increases GNP.

Decrease in unemployment

Rising demand for goods increases the country’s rate of development and reduces global
unemployment.

Price stability

Foreign trade helps to stabilise the price of goods and services. You can import any goods in
short supply and whose prices are rising and export any goods you have in excess, thus
stopping price fluctuation.

Specialisation

The quality and quantity of various production factors vary by country. Each country focuses
on producing commodities where it has a comparative advantage. So all trading countries
profit from international trade.

Remove monopolies

Foreign trade discourages monopolies. While monopolists raise prices, the government
enables imports to lower prices.

Removal of food shortage

Food shortages are also a problem in India. India has imported wheat numerous times to
alleviate the country’s food shortage. So, we’ve solved this problem for years due to foreign
trade.
Agricultural development

Our economy relies heavily on agricultural development. Our agricultural sector has grown
tremendously due to foreign trade. We ship rice, cotton, and fresh fruits and vegetables to
countries worldwide every year, and our farmers’ incomes rise due to goods exports. It
encourages them to grow.

To increase local product quality

Foreign trade improves the quality of local products and expands the market by changing
demand and supply.

EXIM OVERVIEW IN INDIA

Foreign trade in India is promoted and facilitated by the Directorate General of

Foreign Trade (DGFT), under the Ministry of Commerce and Industry (MoCI). The DGFT
issues the authorisation to exporters and monitors their corresponding obligations through a
network of 38 regional offices. The DGFT also implements the Foreign Trade Policy of
India.
Foreign Trade Policy (FTP) is the prime policy that lays down simple and transparent
procedures which are easy to comply with and administer for efficient management of
foreign trade in India. The Policy aims at enhancing the country’s trade for economic growth
and employment generation. The Customs Tariff Act and the Central Excise Tariff Act are
the other two important Acts that lay down how the Customs and Excise duties shall be
levied on trade, respectively.
India achieved all-time high annual merchandise export of $421.9 bn in FY 2021-22
(against the export target of $400 bn, achieving 105.4% of the target) an increase of over 43%
over $291.81 bn in FY2020-21 and an increase of 33.33% over $313.36 bn in FY2019-20.

Features Of the New Export, Import Policy

The following are the salient features of the new export, import policy:

1. Increase in number of Export Items:

The Govt. has identified many new products for exports. They are fish and fish
preparations, agricultural products and marine products etc. These products are import-
light and hence pressure on foreign exchange was relieved.

2. Special Economic Zones:

For promotion of exports, special economic zones (SEZ) have been established. SEZ
units are deemed to be foreign territory for the purpose of trade operations and tariffs.
The main objective of the SEZ units is to provide a congenial atmosphere for exports.
Indian banks were pre-mitted to establish off share banking units in SEZ. These units
will attract foreign direct investments (FDI’s) and would be free from cash reserve ratio
(CRR) and statutory liquidity ratio (SLR).

3. Role of Public Sector Agencies:

Certain exports are controlled by Public sector agencies like State Trading Corporations
(STC), Mineral and Metal Trading Corporation (MMTC). Now these are asked to
compete with other exporters. Foreigners have been permitted to set up trading houses
for export purposes.

4. Restriction Free Export Policy:

Restrictions on exports have been reduced to minimum according to new policy. Export
restrictions have been imposed on a few sensitive commodities taking the domestic
demand and supply factors into consideration. Export duties are now not considered as
source of revenue generation but a means of increasing the competitiveness of domestic
exporters in the international market.

5. Liberalisation of Export-Oriented Import:

Import licenses were removed from most of the items. Provisions were made to levy low
custom duties an imports which were used as inputs for production of export goods.
Imports were linked to the availability of foreign exchange generated through exports.

Import duties were gradually reduced and the objective was to equal the same with other
countries of the world. The restrictions laid on import of all items were removed to
conform to the WTO norms and these were put under Open General License (OGL) list.
This process liberalized imports and simplified export-import procedures.

6. Convertibility of Rupee:

To increase exports, the rupee was made partly convertible on current account. In 1994-
95 budget rupee was made fully convertible.

7. Devaluation of Rupee:

Generally speaking, devaluation of rupee means lowering the value of rupee in terms of
foreign currencies. Devaluation makes domestic goods cheaper in the foreign market. To
cover the balance of payment difficulty. Govt. of India devalued rupee in June 1991 by
23%. This helped in encouraging exports.

Role of Export Houses in the development of Economy

Export house is mostly home-based organization, located in the manufacturer’s country,

which is involved in the export of products that the manufacturer has produced. These export
houses carry out most of the export-related activities overseas, via their own agents and
distributors who are in place in the country where the product is being exported.
In most cases, Export houses are used by manufacturers when the manufacturers do not want
their own export team in place, or when having an in-house team is much more costlier rather
then hiring someone from outside – such as an export house. Because of the very nature of
this business, export houses are specially focused on the export market and know the ins and
outs of this industry very well. This is why, in many cases, export houses are preferred over
in-house export teams.

6 Functions of Export house

The following are 6 major functions which export houses are expected to carry out in the
market.

1) Representation

The first function is to represent the parent manufacturing company in the market where the
product is being exported. In overseas market, the manufacturing company might not have
any sales presence or market presence. The export house takes care of all that via
representing itself as the main contact point for the manufacturer.

2) Competitive and market intelligence

An export house not only carries out sales work or representations for the manufacturer,
gathering market intelligence, competitive intelligence and the work of other competitors in
the market is also a task carried out by the export house. This flow of information happens
naturally via agents or distributors to the export house. However, it is important that the flow
of information also reaches the manufacturer so that he is able to make decisions and change
strategies as per the market.

3) Procedures and documentation

In the export business, there are many procedures and documentation involved. Export is the
interaction point of 2 different countries with 2 different laws and procedures. As a result,
both laws and both procedures have to be followed by exports. In fact, more then focus on
export, many exporters complain that their core focus is on documentation so that the export
is not rejected or any problems do not arise in the target country.

4) Market penetration

In sectors like Pharmaceuticals and chemicals, export houses are chosen on the basis of their
market penetration in the target country. Each export house has a setup of agents and
distributors. The more the market coverage of an export house, the more will be the market
penetration. Hence, ensuring that they are present widely in the target country is a service
which has to be provided by the export house.

5) Manpower for Order management

Collecting orders, ensuring the papers are in place, arranging finance or taking care of credit,
shipping, docking and undocking, labour and law issues – There are many things which take
place in a single order when export is ordered. It runs like a well oiled machine and for this
you require huge manpower. This manpower is provided by the export house in each stage of
the export.

6) Arbitration, Finance and credit

There are a few types of payments and handling which are used in export. In handling, One is
FOB origin means seller is liable only till material is shipped. FOB destination means seller is
liable till buyer receives the goods. In such cases, there is huge financial implications,
arbitrations and credit terms involved. Such risks are borne by the Export houses in many
cases.

Advantages of using Export houses

Export houses are most important in the following conditions

 Lack of resources – When the parent company has a lack of resources which
includes manpower, finance or know how to establish in the new country, then
it will most likely use Export houses to do its work.
 Small-scale operations – If a large company wants to set up small-scale
operations in a new country, then instead of training and recruiting a local team
in the target country, it can simply outsource the task to an experienced export
house in the target country.
 Expertise – Many time, even if the manufacturer has an in-house team
overseas, still export houses might be used because of their expertise in this
segment. This is very true for products which are highly technical in nature or
which are controlled substances.
 Marketing – Manufacturers who are product oriented and don’t have the
willingness or the desire to market themselves in a new territory might
outsource the work to export houses so that they can in turn expand.

Disadvantages of using Export houses

 The manufacturer is not in contact with target market – A major problem
with using export houses is that the manufacturer himself is not in touch with
the target markets. As a result, he lacks the on-field knowledge which the
export houses have.
 Future trends cannot be observed – A manufacturer can notice trends taking
place. And even though he might be getting truckloads of information from the
export house, the export house might fail to notice the actual change in trend or
it may not have as keen eyes for products as the manufacturer. Thus, the
manufacturer may miss out on opportunities.
 Huge adaptation curve for the manufacturer – If the manufacturer gets used
to the export house, and then decides to launch his own in-house team, there
will be a huge adaptation curve for the in-house team. This is because the in-
house team will have to start brand new with fresh distributors and agents
 State Trading Corporation (STC)

 STC was set up on 18th May 1956 primarily with a view to undertake trade with East
European countries and to supplement the efforts of private trade and industry in
developing exports from the country. STC played an important role in country’s
economy. It arranged imports of essential items of mass consumption (such as wheat,
pulses, sugar, edible oils, etc.) and industrial raw materials into India and also
contributed significantly in developing exports of a large number of items from India.
 STC has a paid up equity capital of ₹60 crore. As on 31.03.2022, the share of Govt. of
India in STC’s equity was 90%. The total manpower on the Corporation as on
01.11.2022 was 153.
 STC has not been undertaking any business activity at present and is continuing as a
non-operative company.
 STCL Ltd., a subsidiary of STC, is in the process of winding up and has stopped all its
business activities since 2014-15 onwards.

Objectives of STC State Trading Corporations was established to fulfill the following
objectives:

1. To initiate a market intervention campaign as advised by the Government of India.

2. Emphasizing the quality of services to customers to develop long-term business

relationships with buyers and suppliers within and outside the country.

3. To make best use of the financial power of the corporation in expanding its business. 3

4. To Organise and undertake trading activities in socialist countries as well as other

countries in specific goods from time to time by the Government of India, undertaking the
purchase, sale and transport of such commodities in India or elsewhere in the world.

5. To Implement special arrangements for imports, exports, international trade and or

distribution of particular commodities as the Union Government may specify in the public
interest.

6. Checking the declining trend in exports or to boost export by introducing new products in
new markets.

7. To Assist export oriented organisations

Main Items of Exports and Imports Major items of exports of STC include

(i)Agriculture products like wheat, rice, cashew, coffee, tea, sugar, spices, groundnut, etc.

(ii)Chemical and pharmaceutical products

(iii)Leather products.
(iv) Readymade governments and textiles

(v) Engineering products and consumer durables

(vi) Leather products

(vii) Meat and fish preparations

(viii) Tobacco and rubber

(ix) Jute goods

(x) Irons are and steel row materials.

Major items of imports are:

(i)Edible oil

(ii)Hydrocarbons

(ii)Newsprint

(iv)Gold and silver

(v)Natural rubber

(vi)Scientific instruments

(vii) Chemicals

(viii)Safety /security equipments

(ix)Sugar

(x)Avionics like helicopter planes and their spares

(xi)Fertilizers

(xii)I.T goods

(xiii)FMCG

(xiv)Pulses

(xv)Fatty acids
Types of State Trading

            State trading may be partial or complete, depending upon the extent of intervention
desired by the government.

(i) Partial State Trading

            In partial state trading, private traders and government coexist. Traders are free to buy
and sell in the market. The government may place some restrictions on them, such as
declaration of stocks, limits on the stocks which can be held at a point of time and submission
of regular accounts. The government enters the market for the purchase of commodities
directly from producers at notified procurement price. It undertakes the distribution of
commodities to consumers through a network of fair price shops. In this way, it safeguards
the interest of producers and consumers alike, and keeps a check on the undesirable activities
of traders.

(ii) Complete State Trading

            This
is the extreme form of trading adopted by the government when partial state
trading fails to ensure fair prices to producers and make goods available to consumers at
reasonable prices. The purchase and sale of commodities is undertaken entirely by the
government or its agencies. Private traders are not allowed to enter the market for purchase or
sale. Under this form of state trading, the government remains the sole purchaser and
distributor of the commodity.

What Is a Special Economic Zone (SEZ)?

A special economic zone (SEZ) is an area in a country that is subject to different economic

regulations than other regions within the same country. The SEZ economic regulations tend
to be conducive to—and attract—foreign direct investment (FDI). FDI refers to any
investment made by a firm or individual in one country into business interests located in
another country.

When a country or individual conducts business in an SEZ, there are typically additional
economic advantages for them, including tax incentives and the opportunity to pay lower
tariffs.

the main objectives of the SEZ Scheme is generation of additional economic activity,
promotion of exports of goods and services, promotion of investment from domestic and
foreign sources, creation of employment opportunities along with the development of
infrastructure facilities. All laws of India are applicable in SEZs unless specifically exempted
as per the SEZ Act/ Rules. Each Zone is headed by a Development Commissioner and is
administered as per the SEZ Act, 2005 and SEZ Rules, 2006. Units may be set up in the SEZ
for manufacturing, trading or for service activity.
ROLE OF SEZ IN INDIAN ECONOMY

• To provide internationally competitive environment

• To encourage FDI and GDP

• To increase share in global exports

• Generate employment opportunities

• Boost infrastructure development

• Growth in the manufacturing sector

ADVANTAGES OF SEZ

• 15 year corporate tax holiday on export profit – 100% for initial 5 years, 50% for the next 5 years
and up to 50% for the balance 5 years equivalent to profits ploughed back for investment.

• No license required for import made under SEZ units.

• Exemption from customs duty on import of capital goods, raw materials, consumables, spares, etc.
• Exemption from payment of Central Sales Tax on the sale or purchase of goods, provided that, the
goods are meant for undertaking authorized operations.

• Since SEZ units are considered as ‘public utility services’, no strikes would be allowed in such
companies without giving the employer 6 weeks prior notice in addition to the other conditions
mentioned in the Industrial Disputes Act, 1947.

• Has host of Public and Private Bank chains to offer financial assistance for business houses.

• In –house Customs clearance facilities.

Flow of procedures of Export and Import process:

Import procedures

Typically, the procedure for import and export activities involves ensuring licensing and
compliance before the shipping of goods, arranging for transport and warehousing after the
unloading of goods, and getting customs clearance as well as paying taxes before the release
of goods.

Below, we outline the steps involved in importing of goods.

1. Obtain IEC
Prior to importing from India, every business must first obtain an Import Export Code (IEC)
number from the regional joint DGFT. The IEC is a pan-based registration of traders with
lifetime validity and is required for clearing customs, sending shipments, as well as for
sending or receiving money in foreign currency.

The process to obtain the IEC registration takes about 10-15 days.

2. Ensure legal compliance under different trade laws

Once an IEC is allotted, businesses may import goods that are compliant with Section 11 of
the Customs Act (1962), Foreign Trade (Development & Regulation) Act (1992), and
the Foreign Trade Policy, 2015-20.

However, certain items – restricted, canalized, or prohibited, as declared and notified by the
government – require additional permission and licenses from the DGFT and the federal
government.

3. Procure import licenses

To determine whether a license is needed to import a particular commercial product or
service, an importer must first classify the item by identifying its Indian Trading Clarification
based on a Harmonized System of Coding or ITC (HS) classification.

An import license may be either a general license or specific license. Under a general license,
goods can be imported from any country, whereas a specific or individual license authorizes
import only from specific countries.

Import licenses are used in import clearance, renewable, and typically valid for 24 months for
capital goods or 18 months for raw materials components, consumables, and spare parts.

4. File Bill of Entry and other documents to complete customs clearing formalities
After obtaining import licenses, importers are required to furnish import declaration in the
prescribed Bill of Entry along with permanent account number (PAN) based Business
Identification Number (BIN), as per Section 46 of the Customs Act (1962).

A Bill of Entry gives information on the exact nature, precise quantity, and value of goods
that have landed or entered inwards in the country.
If the goods are cleared through the Electronic Data Interchange (EDI) system, no formal Bill
of Entry is filed as it is generated in the computer system. However, the importer must file a
cargo declaration after prescribing particulars required for processing of the entry for customs
clearance.

If the Bill of Entry is filed without using the EDI system, the importer is required to submit
supporting documents that include certificate of origin, certificate of inspection, bill of
exchange, commercial invoice cum packing list, among others.

Once the goods are shipped, the customs officials examine and assess the information
furnished in the bill of entry and match it with the imported items. If there are no
irregularities, the officials issue a ‘pass out order’ that allows the imported goods to be
replaced from the customs.

5. Determine import duty rate for clearance of goods

India levies basic customs duty on imported goods, as specified in the first schedule of
the Customs tariff Act, 1975, along with goods-specific duties such as anti-dumping duty,
safeguard duty, and social welfare surcharge. 

In addition to these, the government levies an integrated goods and services tax (IGST) under
the new GST system. The IGST rates depend on the classification of imported goods as
specified in Schedules notified under Section 5 of the IGST Act (2017).

Export procedures

Just as for imports, a company planning to engage in export activities is required to obtain an
IEC number from the regional joint DGFT. After obtaining the IEC, the exporter needs to
ensure that all the legal compliances are met under different trade laws.

Import and export documents

Businesses are required to submit a set of documents for carrying out export and import
activities in India.

These include commercial documents – the ones exchanged between the buyer and seller, and
regulatory documents that deal with various regulatory authorities such as the customs,
excise, licensing authorities, as well as the export promotion bodies that help avail export
import benefits.
The Foreign Trade Policy, 2015-2020 mandates the following commercial documents for
carrying out importing and exporting activities:

 Bill of lading or airway bill;

 Commercial invoice cum packing list;
 Shipping bill or bill of export, or bill of entry (for imports).

Additional documents like certificate of origin and inspection certificate may be required as
per the case.

The important regulatory documents include:

 GST return forms (GSTR 1 and GSTR 2);

 GSTR refund form;
 Exchange Control Declaration;
 Bank Realization Certificate; and
 Registration cum Membership Certificate (RCMC).

The RCMC helps exporters and importers avail benefit or concession under the Foreign
Trade Policy 2015-20, which has been extended up to September 30, 2021 to provide a stable
regime during the COVID-19 pandemic.

Launch of the Indian Customs Compliance Information Portal 

The Central Board for Indirect Taxes and Customs (CBIC) launched the Indian Customs
Compliance Information Portal (CIP) in 2021 at https://cip.icegate.gov.in/CIP/#/home to
provide free access to information on all Customs procedures and regulatory compliance for
nearly 12,000 Customs Tariff Items.

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The CIP is a facilitation tool that allows interested persons to stay up-to-date with
information on the legal and procedural requirements of India’s customs authorities and
regulatory government agencies (FSSAI, AQIS, PQIS, Drug Controller etc.) for carrying out
imports and exports. The portal will provide complete knowledge of all import and export
related requirements for all items covered under the Customs Tariff thereby improving the
ease of doing cross border trade.

When using the CIP portal, one can simply enter either the Customs Tariff Heading (CTH) or
the description of the goods in question to get information on step-by-step procedures,
regulatory compliances requirements like license, certificates, etc., for imports as well as
exports. This includes import and export through posts and courier, import of samples,
reimport and reexport of goods, self-sealing facility for exporters and project imports.

Various measures taken by India for promotion of exports

 Extension of the Foreign Trade Policy 2015-20 to September 30, 2021.

 Schemes, such as the Advance Authorization Scheme and the Export Promotion
Capital Goods (EPCG) Scheme (see PDF link here), to enable duty free import of raw
materials and capital goods for export oriented production. To apply for Advance
Authorization Scheme, see the relevant DGFT page here.
 The Interest Equalization Scheme, which provides pre and post shipment Rupee
export credit, and has been extended up to September 30, 2021.
 Remission of Duties and Taxes on Exported Products (RoDTEP) scheme,
operationalized for exports with effect from January 1, 2021.
 Extension of the Rebate of State and Central Levies and Taxes (RoSCTL) Scheme for
apparel and made-up exports till March 2024.
 Transport and Marketing Assistance (TMA) scheme for specified agriculture
products, which provides assistance for the international component of freight and
marketing of agricultural produce and to promote brand recognition for Indian
agricultural products in specified overseas markets. To apply for TMA Scheme, see
the relevant DGFT page here.
 A Common Digital Platform for Issuance of Certificates of Origin (CoO) has been
launched to increase Free Trade Agreement (FTA) utilization by exporters ⟶
https://coo.dgft.gov.in 
 Districts across India are being promoted as Exports Hubs by identifying products and
services with export potential in each district (One District One Product / ODOP
initiative), addressing bottlenecks for exporting these products/services and
supporting such local exporters/manufacturers through institutional and strategic
interventions. District specific export action plans for 478 districts have been
prepared. To see the One District One Product Digital GIS Map on the Ministry of
 Food Processing Industries website, click here. The Department of Commerce is
focusing on agriculture crops via a cluster approach for support for exports under the
Agriculture Export Policy. This complements the cluster approach for the
development of specific agriproducts in districts having a comparative advantage by
the Ministry of Agriculture. 
 Market Access Initiative (MAI) Scheme is an Export Promotion Scheme that provides
financial assistance to eligible agencies like Export Promotion Organizations/Trade
Promotion Organizations/National Level Institutions/ Research
Institutions/Universities/Laboratories, Exporters etc. The scheme is formulated on
focus product-focus country approach to evolve specific market and specific product
through market studies/survey. 
 A working group on infrastructure upgradation has been constituted under National
Committee on Trade Facilitation (NCTF) and a National Trade Facilitation Action
Plan (NTFAP) has been formulated. This includes measures for improving road and
rail connectivity to ports and smart gates at sea ports. The government wants to cut
down export-import related red tape by 2022 and make cross-border trade easier for
businesses. As per reporting on Livemint, “one key target is to reduce cargo release
time to 12 hours for outbound air cargo and 24 hours for outbound sea cargo. The
target is 48 hours for inbound sea cargo and 24 hours for inbound air cargo.” 
 Unit-2

Product planning for Export and Import:

Product Planning for Export:

These new responsibilities require new and different approaches. Here are few tips for

product planning for exports:

1) Start with International Thinking Rather than International Sales:

Many product managers do not begin to think internationally until after they have received

that first inquiry from a distributor or customer from another country. The planning should

start long before that. Companies should take a look at their competitors, suppliers, and

current customers.

2) Embed both Domestic and International Standards into Products and Services:

Meeting the domestic standards may be appropriate for domestic markets, but those standards
may not be sufficient to meet the requirements in other countries. If the products can be

designed up front to meet both domestic and international standards, the potential market for

future sales is expanded greatly – without the need for retrofitting a domestic product.

3) Standardise the Core Product

Even though there is an obvious benefit to designing products to meet a variety of standards,

the idea of a fully standardised export product that is identical all over the world is a near

myth. Some of the benefits of export products (or services), however, can be achieved by

standardising the core product, or large parts of it, while customising peripheral or other parts

of the product.
4) Identify the Appropriate Level of Adaptation Required:

Regardless of the attempt to standardise products or product lines globally, various levels of

adaptation will be required. Some products need only different language documentation. For

example, when Minolta cameras were shipped in the 1990s from Japan to New Wave

Enterprise (a distribution centre at the Port of Antwerp in Belgium), they were shipped

without support materials. Language-specific (e.g., French, Dutch, German, etc.)

documentation was added when the products were shipped across land to other destinations

in Europe.

5) Anticipate International Competition:

With increasing competition able to react quickly when new products are introduced,

worldwide planning at the product level provides a number of tangible benefits. First, product

managers will be better able to develop products with specifications compatible on a

international scale. Second, they will be able to more effectively and efficiently adapt

products to local needs. Third and finally, they will be able to respond more quickly to

competitive moves of international companies.

Product planning for Import:

1. Clarify your import goals.

When creating your import plan, it’s usually best to start with the big picture before honing in
on the details. If you’re brand new to the import-export space, you might want to consult with
someone with more experience who can determine if your goals are attainable.

What are your import objectives? What’s your vision and purpose? What are some tangible
goals you hope to reach in the next few years?

Identifying a list of objectives that properly align the company’s vision will allow potential
investors and partners to understand exactly what you’re hoping to accomplish. Your team
members will stay motivated as you strive toward a common goal.
2. Include details about your products.

Nailing down all of your product’s details is an important early step. It influences all of the
logistics later on. Make sure you take into account packaging, pricing, and product
availability when outlining your import plan.

If your business is already established domestically, perhaps you’re looking for imported
products to add to your inventory. In this case, think about what your loyal customers might
be interested in…and the kind of products that could attract new customers to your business
as well.

3. Define your supplier criteria.

As an importer, one of the most important relationships you have is with your supplier. It’s
easy to get overwhelmed when you’re trying to make a choice between the thousands of
available suppliers in the world. That’s why it’s best to make a list of criteria you’re looking
for in a supplier before you begin the search.

4. Analyze your competition.

Regardless of the kind of company you have, this is a crucial step. Being ignorant of your
competition can likely cost you customers. Since you’re planning to import, you should
check out local competitors within your country to see what they offer and charge.

Conduct a market analysis that’s as thorough as possible. The more you know about your
competitors and potential customers, the more prepared you’ll be to enter your target market.
Again, this is an investment that will pay off in the long run.

5. Research all import regulations.

One of the biggest differences between starting a domestically-supplied company and an

import-based company is the import regulations. The customs process can be daunting,
especially if you’re not familiar with the various import duties, paperwork, and other
regulations. In that case, it’s best to hire a customs broker so you can avoid potential pitfalls.

As part of your import plan, analyze the potential risks your company might face while
importing. These can include possible damage of goods in transit, issues with your supplier,
transport delays, customs clearance issues, and currency fluctuations. Make a list of inherent
risks along with potential solutions.
No matter how big or small your import business is, it’s essential to invest in international
insurance. It only takes one catastrophe to sink a fledgling business if you don’t have
insurance coverage. Use this guide to determine which kind of international insurance is best
for your business.

6. Make a budget.

An import plan without a budget is like a car without a steering wheel. It’s hard to start going
in the right direction without it. Your budget should include your projected cash flow as well
as any established financial goals. Make sure you factor in the possibility of hiring an import
team who can handle the daily details of the business.

As you’re crafting your budget, don’t forget to take currency rates into account. You’ll need
to pay for your products, shipping fees, and any other fees from the country you’re importing
from. Remember that currency rates are constantly fluctuating. It’s best to build a margin into
your budget accordingly.

Consider which payment methods will be most attractive to your customers. Rather than
relying on only credit card payments, think about whether you can provide a payment plan
option like Affirm or PayPal, especially if your product is expensive. This can persuade
customers to buy your product when they might not consider it otherwise.

7. Adopt a marketing strategy.

It doesn’t matter how great your products are if no one knows about them. Developing your
marketing strategy is a key part of your import plan. Start by optimizing your website and
searching for ways to promote your products. Make sure every aspect of your strategy has a
clear plan for implementation.

Don’t try to use every avenue possible for advertising; rather, consider your target market and
build a marketing strategy around them. For example, if you’re importing backpacks for high
schoolers, you probably won’t need to pay for a commercial on the evening news…but you
will want to consider creating appealing Instagram ads.

Export Promotion Councils

Export Promotion Councils (EPCs) are organisations set up by the Government of India to
help and assist Indian exporters by providing access to international markets, promoting
Indian products through various activities and increasing the overall exports from India

Export Promotion Councils

 Agriculture and Processed Food Products Export Development Authority (APEDA)
 Apparel Export Promotion Council (AEPC)
 Basic Chemicals, Pharmaceuticals and Cosmetics Export Promotion Council
(CHEMEXCIL)
 Carpet Export Promotion Council
  Cashew Export Promotion Council of India (CEPC)
 Coffee Board of India
 Cotton Textile Export Promotion Council (TEXPROCIL)
 Council for Leather Exports (India CLE)
 Electronics and Computer Software Export Promotion Council (ESC India)
 EEPC India
 Export Promotion Council for Handicrafts (EPCH)
 Gem and Jewellery Export Promotion Council (GJEPC)
 Handloom Export Promotion Council (HEPC)
 Indian Silk Export Promotion Council (ISEPC)
 Pharmaceutical Export Promotion Council (Pharmexcil)
 Plastics Export Promotion Council (PLEXCONCIL)
 Powerloom Development & Export Promotion Council (PDEXCIL)
 Shellac and Forest Products Export Promotion Council (SEPC)
 Spices Board of India
 Sports Goods Export Promotion Council (SGEPC)
 Synthetic and Rayon Textiles Export Promotion Council (SRTEPC)
 Tea Board of India
 Tobacco Board
 Wool & Woollens Export Promotion Council (WWEPC)

Functions of EPCs

 Promoting exports: The primary objective of EPCs is to help exporters in promoting

their products in international markets. They do this through various external and
internal promotional activities including organising / participating in international
trade fairs, buyer-seller meets, etc. 
 Assistance in Incentive schemes: Help and assist exporters in availing benefits of
various incentive schemes announced in the Foreign Trade Policy. EPCs are
authorized to issue RCMC certificates without which exporters cannot avail those
benefits. 
 Expanding to new markets: Help exporters to consolidate their exports and expand
into new markets / meet new buyers through EPC’s branches and offices opened in
foreign countries. This is helpful more so in the case of small and medium
manufacturers who may not have resources to do this on their own.
 Strengthen relations: Arrange and send delegations to key foreign countries in order
to strengthen or diversify exports in those countries. 
 Providing timely information: Provide exporters with information on latest trends,
happenings, and export opportunities in international markets; changes or updates in
trade policies, etc. 
 Liaisoning: Liaison with the trade and export communities to identify their needs,
issues/problems and represent their problems to the Government. 
  Assist in policy making: Collect comprehensive data on exports concerning their
respective product categories and provide the same to the Government to help frame
effective trade policies. 
 Assist exporters in: (a) technology upgradation, (b) product/service quality
improvement, (c) design improvement, (d) standards and specifications, (e) product
development, (f) innovation
Benefits of EPCs

 Ease of access to international markets: The biggest benefit for exporters is the ease
of access to international markets as EPCs work towards increasing buyer-seller
interactions. Small and medium businesses stand to benefit most out of this as many
of them do not have the resources to approach international buyers on their own. 

 Aid in export incentives: Registered exporters with the EPCs benefit from the

various export incentive schemes as and when announced by the government. It is
mandatory for exporters to register with EPCs to avail these benefits. 

 Source of trade data: All EPCs collect export and import data of all its members,
thus building a repository of valuable information for both the government and the
exporters. This data can provide a lot of insights into diversifying and expanding the
international market base. 

 Platform for growth: EPCs arrange foreign tours for trade delegations to help
exporters reach out to new markets. Such tours present perfect opportunities to
increase the buyer base and exports. It not only strengthens the trade relations, but
also overall bilateral relations between the countries.

Registering with Export Promotion Councils (EPCs)

Registering with an EPC has many benefits for the exporter. The registration and membership
rules of EPCs are governed by the Foreign Trade Policy and EPCs’ Memorandum of
Understanding and Articles of Association. 

RCMC – key document

The Foreign Trade policy of the Government of India requires exporters to register with
EPCs to get a Registration Cum Membership Certificate (RCMC). This is a key document for
exporters as they cannot claim the benefits of incentive schemes announced in the Foreign
Trade Policy without RCMC. Once issued, it is valid for 5 years. 

RCMC issuing authorities

EPCs are authorized to issue RCMC. For instance, a leather exporter may apply for RCMC
with the Council for Leather Exports; a pharmaceutical exporter must register with the
Pharmaceutical Export Promotion Council and so on. This way the government has made it
easier for exporters to register with their respective product/service promotion councils. 

However, in case of multi-product exporters (who export two or more products each
belonging to different industries and their main line of business is not settled) or if an export
product is not covered under any of the export promotion councils, Government (for such
cases) has authorized FIEO to issue RCMC. So, all multi-product exporters (who are yet to
decide on their main line of business) or exporters whose products are not covered under any
of the EPCs can apply for RCMC with the FIEO.  

For multi-product exporters whose registered office or head office is located in the North
Eastern States, RCMC can be obtained from Shellac & Forest Products Export Promotion
Council (except for the products covered under APEDA, Spices Board and Tea Board). 

Applying with EPCs

To apply for RCMC from any of the EPCs, exporters must fill the application form that can
be downloaded from respective websites of EPCs. Following documents must be submitted
along with it: 

1. A self-certified copy of the IEC Number issued by the licensing authority concerned 

2. An Undertaking on non-judicial stamp paper duly notarized on 10/- stamp paper.
3. A self-attested Copy of Memorandum & Articles of Association / Partnership deed /
Certificate of Registrar of firm etc. as the case may be
4. In case the exporter wants to be registered as Manufacturer exporter self-attested copy
of SSI Certificate / Letter of Intent / Industrial License / Factory License / Employee
State Insurance Certificate / Employees Provident Fund Registration Certificate.
OR

Furnish any further evidence for being manufacturer exporter by providing any of the
documents being manufacturer exporter as per the undertaking on non-judicial stamp paper.

Applying with FIEO

To apply for FIEO membership, the exporters must download and fill the application form
and submit the following documents along with it:

1. A self-certified copy of the IEC Number issued by the licensing authority concerned.
2. A Cheque / Pay Order / Demand Draft favouring Federation of Indian Export
Organisations towards Annual Membership Subscription.
 3. Letter of Authority on the letterhead of the firm duly completed and signatures
attested by C.A.
4. Self-certified copy(ies) of the SSI Registration Certificate/Industrial
Licence/IEM/others, if applicable.
5. A self-certified copy of One Star Export House / Two Star Export House / Three Star
Export House / Four Star Export House / Five Star Export House Certificate, if
applicable.
6. ID proof of Director(s) / Partner(s)/ Proprietor(s) (Adhaar Card/ Driving Licence/
Voter ID Card/ Passport) 
7. GSTIN 
8. Export Turnover country-wise /commodity-wise for the past 3 financial years. 
Proforma enclosed (OR) Statement of foreign exchange earnings for the past 3
financial years in case of Service Providers
Difference between EPCs and Commodity Board

The difference between EPCs and Commodity boards lie in the way they are set up
and run. The table below provides more details on the same.

Export Credit Guarantee Corporation of India Limited

The ECGC Ltd. (formerly known as Export Credit Guarantee Corporation of India Ltd.)
wholly owned by government of India, was set up in 1957 with the objective of promoting
exports from the country by providing credit risk insurance and related services for exports.
Over the years it has designed different export credit risk insurance products to suit the
requirements of Indian exporters. ECGC is essentially an export promotion organisation,
seeking to improve the competitiveness of the Indian exports by providing them with credit
insurance covers. ECGC Ltd. also administers the National Export Insurance Account
(NEIA) Trust which caters to project exports of strategic and national importance.
The Corporation has introduced various export credit insurance schemes to meet the
requirements of commercial banks extending export credit. The insurance covers enable the
banks to extend timely and adequate export credit facilities to the exporters. ECGC keeps its
premium rates at the optimal level.
ECGC provides
(i) a range of insurance covers to Indian exporters against the risk of non-
realization of export proceeds due to commercial or political risks
(ii) different types of credit insurance covers to banks and other financial
institutions to enable them to extend credit facilities to exporters and
(iii) Export Factoring facility for MSME sector which is a package of
financial products consisting of working capital financing, credit risk
protection, maintenance of sales ledger and collection of export
receivables from the buyer located in overseas country.

Facilities provided by ECGC

 Offers insurance protection to exporters against payment risks

 Provides guidance in export-related activities
 Makes available information on different countries with its own credit ratings
 Makes it easy to obtain export finance from banks/financial institutions
 Assists exporters in recovering bad debt
 Provides information on credit-worthiness of overseas buyers

What Export Credit Insurance does for exporters?

Let us look at some of the advantages of export credit insurance, reasons to - why this is an
indispensable asset for anybody shipping goods overseas:

 Export risk and Insurance is covered in the export credit insurance policy.
 With a credit insurance policy in place, you don’t have to worry about the timely
recovery of sales revenue. Credit insurance saves you the time you might spend on
credit risk management and assessment, freeing you to focus on business development
and growth.
 It also enables you to be flexible with your credit period and/or your credit line,
increasing them if necessary.

How does Export Credit Insurance work?

As an exporter, it is essential to get yourself export credit insurance for a variety of reasons.
Here is a simplified version of how things work in the process:

 With the backup provided by credit insurance, you can also explore opportunities in
new markets with confidence. Credit insurance often covers up to 95% of the invoice
you raise, allowing you to take more chances and tackle new markets without
worrying unduly about losses.
 Export credit insurance companies also provide additional benefits like guidance and
information on debts and customers, and support in debt recovery.
  Having credit insurance can also boost your chances of arranging for export finance.
When you try to finance your export business, if the lender is assured that your
invoices are covered by credit insurance, arranging for finance becomes easier
because of reduced risk.

Unit-3

For the purpose of Documents Aligned System, documents have been classified into two
categories as under:

1. Commercial Documents 2. Regulatory Documents

COMMERCIAL DOCUMENTS

Objectives

The objectives of Commercial documents are:

1. To effect physical transfer of goods from the exporter’s place to the importer’s place.

2. To transfer property and title of goods from the exporter to the importer and 14 Export-
Import Procedures, Documentation and Logistics

3. Realization of export proceeds from the exporter to the importer. Out of the 16 commercial
documents in the Export Documentation Framework, as many as 14 documents have been
standardized and aligned one to another. Commercial documents may be classified as
Principal Export Documents and Auxiliary Documents.

Principal Export Documents:

These are the eight documents, which are required to be sent by the exporter to the importer.
These are known as Principal Export Documents.

They are:
(i) Commercial invoice

(ii) Packing list

(iv) Certification of inspection/quality control (where required)

(v) (iv) Bill of lading/Combined Transportation Documentation
(vi) (v) Shipping Advice
(vii) (vi) Certificate of origin (vii) Insurance Certificate/Policy (In case of CIF
export sales contract)
(viii) (viii) Bill of Exchange. Auxiliary Export Documents:

The remaining eight documents, other than principal export documents, are known as
auxiliary export documents. They are:

(i) Proforma invoice

(ii) (ii) Intimation for Inspection
(iii) (iii) Shipping Instructions
(iv) (iv) Insurance Declaration
(v) (v) Shipping Orders (vi) Mate’s Receipt
(vi) (vii) Application for Certificate of Origin and
(vii) (viii) Letter to the Bank for Collection/Negotiation of Documents.

REGULATORY DOCUMENTS

Regulatory pre-shipment export documents are those which have been prescribed by
different government departments and bodies in the context of export trade. These
documents are meant to comply with the various rules and regulations under relevant laws
governing export trade such as export inspection, foreign exchange regulations, export trade
control and customs etc. There are 9 regulatory documents associated with the pre-shipment
stage of an export transaction. Out of them, only 4 have been standardized. The regulatory
documents are as follows: Documentation Framework—Aligned Documentation System

(1) Gate Pass-I/Gate Pass II: The Central Excise Authorities prescribe them.

(2) ARE-1: These are Central Excise forms. Earlier, AR4 and AR5 Forms have been used.
In their place, ARE 1 form , now, is used.

(3) Shipping Bill/Bill of Export:

They are standardized and prescribed by the Central Excise Authorities.

• For export of goods.

• For export of duty free goods.

• For export of dutiable goods.

• For export of goods under claim for duty drawback.

 (4) Export Application/Dock Challan: Standardized and prescribed by the Port Trust
Authorities.

(5) Receipt for Payment of Port Charges: Standardized.

(6) Vehicle Ticket.

(7) Exchange Control Declaration Forms: GR/PP forms are standardized and prescribed by
RBI.

(8) Freight Payment Certificate.

(9) Insurance Premium Payment Certificate.

Classification of Commercial and Regulatory Documents The different commercial and

regulatory documents may be classified into documents related to goods, documents related
to shipment, documents related to payment, documents related to inspection, documents
related to excisable goods and documents related to foreign exchange regulations.

DOCUMENTS RELATED TO GOODS

(i) Proforma Invoice:

Proforma invoice is the starting point of an export contract. As and when the exporter
receives the trade inquiry from the importer, exporter submits the Proforma invoice to the
importer. The Proforma invoice contains details such as name and address of the exporter,
name and address of the intending importer, nature of goods, mode of transportation, unit
price in terms of internationally accepted quotation, name of the country of origin of goods,
name of the country of final destination, period required for executing contract after receipt
of confirmed order and finally signature of the exporter. Importance and Significance of
Proforma Invoice are Two Fold

(A) It forms basis of all trade transactions and further negotiation or contract is made on this
basis.

(B) It helps the importer to obtain the import licence, where required, and obtain foreign
exchange for completion of the contract. 16 Export-Import Procedures, Documentation and
Logistics

(ii) Commercial Invoice:

A commercial invoice is the seller’s bill for merchandise or goods sold by him. Invoice
contains all the particulars and details in respect of name and address of seller (exporter),
name and address of buyer (importer), date, exporter’s reference number, importer’s
reference number, description of goods, price per unit at particular location, quantity, total
value, packing specifications, terms of sale (FOB, CIF etc), identification marks of the
package, total number of packages, name and number of the vessel or flight, bill of lading
number, place and country of destination, country of origin of goods, reference to letter of
credit, if opened, terms of payment, and finally signature of the exporter etc. From the details,
it is clear that invoice is an important and basic export document. It is also known as
‘DOCUMENT OF CONTENTS’ as it contains all the important information necessary for
the preparation of other export documents. For many countries, there are no prescribed
special invoice forms. Exporters can use their normal invoices used for indigenous trade for
exports made outside the country too and show the particulars required by the importer in
terms of the contract. However, there are special invoicing procedures in respect of exports to
certain countries like Canada, U.S.A. and Australia. Some countries like Uganda, Mexico,
Sudan and Tanzania require special customs invoices. Information about the special invoice
forms required can be gathered from the respective Export Promotion Councils apart from the
procedures of trade to be followed in respect of the importer’s country. Any recognized
Chamber of Commerce too can provide the information in this respect.

Significance of Commercial Invoice

(A) It is prima facie evidence of the contract of sale and purchase of goods. On the basis of
the invoice, all the other documents, in the context of export, are prepared as it is the basic
document.

(B) Invoice constitutes the main document for various export formalities such as preshipment
inspection, quality, excise and customs procedures.

(C) It is useful for accounting purposes, both by the exporter and importer.

(D) This document is required in collection/negotiation of documents through the bank.

(E) For claiming incentives, this document is essential.

(iii) Consular Invoice

Some of the importing countries insist that the invoice is to be signed by the importing
county’s consular located in the exporter’s country. Such invoices are known as consular
invoice. The exporter has to pay a certain fee to obtain the certificate/invoice. Such charges/
fees vary from country to country. The main purpose to obtain consular invoice is to secure
authentication of information contained in the invoice. Once the invoice is signed by the
consular of the country, the importer gets comfort and confidence in respect of accuracy of
information in respect of quality, source of goods, volume and grade. Documentation
Framework—Aligned Documentation System 17 Normally, on arrival of the goods, it is
necessary to convince the customs authorities of the importing country that the goods stated
in the invoice and the actually imported goods are one and the same. If the customs
authorities get suspicious or not convinced, they open the packages of the imported goods. If
this happens, considerable delay takes place. The importer is put to hardship by delayed
receipt of goods. To avoid all these problems, importer insists on the exporter to obtain the
consular invoice from the consulate stationed in the exporter’s country. The consulate invoice
is, generally, prepared in three copies. One copy is retained by the consulate office, the
second copy is sent to the customs of the importing country and the third copy is given to the
exporter to forward the same along with other documents through the banker for
collection/negotiation. This information also facilitates in assessing import duties and also
would be useful for statistical purposes.
Significance of Consular Invoice

Importance to the Exporter

1. Once the invoice is signed by the consulate of the importing country, the exporter is
reasonably assured that there are no import restrictions in the importer’s country for the
goods and that there would be no problem in realization of export proceeds or foreign
exchange.

2. It enables prompt clearance from the customs of exporter’s country for shipping the
goods.

Importance to the Importer

1. In the importer’s country, the customs do not normally open the packages. It helps the
importer to get speedy delivery of goods.

2. Lot of unnecessary hardship which importer faces once the packages are opened is
avoided.

Importance to the Customs

1. The customs of the exporting country can easily clear the goods.

2. The customs of the importing country need not open the packages for checking and can
easily calculate the import duties.

(iv) Legalized Invoice

Certain Latin American countries like Mexico require this. It is just like consular invoice,
which requires certification from consulate or authorized mission, stationed in the exporter’s
country.

(v) Customs Invoice

When the commercial invoice is prepared on the format prescribed by the customs authorities
of the importing country, it is called “Customs Invoice”. This is the requirement of U.S.A.,
Canada and Australia. 18 Export-Import Procedures, Documentation and Logistics

(vi) Packing Note and Packing List

There is a difference between packing note and packing list. Packing note refers to the
particulars of contents of an individual pack while packing list is a consolidated statement of
the contents of the total number of cases or packs.

A packing note contains the following details:

(a) Date of packing,

(b) Number of packing note,

(c) Number of case to which it relates to,

(d) Contents of case in terms of quantity and weight,

(e) Marking numbers,

(f) Name of exporter,

(g) Name of importer,

(h) Importer’s order number,

(i) Number and date of bill of lading and

(j) Name of vessel/flight.

Packing note is kept in each concerned case/pack. Packing note and packing list are sent to
the importer along with other documents. If any case contains any shortfall, importer can
communicate to the exporter in which case there is shortage of goods for making good. No
particular form has been prescribed for both packing note/list. Normally, ten copies are
prepared. Two copies are sent, in advance, to the buyer, one copy along with the documents,
one to the shipping agent and the remaining are retained by the exporter. Precaution is to be
exercised that the details of the quantity in the packing note/list should conform to the
quantity as stated in the Invoice and Bill of Lading/Airway Bill.

(viii) Certificate of Origin

As the very name indicates, certificate of origin is a certificate that specifies the name of the
country where goods are produced. This is absolutely necessary where the importing country
has banned the entry of goods of certain countries to ensure that the goods from those
countries are not allowed to enter in. At the time of arrival of the goods in the importer’s
country, this certificate is necessary for the customs to permit preferential tariff. Certain
countries offer preferential tariff to goods produced and imported from India. In such a case,
this is a must to the importer to claim preferential tariff and importer insists on this document
from the exporter. This enables the importer’s country to regulate the concessional tariff only
to select countries and deny to the rest of the countries. A certificate of origin can be
obtained from Chamber of Commerce, Export Promotion Council and various trade
associations which have been authorized by Government of India to issue. The agency from
which certificate of origin is obtained should conform to the terms of letter of credit.
Documentation Framework—Aligned Documentation System

Significance of Certificate of Origin

(A) Certificate of origin is required for availing concession under Commonwealth

Preferences (CWP) as well as Generalized System of Preferences (GSP).

(B) It facilitates the importer to adhere to the rules and regulations of his country.
 (C) Customs in the importer’s country allow the concessional tariff only on production of
this certificate.

(D) When goods from some countries are banned, importing country requires this certificate
to ensure that goods from banned countries are not entering into the country.

(E) Exporting country may insist on this certificate to ensure that the goods imported are not
reshipped again.

DOCUMENTS RELATED TO SHIPMENT

Shipping Bill The shipping bill is the main document on the basis of which the customs
permission is given. Under manual processing of export documents, the exporter is required
to file the appropriate type of shipping bill to seek the order for customs clearance of the
export shipment. Under computerized processing, the exporter does not prepare the shipping
bill; instead it is computer generated. The customs order is called “LET EXPORT Order”.
After the shipping bill is stamped by the customs, then only the goods are allowed to be
carted to the docks.

The shipping bill contains the following particulars:

(A) Nature of goods exported,

(B) Name of vessel, master or agents,

(C) Flag,

(D) Country of destination, the port at which the goods are to be discharged,

(E) Exporter’s address,

(F) Importer’s address,

(G) Details of the packages, such as numbers and marks,

(H) Quantity details of each case, total number of cases and aggregate weight,

(I) F.O.B. prices and real value as defined in the Sea Customs Act and

(J) Whether the merchandise is Indian or foreign origin which is re-exported.

The shipping bill is prepared in five copies:

1. Customs copy

2. Drawback copy

Export-Import Procedures, Documentation and Logistics

3. Export Promotion copy

4. Port Trust copy and

5. Exporters copy

Importance of Shipping Bill

(A) It is an important document required by the customs authorities for clearance of goods.
The customs authorities endorses the duplicate copy of the shipping bill with “Let Export
Order” and “Let Ship Order”.

(B) After the clearance of customs, exporter can load the goods on ship.

(C) Shipping bill endorsed by the customs authorities facilitates the exporter to claim
incentives such as excise duty refund and duty drawback.

Types of Shipping Bills

(1) Free Shipping Bill: It is used in case of goods which neither attract any export duty nor
entitled for duty drawback. It is printed on simple white paper.

(2) Dutiable Shipping Bill: It is used in case of goods, which attract export duty. It may or
may not be entitled to duty drawback. It is printed on yellow paper.

(3) Drawback Shipping Bill: It is used in case when refund of duties is allowed on the goods
exported. Generally, it is printed on green paper, but when the drawback claim is paid to a
bank, then it is printed on yellow paper.

(4) Shipping bill for Shipment Ex-Bond: It is used in case of imported goods for reexport
and which are kept in bond. It is printed on yellow paper.

(5) Coastal Shipping Bill: It is used in case of shipment that is moved from one port to
another port, by sea, within India. It is not an export document. When goods are sent by sea,
it is called Shipping Bill and it is Airway bill when goods are sent by Air.

(ii) Mate’s Receipt

A mate’s receipt is issued by the mate (assistant to the captain of the ship) after the cargo is
loaded into the ship. It is an acknowledgment that the goods have been received on board the
ship.

Contents of Mate’s Receipt Mate’ receipt contains the details about

1. Name of the vessel,

2. Date of shipment,

3. Berth,
4. Marks,

5. Numbers, Documentation Framework—Aligned Documentation System

6. Description and condition of goods at the time they are shipped, port of loading,

7. Name and address of the shipper,

8. Name and address of the importer(consignee) and

9. Other required details.

Types of Mate’s Receipts Mate’s receipt can be clean or qualified.

(A) Clean Mate’s Receipt: Mate of the ship issues a clean mate’s receipt if the condition,
quality of the goods and their packing are proper and free from defects.

(B) Qualified Mate’s Receipt: If the mate’s receipt contains any adverse remarks as to the
quality or condition of the goods/packing, it is known as ‘Qualified Mate’s Receipt’. If the
goods are not packed properly and the mate’s receipt contains any adverse remarks about the
packing such as “Poor Packing’, the shipping company does not assume any responsibility in
respect of the goods during transit. It is necessary for the exporter to secure the mate’s receipt
without any adverse remarks.

. Significance of Mate’s Receipt

(1) Mate’s receipt is an acknowledgment of goods. It is not a document of title.

(2) It is issued to enable the exporter or his agent to secure bill of lading from the shipping
company.

(3) Bill of Lading, which is the title to the goods, is prepared on the basis of Mate’s receipt
so it should be obtained without any adverse remarks.

(4) Port Trust Authorities are enabled to collect their dues as it is routed through them.

(iii) Cart Ticket

A cart ticket is also known as cart chit. This is prepared by the exporter, which contains the
details of the vehicle number, description of goods, quantity, name of the shipper, shipping
bill number and port of destination. The driver of the vehicle carries the cart ticket. At the
time of entry into Port, the cart ticket is verified by the Port Authorities to satisfy that the
vehicle is carrying only those goods, which are mentioned in the cart ticket. After being
satisfied, the gatekeeper/warden/inspector issues the gate pass to the driver and allows entry
of the vehicle into the premises of the port.,

(iv) Certificate of Measurement Freight

 is charged either on the basis of weight or measurement. When weight is the basis of
measurement, the shipping company for the purpose of calculation of freight may accept the
weight declared by the exporter. However, when measurement is the basis for calculation of
freight, the shipping company may insist on a certificate issued by Chamber of Commerce or
other approved organization in respect of goods. The certificate of measurement contains the
details in respect of description of goods, quantity, length, breadth and depth of the packages,
name of the vessel and port of destination of the cargo etc.,

(v) Bill of Lading

Bill of Lading is a document issued by the shipping company or his agent acknowledging the
receipt of cargo on board. This is an undertaking to deliver the goods in the same order and
condition as received to the consignee or his agent on receipt of freight, the shipping
company is entitled to. It is a very important document to the exporter as it constitutes
document of title to the goods. Each shipping company has its own bill of lading. The
exporter prepares the bill of lading in the form obtained from the shipping company or agents
of shipping company. The goods can be consigned to order of the exporter, which means the
exporter can authorize someone else to receive the goods on his behalf. In such a case, the
exporter would discharge the bill of lading on its reverse. When the bill of lading is
negotiated through the bank, it would be endorsed in favour of the bank that would endorse
further to the importer, on receipt of payment. Bill of Lading is made in signed set of 2
originals, any one of which can give title to the goods. The shipping company also issues
non-negotiable copies (unsigned) which are not documents of title to goods but serves the
purpose of record only. The reverse side of Bill of Lading contains the terms and conditions
of the contract of carriage. The clauses on most of the bills of lading are common. A Bill of
lading should be clean to facilitate the exporter to obtain the proceeds of export without
difficulty.

Main Purposes It serves three main purposes.

(A) As a document of title to the goods

(B) As a receipt from the shipping company and

(C) As a contract of affreightment (transportation) of goods.

Types of Bill of Lading

(1) Received for Shipment B/L: A shipping company issues it when goods have been given to
the custody of the shipping company, but they have not been placed on board.

(2) On Board Shipped B/L: The shipping company certifies that the cargo has been received
on board the ship. Documentation Framework—Aligned Documentation System

(3) Clean B/L: It indicates a clean receipt. In other words, it implies that there has been no
defect in the apparent order or condition of goods at the time of receipt or shipment of goods
by the shipping company.
(4) Claused or Dirty B/L: It shows that the B/L is qualified which expressly declares a
defective condition of goods. The clause may state “bale number 5 hook-damaged” or
“package number 10 broken”. By superimposing this type of clause, the shipping company is
limiting its responsibility at the time of delivery of goods, at the destination. It is very
important to note that bank accepts only a clean B/L at the time of negotiation.

(5)) Transshipment or Through B/L: When the journey covers several modes of transport
from the place of starting to the place of destination, this type of B/L is taken. It indicates that
transshipment would be en route. For example, part of the journey is by ship and the rest of
journey may be by road, rail and air.

(6) Stale B/L: According to international commercial practice, B/L along with other
documents must be presented to the bank not later than twenty one days of the date of
shipment as given in the B/L. In some cases, the importer may indicate the number of days
within which the documents are to be presented from the date of shipment. Exporter has to
comply with the stipulation indicated. Otherwise, the B/L becomes stale and is not accepted
by the bank for payment. A stale bill is one which is tendered to the presenting bank so late a
date that it is impossible for the bank to dispatch to the consignee’s place, in time, before the
goods arrive at the destination port. In other words, bank finds it impossible to see the
documents reach before the ship reaches the destination.

(7) To Order B/L: In this case, the B/L is issued to the order of a specified person.

(8) Charter Party B/L: It covers shipment on a chartered ship.

(9) Freight paid B/L: When the shipper pays the freight, then this type of B/L is issued with
the words “Freight paid”.

(10) Freight Collect B/L: When the freight on the B/L is not paid and to be collected at the
point of destination, it is marked “Freight Collect” and this B/L is known as “Freight Collect
B/L”. Generally, the importer insists on the “clean on-board shipped” bill of lading with the
prohibition of transshipment of goods as goods can suffer damage during transshipment. If
transshipment is allowed, even period of journey may take longer. If the importer makes
payment, he can lodge the claim, as he will be in possession of negotiable copy of B/L.
Otherwise, exporter can lodge the claim and receive the value of goods.

Contents of B/L

1. Name and address of the shipper.

2. 2 Name and address of the vessel.
3. 3. Name of port of loading.
4. 4. Date of loading of goods.
5. 5. Name of port of discharge and place of delivery.
6. 6. Quantity, quality, marks and other description.

7. Number of packages.

8. Freight paid or payable.

 9. Number of originals issued.

10. Name of the shipping company.

11 Voyage number and date.

12. Signature of the issuing authority.

SIGNIFICANCE OF BILL OF LADING

Importance to the Exporter

1. It is an acknowledgment from the shipping company that the goods have been received for
the purpose of shipment. Documentation Framework—Aligned Documentation System

2. After receipt of B/L, it helps him to send the shipping advice to the importer.

3. If any damage occurs to the cargo during transit, he can hold the shipping company
responsible, if he has received clean bill of lading.

4. A copy of bill of lading is required to be attached to the application form to claim the
incentives

5. It is a contract of carriage between the exporter (shipper) and the shipping company.

Importance to the Importer

1. It is a document of title to the goods, which enables him to transfer the tittle by
endorsement and delivery.

2. The exporter can send a non-negotiable copy of B/L as advance intimation of shipment to
the importer.

3 It enables him to pay the freight amount as the B/L contains freight details.

Importance to the Shipping Company

1. It helps the shipping company to collect the freight amount from the exporter (CIF
contract) or importer (FOB contract).

2. Shipping company can protect itself from the wrongful claims of exporter/importer by
incorporating condition of goods/packaging, at the time of receipt. In case the shipping
company, inadvertantly, omits to mention the advesrse conditon, at the time of receipt,
advantage can be claimed by exporter/importer, by submitting wrongful claim.

(vi) Airway Bill

 Airway Bill is also called Air consignment Note. It is a receipt issued by an airline for the
carriage of goods. As each shipping company has its own Bill of Lading, so each airline has
its own airway bill. Airway Bill or Air consignment note is not treated as a document of title
to goods and is not issued in negotiable form. Delivery of the goods is made to the consignee
without the production of airway bill.

Importance of Airway Bill

1. It is a contract of carriage of goods between the consignor and airlines or his agent.

2. It acts as a customs declaration form.

3. It contains details of freight and so works as a freight bill.

(vii) Bill of Entry

Bill of Entry is a declaration form made by the importer or his clearing agent in the
prescribed form under Bill of Entry Regulations, 1971 on the strength of which clearance of
imported goods can be made. When goods are imported into a country, customs duty has to
be paid by the importer. For this purpose, importer prepares the Bill of Entry declaring the
value of goods, quantity and description. This is prepared in triplicate. Customs authorities
may ask the importer to produce the invoice of the exporter, broker’s note and insurance
policy to satisfy about the correctness of value of goods declared. For the purpose of giving
information, goods are classified into three categories.

(1) Free Goods: These goods are not subjected to any customs duty.

(2) Goods for Home Consumption: These goods are imported for self-consumption.

(3) Bonded Goods: Where goods are subject to customs duty, till duty is paid, goods are kept
in Bond.

Contents of Bill of Entry

1. Name and address of importer.

2. Name and address of exporter.

3. Import licence number.

4. Name of port where goods are to be cleared.

5. Desription of goods.

6. Value of goods.
7. Rate and value of import duty payable.

DOCUMENTS RELATED TO PAYMENT

(i) Letter of Credit

A letter of credit is a document-containing guarantee of a bank to make payment to the

exporter, under certain conditions and up to a certain amount, provided the conditions
contained in the letter of credit are complied with. For a detailed presentation, reader may
refer to the chapter on Export Financing.

(ii) Bill of Exchange

The Negotiable Instruments Act, 1881 defines a Bill of Exchange as “ an instrument in

writing containing an unconditional undertaking, signed by the maker, directing a certain
person to pay a certain sum of money only to, or to the order of, a certain person or to the
bearer of the instrument”.

There are five important parties to a Bill of Exchange:

The Drawer:

The drawer is the person who has issued the bill. In an export transaction, exporter draws the
bill as money is owed to him. Documentation Framework—Aligned Documentation System

The Drawee:

The drawee is the person on whom the bill is drawn. Exporter draws the bill on the importer
who is the drawee. Drawee is the debtor who owes money to the exporter (creditor).

The Payee:

The payee is the person to whom the money is payable. The bill can be drawn by the exporter
payable to the drawer (himself) or his banker.

The Endorser:

The endorser is the person who has placed his signature on the back of the bill signifying that
he has obtained the title for the bill on his own account or on account of the original payee.

The Endorsee:

The endorsee is the person to whom the bill is endorsed. The endorsee can obtain the
payment from the drawer.

Types of Bills of Exchange

(a) Sight Bill of Exchange:

In this Bill of Exchange, also known as demand Bill of Exchange, the drawee has to make the
payment, on presentation.

(b) Usance Bill of Exchange:

In case of Usance or Time Bill of Exchange, payment is to be made on the maturity date,
after a certain period, known as tenor. When the calculation of period is made with reference
to the sight of bill, the bill is known as ‘after sight usance bill’. Sometimes, the maturity date
is calculated with reference to the date of bill of exchange, it is known as ‘after date usance
bill’.

(c) Clean Bill of Exchange:

A clean Bill of Exchange is one when the relative shipping documents do not accompany
with it. In this case, the relative shipping documents i.e. Bill of Lading is sent directly to the
importer to enable him to take delivery of the cargo.

(d) Documentary Bill of Exchange:

A documentary Bill of Exchange is one where the relative shipping documents such as Bill
of Lading, marine insurance policy, invoice and other documents are sent along with the Bill
of Exchange. This is the common form in export trade. The documents are given to the bank
either for collection or negotiation. In case the importer gets the documents on acceptance, it
is called Documents against Acceptance.. In case of Documents against payment, importer
has to make the payment for securing delivery of documents.

(iii) Trust Receipt:

In case of D/P bill, the importer has to make the payment to take delivery of goods. If the
importer is unable to make the payment, on arrival of the shipment, and take possession of
goods, he executes a Trust Receipt to take delivery of goods. Importer will have the right to
sell the goods and would be acting as agent of the bank. Importer will be depositing the sale
proceeds with the bank, as and when sales are made. Till the importer makes the final
settlement, bank retains ownership for the merchandise and the role of the importer is not that
of owner but that of agent to the bank. This arrangement facilitates the importer to take
delivery of goods when sufficient funds are not available with him. This facility provides the
flexibility to the importer while the interests of bank are protected, at all times.

(iv) Bank Certificate of Payment:

It is a certificate issued by the negotiating bank to the exporter that the bill covering the
shipment has been negotiated through it and export proceeds have been received from the
importer. The certificate indicates the details of the merchandise exported. Exporter submits
this certificate of payment for establishing that the export transaction has been completed
totally by him. This certificate is required to comply with the requirements for the discharge
of export obligation.

DOCUMENTS RELATING TO INSPECTION

Certificate of Inspection It is a certificate issued by the Export Inspection Agency certifying
that the consignment has been inspected under the Export (Quality Control and Inspection)
Act, 1963 and found that the requirements relating to quality control and inspection have
been complied with, as applicable, and the goods are export worthy.

DOCUMENTS RELATED TO EXCISABLE GOODS

(1) GP Forms GP stands for Gate Pass. A GP form, gate pass, is issued for the removal of
excisable goods from the factory or warehouse. Form GP1 is issued for the removal of
excisable goods on payment of duty. GP2 is issued for the removal of excisable goods
without payment of duty.

(2) Form C It is not to be confused with C form. Form C is used for applying for rebate of
duty on excisable goods (other than vegetable, non-essential oils and tea) exported by sea. It
is to be submitted, in triplicate, to the Collector of Central Excise.

(3) Forms AR4/AR4A These forms are meant for removal of excisable goods for export by
sea/post. Now, in their place, ARE-1 form is used.

DOCUMENTS RELATED TO FOREIGN EXCHANGE REGULATIONS-LEGAL

REGULATED DOCUMENTS

Foreign Exchange Regulations require that all exports other than exports to Nepal and
Bhutan shall be declared on the following forms:

1. GR Form GR is an exchange control document required by Reserve Bank of India. It is

required to be filled, in duplicate, for all exports in physical form other than by post. An
exporter has to realize the export proceeds within a period of 180 days from the date of
shipment, in India. To ensure control on realization, RBI has introduced this procedure. GR
form, in duplicate, is to be submitted by the exporter to the customs along with the Shipping
Bill. Customs will give their running serial number on both the copies. After admitting the
customs shipping bill, customs will certify the value of goods declared by the exporter in the
space earmarked and also record their assessment of value. Customs retains the original copy
and return the duplicate to the exporter. Customs sends the original GR form to RBI, which
will be an indication of the goods, which are to be exported. Exporter has to submit the
duplicate of GR form to the authorized dealer, named in GR form, along with other shipping
documents within a period of 21 days of shipment for the purpose of negotiation. After the
negotiation of bill, the authorized dealer will report the transaction of negotiation to RBI. On
receipt of the original, RBI is apprised of the developments in respect of the export
transaction. Once the export proceeds are received from the importer, the authorized dealer
has to forward the duplicate copy of GR form together with the copy of invoice to RBI. RBI
recognizes that the export transaction has been concluded and export proceeds have been
fully realized. At certain customs offices, shipping bills are processed electronically. So, at
those offices, GR form has been replaced by SDF (Statutory Declaration Form).

2. PP Form It is required to be filled in for all export transactions, in duplicate, for all
countries to be made by post parcel, except when made on “value payable” or “cash on
delivery basis”.
3. VP/COD Form It is required to be filled for all export transactions to all countries by post
where the export proceeds are realized on “value payable” or “cash on delivery basis. All the
above documents serve the purpose of monitoring the realization of export proceeds in the
stipulated manner.

Unit-4

Payment Procedures in foreign trade:

There are five methods of receiving payment from overseas buyers. Choice of method,
largely, depends on the bargaining muscle of the trading partners. Different methods of
payment carry varying degrees of risk to the exporter.

What Factors Determine Terms of Payment

The following factors are usually taken into consideration, while deciding the terms of
payment:

A. Exporter’s knowledge of the Buyer.

B. Buyer’s financial ability.

C. Degree of security of payment, if advance payment is not considered.

D. Speed of Remittance.

E. Cost of remittance, which normally depends on speed of remittance.

F. Competition faced by the exporter.

G. Exchange restrictions in the importer’s country.

Methods of Receiving Payment

1. Payment in Advance

This is most favoured method of payment from the viewpoint of the exporter. This mode does
not have any credit or transfer risk to the exporter in executing the contract, whatsoever.
When the conditions in the importer’s country are unstable and there is no guarantee of
receipt of payment, even after successful execution of the contract, advance payment is
always insisted by the exporter. If an order from Afghanistan is received, Indian exporter may
prefer to forego the order however attractive the price terms may be, unless advance payment
is received. Exporter receives payment from the importer, in advance, before execution of the
order. Receipt of payment can be at the time of receiving the order, initially, or later, in
installments, but before final execution of the order. Payment may be received by means of
demand draft, mail transfer or telegraphic transfer in the currency specified in the contract of
sale. Even in this mode of payment, slight risk exists in the form of exchange risk from the
date of contract till the date of receipt of payment. Risk appears to be an integral of life, at
least the slightest! However, importer seldom accepts this method of payment. Importer does
not accept the mode unless there is heavy demand for those goods in his country or the goods
are tailor- made to the specific requirements of the importer. In those circumstances only,
exporter can dictate the advance payment. When the importer is unknown or his
creditworthiness is doubtful and not acceptable to the exporter and the importer requires
those goods, there is no alternative to the importer, other than making advance payment.
Normally, importing country’s exchange control restrictions do not permit this type of
advance payment. Even when advance payment is allowed, a part payment is made at the
time of acceptance of order, another part, in stages, while the manufacturing is in progress,
after verification and balance before shipment, finally. This methods works out to be the
cheapest mode of contract to the exporter as there would be no commission charges as banks
do not charge while crediting the demand draft/ mail transfer/telegraphic transfer amount to
the account of the exporter.

II. Documentary Bills

When the exporter is unable to get the advance payment from the importer, the next best
alternative mode of payment is ‘Documentary Bills’. The exporter is unwilling to part with
the documents of title till he receives the payment and the importer is not prepared to part
with payment and assume the risk until he is sure of receiving the goods. Under those
circumstances, ‘Documentary Bills’ is a bridge, as documents are routed through the bank. It
provides the required solution as it satisfies the claims of both the parties. In this system of
payment, banks act as a media to reconcile the conflicting requirements of the exporter as
well as importer.

Forms of Documentary Bills

Documentary Bills can be in the form of Sight Bill and Acceptance Bill. Method of payment
depends on the form of bill used.
Documents against Payment:

Under this method, exporter draws a sight bill on the importer and hands over the relative
documents specified in the contract to his banker with the instructions to deliver the
documents only on payment. The documents are sent to the correspondent’s bank, where the
importer is located, with the instructions given by the exporter. When the importer makes the
payment, he can get title to the goods and possession.

Documents against Acceptance (D/P):

Under this method, exporter draws usance bill on the importer. Usance period may be 30 to
180 days. Usance period cannot exceed 180 Terms of Payment 51 days as the export
proceeds are to be collected within a maximum period of 180 days as per Exchange Control
restrictions. The essence of the transaction is the exporter is not only willing to ship the goods
but also prepared to part with the title and possession of goods, before payment is received
and even extending the agreed period of credit.

(A) Collection of Bill:

In this case, either D/P bill or D/A bill is sent to the correspondent’s bank for collection of
proceeds from the importer. In case of D/P bill, importer has to make payment to get the
documents. In case of D/A Bill, on receipt of advice from the bank, importer accepts the
usance bill by writing the words ‘Accepted’ with his signature on the usance draft. Then
only, importer gets documents of title to goods from the bank. He can get possession of
goods and even sells the goods to get the necessary funds to make payment on the due date.
In this case, the exporter is extending credit to the exporter, apart from assuming the
commercial risk of default in payment as the importer may not pay on the due date, after
taking delivery of goods. Soon after the payment is received from the correspondent bank,
exporter’s account will be credited when the bill is sent on collection basis.

(B) Purchase/Discounting of Bill:

When the exporter is in need of funds, at the time of handing over the documents, he can
request the banker to purchase/discount the bill and allow the proceeds to be credited to his
account. If it is a sight bill, bank purchases and if it is usance bill, bank discounts the bill. In
both the cases, payment is made to the exporter, on presentation of documents. Different
terms ‘Purchase’ and ‘Discount’ are used, in separate contexts, to serve the same purpose.
However, in case the importer fails to pay the bill, the exporter’s account will be debited.

Consequences of Non-Payment in Case of D/P Bill:

When importer fails to make the payment, on presentation by the correspondent’s bank,
exporter may have to pay additional charges by way of warehouse charges and insurance
charges, at the port of destination as the goods will be lying in the foreign port. If the
importer finally refuses to take delivery of goods, alternative buyer may have to be procured
or distress sale may become necessary. If nothing materialises, goods may have to be
brought back to the country. This course of action results in heavy loss to the exporter.

Consequences of Non-Payment in Case of D/A Bill:

There are greater risks associated in case of D/A Bill, compared to D/P Bill. In case of D/A
Bill, importer makes payment only on the due date. From the date of delivery of goods till
date of payment, exporter has to bear credit risk as importer has, already, taken delivery of
goods. If the importer fails to make the payment, exporter has no alternative but to file only a
civil suit that is beset with costs and realisation difficulty.

Common Risk:

In both the cases, documents against payment and acceptance, there is a common risk-
transfer risk-if there is shortage of foreign currency or exchange control 52 Export-Import
Procedures, Documentation and Logistics restrictions in the importer’s country. However,
institutional facilities are available in all countries to cover political risk related to inability
to receive the remittance from the importer’s country, even after payment by the importer. In
India, Export Credit Guarantee Corporation of India LTD (ECGC) offers this facility.

III. Documentary Credit under Letters of Credit Main Attraction:

This method of payment has become highly popular in recent times. The greatest attraction to
the exporter is elimination of credit and payment risks. Exporter is not concerned with the
creditworthiness of the borrower while entering into the contract. In other words, the credit of
the banker is substituted for that of the importer. There is no payment risk as negotiating bank
makes the payment to him, once the stipulated conditions are complied with. Above all, an
important advantage from the viewpoint of the exporter, he can obtain the payment from a
bank, at his own centre. The documentary bills finance a large part of overseas trade.

Definition:

According to Article 3 of Uniform Customs and Practices relating to Documentary credits,

Documentary Letter of Credit has been defined as “any arrangement whereby a bank acting at
the request and in accordance with the instructions of a customer (the importer) undertakes to
make payment to or to the order of a third party (the exporter) against stipulated documents
and compliance with stipulated terms and conditions”.

Method:

At the request of the importer, bank makes a commitment to the exporter to make payment,
under certain circumstances and up to a limit, provided the stipulated documents in the letter
of credit, requested by the importer, are presented and found to be in order. Exporter may
draw the draft on the importer or importer’s bank. The documents usually required are full set
of bill of lading, invoice and marine insurance policy.

Parties in Documentary Credits

There are several parties involved in documentary credit arrangement.

1. The importer (applicant) approaches the bank and initiates the process of opening
documentary credit in favour of the exporter. He requests the bank to open the documentary
credit, incorporating the documents required to be presented by exporter, which are specified
in the contract entered into between the importer and exporter.
 2. The banker who issues the letter of credit at the request of the applicant is referred to as
the opening or issuing banker who undertakes to make the payment to the exporter on
presentation of the required documents, in proper condition.

3. The bank to whom the letter of credit is sent for authentication and delivery is known as “
Advising Bank’. According to Article 8 of UCP, the advising bank is expected to take
reasonable care while verifying the authenticity of the documentary credit.

4. The bank, which adds the confirmation, is known as “Confirming Bank”. The confirming
bank gives its commitment to make the payment if conditions stipulated Terms of Payment
53 in the credit are complied with even if the advising bank is unable to pay or refuses to
make the payment. Normally, advising bank and confirming bank are one and the same.

5. Bill of exchange is drawn by the exporter on the importer or named importer’s bank. When
the exporter draws the bill on importer, issuing bank of documentary credit becomes the
Paying Bank. Alternatively, when draft is drawn on the importer’s bank, that bank becomes
the Paying Bank.

6. When the paying bank is not located in the exporter’s place, credit permits any bank to
make the negotiation of documents and disburse payment to the exporter, known as
‘Negotiating Bank’. After payment, the negotiating bank claims reimbursement from the
paying bank. Until the paying bank makes the payment, the drawing is not finalised. The
negotiating bank can have recourse to the exporter till it can get reimbursement from the
paying bank.

7. The exporter for whose benefit the documentary credit is opened is called the
‘Beneficiary’. In a documentary credit, there should be at least four parties, applicant,
beneficiary, the issuing bank and the advising bank. The advising bank, confirming bank and
paying bank may be rolled into one.

Different Types of Letter of Credit

There are different types of letter of credit.

They are:

1. Documentary Letter of Credit:

This letter of credit specifies the various documents that are required to be submitted by the
exporter to the importer. That is the reason why it is called documentary letter of credit.
Following documents are usually specified in the letter of credit.

• Sight or Usance Bill of Exchange

• Commercial Invoice/Customs Invoice

• Consular invoice

• Packing List
• Full set clean-on-board Bill of lading/Airway Bill/Combined Transport Document

• Inspection Certificate

• Marine insurance policy/certificate

• Certificate of origin

• Any other document as required by the buyer, mentioned in letter of credit

2. Revocable and Irrevocable Credit:

Under revocable letter of credit, the opening bank reserves the right to cancel or modify the
credit, at any time, without the .This leaves the exporter in lurches. The exporter may realise
that the importer has instructed his banker to revoke the credit when the contract is at an
advanced stage of execution or even after shipment. This method of payment is not popular
as no exporter accepts this unsafe system of payment. In case of irrevocable letter of credit,
the opening bank has no right to change the terms of credit,

3. With Recourse or Without Recourse Letter of Credit:

The revocable and irrevocable credits are further classified into “With Recourse” and
“Without Recourse” letter of credit. Under ‘With Recourse” letter of credit, the negotiating
bank can make the exporter liable, in case of default in payment by the opening bank or
importer. For this, Negotiating bank has to obtain suitable undertaking from the exporter for
refund of amount paid, in the event of not getting reimbursement from the issuing bank.
Under “Without Recourse” letter of credit, the negotiating bank has no recourse to the
exporter. But, if the confirming bank happens to be the negotiating bank, it cannot have
recourse to the exporter. A confirmed letter of credit is without recourse to the beneficiary.
Unconfirmed or negotiable credit is always with recourse to the beneficiary.

4.Confirmed and Unconfirmed Letter of Credit:

Exporter and importer remain in different countries. Exporter may not be aware of the
standing of the issuing bank. In such cases, exporter may insist that the local bank should add
confirmation to the credit opened. Normally, importer would not be willing to add
confirmation to the credit as it involves additional commission of the confirming bank. After
confirmation, the letter of credit becomes confirmed and irrevocable. Once confirmation is
added, the confirming bank, which is normally the correspondent bank of the opening bank,
adds a clause to the effect that: “The above credit is confirmed by us and we hereby
irrevocably undertake to honour the drafts drawn under this credit on presentation, provided
that all the terms and conditions of the credit are duly satisfied”. When the credit is
irrevocable but not confirmed, the issuing bank asks the correspondent bank to advise the
credit and in such a case, the correspondent bank will advise the credit with a clause stating
that: “This credit is irrevocable on the part of the issuing bank but is not confirmed by us and
therefore it does not involve any undertaking on our part.” Terms of Payment 55 In the
absence of confirmation of credit, there is a contingent risk to the exporter. The exporter has
to endorse the documents to the negotiating bank. Though the negotiating bank makes the
payment to the exporter, it will have recourse on the exporter in the event it does not get
reimbursement from the issuing bank.

5. Transferable and Non-Transferable Letter of Credit:

Under transferable letter of credit, exporter can transfer the credit fully or partly to one or
more parties. This is possible when the credit clearly states it is “transferable” (no other term
is acceptable). In cases, when the product is to be fabricated by a third party, fully or partly, a
portion of the credit is made transferable to the third party. Such transfer of credit must be
informed to the issuing bank. It is used when the seller is a middleman who can transfer a
part of the credit to the exporter for shipping the goods. When the credit is not transferable, it
is non-transferable credit.

6. Fixed and Revolving Letter of Credit:

A fixed letter of credit is for a fixed period and amount. Letter of credit expires if the credit
is exhausted or period is over, whichever is earlier. In case of revolving letter of credit, the
letter of credit would be revived automatically for the same amount and period, once it is
exhausted. Such letter of credit is beneficial when the exporter and importer have frequent
dealings of the same nature.

7. Freely Negotiable and Restricted Letter of Credit:

When the letter of credit does not put any condition for the negotiation of documents, it is a
freely negotiable letter of credit. This letter of credit can be negotiated through any willing
bank. In case, the credit names a specific bank for negotiation, then the letter of credit is a
restricted credit. In case, the bank that has been named for negotiation refuses to negotiate,
then it is the responsibility of the opening bank to pay as per the terms of credit.

8. Red Clause and Green Clause Letter of Credit:

A red clause letter of credit is one that authorises the exporter to avail pre-shipment finance
on the strength of the credit. In this letter of credit, the clause is printed or typed in red ink.
Hence, such letter of credit is known as red clause letter of credit. This is a pre-shipment
finance provided to the beneficiary by the importer. This credit is liquidated once the
documents are negotiated. In a green clause letter of credit, in addition to pre-shipment
finance, storage facilities are allowed at the port of shipment to the exporter by opening bank.
Such type of clause is typed or printed in green ink. So, this letter of credit is known as
“green clause letter of credit’.

9. Back-to-Back Letter of Credit:

This letter of credit provides pre-shipment finance to the beneficiary. When the beneficiary
wants to purchase raw materials from a third party for the purpose of executing export order,
or is only a middleman and not the actual supplier of goods, he can ask the bank to open a
new letter of credit, on the strength of this credit, in favour of a third party. In this case, a new
letter 56 Export-Import Procedures, Documentation and Logistics of credit has to be opened
while in the case of transferable credit; the existing credit is only transferred.
 10. Assignable and Non Assignable Letter of Credit:

An assignable letter of credit can be assigned to a third party by the beneficiary of the credit.
When the buyer is not able to find the real exporter, in the meantime, he opens the credit in
favour of his agent or representative. When the agent is able to find an exporter who is
willing to supply the goods on the terms of the buyer, he assigns the letter of credit to the
supplier of goods. A non-assignable letter of credit is one that cannot be further assigned and
so opened only in favour of the real exporter of goods after the exporter confirms the order.

11. Deferred period of Credit:

In this period of credit, the supplier provides credit to the buyer after supply of goods.

12. Stand by Credit:

This is similar to a performance bond or guarantee, but in the nature of letter of credit. The
credit assures the beneficiary that in the event of non-performance or non-payment of any
obligation, the beneficiary may request the issuing bank to make the payment. The
beneficiary has to draw the claim by drawing a bill on the issuing bank, accompanied with
documentary evidence in support of non-performance of contract. When the exporter receives
the advance payment from importer, importer may insist on exporter to open ‘Stand by
credit’ in favour of the importer to protect the latter’s interests.

Main distinction between Documentary Bill and Documentary Credit under Letters of
Credit Documentary Bills:

Under this method of payment, bank opens no letter of credit. Bank functions as an agent for
collection of the bill. The role of bank is that of medium only. There is no commitment on the
part of bank for any payment, whatsoever. In case of D/A bill, importer gets documents of
title to goods, on acceptance of the bill. Exporter gets payment only if importer makes
payment. If importer fails to make payment on due date, exporter has no alternative other
than filing a civil suit against importer as it is not legally possible to get back possession of
goods. In case of D/P bill, if importer fails to make payment, exporter gets back the document
of title to goods. There is no risk in case of nonpayment, an important advantage from the
viewpoint of the exporter.

Documentary Credit under Letters of Credit:

Letter of credit is opened by bank, at the instance of the applicant (importer). Here, the bank
that has opened the letter of credit assumes the responsibility to make the payment, on
presentation of the documents specified in the letter of credit. So, exporter is sure of receiving
the payment, once the documents specified in the letter of credit are presented. Exporter is
not concerned with the creditworthiness of the importer. Neither credit risk nor political risk-
in fact, no risk exists for receipt of payment if the exporter, scrupulously, follows conditions
in the letter of credit. Terms of Payment 57

IV. Open Account with Periodic Settlement

Under this form of payment, exporter sends the goods, directly, to the overseas buyer along
with invoice. The exporter does not draw any bill of exchange on the importer. This form of
payment is made when the exporter and importer are inter-connected companies like holding
company and subsidiary company or where the relationship between them is long standing
and absolute trust exists between the two. There is real risk to the exporter as there is no
proof in the form of documentary evidence to establish the obligation on the part of the
importer to make the payment. If no credit arrangement is agreed, the buyer has to make
payment, immediate to the receipt of goods. However, in most of the cases, importer makes
the payment only on the expiry of the stipulated credit period agreed. It is desirable for the
exporter to enter into this manner of payment only when the bonafides of the importer is
beyond doubt. This method of payment is simple and involves no additional costs. This form
of payment is possible only when the exporter is financially strong as he is meeting the credit
requirements of the buyer. It presupposes that there are no exchange control restrictions in the
importer’s county. Otherwise, the importer may not be able to remit the amount when the
amount falls due for payment. Indian exporters are allowed to send the goods on this basis
only with the special approval of RBI. RBI normally permits to foreign companies operating
in India.

V. Shipment on Consignment Basis

Under the consignment basis, the seller ships the goods to his agent or representative.
Exporter retains legal title to the goods though the physical possession is with the agent. As
and when agent sells the goods, he makes the remittance to the principal who is the exporter.
There is no financial security to the exporter if the agent is dishonest, not sincere or
fraudulent in working as no document of evidence in the form of Bill of Exchange is
available to protect him from default. In case goods are not sold, the agent will send back the
goods to the exporter.

Unit-5

Insurance and Shipment of Goods:

MEANING OF CARGO (MARINE) INSURANCE

According to Marine Insurance Act, cargo insurance is an insurance cover for marine goods,
air cargo and post parcels. The purpose of cargo insurance is to protect goods against physical
loss or damage, during transit. All export consignments should preferably be insured even if
the terms of contract do not provide for it. Exporter should insure the goods sent on
consignment.

Contract of Indemnity

Cargo insurance is a contract of indemnity whereby the insurance company (Insurer)

undertakes to indemnify the owner (Insured) of a ship or goods, against risks that are
incidental to Marine insurance (Section 3 of the Marine Insurance Act, 1963). The
underwriter insures the goods against loss and damages caused by perils specified in the
contract for a stipulated consideration, known as ‘Premium’.
Parties to Insurance

There are two parties:

1. The insurance company is also known as underwriter who assumes the liability as and
when loss occurs.

2. The insured is the one who procures the policy or becomes the beneficiary through the
insurance contract.

Principles governing insurance are

(i) Principle of Utmost Good Faith: The insured must disclose all the facts known to him or
ought to be known to him, in the ordinary course of business.
(ii) Principle of Insurable Interest: Any person who has ‘insurable interest’ in
the Cargo Insurance 85 cargo only can insure. Exporter is said to have
insurable interest in the safe arrival of cargo as he is the owner of the
property.
(iii) Principle of Indemnity: The underwriter indemnifies the loss arising from
the risks covered under a policy. In a contract of indemnity, only loss is
made good. However, a marine insurance is commercial indemnity, so
even the reasonable anticipated profit is also made good.
(iv) Causa Proxima: The insurer indemnifies if the loss arises only from the
nearest cause. If goods are stolen due to faulty packing, the insurer does
not indemnify the loss.

Types of Insurance Documents

There are three types of insurance documents:

(a) Insurance Policy: The insurance policy sets out all the terms and conditions of the contract
between the insurer and insured.

(b) Certificate of Insurance: It is an evidence of insurance but does not set out the terms and
conditions of insurance. It is also known as ‘Cover Note’.

(c) Insurance Broker’s Note: It indicates insurance has been made pending issuance of policy
or certificate. However, it is not considered to be evidence of contract of insurance.

TYPES OF MARINE INSURANCE POLICIES

The shipper or insured covers the risks depending on the terms of letter of credit/export order. The
Institute of London Underwriters has drawn up the different clauses in marine insurance policy in
respect of risk coverage. The risk coverage is done in terms of various institute cargo clauses.

Different marine insurance policies with different risk coverage are:

(a) Institute Cargo Clause A: This policy covers all the risks of loss or damage to goods. This is the
widest cover.

(b) Institute Cargo Clause B: This policy covers risks less than under clause ‘A’.

(c) Institute Cargo Clause C: This policy covers lowest risks. War and Strikes, Riots and Civil
Commotion (SRCC) clause is excluded in all the above policies. These risks can be covered by
specifically asking for, paying additional premium.

KINDS OF LOSSES

There are two kinds of marine losses. Broadly, they are Total loss and Average loss.

1. Total Loss Total loss can be further classified into actual loss or constructive loss.

(A) Actual Total Loss may occur when:

(i) The insured cargo is physically destroyed such that there is no possibility of salvage or recovery of
the goods.

(ii) The insured cargo is damaged that it ceases to be a thing or description insured. E.g. Cement bag
turns into concrete due to sea-water contact.

(iii)The cargo is irretrievably lost. For example, when the ship sinks, the cargo can be retrieved only
after a long time and the salvaged goods cannot be of any value to the insured.

(B) Constructive Total Loss can take place when the cargo is damaged to such an extent that the cost
of saving and repairing or reconditioning of the goods is more than the value of the goods.

2. Average Loss If loss is less than total, it is called an average loss in insurance. Average loss may be
particular or general.

(A) Particular Average Loss: There are two types of particular average losses i.e. the total loss of a
part of goods and goods arrived in damaged condition.

(i) Total loss of a Part of Goods: When a part of total consignment is lost, this method is applied.
Value will be arrived by multiplying the number of items lost with per unit value declared in the
invoice.

(ii) Arrival of Damaged Goods: In case, the goods arrive in a damaged condition at the point of
destination, the consignee or his agent and ship surveyor attempt to arrive at the agreed percentage
of depreciated value of goods for settlement. Say, the depreciated value is arrived at 30%, insurance
company will pay the balance 70% of the declared value.

(B) General Average Loss: This may occur whether the goods are insured or not. It results from an
intentional sacrifice or expenditure incurred by the master of the vessel to save the ship or goods
from danger for the common benefit of the owners of the ship and goods. It needs to be emphasised
that the sacrifice or expenditure should be made knowingly, but prudently, and in a reasonable
manner. General average loss would arise in the following circumstances:

(i) Some goods are thrown to lighten the ship when the ship is caught in a rough weather.

(ii) Make payment to the nearby agency to tow the ship in danger of sinking to the nearby safe port
or

(iii) Pour water to extinguish fire. When general average loss occurs, captain of the ship reports the
matter of loss to the port authorities. The port authorities appoint an Average Adjuster for preparing
the statement of general average adjustment and fixing the contribution to be made by the owner of
the vessel and various shippers. After cargo owners make payment of their contribution, the
shipping company gives delivery of goods to the concerned owners. The preparation of general
average adjustment is a complex accounting operation. This job is normally entrusted to the
professionally trained average adjuster (not the insurance company). This entire exercise frequently
requires two or three years for completion. The average adjuster also gives a certificate of
contribution to the shippers in respect of the amount of contribution, payable by different parties.
The insured would be able to get the contribution certificate from the shipper, soon after payment.
The insured can get settlement of claim from the insurance company, producing the evidence of
contribution certificate and its payment.

Procedure and Documentation for Filing Claim and Duties of the Assured

• Notice to Insurer: In the event of loss or damage to the goods, insured or his agent has to give
immediate notice to the insurance company.

• Reasonable Care: It is a condition of the policy that the insured and his agents should act as if the
goods are uninsured and should take all such measures and actions as may be reasonable and
necessary to minimise the loss or damage. They must also ensure that all the rights against carriers,
bailees or third parties are protected.

• Survey and Claim: At the time of taking delivery, if any package shows signs of outward damage,
insured or his agents must call for a detailed survey by the ship surveyors and lodge the monetary
claim with the shipping company for the loss or damage to the packages.

• Outward Condition: Many a time, when the outward condition of the packages is in apparent
sound condition, the insured takes delivery, unsuspectingly. After reaching warehouse, on opening
the packages, they find damages to goods. In such an event, the insured and/or agent should
immediately inform the insurance company and call for the ship surveyor for detailed survey. They
should not make any delivery of goods. They should not disturb the packing materials or the
contents in packages.

• Missing Packages: In case any package is found missing, the insured must lodge the monetary
claim with the insurance company and its bailees (shipping company) and obtain a proper
acknowledgement from them.

• Time Limit:
The time limit for filing suit against the shipping companies is one year from the date of discharge of
goods.

Documents Required:

The following documents are to be submitted by the insured to enable the insurance company to
settle the claims expeditiously:

1. Original Insurance Policy or Certificate

2. Copy of Bill of Lading

3. Survey report/Missing certificate

4. Original Invoice and Packing List together with shipping specification or weight notes

5. Copies of Correspondence exchanged with the carriers or bailees

6. Claim Bill. Precautions: While procuring insurance, exporter should observe the following
precautions:

(i) Amount of insurance is 110% of C.I.F. value of goods. 10% covers anticipated profits. In other
words, exporter is allowed to take a policy to cover profits up to a maximum amount of 10% of CIF
value.

(ii) Insurance document is not later than the date of shipment.

(iii) Amount insured must be in the same currency invoice to take care of the exchange fluctuations.
(iv) Insurance document is issued by the insurance company or its agents or underwriters

ROLE OF CLEARING AND FORWARDING AGENTS

Their basic function is to provide different range of services to exporters to ensure smooth and
timely shipment of goods. Clearing and Forwarding Agents play a pivotal role in the selection of
mode and route of transport. They are the specialised people to guide in the selection of the
shipping line/air line. Every exporter is concerned with distribution logistics to ensure that the goods
reach the final buyer, in specified time and at minimal cost, in the condition they are sent. The
essence of distribution logistics is the decision in respect of mode of transport to be used. Clearing
agent advises exporter about the availability of alternative modes of transport and guides exporter
in decision-making about the final choice of transport to achieve optimal cost in transporting the
goods, well within the delivery schedule. In addition to these activities, he undertakes most of the
functions connected with exports such as marking, labelling, packing of goods, advising on trade
laws, arranging local transportation as well as apprising developments on transportation and
claiming dutydrawback claims on behalf of the exporter.

Clearing and forwarding agents are also known as Customs House Agents or Freight Forwarders or
Shipping Agents. Classification of services The services they provide can be classified into essential
and optional services.
ESSENTIAL SERVICES

The following are some of the services provided by all Clearing and Forwarding Agents.

1. Warehousing before Transportation Soon after the goods are manufactured and are ready for
shipping, warehousing facility for goods is made available before they are transported to the
docks/port.

2. Local Transportation When clearance is received from Port, goods are transported to the docks
and warehoused in the port.

3. Container Arrangement Movement through containers has been gaining popularity to facilitate
export goods reach in the original condition, they are sent. In case of need, this service is provided.

4. Reservation of Shipping Space Unless shipping space is finalised, there is no guarantee about the
shipment of goods. C & F agent books the shipping space contacting the agents of the shipping
company, alternatively, making arrangements for air- freighting.

5. Selection of Mode of Transport Mode of transport is a matter of negotiation between the exporter
and importer, invariably, incorporated in the contract. Either exporter or importer arranges
transportation, depending on price terms. C & F agent provides information about different shipping
lines/ air lines and guides on the selection of route, optimal from the standpoint of delivery date and
distribution costs. Delivery of goods as agreed upon is one of the conditions on which success in
exports depends. As transportation cost occupies a significant place in total cost structure, services
of clearing agents are highly valuable in managing timely delivery, containing costs to achieve sales
and profit goals for exporter.

6. Packing, Marking and labelling Goods are packed, marked and labelled so that goods are ready for
inspection and preshipment. These services are also provided by shipping agents, depending upon
the requirement.

7. Completing Customs and Port formalities Clearing agents prepare the shipping documents to the
requirements of customs procedures. Necessary port formalities are complied with, in time, to avoid
delays in shipment of goods.

8. Cargo Insurance Necessary marine/cargo insurance is made as per the terms of contract. Risk
coverage in insurance policy has to be earlier to the date of shipment of goods. 106 Export-Import
Procedures, Documentation and Logistics

9. Advising Exporters on Trade Laws They are experts in the field as they deal continuously. They are
abreast of the changes in the regulations and trade practices of foreign countries. Exporters can get
benefit of their advice.

10. Educating Exporters Clearing agents educate exporters in respect of developments in transport
and changing options available to them to explore new markets that are earlier remote or
inaccessible. 11. Coordination with other Agencies Clearing agents arrange to procure certificates or
endorsements from different agencies, required for shipment of goods. To illustrate, where
necessary, certificate of origin is procured by them from the local Chamber of Commerce.
 12. Procuring Documents Finally, clearing agent procures documents like Bill of Lading and makes
them available to the exporters for negotiation with the bank.

OPTIONAL SERVICES

The leading clearing and forwarding agents provide the following optional services:

1. Warehousing facilities abroad When goods reach the destination point and importer refuses to
take delivery of goods, exporter faces an embarrassing situation. At some of the major international
markets, the leading clearing agents provide warehousing facilities. This facility gives breathing time
to plan alternative course of action to gain, at least minimal profit to the exporter.

2. Bringing back Goods When original importer refuses to take delivery of goods, it is not easy for
exporter to find alternative buyer at that place, immediately. If his efforts fail, there is no option to
the exporter other than bringing back the goods to his own place or sending goods to another place
where sale can be made, with minimum loss. If the clearing agent can perform that service, exporter
can avert a major chaos in the business of exports.

3. Locating Stranded Goods At times, it so happens that the goods may be misplaced and do not
reach the intended destination. When the goods are misplaced or stranded at some port, clearing
agents provide necessary assistance in locating them.

4. Assessment of Damage When goods are sent by ship, occasionally, goods may get damaged partly
or totally. In such an event, clearing agent coordinates with the ship surveyor for assessment of
damage and obtaining surveyor’s certificate.