Professional Documents
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Trade Service and Import Training Manual
Trade Service and Import Training Manual
TO
Trade Service
IMPORT
SEMINAR
OVER VIEW OF
INTERNATIONAL TRADE
INTRODUCTION
International trade means cross-frontier
exchange of goods(merchandise and
services) between several political
economics.
Sales contract
Seller
Shipment
Why International Trade?
Uneven distribution of resources
– People maximizes their satisfaction by
exchanging goods and services for
another goods and services based on
the principle of comparative
advantages.
The Sales Contract
A sales contract
– The sales contract may be verbal, it is
advisable that it is written for ease of
reference in future
– It should be carefully worded as it
represents the ultimate fall back
position in case of any dispute
between the buyer and seller
The sale contract
A good sales contract have the following features
– Unambiguous
– Must clearly state the duties and liabilities of each
party
– Must state the price of arbitration/settlement in case
of dispute
An agreed product or service
Shipping and delivery details
Required documentation
Insurance cover
Terms of payment
Buyer’s Goals:
Minimize cost of financing
Maintain good relationship with
supplier
Assure receipt of specified goods
previously contracted
Seller’s Goals
Documentary
Business
Payment Methods
Bank
Payment Methods
There are at five alternatives a
seller has for obtaining payment for
goods shipped to buyer namely:
1. Advance payment
2. Open account
3. Consignment
4. Collections
5. Letter of credit
1.Cash in Advance
Definition:
A letter of credit is a written undertaking
of a bank on behalf of its customer (the
applicant) in favor of a named beneficiary
in which the bank obligates itself to pay
up to a certain sum of money before a
certain date upon the beneficiary
presenting documents as requested in
the credit.
The Letter of Credit
OR
A documentary credit is a written
undertaking by a bank given to the seller
at a request and on the instruction of the
buyer to pay at sight or at determinable
future date up to a stated some of
money within a prescribed time limit and
against presentation of stipulated
documents.
Why Letter of Credit?
Letter of Credit
– Required documents
– Expiry date and place
– Date of shipment
– Description of goods/services
– Port/place of loading
– Port/place of discharge
– Allowance for partial shipment/transshipment
– Type of payment availability
– Accountability of bank charges
Parties to the Documentary Credit
1. Applicant – is the buyer or an importer, who applies for
the issuance of a letter of credit in favor of a seller.
2. Beneficiary – is the seller, to whom a letter of credit is
issued.
3. Issuing bank – is the buyer’s bank who issues a letter of
credit.
4. Advising bank – is a bank, which advises a letter of
credit to a beneficiary.
5. Reimbursing bank – is correspondent bank to an issuing
bank and makes fund available to a paying bank for value
of the negotiated document under a specific letter of
credit.
6. Confirming bank – is a bank, which undertakes to a
seller to effect payment to that of issuing bank according
to the letter of credit terms and conditions.
Types of Letters of Credit
Per UCP 600 art. No. 10, all documentary credit are
irrevocable that can not be cancelled or amended
without the consent of the parties in the L/C, except
as otherwise provided by art.38.
Unconfirmed versus Confirmed
– Unconfirmed LC
Any LC that carries the payment obligation of just one
These are:-
1. Revolving L/C
2. Transferable L/C
3. Back to Back L/C
4. Red clause L/C
1. Revolving LC
LCs that are renewed or reinstated within their
overall validity without requiring specific
amendments.
Commonly used by traders having regular
shipment from the same supplier over an extended
period.
They may revolve around time or around value.
– Time: Established for fixed amounts that are
reinstated for each specific period within the overall
validity
For example – Revolving DC available for up to
Seller 1.contract
Middle Man 1. contract Importer
2nd Beneficiary 1st Beneficiary Applicant
Advising/
2nd Advising 14. $75,000
Nominated Bank 13. $100,000
Issuing Bank
Bank 10. Docs Transferring 12. Docs
6. TFDC transferred
Bank 3.TFDC issued
for $75,000 For $100,000
Transferred DC Transferable DC
3. Back to Back letter of credit
– LCs issued in favor of a supplier at the request of a
middleman against the security of a “Master” LC
issued by the ultimate buyer.
– This may involve parties domiciled in 3 different
countries.
– The terms and conditions of a back-to-back LC
should mirror the terms and conditions of the master
LC(Essentially 2 LCs to cover a single shipment of
goods)
– The following should be considered when issuing
Back-to-back LCs:
The terms and conditions of the primary (or master)
LC must be thoroughly understood
Considerable efforts must be made to mirror the above
terms to prevent material discrepancies
Issues relating to third party documentation should be
addressed.
Back to Back DC Cycle 19. B/L exchanged
or for goods
8. Goods shipped
5. BBDC 2. DC
9. Docs presented
Application for 17. Dr. Acc application
For $75,000 16.$25,000
$75,000 $100,000 For $100,000
Baby DC Master DC
4. Red Clause LC
LCs that incorporates a special clause enabling
the beneficiary to draw a pre-shipment advance
against a simple receipt and advance payment
guarantee(APG)
Historically utilized for pre shipment finance in the
wool industry in commonwealth countries and in
other commodity businesses.
Provides beneficiary with credit before shipment
Proceeds of negotiations should be applied in
repayment of the advance plus interest which
should be settled in full before any further funds
are paid.
In event of default from the beneficiary the bank
that issued the APG becomes liable.
L/C Setup
2. LC 6. Presentation
9. Payment/
Application of
Acceptance
documents
10. Release
of
Document 4.Advising
LC
7. Notification of Documents + Claim
3. Opening of LC
Opening Bank Advising Bank
8. Payment/Reimbursement
(Sight / Acceptance)
Major contents of LC
LC should have the following:-
– Advising bank name and address
– Beneficiary name and address
– Issue date
– Term of trade (FOB, C&F etc)
– Applicant name and address
– Amount of LC
– Mode of transport
– Required documents
– Expiry date and place, Date of shipment
– Shipment from and to if the LC is goods LC
– Methods of payments
– Payment at Sight
– Negotiation
– Deferred payments/Acceptance
– Acceptance of term draft (Bill of Exchange)etc
Methods of Payment under Documentary Credit
1. Payment at sight – payment is made without
recourse(option) to exporter or beneficiary.
means payment to the beneficiary is to be effected
immediately upon presentation of complying documents.
2. Negotiation – payment may be made by negotiating
bank(advising bank ) with recourse to the
exporter(beneficiary) unless the nominated bank
(advising bank ) has confirmed the L/C.
Negotiation is the purchase by the nominated bank
documents under a complying presentation., by
advancing or agreeing to advance funds to the
beneficiary on or before the banking day on which
reimbursement is due to the nominated bank (Art.2
UCP600).
Methods of Payment under Documentary
Credit
3. Acceptance of Term Draft (Bill of Exchange) –
draft(s) is accepted by the nominated, confirming
or issuing bank. Whosoever accepts the draft,
there is no recourse to the exporter and the draft
must be paid at maturity.
* Draft (Bill of Exchange ) is unconditional order
written from one person (the drawer), to
another Person (the drawee). It directs the
drawee to pay a certain sum at “sight” or at a
fixed or future determinable date, to the order of
the party who is to receive payment (Payee).
Methods of Payment under Documentary
Credit
Commercial Packing
Invoices List
Bill of Exchange
Certificate Insurance
of Origin Certificate
Financial documents
– Bill of exchange (draft), promissory note, cheque
Commercial documents
– Invoices, packing list , certificate of analysis, insurance
certificate
Transport document
– Bill of Lading, Airway bill, Rail road, Parcel receipt
Official documents
– Certificate of origin, health certificate
Article 14 UCP 600 is a guide for examination of
documents
Article 18-25 also clearly states what are
included on the content of each document.
Letters of Credit
Discrepancies
Common Discrepancies
1. Prior to LC establishment
Approved foreign exchange permit for import
Complete, signed and stamped foreign exchange application for
import
Valid trade License for import, investment or industry and TIN
certificate
Valid, signed and stamped Prforma invoice
NBE account No and customer not listed delinquent
Insurance certificate
Additional requirements
– Letter from Road Transport Authority for Vehicle
– License from Ethiopian Drug Control & Admin. Authority for
Pharmaceuticals.
– License from Quality and Standard Authority for items which require
standardization License from Ministry of Agriculture for Agricultural
chemicals & veterinary medicines
– Copy of loan or grant agreement and No objection letter for grant
letter of credit
– International competitive bid with the relevant document is the amt is
more than $1 million.
Import procedures in Ethiopia
2. For LC Opening
Approved original Foreign exchange application
with 2 photocopies
Filled, signed, stamped and verified LC application
Proforma invoice stamped by CBE and its copy
Insurance certificate, if LC facility is to be utilized
Letter from Ethiopian shipping Lines if the delivery
term is C&F.
3. Amendment
Signed and verified application letter with the
supplier’;s inquiry for amendment.
Import procedures in Ethiopia
4. LC settlement
Supplier send goods presenting documents
to its bank listed below with its covering
letter.
– Chamberized commercial invoice
– Certificate of origin
– Shipping documents, Packing list
– Freight invoice for delivery term C&F or CIF
– Original Libre for used car
– Beneficiary certificate, Carrier certificate
– Other documents may also be presented if it is
request in the LC.
Import L/C Opening
Documentary Collection
COLLECTIONS
Definition:per URC 522
The Uniform Rules for Collection (URC) defines
collection as “the handling of documents (financial
and or commercial) by banks in accordance with
instructions received, in order to:
a. Obtain payment and/or acceptance, or
b. Deliver documents against payment and/or against
acceptance, or
c. Deliver documents on other terms and conditions”
Therefore:
Banks are only agents (of Exporter) in collections,
they are bound to follow the instruction of whoever
their principal is.
COLLECTIONS
Types of collection
(1.)Sale Agreement
Buyer / Drawee Principal / Seller
(2) Shipment
(5) Payment or
Acceptance (3) Documents &
Collection order
(8) Payment or
Acceptance
(6) Release of doc. After payment
(DP)/Acceptance (DA
Remitting instruction
Additional requirements
– Letter from Road Transport Authority for Vehicle
– License from Ethiopian Drug Control & Admin.
Authority for Pharmaceuticals.
– License from Quality and Standard Authority for
items which require standardization License from
Ministry of Agriculture for Agricultural chemicals &
veterinary medicines
– Copy of loan or grant agreement and No objection
letter for grant letter of credit
– International competitive bid with the relevant
document is the amt is more than $1 million.
Import procedures in Ethiopia on CAD Basis
Local laws
– Central bank publications
– Exchange control laws
– Legal opinions
International guidelines
– The URC
In dispute situations, the local laws prevail
Mitigants
Adoption of international banking rules (The URC 522)
Risk can be divided in three major
categories
ECONOMIC POLITICAL CURRENCY
RISK RISK RISK
Local Regulations:
Varies from country to country depending
on the monetary policies of government
The basics of the regulations would
include:
– Exchange control Regulations
– Documentation requirements
Regulatory Guidelines
International regulations:
There are many regulation bodies but
the most widely accepted is the
International Chambers of Commerce
(ICC)
Regulatory Guidelines
What happens where there is a
conflict between local and
international rules?
SELLER BUYER
transport
EXW risks
cost
transport
FCA risk
cost
transport
FAS risk
cost
transport
FOB risk
cost
OUTLINES
SELLER BUYER
transport
CFR risk
cost
transport + insurance
CIF risk
cost
transport
CPT risk
cost
transport + insurance
CIP risk
cost
OUTLINES
SELLER BUYER
transport + insurance
DAF risk
cost
transport + insurance
DES risk
cost
transport + insurance
DEQ risk
cost
transport + insurance
DDU risk
cost
OUTLINES
SELLER BUYER
transport + insurance
DDP risk
cost