Exim Final

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IMPORTANT TERMINOLOGIES

AUTHORISED DEALER : Reserve Bank of India gives license (could be nationalized, private etc) against their own application to operate foreign exchange transaction (currency and document). These banks can be nationalized or non-nationalized.

VESSEL : Ship

ENTRY INWARD ORDER: When a foreign country vessel enters Indian national boundary, the Indian custom officer goes there physically and checks with details it has and enters the entry inward order register.

BALANCE OF TRADE : Balance of trade is the difference between balance of export and import for a year. When the value of exports is greater than the value of imports, there is a favorable trade and is said to be positive trade.

BALANCE OF PAYMENTS : The net difference between the inflow and outflow of foreign exchange transaction.Apart from balance of trade there are other ways by which foreign exchange is earned and spent by a country.

Providing shipping services Commission earned or paid in international market International tourism Nationals settled abroad remitting money to the country Loans taken by private organizations/government from abroad The current picture of a country’s exports and imports gets reflected through BOT and not BOP.

LIBOR (LONDON INTER BANK OFFERED RATE) : Berth

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CHAPTER – 1 - INTRODUCTION TO EXPORT

Exports are vital to any economy, be it developed or developing. No country can isolate itself from exports in some form or other. Export performance is one of the main economic parameter of a nation. However, exports all over the world face tough challenges than before and Indian exporters are no exception.

There is rapid expansion in the international market activities since the end of 2nd

world war. The world export trade is increasing by leaps and bound. Due to exports countries have come closer for economic, cultural and social co-operation. International Marketing offers benefits to all participating countries.

In order to maintain a healthy balance of trade and foreign exchange reserve it is necessary to have a sustained and high rate of growth of exports. Export can be defined as “sale of goods and services from one country.”

According to B.S. Rathor, “Export Marketing includes the management of marketing activities for products which cross the national boundaries of a country.”

Export marketing involves the design of the products and services acceptable to the overseas customers and the conduct of those activities, which facilitate the transfer of ownership of goods and services from the seller of one country to the buyer of another country.

Reasons to Exports (Why to Export?) / NEED & IMPORTANCE OF EXPORT MARKETING.

The need and importance of export marketing can be explained from the viewpoint of a country and that of a business organization:A. From the Viewpoint of a Nation:

1. FOREIGN EXCHANGE: Export helps country to earn valuable foreign exchange, which is mainly required to pay for import of capital goods, raw materials, spares and components.

2. Balance of Payments: A country’s external economic strength depends upon its balance of payment position. Since export brings in foreign exchange, it helps a country to solve and improve its Balance of Payments position.

3. Employment opportunities: Export trade calls for more production, which ultimately opens door for more employment opportunities, not only in the export sector but also in allied sectors like banking, insurance etc.

4. Financing of Development plans: Export earning can be a source of financing development plans through the import of capital goods and technology. The foreign exchange earned thru exports can be utilized for planned economic development of a country.

5. Optimum utilization of Resources: There can be optimum use of resources. The excess production can be directed to other countries, there by enabling the exporting country to earn favorable foreign exchange.

6. Research & Development: Goods to be exported to other countries may not be sold in the same form as it is available in the local markets. Products have to be redesigned according the requirement of the importing country. This leads to constant R & D, which ultimately leads to improve technology and production system. The fruits of R & D would benefit the customers not only in the overseas market but also in the domestic markets.

7. Spread Effect: Because of export industry, other sectors also expand such as banking, transport, insurance etc. and at the same time a number of ancillary industries come into existence to support the export sector.

8. High Standard of Living: Export trade calls for more production, which in turn increases employment opportunities. More employment means more purchasing power as a result of which people enjoy new and better quality goods, which in turn improves standard of living of the people.

B. From the viewpoint of a business organization:

1. Reputation: An organization, which undertakes exports can exports, can bring fame to its company not only in export market but also in domestic market. These companies enjoy worldwide reputation.

Classification of goods:

Permissibility of import and export of goods is governed by the nomenclature, ITC (HS) classification of import & export goods, published by DGFT. All goods other than the entries in the export licensing schedule along with its appendices are freely exportable.

Goods are classified under ITC (HS) as follows:

(a) Prohibited Goods: Prohibited items are not permitted to be exported. An export licence will not be given in the normal course for goods in the prohibited category. Some of the prohibited items of exports are all forms of wild animals, exotic birds, beef, sea shells, human skeleton, peacock feathers, etc.

(b) Restricted Goods: The restricted items can be permitted for export under licence. The procedures/conditions wherever specified against the restricted items may be required to be complied with, in addition to the general requirement of licence in all cases of restricted items.

c) State Trading Enterprises: Export through State Trading Enterprises STE(s) is permitted without an Export Licence through designated STEs only as mentioned against an item and is subject to conditions in para 2.11 of EXIM Policy 2002-2007.

d) Restrictions on Countries of Export: Export to Iraq is subject to conditions as specified in Para 2.2 of the Handbook of Procedures 2002-2007 (Vol. I) and other conditions which may be listed in the title ITC (HS) Classification of Export and Import items.

Methods of Exporting:

The first step in the export marketing process is the selection of market. The market selection decision may include whether to select concentrated market or target market. The next step is to decide how to enter the market. There are two methods of exporting. Mainly:

Direct Exporting; Indirect Exporting.

Meaning of Direct Exporting:

Direct exporting is the method of exporting goods directly to the foreign buyers by the manufacturer himself or through his agent situated in the foreign country.

Such exporters are also known as manufacturer exporters. Even goods supplied on consignment basis are considered to be direct export.

Firms having a very high turnover generally export their products directly to foreign buyers or middlemen. The degree of risk involved in direct exporting is very high but so are the potential returns. The organizational arrangements available to an exporter for direct export are: (a) The export firm may export its products by a domestic based export department

or division, such as: The built-in export department. The separate export department. The export sales Subsidiary. The allied export selling company.

(b) It may establish overseas sales branches or subsidiaries. (c) It may appoint a travelling salesman. (d) It may appoint distributors and agents in the foreign countries.

Meaning of Indirect Exporting:

In case of indirect exporting, instead of exporting goods directly to foreign buyers or agents, an exporter prefers to use the services of domestic based specialized agencies as listed below:

a) Merchant Exporters. b) Export Houses. c) Trading Houses. d) Export Consortia or Co-operative Export House. e) Government Agencies such as the State Trading Corporation (STC), Metals and Minerals Trading Corporation of India (MMTC).

There are several reasons which may compel a firm to export goods indirectly:

(a) Small size of business. (b) Lack of adequate capital and infrastructure. (c) Lack of knowledge about foreign markets. (d) Stiff competition in the international market. (e) Cautious approach.

Export Marketing Organizations in India:

On the basis of direct and indirect methods of exporting, export market organizations in India are classified into the following categories:

(a) Manufacturer Exporters: Manufacturer exporters are the manufacturers who export goods directly to foreign buyers without any intervention from intermediaries. The manufacturer may also appoint agents abroad for selling products. They enjoy several advantages: First hand information about foreign markets. Exercise a direct control over marketing activities. Enjoy full benefit of export incentives. Enjoy greater profits and goodwill in the market.

(b) Merchant Exporters: Merchant exporters are the exporters who purchase goods from the domestic market and sell them in foreign countries. They enjoy several advantages: Limited capital. Specialization in marketing. Product adaptation as per the requirements of the overseas buyers. Large market share.

(c) Status Holders: The Government of India introduced the concept of status holders in the in the year 1960. Export House (EH) was the first category introduced by the Government with the objective of promoting exports by providing assistance for building marketing infrastructure and expertise required for export promotion. Thereafter in the year 1981, Trading Houses were introduced in order to develop new products and new markets, particularly for the products of SSls and Cottage industries. The categorization, their eligibility and nomenclatures have changed since then. As per the new Foreign Trade Policy 2009-2014, status holders have been categorized as follows on the basis of their export performance:

Status Category FOB value of

exports made during the current plus previous three licensing years

Export House (EH) 20Star Export House (SHE) 100Trading House (TH) 500Star Trading House (STH) 2500Premier Trading House 7500

(d) Service Export House: Considering the increasing share of services in the total export from India, the government introduced the concept of Service Export House in the EXIM policy 2002-07. As per this policy, the service providers who have achieved a stipulated level of export performance are eligible for recognition of status holder. Accordingly they are eligible for all the facilities and incentives,

hitherto given to the export and trading houses. These facilities include import of capital goods under EPCG scheme, passenger baggage, import of restricted items, etc. The above categorization also applies to the service providers.

(e) Canalizing Agencies: Canalizations of import and export means im'port and export of commodities through specified government agencies such as State Trading Corporation of India (STC), Metals and Minerals Corporation (MMTC). The items specified in the canalized list can be canalized only through specified canalizing agency.

Export and Trading Houses

The following categories of exporters are eligible for applying for the status of Export and Trading Houses: (a) Merchant as well as Manufacturer Exporters; (b) Service Providers; (c) Export Oriented Units (EOUs); (d) Units located in Special Economic Zones (SEZs), Agri Export Zone (AEZ's), Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs). Such certificates are issued by the Director General for Foreign Trade (DGFT).

CHAPTER – 2 – SELECTION OF PRODUCT & MARKETS FOR EXPORTS

Introduction:

Selectivity is the key to success in all spheres of life including export market. An exporter may wish to deal in all kind of products and to sell them everywhere in the world. However, it is not possible for him to do so due to the wide expanse and demand variations in different markets of the world. Therefore, an exporter has to select proper product(s) and proper market(s) in order to operate at the international level.

Selection of Export Products:

An exporter has to consider the following factors while selecting product(s) for the export market: (a) Export Trends: An exporter should analyze trends in export of different items to the overseas market(s) for proper selection of the product. Such information can be gathered from the following sources: Monthly statistics of foreign trade of India. Export Promotion Council (EPC) Bulletins. Export Import Times. The final selection of the product, however, depends upon one's own ability and experience relating to the product.

(b) Supply Base: Along with demand of product in the international market, it is also necessary to analyze its supply base in the domestic market. Most of the agricultural products defy this criterion as their supply depends upon a number of factors, which are based on nature. Seasonal commodities like onions, fruits or even sugar, wheat or rice have not proved to be good items for sustained export business. Even manufactured products may not have a good supply base due to factors like strike, power shortage, lockouts, transport problems, etc.

(c) Production Capacity and Product Availability: Sky is the limit for selling a product in international markets. Hence, a manufacturer exporter must consider his production capacity and a merchant exporter must take into consideration the availability of the product selected for export before entering into an export contract. If the production capacity or availability is limited, then the exporter should focus on smaller markets. However, if the product can be made available easily, a sustained export drive is worthwhile.

(d) Product Adaptability: Associated with the production capacity and availability

is the possibility of adapting the product as per the requirements of the foreign markets. The needs and requirements of buyers differ from market to market and country to country. What sells well in one market may not sell at all in other markets. This calls for product adaptability. Product adaptability is not an easy task, as it requires large amount of investment in adjusting production process as per the needs of the different markets.

(e) Servicing Facilities: If the product selected for export is such that it requires servicing after sales, then the exporter should see to it that he can avail such facilities to the overseas buyers. It is not always easy and within one's means to open servicing centres abroad. At the same time, it is difficult to find a distributor or agent having servicing facilities. If it is not possible for the exporters to provide such servicing facilities then the exporter should not venture to export such products.

(f) Target Markets: Selection of a product also depends upon the markets which have been identified for sales abroad. All products may not have equally good markets everywhere. Therefore, selection of the product depends upon the market requirements. It is always better to concentrate on one or two markets at least to start with. One should study the target markets closely, with regard to market requirements in terms of product specification, continuity of demand, change in fashion, credit requirement, if any, etc.

(g) Demand Stability: Product(s) selected for selling whether overseas or in the domestic market should not only have stable but a rising demand. Seasonal products should be avoided unless the exporter has necessary infrastructure for selling them. Products depending upon fashion trends, though comparatively more profitable, may not always prove to be good for those exporters who cannot cope with such trends. Therefore, the exporter should select such products, which provide a large and stable market.

(h) Trade Restrictions: While selecting product(s) for exports, it must be ensured that such product(s) should not be subject to the country's export control regulations or import control regulations of the concerned target markets. Although, export restrictions in all the countries are minimum as there is a tendency to promote exports of all products, still there are a number of items where controls do exist. Therefore, the exporter should try to avoid export of such product(s).

(i) Profitability: Last but not the least; profitability is the prime objective of all marketing activities. The product selected for exports must fetch a fair profit to the exporter. Moreover, profitability should as far as possible be direct, i.e. arising from the sale price itself. Though export benefits like duty drawback,

excise refund, e C., are necessarily to be taken into consideration while calculating the expo price, it is always better if the product sells in the overseas marke seen if such assistance is not available.

Selection of Export Markets:

One of the most important decisions in international marketing is market selection. The global market, made up of well over 200 independent nations with their own distinctive characteristics, is very vast. It would be very difficult for a company to operate in all these markets. There are barriers, which make entry to a number of markets impossible or very difficult. There may be markets, which are not profitable or may be very risky due to political or other reasons. Moreover, the company resources may not permit the operation in a large number of countries. The factors to be taken into account in export market selection process are: (a) Political Embargo: The countries to which there is a political embargo on exports should be straight away excluded from the list of potential markets. For example, there are restrictions on export of certain items from India to certain countries. Similarly, there are countries, which do not allow import of certain items from certain countries of the world.

(b) Special Requirements: Every market has a special requirement in terms of product specifications, quality and a different price edge. The very fact that a product has found a niche in some market does not necessarily mean that the same niche exists in the other market of the world or that the attitudes affecting buying decisions are similar all over the world. (c) Product Specification: Product specifications differ from market to market. For example, many countries require electrical goods with 110 voltage current as against 220 voltage in India. An exporter should avoid exporting to such market, where product specification is different from the national ones. This is because the cost of product adaptation may be very high.

(d) Distant Location: Markets which are comparatively at a longer distance and for which regular shipping services are mot available, not only make adherence to delivery schedules more difficult, but also render the goods uncompetitive on account of higher incidence of freight. Hence, while selecting markets, long distance markets should be avoided.

(e) Market Accessibility: Certain markets are comparatively less accessible due . to import regulations and quota restrictions. Similarly, Indian products may not receive preferential treatment under the MFN clause or there may be

CHAPTER – 3 EXPORT PRICING & METHODS OF PAYMENT

Meaning of Price:

Price is the value of utility of goods and services expressed in terms of money. It is one of the important factors that determine the success of an export organization. International market is highly competitive and therefore, an exporter should take into consideration all the factors such as quality, cost, competition, demand, etc., before arriving at the final price. International market being buyers' market, the price quoted by an exporter should be reasonable and final.

Export Pricing Strategies:

Pricing strategy may be defined as the strategy adopted by exporters with respect to the pricing of goods while marketing them to the ultimate consumer. An exporter may charge a uniform price in different markets of the world or he may. practice price discrimination taking into consideration the situations prevailing in different markets. Various pricing strategies used in the international market are: (a) Skimming Pricing Strategy: A pricing strategy in which exporter charges a very high price initially in order to recover the cost incurred on high promotional expenditure, research and development, etc., is known as skimming pricing strategy. After exploiting the rich market, the exporter can gradually decrease the price in order to increase his market share.

(b) Penetration Pricing Strategy: A pricing strategy in which an exporter charges a very low price initially in order to get hold of the market and drive away competitors is known as penetration pricing strategy. Sometimes, such strategy is referred to as dumping. This strategy is suitable for the items of mass consumption.

(c) Transfer Pricing: Transfer pricing refers to the pricing of goods transferred from one subsidiary to another or to the parent company. Due to this, profits of one subsidiary are transferred to another subsidiary or to the parent company. Transfer pricing decisions are affected by factors such as differences in tax and tariff rates, foreign exchange restrictions and import restrictions.

(d) Marginal Cost Pricing: Marginal cost is the cost of producing one extra unit of a product. Under this approach, an exporter simply considers variable costs or direct costs while arriving at the price to be charged in the international market and fixed costs are fully recovered from the domestic market.

(e) Market Oriented Pricing: This is a very flexible method of arriving at a price as it takes into consideration the changing market conditions. The price charged may be higher when demand conditions are favourable and vice versa. This method is

sometimes referred to as what the traffic will bear method. This is a very flexible and realistic method of pricing.

(f) Competitor's Pricing: Under this method, pricing strategy of dominant competitors is taken into consideration while arriving at the pricing decisions. A price leader is the firm, which initiates the price trends in the market. However, if the competitor's pricing policy is faulty, the followers will also land up with wrong pricing.

INCOTERMS 2000 (EXPORT PRICING QUOTATIONS / TERMS OF PAYMENT)

The first INCOTERMS - uniform rules for the interpretation of international trade terms were published in 1936, by the International Chamber of Commerce (ICC) used in buying and selling on a worldwide scale. Since then, ICC has amended and modernized these rules in 1953, 1967, 1980, 1990 and Incoterms 2000.

Incoterms 2000 describe the responsibilities of seller and buyer in international trade. The full and authoritative definition of each trade term is published in Incoterms 2000.

INCOTERMS 2000 (stands for International Commercial Terms) to provide a set of rules to interpret the most commonly used trade terms in international trade. This set of rules defines the precise obligations of buyer and seller to reduce the possibility of misunderstanding between the exporter and importer.

The purpose of these terms is to clarify who is responsible (seller or buyer) for:

1. The cost of transporting the goods from one point to the other.

2. The risk of loss if the transportation cannot take place.

3. The risk of loss or damage to goods in transit.

In other words, Incoterms 2000 aim is to set out the rights and obligations of the seller and the buyer when it comes to transporting the goods. Each term means a different division of costs, risks, and responsibilities between the seller and the buyer.

WHY SHOULD IMPORTERS AND EXPORTERS UNDERSTAND THE INCOTERMS IN DETAIL? Many international traders, unfortunately, have only a general idea of the differences between such INCOTERMS such as EXW, FOB, and CIF etc. As a result, they are unprepared for certain common contingencies with respect to transfer of

risk, loading / unloading, customs clearance and insurance. For e.g. one of the more common uncertainties arising in international Sales is, who is responsible for loading (or unloading) the goods? An understanding of INCOTERMS will generally allow the matter to be solved.

The important INCOTERMS ARE AS FOLLOWS:

EXW (EX-WAREHOUSE): In this term, the Exporter manufactures the goods and keeps is in the packed condition to be further taken to the destination by the importer. The responsibility of the exporter ends here. He informs the importer about the readiness of the goods. The importer takes further responsibility. He has to make an arrangement to collect the goods from exporter’s warehouse and reach the goods to the destination. Generally, in case of heavy machinery, such type of quotation is agreed between the exporter and importer.

Thus,

FOB (Free On Board): Under FOB contract, the Exporter quotes a price, which includes all the expenses incurred until the goods are actually delivered on board the ship at the port of shipment. This means packing charges, local transport charges and dock dues are covered in the price quoted. Even expected profit is included in the FOB price. It constitutes the following:

Ex-Factory price, packing charges, Inland Transportation charges, Wharfage and porterage, Customs dues, Export duty, if any, Cost of checking operations like checking of quality, measure, weight or quantity if any. Thus FOB price is calculated by adding the cost of goods, the expenses upto the board of the ship.

FOB Price = Cost Of Goods + Expenses Upto Board the Ship

Seller’s obligations under FOB quotation:

i. He has to load the goods on board the ship named by the buyer.ii. He has to obtain bill of lading from the shipping company and forward it to

buyer to enable him to take delivery of goods.iii. He must inform the buyer certain details like the name of the ship and the

possible date of delivery.

EXW = Cost of goods (including packaging cost and profit)

C & F Price = F.O.B. PRICE + FREIGHT

iv. He has to inform the buyer without delay that the goods have been delivered on board the vessel.

Buyer’s obligations under FOB quotation:

i. He should inform the seller the name of the ship by which the goods are to be sent and also the expected date of delivery.

ii. He has to bear the risk when goods are loaded on the ship.iii. He should make the payment to the exporter as per the terms of contract.

Under FOB quotation the seller has no right of lien (possession of property) on goods and that of stoppage in transit, because the shipping company is deemed to be the agent of buyer.

B. C & F- Cost and Freight (CFR) : C & F / CFR means COST AND FREIGHT. The quotation covers total cost of goods, packing, carriage, loading charges and the payment of freight upto the port of destination. The other arrangements like cartage, unloading charges and expenses of carrying the goods from the port of delivery to importer’s warehouse are to be made by the importer. Insurance arrangements are also to be made by the importer.

Seller’s Obligations under C & F Quotation:

In addition to the obligation mentioned under FOB quotation, the seller must pay freight charges to the shipping company that undertakes to carry the goods from the port of shipment to the port of destination.

Buyer’s Obligation under C & F Quotation:

i. He has to arrange and pay for insurance.ii. He has to pay clearing charges, import duties etc.iii. He has to make payment as per the commercial invoice.iv. He has to bear the loss or damage to the goods, if any, from the time and

place at which the seller’s obligations are over.

C. CIF-COST, INSURANCE AND FREIGHT: It includes FOB price plus freight plus marine insurance upto the port of destination. The importer prefers it to FOB because there are fewer responsibilities for him as the exporter takes all risk for

fluctuations in rates of freight and insurance unless otherwise specified in the contract. This term is exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer.

CIF = FOB + FREIGHT (C & F) + MARINE INSURANCE

TERMS OF PAYMENTAn export contract payment terms are determined on the basis of the specific circumstances of the exporters and importers. It is not possible to make any generalization about the payment methods in any export transactions. The method of payment in respect of export finance depends upon the agreement between the exporter and importer. The method of payment of exporter also depends upon the conditions laid down by RBI. In India, export proceeds of consumer goods must be realized within a period of 180 days from the date of exports. However, in case of export of capital goods sold on deferred credit terms, the exporter can realize payment later than 180 days. There are commercial factors that affect the payment terms or methods of payments.

1. Nature of Products: The terms of credit depends upon the nature of goods. For e.g. perishable goods would not justify a longer credit term. In case of capital goods, the exporter may allow “Deferred Payment Terms”

2. Creditworthiness of the buyer: The method of payment may also depend on creditworthiness of the buyer. If the importer enjoys a sound creditworthiness, then the exporter may accept the method of “Documents against Acceptance.”

3. Economic situation in the importer’s country: If the economic conditions are poor in the importer’s country, then the exporter may not prefer to offer longer period terms.

4. Size of order: The exporter also has to consider the size of the order. If the order is substantial, then the exporter may receive the money in installment, and as such longer period can be given. The exporter may agree to “Documents against acceptance” method.

5. Competitor’s Credit terms: The exporter also have to find out the credit terms offered by the competitors. If they allow a longer period of credit, the exporter may also follow the same.

6. Financial Position of the exporter: If the exporter’s financial condition is sound, then the exporter may offer a longer term of credit to the importer.

7. Relations: The exporter may consider trading relations with the importer. If the exporter has good relations, then he may provide longer credit terms.

The terms of payment relates to country of shipment and not country of payment. E.g. if the exporter is in Japan and goods are shipped from Bangladesh (ACU) then the payment is made only in USD. But as per recent decision if the seller is in any other country (in case of ACU), but demands payment in any free convertible currency, the importer should make payment as per the demand of exporter.

TYPE ASIAN CLEARING UNIONS (ACUs)

NON - ACUs

COUNTRIES Bangladesh, Myanmar, Iran, Pakistan, Srilanka (India & Nepal diff)

ALL OTHER COUNTRIES

CURRENCY US $ 21 FREELY CONVERTIBLE CURRENCIES (including US $)

Following are the recognized methods of effecting payments under International Trade:

A) Advance Payment: When the buyer’s credit is doubtful or the political or economical environment in the buyer’s country is unstable, seller (exporter) may demand advance payment, which will be to his advantage. This method does not involve any risk of bad debts. However, this is the most unpopular method as a foreign buyer would not be willing to pay in advance of shipment unless:

i. The goods are specifically designed for the customer, andii. There is heavy demand for the goods in buyer’s marketiii. Importer must receive the goods within 3 months from the date of

remittance. In case of capital goods he must receive within 3 years from date of remittance.

iv. The advance remittance must not be more than USD 1,00,000.v. If advance remittance is more than USD 1,00,000 than a bank guarantee

from exporter’s bank to importer (on behalf of exporter) must be given by exporter to importer. Only banks having international repute can give such guarantee.

B) Open Account: Under this method, the exporter ships the goods with no financial documents to his advantage except commercial invoice. Sales on open account are settled thru agreed period between buyer and seller. Considerable risk is involved in the open account method, as exporter carries no documentary evidences of transaction with him. Open account method is, therefore, generally

confined to between inter-related company and the exporter and overseas buyers have long and favorable dealings together. The system works favorably when there are no exchange restrictions and stable economic and political conditions prevails in the importing country. In India, commodities exported so far in this scheme have been tobacco, oils and jute manufacturers.

C) PAYMENT AGAINST SHIPMENT ON CONSIGNMENT:

The exporter supplies the goods to the overseas consignee or agent, without actually giving up the title. Payment is made only when the goods are ultimately sold by the overseas consignee to other parties. This method is very risky as the consignee may return the goods back if remained unsold and even the consignee may not clear off dues in time. In India, prior approval from RBI’s exchange control department is required to be taken for adopting this method of payment. All the goods can be sold under this method. The realization of export proceeds here is 15 months. Documents are directly sent to buyer with consignment.

D Documentary Bills:

This is the most common method of payment in international trade. In this method, the exporter agrees to present the documents to his bank along with the “Bills of exchange.” The method has two parts; documents against payment and document against acceptance.

Document against payment is also known as cash against documents. This method indicates that the payment is made against sight draft . The exporter ships the goods in the name of importer but documents concerned are handed over to the buyer thru the bank only on receipt of payment of bills of exchange. The risk involved is that the importer may refuse to accept the documents and to pay against them. The reasons for non-acceptance may be political or commercial ones. The advantage to the exporter under this system is that the documents remain in the hands of the bank and the exporter does not lose possession or the ownership of goods till the payment is made.

Under Document against Acceptance, the documents and the bills to the goods are handed over to the buyer. The documents are released against acceptance of the Time draft i.e. credit is allowed for a certain period, say 30 days, 90 days etc. When the buyer accepts the bills of exchange, on due date of payment, the bank presents the bills to the buyer who makes the payment. In case of D/A as compared to D/P bills, the risk involved is much greater, as the importer has already taken possession of goods, which may or may not be in his custody on the maturity date of the bill. If the importer fails to pay on due date, the exporter will have to start civil

proceedings to receive his payment, if all alternatives fails. The risk involved can be insured with ECGC.

E. Letter of Credit (L/C):

“An undertaking by importer’s bank stating that payment will be made to the exporter if the required documents are presented to the bank within the validating of the L/C”

L/C is one of the most convenient methods of settling payments in International Trade. It provides financial security to the Exporter. The exporter may not know the credit worthiness of the importer and the prevailing Regulations in the country of the importer. But once a Letter of Credit is established by the buyer’s bank on behalf of the buyer in favor of the seller and the seller submits the set of required documents to the opening bank or to the nominated bank, seller submits the set of required documents to the opening bank or to the nominated bank, the seller is assured of payment. Importer also gets the advantage of his banker’s assistance in closely scrutinizing the documents and only after receiving the relevant documentary evidence from the exporter by the banker nominated in the credit the nominated banker releases payment.

Parties to a Letter of Credit:

1. Applicant / Buyer – on whose behalf LC is opened2. Beneficiary / Seller – in whose favor the LC is opened.3. Opening Bank / Issuing Bank: Importer’s bank, which issues LC.4. Advising Bank: Which advices LC. It is issuing bank’s branch or

correspondent bank in exporter’s country to which the LC is sent for onward transmission to the beneficiary.

5. Confirming Bank: The bank in beneficiary’s country, which guarantees the credit on the request of the issuing bank.

Many a times the advising bank and confirming bank are one and the same.

L/C DIAGRAM ON THIS PAGE (COPY WITH STUDENTS)

PARTIES TO AN L/C:

1. Applicant / Buyer / Importer: On whose behalf LC is opened.2. Beneficiary / Seller / Exporter: in whose favour the LC is opened.3. Opening Bank: Which opens / establishes an LC.4. Advising Bank: Which advices the LC.5. Confirming Bank: Which confirms an LC.6. Negotiating Bank: normally beneficiary’s bank.7. Reimbursing Bank: Which normally maintains NOSTRO account of the

opening bank and reimburses the negotiating bank.

LETTER OF CREDIT FLOWS AS FOLLOW

After L/C is established, shipment is made; Exporter procures and forwards the documents as per L/C terms to the

CONFIRMING BANK (here, Standard Chartered bank); Confirming bank scrutinizes the documents as per stated in L/C If documents are in order; confirming bank makes payment to the exporter. Confirming bank forwards documents to the ISSUING BANK (here, ICICI

BANK), which also scrutinizes the documents. Issuing bank has to make the payment to confirming bank in $. This bank

should have NOSTRO account (Foreign currency account) Here, in this example, ICICI may have a NOSTRO account with Union Bank of

California in NY. ICICI buys dollars from market and funds union bank with $. Union bank is known as REIMBURSING bank. This bank will make payment to STANCHART LONDON.

ICICI presents documents to importer who will again scrutinize documents and make payment to ICICI.

Procedure involved in the Letter of Credit1. Exporter’s Request: The exporter requests the importer to issue LC in his favor. LC is the most secured form of payment in foreign trade.

2. Importer’s request to his bank: The importer requests his bank to open an LC. He may either pay the amount of credit in advance or may request the bank to open a credit

3. Issue of LC: The issuing bank issues the LC and forwards it to its correspondent bank with a request to inform the beneficiary that the LC has been opened. The issuing bank may also request the advising bank to add its confirmation to the LC, if so required by the beneficiary.

4. Receipt of LC: The Exporter takes in his possession the LC. He should see to it that the LC is confirmed.

5. Shipment of goods: Then the exporter supplies the goods and presents the full set of documents along with the draft to the negotiating bank.

6. Scrutiny of document: the negotiating bank then scrutinizes the documents and if they are in order, then makes the payment to the exporter.

7. Realization of Payment: The issuing bank will reimburse the amount (which is to be paid to the exporter) to the negotiating bank.

8. Documents to importer: The issuing bank in turn presents the documents to the importer and debits his account for the corresponding amount.

TYPES OF LETTER OF CREDIT

Revocable

A revocable letter of credit allows for amendments, modifications and cancellation of the terms outlined in the letter of credit at any time to an importer without the consent of the exporter or beneficiary. Because this places the exporter at risk, revocable letters of credit are not generally accepted.

In order to safeguard the interest of the exporter in a revocable L/C, a clause is included that “any drawings negotiated against the L/C prior to notification or revocation or amendment will be honored on presentation.” Still this type of L/C is of limited utility and, hence, not very popular.

Irrevocablean irrevocable letter of credit requires the consent of the issuing bank, the beneficiary and applicant before any amendment, modification or cancellation to the original terms can be made. This type of letter of credit is commonly used and preferred by the exporter or beneficiary because payment is always assured, provided the documents submitted comply with the terms of the letter of credit. Irrevocable letters of credit can be both confirmed and unconfirmed.

Other forms of irrevocable letters of credit are unconfirmed, confirmed and back-to-back.

Confirmed & Unconfirmed L/C:

A confirmed letter of credit is when a second guarantee is added to the document by another bank. The advising bank, the branch or the correspondent through which the issuing bank routes the letter of credit, adds its undertaking and commitment to pay to the letter of credit. This confirmation means that the Exporter / seller / beneficiary may also look to the credit worthiness of the confirming bank for payment assurance. If no confirmation is added it is unconfirmed. If an intermediary bank adds its confirmation, it binds itself to negotiate documents under the particular credit confirmed. Confirmation constitutes a definite undertaking of such bank (confirming bank), in addition to that of the issuing bank, provided that the stipulated documents are presented and that the terms and conditions of the credit are compiled with. It may also be noted that if any bank confirms an L/C without an authorization from the issuing bank, it will continue to be unconfirmed.

With Recourse & Sans (without) Recourse:

In a “With Recourse” L/C, the exporter is bound to refund the money back to the bank which has negotiated his bills in the event of refusal by the importer to honor the bill” where the importer fails to pay after the specified period or unduly delays his payments, the bank can have recourse to the exporter for payment of not only the bill amount but also expenses. However, in a “without recourse L/C” the liability of the exporter ends after the bill is negotiated.”

The best form of L/C is therefore – “IRREVOCABLE, CONFIRMED AND SANS RECOURSE.”

Back-to-Back Letters of Credit

Back-to-back letters of credit is a domestic letter of credit. It is an ancillary credit created by a bank based on a confirmed export LC received by the direct exporters. The direct exporters keep the original LC (received from issuing bank) with the negotiating or some other bank in India, as a security and obtains another LC in favor of domestic supplier. Through this route the domestic supplier gains direct access to a pre-shipment loan based on the receipt of domestic or back-to-back LC.

Transferable LC: A transferable LC is one, which can be transferred by the beneficiary named therein in favor of another party. The issuing bank can transfer a credit only if it is expressly designated as transferable.

Non-Transferable LC: The beneficiary cannot transfer the LC to a third party. Usually all letters of credit are non transferable unless it is expressly stated that LC can be transferred.

Revolving L/C: When LC is issued for fixed amount and for a fixed period, it is called a fixed LC. Under this credit the beneficiary has the right to draw the bills upto the specified amount within the specified period. The validity of the LC gets over as soon as the bills upto the specified amount have been paid within the specified time.

Under revolving type, the amount of credit is automatically renewed after the bills are negotiated. A revolving credit is a credit, which is available for a fixed amount only for fixed period, but when the fixed amount is withdrawn, the credit is renewed automatically for the same initial amount. Thus, a revolving credit is used to provide transactions are more or less regular and continuous atlest over a certain period of time.

Red Clause LC: The red clause LC is the usual irrevocable LC, which further authorizes the negotiating bank to make advances to the beneficiary for the purpose of processing the export goods. Thus, the red LC enables the exporter to obtain Packing Credit Facility for the purpose of processing the goods. It is called a red-clause LC because it is generally printed in red ink.

ADVANTAGES OF L/C TO AN IMPORTER (BUYER)

Reduce your commercial risk by ensuring that your supplier will not be paid until evidence has been provided that the goods have been dispatched. Import L/Cs will also help you:

Conserve your company's cash flow by eliminating the need to make advance payments or deposits

Demonstrate your creditworthiness to your supplier

Support your supplier's access to bank credit (in many countries, L/Cs are pledged by exporters as security against working capital loans)

ADVANTAGES OF AN L/C TO AN EXPORTER (SELLER)

Assure that you get paid (if the buyer doesn't pay, the bank that issued the L/C is obligated to pay)

No blocking of fund. Once the exporter fulfills all the conditions of L/C and presents as per the terms and conditions of L/C. the exporter is entitled to receive the amount of exports. L/C ultimately reduces the bad-debt of an exporter.

L/C enables an exporter to avail pre-shipment finance, which is granted by commercial banks. The strength of L/C helps exporter to avail pre-shipment finance.

CHAPTER – 4 – PRELIMINARIES FOR EXPORTS

Liberalization of Imports:

Consequent upon a comfortable balance of payment position of the country, increasing necessity of imports for export production and globalisation of Indian economy, the Government of India has liberalised the import regime from time to time and practically all controls on imports have been lifted. Imports may be made freely except those mentioned as prohibited and a few restricted items in ITC (HS) Classifications of Export and Import Items.

The economic needs of the country, effective use of foreign exchange and industrial as well as consumer requirements are the basic factors, which influence India's import policy. On the import side, the policy has three objectives: (a) To make necessary imported goods more easily available, including essential capital goods for modernizing and upgrading technology; (b) To simplify and streamline procedures for import licensing; (c) To promote efficient import substitution and self-reliance. Indian government plans to achieve, through a series of progressive steps, the average tariff levels prevalent in the ASEAN region. The basic customs tariff rate now ranges from 0 to 40% plus additional duty of 2%; the average rate is about 30%.

Negative List for Imports:

The negative list for imports consists of: (a) Freely Importable Items: Import of all items, except those included in the Prohibited List, is permissible free of duty for export production under a Duty Exemption Scheme. Most capital goods fall into this category. Items in this category do not require import licences and may be freely imported by any individual or entity.

There are no quantitative restrictions on imports of capital goods and intermediates. Import of second-hand capital goods is permitted provided they have a minimum residual life of 5 years. Under the Export Promotion Capital Goods (EPCG) Scheme, exporters are allowed to import capital goods (including computer systems) at concessional customs duty, subject to fulfilment of specified export obligations. Service industries enjoy the facility of zero import duty under the EPCG Scheme. Likewise, hospitals, air cargo, hotels and other tourism-related industries. Software units can use data communication network to export their products.

Imports are allowed free of duty for export production under a duty exemption scheme. Input-output norms have been specified for more than 4200 items.

S.Y.BMS – SEM – IV – A.Y. 2009-2010 EXIM PROC & DOC

Categories of Importers:

Importer means a person who imports or intends to import and holds an Importer-Exporter Code Number. They can be divided into two categories:

Actual User:

(a) Actual user (Industrial): Actual user (industrial) means a person who utilises the imported goods for manufacturing in his own industrial unit or manufacturing for his own use in another unit including a jobbing unit.

(b) Actual user (Non-industrial): Actual user (non industrial) means a person who utilizes the imported goods for his own use in:

Any commercial establishment carrying on business, trade or profession; or Any laboratory, scientific research and development institution, university or other educational institution or hospital; or Any service industry.

Non-actual users include: (a) Importers for Stock and Sale. (b) Personal Imports. (c) Imports of Gifts etc.

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CHAPTER – EXPORT DOCUMENTATION

Export documents have to be prepared for various purposes viz.

1. Declaration of exports as per exchange control regulations of the country.

2. Transportation of the goods.

3. Custom clearance of the goods.

4. Inspection of goods

5. To submit the documents to the importer.

Depending upon the usage, documents have been classified as under

o Financial Documentso Commercial Documentso Transport Documentso Risk Covering Documentso Official / Regulatory Documents

1. Financial Documents: Documents which perform the function of obtaining finance collection of payment etc.

a. Bill of Exchange: The bill of exchange is an order in writing, requesting the drawee to pay a specified sum of money at a specified date. 3 parties are involved in this transaction.

The drawer, i.e. the person who draws the bill. (Exporter) The drawee, i.e. the person on whom the bill is drawn. (Importer) The payee i.e. the person to whom payment is made. (Exporter/Supplier)

Prepared By: Exporter

Signed By: Exporter

No. of Copies: 3 Original

(1st and 2nd copy goes to bank, 3rd copy stays with exporter)

In short, a bill of exchange is:

a. Means for collecting payment arising out of a transaction.b. Means for demanding payment.c. Means for extending credit (Under D/A Method of payment).

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d. It is a promise of payment.e. It is a receipt for payment.

2. Commercial Documents: The documents which are needed by the exporter and the importer for their normal commercial transactions are termed as commercial documents.

a. PROFORMA INVOICE

A Proforma Invoice is a quotation given to an importer by an exporter. A Proforma Invoice is a reply to an enquiry made by an importer. It gives clear idea to the importer in respect of terms and conditions of sale and the price of goods. IT HELPS THE IMPORTER TO OBTAIN AN L/C.

b. COMMERCIAL INVOICE

A basic export document, which contains all information, required for the preparation of all other documents. It is exporter’s bill for goods. There is no standard form for such invoice, but it can be designed as per requirements.

A Commercial Invoice is an evidence to verify the value and nature of goods & in certain circumstances; it is an evidence of contract between 2 parties.

Prepared By: ExporterSigned By: Front side signed by the exporter

No. of copies: 3 Copies.

IMPORTANCE OF COMMERCIAL INVOICE TO IMPORTER:

It helps him to pay Custom Duty. It helps to know the exact amount payable to exporter. It helps importer to obtain preferential tariff rates.

c. Packing list: It is a list showing details of goods contained in each carton / shipment. It shows item-by-item the contents of the containers.

A PACKING LIST is A document showing the nature and number of goods, etc. put in each

packet / container etc. Needed by an importer, when he is importing different sizes of goods

(assorted items) so that he may identify the nature of goods in each package. It is also required by customs to randomly check the goods. Thus packing list facilitates easy identification of goods in each package /

container by importer or Customs etc.

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Prepared By: ExporterSigned By: Inspector of Central Excise

No. of copies: Minimum 4 Copies.

d. Inspection Certificate: This certificate certifies having inspected the goods prior to shipment. This certificate is desired by importer for assuring himself for the right type of goods. In India, Export Inspection Council (EIC) was set up by the Government of India in order to ensure sound development of export trade of India through Quality Control and Inspection and for matters connected thereof.

EIC plays an important role in raising quality standards of export commodities and also in creating goodwill for Indian goods abroad.

3. Transport Documents:

a. Bill of Lading (B/L):

On loading the cargo on board the exporter get mate’s receipt (MR), which is temporary receipt for the cargo loaded. Mate’s receipt is to be exchanged for BL soon. BL is issued by the shipping company of the exporter.

It is a proof that the goods have been loaded on the ship. It contains that information of the exporter & the importer & gives the details of the vessel the goods have sailed on. It is also required by the importer to clear the goods at the port of destination.Prepared By: Shipping Company.

Signed By: Shipping Company

No. of Copies: 3 Original Negotiable Copies &

5 Non Negotiable Copies.

Functions of BL:

(i) It is negotiable document through bank: when the exporter submits all the documents and original BL to the bank duly endorsed in favor of bank, the properties and rights thereon are transferred to endorsee. Hence the bank becomes possessory custodian of cargo against the security of which bank releases money to the exporter. Letter of credit also mentions that exporter has to submit BL and other documents before bank releases money to exporter. This explains how BL is negotiable through bank.

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ii) It is document of title : when the holder of BL endorses BL to another party, the property and rights thereon are transferred to endorsee, hence the endorsee has the title to claim the goods.

Types of BL

1) Stamped and Unstamped BL In case of stamped BL, a court fee of stamp is affixed of certain value. This fetches revenue to the government. All original BLs must be stamped. Unstamped BL is only a copy of original BL.

2) Clean BL On a BL, when no remarks are present of cargo not being in good order or condition, such BL is known as clean BL. In case of LC transaction always a clean BL is preferred.

3) Claused BL Adverse remarks appear on BL stating the problem in the cargo. E.g. 2 cases broken. A stamp of clause BL is put on the BL.

4) Stale BL An exporter has to submit original BL to the bank along with other documents within 21 days from the date of shipment. If after 21 days the exporter submits the BL, it becomes stale BL.

5) Short BL In a normal BL there are two sides. On front side all particulars are present which are essential for transaction and on back side all clauses and conventions are printed in small letters. They provide legal framework to the shipper. In short BL, only front side of BL is issued mentioning it is subject to all terms and condition of regular BL. Sometimes it may be stated in L/C that short BL will not be accepted in which case exporter will insist on regular BL which will be issued.

Freight Paid B/L: if exports are effected on CIF basis i.e. freight is paid by exporter, a freight paid B/L is issued

6) Freight Collect B/L: if goods are exported on FOB basis, Freight Collect B/L is given.

7) Straight B/L: Straight B/L is made out usually when payment for goods is made through confirmed, irrevocable and without recourse letter of credit.

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Shipping Bill:

Shipping bill is the main customs document, required by customs authorities for granting permission for the shipment of goods. The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e., certified by the customs. It is called a shipping bill in case of export by sea or air and a bill of export in case of export by land. Shipping bill is normally prepared in five copies:

(a) Customs copy. (b) Drawback copy. (c) Export promotion copy. (d) Port trust copy. (e) Exporter's copy.

Types of Shipping Bill:

Usually the shipping bill is of five types and the major distinction lies with regard to the goods being subject to certain conditions which are mentioned below: (a) Export duty/ cess. (b) Free of duty/ cess. (c) Entitlement of duty drawback. (d) Entitlement of credit of duty under DEPB Scheme. (e) Re-export of imported goods.

Accordingly, shipping bills are of the following types: (a) Free Shipping Bill: Free shipping bill is used for goods which neither attract any duty or cess not entitled to duty drawback.

(b) Dutiable Shipping Bill: Dutiable shipping bill is used for goods which are subject to export duty or cess but mayor may not be entitled to duty drawback.

(c) Drawback Shipping Bill: Drawback shipping bill is filed with the land Customs Authorities for exports of goods which are entitled to duty drawback.

(d) DEPB Shipping Bill: DEPB shipping bill used for the goods which are exported under DEPB Scheme.

(e) Shipping Bill for Shipping Ex-Bond: Shipping bill for 'shipping ex-bond is used for imported goods kept in bond for re-export.

The following are the documents required for the processing of the Shipping Bill: (a) GR forms (in duplicate) for shipment to all the countries. (b) 4 copies of the packing list mentioning the contents, quantity, gross and net weight of each package. (c) 4 copies of invoices containing details like number of packages, quantity, unit rate, total FOB/CIF value, correct and full description of goods, etc. (d)

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Contract, letter of credit and purchase order of the overseas buyer. (e) AR4 (both original and duplicate) and invoice. (f) Inspection/ Examination Certificate. The formats presented for the Shipping Bill areas given below: (a) White Shipping Bill for export of duty free goods prepared in triplicate in the standardized format. (b) Green Shipping Bill for export of goods which are under the claim for duty drawback prepared in quadruplicate in the standardized format. (c) Yellow Shipping Bill for the export of dutiable goods prepared in triplicate in the standardized format. (d) Blue Shipping Bill for exports under the DEPB scheme prepared in seven copies in the standardized format.

For the goods which are cleared by Land Customs, Bill of Export is prepared instead of shipping. Even bill of exports are of four types having white, green, yellow and pink colour for the above stated purposes.

Contents of Shipping Bill:

(a) Name and address of the exporter. (b) Name and address of the importer. (c) Name of the vessel, master or agents and flag. (d) Name of the port at which goods are to be discharged. (e) Country of final destination. (f) Details about packages, description of goods, marks and numbers, quantity and details of each case. (g) FOB price and real value of goods as defined in the Sea Customs Act. (h) Whether Indian or foreign merchandise to be re-exported (i) Total number of packages with total weight and value.

Significance of Shipping Bill:

(a) Shipping bill is the main customs document, required by the customs authorities for granting permission for the shipment of goods. . (b) The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e., certified by the customs. (c) Duly endorsed shipping bill is also necessary for the collection of export incentives offered by the government.

(d) It is useful to the Customs Appraiser while determining the actual value of goods exported.

SEA WAY BILL

In the recent times, at the request of Shipper Sea way bill is issued instead of bill of lading. It is not negotiable to bank, as it is not endorsable. It is consigned to one

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party only who can take delivery of goods after proper identification. Sea way bill is generally preferred by MNCs for shipping cargo to their branches abroad where payment through bank is not involved.

b. AIRWAY BILL: Airway bill is an acknowledgement issued by an Airline Company or their authorized agents stating that they have received the goods detailed therein for dispatch by Air to the named consignee at the address stated therein. Unlike a B/L, AWB is not a document of title to goods because it is merely an acknowledgement of goods. When it is not a title to goods naturally it is not a negotiable document.

The Airway bill is prepared in 3 Originals. The first Original (Green) is retained by the airline for accounting purpose. The second (Pink) copy accompanies the consignment to final destination (Exporter’s copy) and Original (Blue) 3rd copy is given to the importer for his reference purpose.

c. Multimodel Transport Document: Multimodel B/L4. Risk Covering Documents:

a. Marine Insurance Policy: A marine insurance policy is a contract that covers perils on high sea.

MARINE INSURANCE POLICY PROCEDUREMarine Insurance is governed by Marine Insurance Act, 1963. It covers:

a. Transportation by Sea, Air and land.b. Inland water voyages.c. Rail/road transport.d. Registered post.

Goods quoted under C.I.FWhat risks are covered?

a. Fire or explosionb. Sinking or grounding of vessels.c. Derailment of land transport.d. Collision (accident) of the vessel.e. Discharge of cargo at a port of distress.f. Jettison (discard/throw away).g. Theft, pilferage and non-delivery.h. Total loss of any package lost overboard or dropped whilst loading on

to or unloading from the vessel or craft.i. Loss/damage to goods caused by entry of sea, lake or river water into

the vessel, craft etc.j. Any other reason acceptable to the insurance company.

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Following is the procedure:

(a) Selecting the Insurance Company: General insurance business in India is the monopoly of General Insurance Corporation (GIC) of India and its four subsidiaries. However, if an exporter intends to insure with a foreign company, then prior permission of the RBI must be obtained.

(b) Deciding Appropriate Type of Policy: There are various types of marine insurance policies issued by the GIC to suit the requirements of exporters. The exporter should decide the appropriate type of policy as per his requirements.

(c) Application to the Insurance Company: When the goods are ready for d patch the exporter should apply to the insurance company in the prescribed 'Declaration Form' giving the following details: Address of the exporter and importer. Description of goods; Marks, numbers and kind of packages. Value of packages. Transportation from the warehouse to its final destination. Risk to be covered for insurance.

(d) Payment of Premium: The insurance premium charges may vary from company to company and country to country. 'Payment on marine insurance policy can be made in rupees provided exporter certifies that insurance charges on the shipment in question have to be borne by him.

(e) Issue of the Insurance Policy: After the completion of all the formalities, the exporter has to produce the Bill of Lading and the name of the ship to the insurance company. The insurance company issues the insurance certificate (in triplicate) as per the declaration given by the exporter. The policy generally contains the following details: Name and address of the exporter. Type of policy and description of the risks covered. Description of the goods insured. Amount of sum assured and premium paid. Date of issue and the period of policy. Special conditions and warranties. Special instructions regarding procedure to be followed in the event of loss.

(f) Processing of the Policy: The exporter submits the original policy to the bank with his other documents. The second copy of the policy is sent to the importer and the third copy is retained by the exporter for his own information.

Procedure for Filing Marine Insurance Claim:

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(a) Intimation of Loss: In the event of claim arising, the marine insurance company or its nearest office or its overseas agent as mentioned in the policy should be intimated about the loss without delay. The claim on carriers, customs and bailees should be filed within the prescribed time limit under registered post with an acknowledgement due.

(b) Appointment of the Surveyor: On receiving the intimation, the insurance company appoints a surveyor to determine the cause and extent of loss. The following details are necessary in the Survey Report: Whether the packing was sufficient? If not, What improvements are recommended? How claim could have been minimized? Was there failure of insured to protect interest by not taking measures to

avoid or minimize loss or not protecting the rights of recovery from carriers/ Port, etc.?

(c) Landing Remarks: The insured should also obtain landing remarks from the Port Authorities.

(d) Submission of Claim: The insured should submit the following documents to finalize claim properly: Original policy. Original invoice and packing list.

The following documents, inter alia, are required to be submitted by the exporter to the insurance company: Claim bill in duplicate. Original Insurance Policy duly discharged. Original Invoice. Copy of Bill of Lading. Copy of packing list showing weight specification. Ship Survey Report. Insurance Survey Report. Port Trust Landing Remark Certificate. Copy of claim lodged with carriers, customs and bailees. Reply received from carriers or Port Trust Authorities and/or

correspondence exchanged. Any other documents required by the Insurance Company.

(e) Finalization of the Claim: On verification, if the insurer is satisfied with the claim, it pays the amount of claim to the insured or the person authorized to receive the claim as per the policy. If the claimant is of Indian origin, the claim is paid in Indian rupees irrespective of the currency in which relative policies have

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been issued. Where the claimant is not the resident of India, the insurer may settle the claim in foreign currency.

5. Regulatory documents:

a. G.R Form: If the export takes place in PHYSICAL FORM thru a Non-computerized port, then GR Form is to be filled by the exporter. This form (In duplicate) is to be used when exports are made to all countries otherwise than by post.

Original copy is sent to the RBI by customs and second copy is handed over to exporter. The exporter hands over 2nd copy to his bank. After realization of remittance, bank sends 2nd copy of GR to the RBI for verification purpose.

a.1. SDF Form: If exports takes place in PHYSICAL FORM thru a fully computerized port then SDF form is filled.

This form denotes that exporter undertakes to bring back full export proceeds within the prescribed time limit.

b. P.P Form: This form (in duplicate) is to be used when exports are made to any country by parcel post.

c. SOFTEX FORM: This form is to be used when computer software is being exported in NON-PHYSICAL FORM.

GR WAIVER :

The exporter need not declare under following circumstances:

Sending Trade Samples. Consignment moved out for trade fair. The trader has to bring back the

consignment. A limit is allowed, e.g. upto US$ 5,000/- as donation, charity.d. CERTIFICATE OF ORIGIN

A Certificate of Origin is a document, required by foreign governments, declaring that goods in a particular international shipment are of a certain origin. Even though the commercial invoice usually includes a statement of origin, some countries require that a separate certificate be completed. Customs offices will use this document to determine whether or not a preferential duty rate applies on the products being imported and whether a shipment may be legally imported during a specific quota period.

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A Certificate of Origin is a signed statement as to the country of origin of the exported products for a particular shipment. The country of origin is NOT the country from where the product is shipped. The certificate of origin must be signed by the exporter and be certified by a local chamber of commerce. The chamber must have access to the commercial invoice in order to verify that the exporter claims the goods originated in a particular country than his country. In India, certificate of origin is issued by the Chambers of Commerce and Export Promotion Councils.

MATE RECEIPT

Mate Receipt is issued by the assistant to the captain of the ship. It is issued after the goods are shipped. The Mate Receipt being Prima Facie document is the proof that goods are loaded in the vessel.

Prepared & Signed By: Captain of the Ship

No. of copies: 1 copy

HAZARDOUS CERTIFICATE :

A declaration, certifying that the nature of goods is hazardous and yet sea / air worthy. It also indemnifies the carrier from any losses or damage caused due to the hazardous nature of the cargo.

Prepared & Signed by: Exporter

No. of Copies: 1 copy

ISO 9001 : .

International Standards Organisation (ISO) is a non-governmental organisation established in 1947. The objectives of ISO are: (a) To promote the development of standardisation and related activities in the world with a view to facilitating the international exchange of goods and services, and (b) To develop cooperation in the sphere of intellectual, scientific, technological and economic activity.

ISO 9000 is a family of standards for quality management system. ISO 9000 is maintained by the International Organisation for Standardisation (ISO) and is administered by accreditation and certification bodies. These standards have been revised and updated from time to time. Recently, on 15th November 2008 changes were introduced in the requirements of ISO 9001. Some of the requirements in ISO 9001 (which is one of the standards in the ISO 9000 family) include:

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(a) A set of procedures that cover all key processes in the business; (b) Monitoring processes to ensure they are effective; (c) Keeping adequate records; (d) Checking output for defects, with appropriate and corrective action, if necessary; (e) Regularly reviewing individual processes' and the quality system itself for effectiveness; and (f) Facilitating continual improvement.

A company or organization that has been independently audited and certified to be in conformance with ISO 9001 may publicly state that it is "ISO 9001 certified" or "ISO 9001 registered". However, it must be borne in mind that certification to an ISO 9001 standard does not guarantee any quality of end products and services; rather it certifies that formalized business processes have been applied by the said unit.

Although these standards were initially specified for manufacturing units, they are now being applied across several types of organizations. A product, in ISO vocabulary can mean a physical object, services or software.

ISO 9001:2008 Quality Management Requirements:

ISO 9001:2008 Quality Management Systems Requirements is a document of approximately 30 pages which is available from the national standards organization in each country. This document is divided into 8 sections, of which section 4 to section 8 pertain specifically to the Quality Management Requirements.

Section 4: General Requirements:

4.1 Developing Quality Management System (QMS) 4.2. Documenting Quality Management System (QMS)

Section 5. Management Requirements: 5.1 Showing Commitment to quality. 5.2 Focusing on customers. 5.3 Supporting quality policy.

(a) Top Management Commitment: The key to success is management's belief in the value of registration to ISO 9000 standards and its resolve to devote the time and resources necessary to achieve it. Without the support of a firm's management team, the process will never get off the ground. The firm's leaders must define a clear vision of quality and make available the resources required during implementation.

(b) Assigning Responsibilities and Training Personnel: A core group of employees who will have the responsibility and authority to develop a detailed

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plan of action should be selected and trained. The management representative should define quality system responsibilities, give them the authority to carry out these responsibilities and ensure that the interactions between these personnel are clearly specified.

(c) Prepare Quality Policy Manual: The management representative should establish quantifiable business objectives. He should also study and understand ISO 9000 requirements as they apply to the company. He should write basic Quality Policy Manual Outline and get it approved from the top management. If required, a copy of the manual should also be sent to the customers desiring ISO 9000 compliance.

(d) Educating the Staff: It is important to inform all the employees of the organisation about the ISO 9000, what it is, why it's important to the organisation and how it will affect each person's work. It has been noticed that planning and communication, top-down and bottom-up, is a key factor in the implementation of ISO 9000 procedure. Awareness can be created through meetings, conferences, publicity, quality manuals, etc.

(e) Preparing Operating Procedures: The management representative develop a plan of action well in advance to minimize costs and the risk of failure. T e operating procedures include: Define responsibilities using quality manual as a guide. Outline the procedures and programmes. Interview managers and fine-tune procedures. Compare the operating procedures with Quality Manual for consistency.

(f) Documentations: All internal quality management systems must be properly documented. The best way is to divide documentation into 4 tiers, viz.,: 15t tier - quality manual that details firm's business strategies and policies. 2nd tier - usually made up of procedures that detail the various processes. 3rd tier - work instructions that detail the methods of performing each task. 4th tier - includes various forms, charts or checklists used on a daily basis.

(g) Hold Internal Audit: It is always advisable to hold an internal audit in order to determine whether the organisation comply with the requirements of ISO 9000 standards or not. An outside consultant may be hired in order to undertake internal audit. It is the duty of the consultant to document the existing policies and procedures, compare them with ISO 9000 requirements and identify all deviations and deficiencies.

(h) Appointment of the Registrar: The Company is assessed by an independent ISO 9000 "Registrar", an accredited independent organisation. There are many such organisations, which can be approached for getting ISO 9000 certification. On

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receiving an application such organisations appoint a 'Registrar' who is responsible for completing the certification process.

(i) Final Audit: The final audit process consists of the following steps:

Information Meeting: This is the first opportunity for the company representatives to meet the registrar and his team. It is the step of familiarizing the company and registrar with each other so that they can work as a team towards the successful completion of the ISO certification process.

Documentation Review: During this stage, an extensive documentation review, including the quality manual as well as supporting procedures, is undertaken. The documentation is reviewed according to the requirements of the appropriate standards. On completion of documentation review, a report is submitted to the organization identifying any non-conformance.

Certification Audit: The number of auditors for certification process depends upon the size of the business. Audits are typically performed by: Visiting the offices and branches and observing ongoing operations. Interviewing employees working at different levels in the business. Reviewing documentation and evaluating quality related records.

Closing meeting and Issue of the Certificate: At the conclusion of the audit, a closing meeting is conducted during which any identified problems are reviewed. The audit team will share its recommendations regarding certification of the business. If all goes well, the business is recommended for certification, which is issued in due course of time.

ISO 14000

ISO 14000 is a standard for environment management systems that is applicable to any business, regardless of size, location or income. The aim of the standard is to reduce the environmental footprint of a business and to decrease the pollution and waste a business produces. The most recent version of ISO 14001 was released in 2004 by the International Organisation for Standardisation (ISO) which has representation from committees all over the world.

ISO 14000 environmental management standards exist to help organisations minimize how their operations negatively affect the environment. In structure it is similar to ISO 9000 quality management and both can be implemented side by side. In order for an organisation to be awarded an ISO 14001 certificate they must be externally audited by an audit body that has been accredited by an accreditation body.

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Components of ISO-14000: (a) Environmental Management System. (b) Conducting audits of the environmental management system. (c) Top management's commitment to continuous improvement, compliance and pollution prevention.

(d) Creating and implementing environmental policies. (e) Integrating environmental considerations in operating procedures. (f) Training employees in regard to their environmental obligations.

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CHAPTER – IMPORT DOCUMENTATION

IMPORT DOCUMENT

BILL OF ENTRYThis document is to be used in case of import of goods. In case of Import of goods, duties are paid on the basis of furnishing a challan form. This challan is known as Bill of Entry. The bill contains the information regarding the name of the seaport, importer’s name and address, details of goods being importer (in brief).

Bill of Entry: A Bill of Entry (BoE) talks everything about a consignment to be imported. The purpose of BoE is to access the value of cargo and assess the duty value.

Types of BoE:

1. BoE for Home Consumption: (White Color)

This BoE is filed when goods imported are to be consumed within India.

2. Warehousing / Into - Bond BoE: (Yellow)

When the imported goods are not required immediately, the importer may like to store the goods in a warehouse without paying the duty under a bond and clear the consignment when required, by paying the stipulated amount of duty.

3. Ex-Bond BoE: (Green Color)

For releasing the above goods from warehouse, the importer has to file this BoE, he pays the duty and releases the goods. This BoE can be filed only if an importer has filed the above (yellow color) BoE.

Documents required under BoE:

Commercial Invoice (attested by custom) B/L or AWB L/C (if required) Insurance Policy, COO, Pkg List.

Number of Copies:

Under EDI system: 3 copies are required

Under Manual system: 5 Copies are required

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Distribution of Copies

EDI MANUAL

1st Copy Customs RBI Customs RBI

2nd Copy Importer Customs RBI

3rd Copy Bank for the payment purpose

Importer

4th Copy ---- Bank for payment purpose

5th Copy ---- Port Authorities

The Original (or original and duplicate both) is forwarded by Customs to RBI

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CHAPTER - EXPORT PROCEDURE

Export procedure is the method or system or the manner in which various formalities are required to be completed in the case of export trade transaction. Export marketing activity start right from organizing one self by way of establishing a firm. Its registration with concerned authorities, choosing a product to sell in international market, identification of overseas markets, export pricing quotation, receipt of order, shipment of goods and to realize export proceeds including incentives.The entire export procedure stated above briefly is divided into four stages as given below:

A. PRELIMINARY STAGE: I. Set – up of organization: The exporter should have an organization to look after exports. Exporters may set up a complete new organization or add an export section to an existing one. ii. Registration with various authorities:

In case of proprietary firm or partnership firm – register with registrar of firms of the State territory wherein the same is located.

Importers – Exporter’s Code (IEC) Number: Any firm exporting or importing goods from / into India will require importer’s exporter’s Code Number. This IEC number is to be filled in the Bill of Entry (in case of import or Shipping Bill (in case of export). There being no date of expiry, the IEC once allotted is valid till it is revoked.

Registration with Export Promotion Councils and other authorities helps in obtaining facilities provided by these organizations. The basic objective of EPC is to promote and develop the exports of the country. Each council is responsible for the promotion of a particular group of products, projects and services. They are non-profit organizations registered under Indian

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Companies Act and supported by financial assistance from the government of India. The EPC keeps up to date details of the trends and opportunities in international markets for goods and services and assist their members in taking advice of opportunities in order to expand and diversify exports.

Obtaining Registration cum Membership Certificate (RCMC) From EPC. The RCMC is available only after availing IEC number. RCMC number enables any exporter to avail benefits and concessions wherever applicable under EXIM policy.

Other registrations such as registration to Sales Tax authorities, etc.

iii. Approaching Foreign Buyers: The exporters then approaches foreign buyers with a quotation.

B. Pre-Shipment Stage: This stage comprises of following sub-stages:i. Confirmation of order

ii. Obtaining letter of credit (If required)iii. Obtaining Pre-shipment financeiv. Production and procurement of goodsv. Packing and marking: The goods must be packed and marked

Properly depending upon type of product, transit coverage etc. if required, and necessary assistance can be obtained from IIP. The exporter should prepare a packing list. The goods must be appropriately marked with country of origin, net and gross weight, port of destination and shipment and other details if any. vi. Pre-Shipment Inspection: The methods and standards of pre-shipment inspection vary from product to product as laid down under different regulation and implemented by various organizations. Exporters should therefore contact, concerned inspection agency to avoid delay or problem at the time of shipment.Exemption:

Export Houses, Trading Houses, Star Trading Houses and Super Star Trading Houses recognized by the Central Govt. are exempted from preview of compulsory pre-shipment inspection of all products for being exported by them.

Approved EOUs and EPZ units are exempt from the purview of compulsory pre-shipment inspection system.

Units approved by the Export Inspection Agencies (EIA) under the in process quality control system have been authorized to issue statutory certificates by themselves instead of EIAs. However, this exemption is not applicable to the exports of fish and fishery products and engg. Goods. For e.g. manufacturing of sewing machines and electric fans as are exercising adequate in-process quality controls are allowed to export their products.

Goods marked with ISI/AGMARK are not required to be inspected by any agency.

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Procedure for Pre-shipment Inspection

As stated above, the units, which are exercising adequate in-process quality control (IPQC) and approved as Export Worthy Units have to only submit their application known as “Intimation” for inspection in the prescribed form. The necessary pre-shipment inspection certificate is issued by the concerned agency.1. For units in which Consignment wise inspection takes place or the units which are not approved under IPQC should apply in the prescribed form in duplicate submitting the original to EIA and duplicate to EIC (Export Inspection Councils) [The EIC has set up 5 EIAs they are at Mumbai, Cochin, Delhi, Calcutta and Chennai and the EIA has a network of nearly 60 offices thru out India.] seven days in advance, of the expected date of shipment with following documents:

Crossed cheque / demand draft etc containing necessary amount of inspection fee in favor of EIA.

Commercial Invoice (5 Copies) Declaration Regarding importer’s technical specifications, if any.

2. Issue of Certificate: If the consignment is found in order, certificate of inspection is issued in triplicate. While the original (White) copy is to be submitted to the customs, the duplicate copy is for the overseas buyers and the triplicate for the exporter.

3. Appeal against rejection: If the consignment is not approved for export, the concerned EIA will issue a Rejection note. The exporter if not satisfied with the decision of the inspection agency, can file an appeal within 10 days of the receipt of the rejection note. On receipt of such appeal, the EIA will convene a meeting of the panel. The panel will review inspection report, here the exporter, if necessary, and examine the consignment concerned, if called for, their decision is final and binding on both the parties i.e. EIA and the exporter.

Vii. Central Excise Clearance: Procedure as follows:

a. Filling up ARE-1 forms: The exporter has to fill up ARE-1 form for removal of excisable goods in five copies:

Original Copy – WhiteDuplicate Copy – Buff Triplicate Copy – Pink4th Copy - Green5th Copy - Blue6th Copy Yellow (Exporter’s office record copy)

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The five copies of ARE-1 form is prepared in 5 colors for easy verification and processing. A sixth copy is prepared for exporter’s reference.The above application is submitted to the Superintendent of Central Excise. On the receipt of the application, an inspector is appointed under whose supervision; goods are removed from warehouse and loaded on the vehicle.

b. Processing of Forms: All 5 copies of ARE-1 Forms are presented to the inspector. The 5th copy is retained by Excise Authority. (BLUE). 4th copy is sent by Excise Authority to Chief Account Officer of Central

Excise. (GREEN) The 3rd copy is sent to Maritime Collector of Central Excise at the port

of shipment. The original and duplicate copies are handed back to exporter. The exporter hands the original and duplicate copy to customs. The Custom Preventive Officer sends the original to the Maritime

Collector. The duplicate is handed back to exporter or his agent.

With this the Consignment is ready to leave the factory Premises.

SHIPMENT STAGE:

The Commercial Invoice, Packing List and ARE-1 are submitted to the customs.

The customs grants permission by endorsing the documents and caters with a Shipping Bill and Carting Order (The exporter’s agent has to obtain permission to bring the goods inside the docks and store them in proper sheds. It is issued by the Superintendent of Port Trust. )

Now, the container can be cleared at the Port Gate upon submission of the Carting Order and the Shipping Bill along with the endorsed Commercial Invoice, Packing List and ARE-1.

The goods are examined by the Custom Officer, who, then issues “LET EXPORT ORDER”

On the basis of LET EXPORT ORDER, the Custom Preventive Officer issues LET SHIP ORDER, which enables to load the container on the ship (vessel).

Once the container is loaded on the vessel and vessel sails, Mate Receipt is issued by the Mate of the Ship to the exporter confirming the date of sailing which is exchanged with the Bill of Lading issued by the Shipping Company.

LAST STAGE: POST-SHIPMENT

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i. DESPATCH OF DOCUMENTS BY C&F AGENT TO EXPORTER: Commercial Invoice (attested) Shipping Bill (Export Promotion Copy) Original L/C or Contract order B/L GR form (duplicate copy – duly attested) Form AR-4 (duplicate copy) Railway freight rebate form (attested by custom)

ii. Shipment Advice to Importer: at this stage exporter intimates importer about the expected date of shipping. iii. Presentation of Documents to Bank: exporter submits all required documents to the bank for further processing and these documents are processed by exporter’s bank to the bank of importer. Importer’s bank intimates the importer about the receipt of the documents. General documents here processed are Commercial Invoice, Custom Invoice (If required), Packing List, Certificate of Origin, bill of exchange, Copy of B/L, Marine Insurance Policy and other documents if required specifically.iv. Realization of exports incentives by Exporter’s bank: (Hand Written)

v. Follow-up of exports sales:

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CHAPTER - Exchange rate fluctuation risks

Foreign Exchange Market:

Foreign exchange market is a mechanism through which one country's currency can be exchanged, i.e., bought or sold for the currency of another country. The foreign exchange market does not have any geographic location. The market comprises of all foreign exchange traders who are connected to each other throughout the world. They deal with each other through telephones, telexes and electronic systems.

Fundamentals of Exchange Rate:

Exchange rate is a rate at which one currency can be exchanged for another currency, say US$ 1 = Rs. 49. This rate is the rate of conversion of US dollar in to Indian rupee and vice versa.

Methods of quoting exchange rates:

There a re two m e thods of quot i ng exchan g e r a t e s :

(1) Direct Method: In this case the foreign currency is kept constant and home currency is kept variable. For example, US$ 1 = Rs. 49. (b) Indirect method: In this case the home currency is kept constant and foreign currency is kept variable. For example, US$ 2.1276 = Rs. 100.

In India, with effect from 2nd August 1993, all the exchange rates are quoted in direct method.

Factors Affecting Exchange Rates: In a free market, it is the demand and supply of the currency, which determine the exchange rates. However, the demand and supply of the currency depend upon a number of factors, which are ultimately the cause of the exchange rate fluctuation.

The volatility of exchange rates cannot be traced to a single reason and consequently, it becomes difficult to precisely define the factors that affect exchange rates. However, the more important among them are as follows: (a) Balance of payments. (b) Fiscal and monetary policy. (c) Interest rates. (d) Political factor. (e) Exchange control and Central bank intervention (f) Speculation. (g) Technical factors.

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Forward Contracts:

International contracts are either concluded in Indian rupees or in foreign currency. If the contract is concluded in terms of Indian rupees, all relevant documents are prepared in Indian rupees and hence no conversion is involved. However, if the contract is concluded in some internationally accepted currency then the exporter receives Indian rupees only after conversion of foreign currency at the appropriate exchange rate. Thus, it is the exchange rate that determines the payment to b received by an Indian exporter after fulfilling his export obligations. A favourable exchange rate can fetch exporter more rupees and vice versa. Thus, where the international contract has been concluded in foreign currency, an exporter is always at risk due to adverse fluctuations in the exchange rates in the international market. Such risks can be avoided by the following methods: (a) Invoicing Goods in Indian Rupees: The first remedy to adverse movements in

exchange rates is invoicing goods in Indian rupees. However, most international transactions are concluded in terms of internationally accepted currencies and therefore, there is always a risk of adverse fluctuations in the exchange rates. In order to avoid such risk, an exporter may enter into forward exchange contract.

(b) Entering into a Forward Exchange Contract: Forward exchange contract is the most commonly practised alternative for insuring the risks arising out of adverse movements in exchange rates. Forward exchange contract is an agreement between two parties to exchange one currency for another at a forward or future date. Under such contracts, the exporter enters into contract with its bank to sell to the bank foreign exchange at a future date or period and the bank agrees to purchase at the firm rate the foreign exchange on that date or during the agreed period at certain predetermined rate agreed upon at the time of entering into contract. Thus, the exporter knows in advance the exchange rate that he is going to get on delivery of export documents. There are 2 types of forward contracts:

Fixed period foreign exchange forward contract: if under the foreign exchange forward contract, foreign exchange is to be delivered at fixed date, the contract is known as fixed date foreign exchange forward contract.

Option Foreign Exchange Forward Contract: If under the foreign exchange forward contract, foreign exchange is to be delivered in future, during a specified period, the contract is known as option foreign exchange forward contract. While entering in to an option forward contract, the first date and the last date for exercising option for giving and taking delivery of foreign exchange are always fixed.

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CHAPTER - EXPORT FINANCE

RBI assures:

Timely finance assistance. Interest rates should be cheaper.

Different types of Exports (From the viewpoint of Banker)

1. Cash exports: payment here is received within 6 months from the date of shipment.

2. Project Exports:2.a. Exports of capital goods on deferred payment (beyond 6 months)2.b. civil construction abroad. 2.c. Turnkey projects.2.d. Service exports / consultancy services abroad.

3. Deemed Exports: A Supplier to advance license holder or SEZ or EOU are known as deemed exporters.

4. Software Exports:4.a. On-site software development.4.b. offshore projects.4.c. Branded software sales.4.d. customized projects: foreign company floating tenders and Indian

software engg. Develops projects (tailor made / customized projects)

Different types of exporters (From the viewpoint of Banker)

a. Manufacturer exportersb. Merchant exporters.c. EOUS / Units operating under EPZs / SEZsd. Status holder exporters.

Export Finance is a short term, working capital finance allowed to an exporter. An exporter may need financial assistance for execution of an export order from the date of receipt of an export order till the date of realization of the export proceeds at any stage. Financial assistance extended to the exporter from the date of receipt of export order till the date of shipment is known as pre-shipment credit. Pre-shipment finance is extended to an exporter for the purpose of procuring raw

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materials, processing, packing, transporting, warehousing of goods meant for exports. It is also known as “Packing Credit” facility.

Credit facility extended to an exporter from the date of shipment of goods till the realization of the export proceeds is known as post-shipment credit.

Interest for availing Pre-shipment finance is charged at PLR (Prime Landing Rate) in case of Indian Rupee currency loan.

Conditions for availing packing credit loan

1. sanctioning of the loan amount depends upon every bank as per their relationship with their clients. Banks can sanction upto 100% of the pre-shipment finance. Generally banks avoid doing that. It sanctions around 80% finance.

Suppose, bank has sanctioned 75% loan to an exporter than, the calculation goes as given below:

Say: the CIF Value of invoice is -------------- US $ 1,00,000

Maximum loan available -------------- US $ 75,000

(Banks generally does not give 100% loan)

around 25% Margin is kept generally.

US $ 75,000 * 46 (Rs. 46/-) = Rs. 33,75,000/-

Less 12% is the Insurance & Freight = Rs. 4,00,000/-

-----------------------

Rs. 29,75,000/- is the loan amount obtained by the exporter initially.

Rs. 4,00,000 is released afterwards when exporter has to take the responsibility to pay insurance and freight charges.

2. Maximum Period: Till the date of shipment / date of submission of the documents OR upto a maximum period of 180 days from date of loan whichever is earlier.

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3. Extension of 90 days: (180 days + 90 Days = 270 Days): if the exporter can’t ship the goods then, further extension upto 90 days is given at concessional rate of interest.

4. Beyond 270 days: Packing credit can continue but at no concessional rate of interest.

Interest rate slabs

Description Slab Rupee Loan PCFC

1 – 180 Days 1st Slab PLR – 2.5 % (Max) LIBOR + .75B.P

181 – 270 days 2nd Slab PLR – 0.5 % (Max) LIBOR + .75bp+ 2%

Beyond 270 days No Extension (in terms of discount percent) is granted

E.g. if an exporter has availed loan for 240 days then for 1 – 180 days interest rate = PLR -2.5% & 181 days to 240 days – Interest rate = PLR – 0.5%

Types of Pre-shipment finance:

i. Extended Packing Credit Loan (PCL): it is granted to the clients (exporters) for making advance payment to the suppliers for acquiring goods to be exported. Thus, it is clean in nature and is usually extended to the parties who are rated as first class, for a very short duration. However, bank should assess the procurement period and once the goods are acquired and are in the custody of the exporter client, convert the clean advance into PCL hypothecation.

ii. Packing Credit loan (Hypothecation): It is extended where raw materials, Work-in Progress and finished goods meant for export are available as security. The processing / manufacturing may be undertaken by the exporter himself or thru sub-contractors unit.

iii. Packing Credit Loan (Pledge): The PCL is granted as loan in the form of pledge in cases where exporters are required to collect / raw material, which is seasonal in nature and the exports take place in due course in installment as the shipping schedules agreed upon by the overseas buyers.

iv. Secured shipping loan: Once the goods are ready for shipment and exporter/supplier has handed over the goods to the clearing and forwarding agent for dispatch the advances can be granted as secured shipping loan. Here bank ensures that the goods are handled by approved transport operators / C & F agents.

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DOCUMENTS REQUIRED: The following documents are to be submitted along with application form for packing credit.

i. Confirmed export order / contract or L/C etc. in original. Where it is not available, an undertaking to the effect that the same will be produced to the bank within a reasonable time for verification and endorsement. This undertaking is required where the exporter wants to avail him of packing credit advance against preliminary information of contract whereby at the later stage the contract or L/C, as the case may be, will be received by him.

ii. An undertaking that the advances will be utilized for the specific purpose of procuring / manufacturing etc. of the goods meant for export only as stated in the relative confirmed export order or the L/C.

iii. Where the exporter asking for the PCL is a sub-supplier and wants to supply the goods to the Export / Trading / Super Star Trading House stating that they have not / will not avail themselves of packing credit facility against the same transaction for the same purpose till the original packing credit is liquidated.

iv. Letter of hypothecation, partnership deed in case of partnership firm or Memorandum of Association, Articles of Association for public/private business.

v. Audited reports of past 3/5 years.

vi. Copies of RBI’s Exporter’s code number (CNX)

vii. Appropriate guarantee of the ECGC.

viii. Any other document required by the bank.

PCL is generally granted on secured basis. Nevertheless, clean packing advances may also be granted. Money advances are clean at their initial stage when goods are not yet acquired. Once the goods are acquired and are in the custody of the exporter, banks usually convert the clean advance into hypothecation. In such cases, rules regarding submission of stock statements and insurance would have to be complied with.

Loan agreement: Before disbursement of loan, the banks require the exporter to execute a formal “loan agreement.” The format of this agreement differs from bank to bank.

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Who is eligible for pre-shipment credit?

An exporter who holds an export order or Letter of Credit (LC) in his own name to perform an export contract can avail of pre-shipment credit.

What is the purpose of this finance?

Pre-shipment finance can be availed of only for the specific purpose of procuring raw materials / purchasing / manufacturing / processing / transporting / warehousing / packing and shipping the goods meant for export.

How much financing can an exporter get?

The banking practice is that the exporter can obtain 90% of the FOB value of the order or 75% of the CIF value of the order.

A manufacturer exporter dealing in any of the notified item is eligible for packing credit at concessional rate of interest upto 365 days. RBI has enlisted 10 products and 43 countries to implement above case.

POST-SHIPMENT FINANCE

Post-shipment finance is a loan or advance granted by a bank to an exporter of goods from India. This facility is available to an exporter subsequent to the date of shipment of goods upto the date of realization of export proceeds. Post shipment finance bridges the financial gap between the date of shipment and actual receipt of payment from overseas buyer thereof.

Some key features of post-shipment finance are as follows:

Finance is extended against evidence of shipping documents. Finance provides working capital to the exporter from the date of shipment to

the date of realization of export proceeds.

Concessive rate of interest is available for a maximum period of 180 days, starting from the date of submission of documents. Normally, the documents are to be submitted within 21days from the date of shipment.

0-90 days – Ist slab – PLR – 2.5% / LIBOR + 0.75 BP

91-180 days – IInd slab – PLR – 0.5% / LIBOR +0.75 + 2 BP

What is the quantum of this finance?

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Post shipment finance can be extended upto 100% of the invoice value of goods.

Post-shipment finance can be further classified as under:

b. Export Bill Purchased (D / P Bills). c. Export Bills discounted (D / A Bills).

Above two bills are Non – L/C Bills.

d. Export Bills negotiated (L/C Bills): An exporter can avail of post-shipment credit by drawing bills or drafts under the L/C. The bank insists on production of the necessary documents as stated in the L/C. If documents are in order, the bank negotiates the bill and advance is granted.

e. Advance against incentives / DBK: DBK means refund of custom duties paid on the import of raw materials, components and packing material used in the export product. It also includes refund of central excise duties paid on indigenous materials. Banks offer pre-shipment advances against claims for DBK. Banks offer pre-shipment as well as post shipment advances against claims for DBK.

f. Advances against goods sent on consignment basis: Banks may grant post-shipment advances against goods sent on consignment basis.

g. Advances against Retention Money: Banks advance against retention money, which is payable within one year from date of shipment.

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CHAPTER - EXPORT FINANCING INSTITUTIONS

In India, export finance is undertaken by COMMERCIAL BANKS as well as by FINANCIAL INSTITUTIONS.

Following are the institutions, which are directly or indirectly concerned with export financing:

COMMERCIAL BANKS (SHORT TERM LOAN) EXIM BANK (MEDIUM & LONG TERM LOAN) SIDBI (LONG TERM LOANS TO EXPORTERS) RBI EXPORT CREDIT GUARANTEE CORPORATION (ECGC)

ROLE OF COMMERCIAL BANKS IN EXPORT FINANCE IT PROVIDES MAJOR PART OF FINANCE TO EXPORTERS ALSO PROVIDES OTHER FACILITIES AND SERVICES TO EXPORTERS.

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At Pre-Shipment Stage:

Short-term basis Finance – duration 180 days. It is available in following forms:

I Cash Packing Credit Loan

Ii Advance against Hypothecation/Pledge

Iii Other forms. (Details covered in earlier topic)

b. At Post Shipment Stage: Duration – 90 days

It is available in following forms:

I Negotiation of Bills drawn under LC.

ii. Purchase/Discount of Bills.iii. Advance against bills under collectioniv. Other forms.

NON-FUND ASSISTANCE:

(i) Bank Guarantees: Commercial Banks are authorized by RBI to issue guarantees and furnish bid bonds in favor of overseas buyers. Prior Permission from RBI is not required except in case of exports of capital goods under differed payments, construction contracts, consultancy and technical services contracts and turnkey projects. Following are the guarantees:

PERFORMANCE GUARANTEE: Incase of exports of capital goods and turnkey and construction projects.

GUARANTEE FOR FOREIGN CURRENCY LOANS sanctioned by financial institution abroad to Indian exporters who raise funds to finance their projects abroad.

Bank issues GUARANTEE FOR PAYMENT OF RETENTION MONEY by overseas party who would release the retention money to Indian party only after receiving guarantee from bank.

Other services:

Collects export proceeds from the importer and credit the same to exporter’s account.

Helps exporter to collect useful information on the creditworthiness of buyers thru their foreign agents.

Bank issues draft in case of payment of freight charges and other charges.

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The bank sends duplicate copy of GR form to the RBI after realization of export proceeds.

It provides information on the exchange rates of various countries. It issues bank certificates in respect of export sales value, which are useful for

claiming incentives.EXIM BANK OF INDIA

EXIM BANK was set up by an Act of Parliament in September 1981 and it started its operations in March 1982. Export-Import Bank of India was set up for the purpose of financing, facilitating and promoting foreign trade in India. EXIM is the principal financial institution in the country for coordinating working of institutions engaged in financing exports and imports.

PURPOSES:

The EXIM bank was established for the purpose of financing medium and long-term loans to the exporters thereby promoting foreign trade of India.

The main objectives of EXIM Bank are:

To provide financial assistance (medium term and long term) to exporters and importers.

To function as the principal financial institution for coordinating the working of institutions engaged in providing export finance.

To promote foreign trade of India. To deal with all matters that may be considered to be incidental to the

attainment of above objectives.

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Functions of EXIM Bank:

FUND BASED ASSISTANCE:

A. Assistance to Indian Exporters:

I. Direct financial assistance to exporters on deferred payment terms. II. EXIM also provides finance to 100% EOUs and units set up in FTZ (Free

Trade Zones).III. Financing export and import of machinery and equipment on lease basis.IV. Financing Indian joint ventures in foreign countries.V. Pre-shipment finance to eligible exporters for procuring raw materials and

other inputs required to produce machinery and equipment to be exported.

VI. Finance to Indian exporters to undertake various export marketing activities in India and foreign thru Export Marketing Fund.

VII. Provide Export Development Fund (EDF) to finance techno economic survey / research or any other study for the development of Indian Exports.

B. Assistance to Overseas parties:

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i. It offers “Overseas Buyer’s Credit” facility to foreign importers for import of Indian capital goods and related services with repayment spread over a period of years. (EXIM FOREIGN IMPORTER)

II It offers long term credit under “Lines of Credit” to finance government and financial institute abroad, which in turn, extend finance to importers of their country to buy Indian capital goods. (EXIM GOVT. ABROAD BUYER OF THAT COUNTRY)

III It also provides re-lending facility to overseas banks to make available term finance to their clients for import of Indian goods. (EXIM OVERSEAS BANKS IMPORTER OF THAT COUNTRY)

C. Assistance to Indian Commercial Banks:

I. Refinance facilities to commercial banks so that they can offer credit to Indian exporters who extend term credit to importers. (EXIM COMMERCIAL BANKS EXPORTER)

II Export Bills rediscounting facility to commercial banks in India so that it helps commercial banks to fund post-shipment credit extended to Indian exporters.

B. NON-FUND BASED ASSISTANCE:

(I) Guarantee and Bonds: SIMILAR TO BANK GUARANTEES OF COMM-BANK.

(II) Advisory and other services : a. Advises Indian companies, in executing contracts abroad and

sources of overseas finances.b. Advises Indian exporters on global exchange control practices.c. Financial and advisory services to Indian construction projects

abroad.d. Advises small-scale manufacturers on export markets and product

areas.

Role of Clea r ing & Forwarding Agent s :

Export-import procedures are very complex and time-consuming. Therefor every exporter should avail the services of Clearing and Forwarding (C&F) agent who are expert and well versed with the customs and shipment procedures. Fo smooth and timely shipment of goods, the exporter must appoint a competent C&F agent who is able to, inter alia, provide the following services:

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Essential Services: (a) Transportation of goods to docks and arrangement of warehousing at port. (b) Warehousing facilities before the goods are transported to docks. (c) Booking of shipping space or air freighting and advice on relative cost 01 sending

goods by sea and air. (d) Arrangement for loading of goods on board. (e) Equipped with information on shipping lines and freight to different

destinations, and various charges payable by exporters. (f) Obtaining marine insurance policies. (g) Preparation and processing of shipping documents, Bills of Lading, Dock Receipt,

Export Declarations, Consular Invoice, Certificate of Origin, etc. (h) Forwarding of banking collection papers.

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CHAPTER – IMPORT PROCEDUREIntroduction:

Starting an import business is a goal of more than thousands of merchants and businessman, Like an export business, import business is also very profitable business, if an importer proceeds with the right strategies. However, the long term success and profitability of an import business greatly depends on the importer's knowledge and understanding about the international market and foreign market analysis,

Today, importing goods from abroad has become a booming business, especially due to liberalization of imports and changing consumer profile in most of the developing countries. The rising middle income groups of consumers in India and their increasing levels on expenditure on various products have resulted in a faster rising demand of the Indian import business. Major imports of India include cereals, edible oils, machineries, fertilizers and petroleum products, India is also a bulk importer of edible oil, sugar, pulp and paper, newsprint, crude rubber and Iron and steel.

In India, all the activities related to import are handled by the Directorate General of Foreign Trade (DGFT), a government body that also controls the export business in India, DGFT and all its regional offices work under the Ministry Commerce and Industries, Department of Commerce, Government of India. All the procedure and policies in matters related to import is announced by the DGFT through its notification, appendices and forms.

Pre-Import Procedure:

(a) Selecting the Commodity: An importer should select the commodity for import after considering various commercial factors as well as legal considerations including the regulations contained in the EXIM Policy. Imports may be made freely except to the extent they are regulated by the provisions of the EXIM Policy. Prohibited goods cannot be imported at all. Import of restricted items is permitted through licensing only while canalised items can be canalised through specified State Trading Enterprises (STEs).

(b) Selecting the Overseas Supplier: Imports can be made from any country of the world except Iraq. However, there shall be no ban on the import of items form Iraq in case where the prior approval of the concerned sanction committee of the UN Security Council has been obtained. The information regarding

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overseas suppliers can be obtained from various trade directories, consulate generals, international trade fairs and exhibitions and chamber of commerce.

(c) Capability and Creditworthiness of Overseas Supplier: Successful completion of an import transaction mainly depends upon the capability of the overseas supplier to fulfil his contract. Therefore, it is advisable to verify the creditworthiness of the overseas supplier and his capacity to fulfil the contract through confidential reports about him from the banks and Indian embassies abroad. It is advisable to finalise contract through indenting agents of overseas suppliers situated in India.

(d) Role of Overseas Suppliers Agents in India: Some reputed overseas suppliers have their indenting agents stationed in India. These agents procure orders from the Indian parties and arrange for the supply of goods from their principal abroad. It is advisable to import through such agents as they can be readily contacted in case there is any dispute regarding quality or quantity of goods imported, receipt of payment, documentation formalities, etc.

(e) Inquiry, Offer and Counter-offer: It is advisable that before finalising the terms of import order, one should call for the samples or catalogue and other relevant literature and the specifications of the items to be imported. Import of samples of goods is exempted from import duties under 'Geneva' Convention of yth November 1952. After satisfying himself with the samples and the creditworthiness of the overseas supplier, the importer should proceed to finalise the terms of the contract to be entered into.

Legal Dimensions of Import Procedure:

(a) Finalisation of the Terms of Contract: The import contract should be carefully and comprehensively drafted incorporating therein precise terms as well as all relevant conditions of the trade deal. There should not be any ambiguity regarding the exact specifications of the goods and terms of the purchase including import price, mode of payment, type of packaging, port of shipment, delivery schedule, licence and permits, discounts and commission, insurance, arbitration, etc.

(b) Mode of Pricing and INCO TERMS: While finalising terms of import contract, the importer should, inter-alia, be fully conversant with the mode of pricing and the manner of payment for the imports. As regards mode of pricing, the overseas supplier should quote the terms prevailing in international trade. International Chamber of Commerce, Paris, has given detailed definition of a

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few standard terms popularly known as 'INCO TERMS'. These terms have almost universal acceptance.

(c) Mode of Settlement of Payment: There are mainly three modes of settling international transactions depending upon the creditworthiness of the importer or exporter, demand for the commodity in the international market, exchange control regulations prevailing in the importer or exporter countries and other relevant factors: • Advance Payment. Payment or Acceptance against Documentary Collections. Payment under Letter of Credit.

(d) Obtaining IEC Number: In India, it is obligatory for every importer and exporter to register themselves with the Director General of Foreign Trade (DGFT) and obtain Import-Export Code Number (IEC 0.). The application form for obtaining IEC number should be accompanied by a ee of Rs. 250 and two copies of passport size photographs of the applican d Iy attested by the banker of the applicant and other relevant documents.

(e) Obtaining Import Licence: If the item to be imported falls in the prohibited list, then such item cannot be imported at all. However, if it falls in restricted list then the necessary clearance must be obtained from appropriate licensing authority. Similarly, if it is subject to the canalisation through State Trading Enterprises (STEs), then the necessary formalities are to be completed pertaining to the same.

(f) Obtaining Foreign Exchange: In India, all foreign exchange transactions are regulated by the Exchange Control Department of the Reserve Bank of India (RBI). Therefore, every importer is required to make an application to the Reserve Bank of India (RBI) for getting sanction for making overseas payments. The Exchange Control Department scrutinises the application and if satisfied, sanctions necessary foreign exchange for the import transaction.

(g) Arranging Finance for Import: It is advisable that the financial planning for imports should be done in advance in order to avoid huge demurrages on the imported goods lying uncleared for want of payment. Banks normally do not extend any fund based assistance to importers. However, they enable industrial units and others to have access to imported inputs and machinery by establishing letters of credit in favour of the overseas suppliers.

(h) Obtaining Import L/C Limit: Import L/C limits are sanctioned by the banks on submission of complete loan proposal as in the case of other types of credit facilities. This requires advance financial planning so as to retire import bills under LC on time. Any delay in retirement of bills not only strains the relations of

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the importer with his bank but also results in additional costs by way of extra commission, penal interest, demurrage charges, etc.

(i) Despatching Letter of Credit: If the term of payment agreed between tIle importer and the overseas supplier is a letter of credit then the importer should obtain the letter of credit from his bank and forward it to the overseas supplier well within the time agreed for the same. The importer must see to it that the letter of credit has been prepared in the strict conformity of the import contract entered between them.

Retirement of Import Documents.

(a) Loading of Goods and Receipt of Shipment Advice: On loading of goods the overseas supplier despatches the shipment advice to the importer informing him about the shipment of goods. The shipment advice contains invoice number, bill of lading, airways bill number and date, name of the vessel with date, the port of export, description of goods and quantity and the date of sailing of the vessel.

(b) Retirement of Import Documents: After shipping the goods, the overseas supplier prepares the necessary documents as per the terms of contract and letter of credit and hands them over to his bank for their onward negotiation to importer in the manner as specified in the UC. The set normally contains bill of exchange, commercial invoice, bill of lading, packing list, certificate of origin, marine insurance policy, etc.

For the retirement of documents, the importer is required to submit the following documents to his bank: A letter authorising his bank to debit the equivalent Indian rupees to the

value of documents including bank charges. Exchange control copy of the Import Licence, if applicable. Form A1 duly completed for the remittance in foreign exchange.

(c) Acceptance of Bill of Exchange: Bill of Exchange accompanied by the above documents is known as the Documentary Bill of Exchange. It is of two types: Documents against Payment (Sight Drafts): In case of sight draft, the

drawer instructs the bank to hand over the relevant documents to the importer only against payment.

Documents against Acceptance (Usance Draft): In case of usance draft, the drawer instructs the bank to hand over the relevant documents to the importer against his 'acceptance' of the bill of exchange.

(d) Scrutiny of Documents Received under L/C: After receipt of import

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documents from the exporter's bank, the importer's bank will scrutinise the documents as to their correctness as per the terms and conditions of L/C and hands over them to the importer after payment. The importer should also scrutinise the documents and ensure that there are no discrepancies.

(e) Appointment of C&F Agent: In India, the procedure for clearance of imported goods is very lengthy, time consuming and involves many legal formalities. Therefore, it is advisable to hire the services of C&F agents who. are well versed with such formalities. The C&F Agent prepares the bill of entry containing details of goods to be cleared from the customs. In case, the C&F agent does not have relevant information about the goods to be cleared, he prepares a bill of sight in order to enable himself to physically check the goods imported and prepare bill of entry on that basis.

Customs Clearance for imported Goods:

Under the Ministry of Finance (Department of Revenue), there are two independent Boards of Revenue: (a) Central Board of Direct Taxes (for Income Tax, Wealth Tax e c.) (b) Central Board of Excise and Customs.

The Customs administration vests with the Central Board for Excise and Customs, which shapes the policy and decides the customs formalities in the country, in terms of the provisions of the~ Customs Act 1962.

All goods imported in India have to pass through the customs clearance after they cross the Indian border. The goods so imported are examined, appraised, assessed, evaluated and then allowed to be taken out of customs charge for use by the importer.

The procedure for customs clearance in general for goods imported in India is as follows: (a) Import Manifest: As per the section 30 of the Customs Act, 1962, the persons

in charge of a conveyance carrying imported goods should hand over, within 24 hours of the arrival of the conveyance, an import manifest to the customs. The import manifest is a complete list of all items the conveyance carries on board, including those to be transshipped and those to be carried to the subsequent ports of call.

(b) Entry in the Import Department of Customs House: On receipt of information regarding the arrival of the goods, the importers or their agents have to make an entry by filing a Bill of Entry, in a prescribed form in the Import Department of Customs House. The date of presentation of Bill of Entry is an important date as the rate of duty applicable to the imported goods will be the rate, which is in

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force on the date of presentation.

(c) Presentation of Bill of Entry for Appraisal: After the Bill of Entry is noted in the import department, the same should be presented to the Appraising Counters along with the following necessary documents: Import licence, if necessary. Exporter's Invoice. A copy of Letter of Credit. Original Bill of Lading and its non-negotiable copy. Two copies of Packing List. •. Weight specifications. Manufacturer's test certificate. Certificate of Origin. Delivery order issued by the Shipping company or its agent. Freight and insurance amount certificate if the import is on FOB terms A declaration from importer that he has not paid any commission to

agents in India. Customs declaration Catalogue/drawing, etc for machinery imported.

In addition to the above, the following documents are also required to be submitted wherever necessary: If spare parts are imported - exporters invoice showing unit price and

extended total of each item; If second hand machinery is imported - Chartered Engineer's Certificate; If steel is imported - Manufacturer's Analysis Certificate; If chemicals and allied products are imported - Literature showing

chemical consumption; If textiles items are imported - Textile Commissioner's endorsement or

certificate.

If the above documents furnished by the importer are found to be adequate for acceptance of the declared value and determination of classification and acceptance of ITC Licence, the Bill of Entry is completed by the Appraiser. It is then countersigned by the Assistant Collector and sent to the Licence Section with an order to the Dock Staff for examination of goods before clearance.

(d) Clearance of Goods: After payment of duty (the original copy of Bill of Entry is retained in the Customs House) the importer should obtain the duplicate copy of Bill of Entry on which order for examination of the goods is given by Customs and get the goods examined. If the description of goods is found to be correct, on the basis of declared and accepted particulars, clearance of goods is allowed by the appraiser.

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(e) Warehousing the Goods: The imported goods can be warehoused at the port of shipment without the payment of duty by presenting a "Bill of Entry for Warehousing" to the Bonds Department along with a bond for twice the amount of duty payable. Initially the facility is granted for 3 months, which may be extended upto a period one year. The warehoused goods can be cleared in one or more installments. For clearance of goods from the warehouse, the importer is required to present what is known as 'Ex-bond Bill of Entry'.

(f) Import Follow-up: Once an importer is allowed to remit foreign exchange out of the country he has an obligation to import the permitted goods of equivalent value in the country. If no goods or goods for lesser values are imported, it would lead to leakage of foreign exchange.

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CHAPTER – FOREIGN TRADE POLICY 2009-2014

Following are the major highlights of the Foreign Trade Policy 2009-2014: (a) Stability and Continuity of the Foreign Trade Policy:

To impart stability to the Policy regime, Duty Entitlement Passbook (DEPB) Scheme is extended beyond 31-12-2009 till 31.12.2010.

Interest subvention of 2% for pre-shipment credit for 7 specified sectors has been extended till 31.3.2010 in the Budget 2009-10.

Income Tax exemption to 100% Export Oriented Units (EO Us) and Software Technology Parks of India (STPI) units under Section 10B and 10A of Income Tax Act, has been extended till the financial year 2010-11.

The adjustment assistance scheme initiated in December, 2008 to provide enhanced ECGC cover at 95%, to the adversely affected sectors, is continued till March, 2010.

(b) Higher Support for Market and Product Diversification: Incentive schemes under Chapter 3 have been expanded by way of addition of new products and markets. Allocations under Market Development Assistance (MDA) and Market Access Initiative (MAl) schemes have been increased.

In order to simplify procedures, a common simplified application form has been introduced for availing benefits under Focus Product Scheme (FPS), Focus Market Scheme (FMS) Market Linked Focus Product Scheme (MLFPS) and Vishesh Krishi and Gramin Udyog Yojana (VKGUY). Support for Market Development: 26 new markets have been added under Focus Market Scheme. These

include 16 new markets in Latin America and 10 in Asia-Oceania. The incentive available under Focus Market Scheme (FMS) has been raised

from 2.5% to 3%. Market Linked Focus Product Scheme (MLFPS) has been greatly

expanded by inclusion 153 new products. Some major products include: Pharmaceuticals. Synthetic textile fabrics. Value added rubber products. Value added plastic goods. Textile made-ups. Knitted and crocheted fabrics. Glass products. Certain iron and steel products. Certain articles of aluminum among others.

These products are provided with benefits under new scheme is they are exported to 13 identified markets - Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand.

Benefits under Market Linked Focus Product Scheme (MLFPS) have also been extended to new markets for certain products such as auto components, motor cars, bicycle and its parts and apparels among others.

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Support for Product Development: The incentive available under Focus Product Scheme (FPS) has been

raised from 1.25% to 2%. A large number of products from various sectors have been included for

benefits under Focus Product Scheme (FPS). These include: Engineering products - Agricultural machinery, parts of trailers, sewing machines, hand tools, garden tools, musical instruments, clocks and watches, railway locomotives, etc. Plastic - Value-added products. Jute and sisal products. Technical textiles, Green Technology products - Wind mills, wind turbines, electric operated vehicles, etc. Project goods. Vegetable textiles. Certain electronic items.

Benefits under Focus Product Scheme have been extended to the export of green products' and to the exports of some products originating from the North East.

(c) Support for Technological Upgradation: EPCG Scheme at Zero Duty has been introduced to aid technological upgradation in export sector. This scheme is available for: Engineering and electronic products. Basic chemicals and pharmaceuticals. Apparels and textiles. Plastics. Handicrafts. Chemicals and allied products. Leather and leather products.

The above benefit is subject to exclusions of current beneficiaries under Technological Upgradation Fund Schemes (TUFS), administered by Ministry of Textiles and beneficiaries of Status Holder Incentive Scheme in that particular year). The scheme shall be in operation till 31.3.2011.

(d) New Towns of Excellence: New towns of excellence have been recognised: Jaipur, Srinagar and Anantnag have been recognised as 'Towns of Export

Excellence' for handicrafts; Kanpur, Dewas and Ambur have been recognised as 'Towns of Export

Excellence' for leather products; and Malihabad for horticultural products.

(e) Sector Specific Initiatives: In order to boost up exports from various sectors, a

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number of sector specific initiatives have been announced: Marine Sector: Fisheries have been exempted from maintenance of average

Export Obligation (EO) under EPeG Scheme, subject to the condition that fishing trawlers, boats, ships and other similar items shall not be imported under this scheme.

Gems and Jewellery Sector: Duty drawback facility has been extended to gold jewellery exports in order to neutralize duty incidence on their exports. It has also been proposed to establish "Diamond Bourse(s)" in an endeavour to make India a diamond international trading hub.

To promote export of Gems and Jewellery products, the value limits of personal carriage have been increased from US$ 2 million to US$ 5 million for participation in overseas exhibitions and the limit for samples has also been increased from US$ 0.1 million to US$ 1 million.

Agriculture Sector: A single window system has been introduced to reduce transaction and handling costs in case of the export of perishable agricultural produce. The system will involve creation of multi-functional nodal agencies to be accredited by Agricultural and Processed Food Products Export Development Authority (APEDA).

Leather Sector: Leather sector shall be allowed re-export of unsold imported raw hides and skins and semi-finished leather from public bonded ware houses, subject to payment of 50% of the applicable export duty. Focus Product Scheme (FPS) rate has been enhanced to 2% for leather sector.

Tea: Minimum value addition under advance authorisation scheme for export of tea has been reduced from the existing 100% to 50%. Domestic Tariff Area (DTA) sale limit of instant tea by EOUs has been increased from the existing 30% to 50%. Tea exporters have been accorded benefits under Vishesh Krishi and Gramin Udyog Yojana (VKGUY) Scheme.

Pharmaceutical Sector: Export Obligation period for advance authorisations for pharma sector has been increased from the existing 6 months to 36 months. Pharma sector has been extensively covered under Market Linked Focus Product Scheme (MLFPS) for countries in Africa and Latin America and some countries in Oceania and Far East.

(f) Export Oriented Units (EOUs): EOUs have been allowed to sell products manufactured by them in Domestic Tariff Area (DT A) up to a limit of 90% instead of existing 75%, without changing the criteria of 'similar goods', within the overall entitlement of 50% for DTA sale. EOUs will now be allowed to procure finished goods for consolidation along with their manufactured goods. subject to certain safeguards. During this period of downturn, Board of

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Approvals (BoA) will consider extension of block period by one year for calculation of Net Foreign Exchange earning of EOUs.

(g) Status Holders: Additional Duty Credit Scrips shall be given to Status Holders @ 1 % of the FOB value of past exports to accelerate exports and encourage technological upgradation. The duty credit scrips can be used for procurement of capital goods with Actual User condition. This facility shall be available for the following sector: Leather (excluding finished leather). Textiles and jute. Handicrafts. Engineering (excluding iron and steel, non-ferrous metals in primary and

intermediate form, automobiles and two wheelers, nuclear reactors and parts and ships, boats and floating structures).

Plastics and basic chemicals (excluding pharma products) The above benefit is subject to exclusions of current beneficiaries under Technological Upgradation Fund Schemes (TUFS). This facility shall be available up to 31.3.2011.

(h) Flexibility provided to Exporters: Payment of customs duty for Export Obligation (EO) shortfall under Advance Authorisation/Duty Free Import Authorisation (DFIA)/ Export Promotion Capital Goods (EPCG) Authorisation has been allowed by way of debit of Duty Credit scrips. Earlier the payment was allowed in cash only. Import of restricted items, as replenishment, shall now be allowed against transferred Duty Free Import Authorisation (DFIAs), in line with the erstwhile Duty Free Replenishment Certificate (DFRC) scheme.

(i) Simplification of Procedures: To facilitate duty free import of samples by exporters, number of samples

(pieces) has been increased from the existing 15 to 50. Customs clearance of such samples shail be based on declarations given by the importers with regard to the limit of value and quantity of samples.

Greater flexibility has been permitted to allow conversion of Shipping Bills from one Export Promotion scheme to other scheme. Customs shall now permit this conversion within three months, instead of the present limited period of only one month.

To reduce transaction costs, dispatch of imported g008S directly from the port to the site has been allowed under Advance Authorisation scheme for deemed supplies. At present, the duty free imported goods could be taken only to the manufacturing unit of the authorisation holder or its supporting manufacturer.

Disposal of manufacturing wastes/scrap will now be allowed after payment of applicable excise duty, even before fulfillment of export obligation under

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Advance Authorisation and EPCG Scheme. Regional Authorities have now been authorised to issue licences for import of

sports weapons by 'renowned shooters', on the basis of NOC from the Ministry of Sports and Youth Affairs. Now there will be no need to approach Director DGFT in such cases.

Automobile industry, having their own R&D establishment, would be allowed free import of reference fuels (petrol and diesel), up to a maximum of 5 KL per annum, which are not manufactured in India.

(j) Reduction of Transaction Costs: No fee shall now be charged for grant of incentives under the schemes in

Chapter 3 of Foreign Trade Policy. Further, for all other authorisations/ licence applications, maximum applicable fee is being reduced to Rs. 1,00,000 from the existing Rs. 1,50,000 (for manual applications) and Rs. 50,000 from the existing Rs.75,000 (for EDI applications).

To further EDI initiatives, Export Promotion Councils/Commodity Boards have been advised to issue RCMC through a web-based online system. It is expected that issuance of RCMC would become EDI enabled before the end of 2009.

Electronic Message Exchange between Customs and DGFT in respect of incentive schemes under Chapter 3 will become operational by 31.12.2009. This will obviate the need for verification of scrips by Customs facilitating faster clearances.

For EDI ports, with effect from December 2009, double verification of shipping bills by customs for any of the DGFT schemes shall be dispensed with.

In case, where the earlier authorization has been cancelled and a new authorization has been issued, application fee paid for the cancelled authorisation will now be adjusted against the application fee for the new authorisation subject to payment of minimum fee of Rs. 200.

An Inter-Ministerial Committee will be formed to redress/resolve problems/issues of exporters.

An updated compilation of Standard Input Output Norms (SiaN) and ITC (HS) Classification of Export and Import Items has been published.

(k) Directorate of Trade Remedy Measures: To enable support to Indian industry and exporters, especially the MSMEs, in availing their rights through trade remedy instruments, a Directorate of Trade Remedy Measures shall be set up.

Special Focus Initiatives:

With a view to double our percentage share of global trade within 5 years and expanding employment opportunities, especially in semi-urban and rural areas,

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certain special focus initiatives were identified for agriculture, handlooms, handicraft, gems and jewellery and leather sectors in the Foreign Trade Policy 2004-2009. These initiatives have been continued in the new Foreign Trade Policy 2009-2014.

Government of India shall make concerted efforts to promote exports in these sectors by specific sectoral strategies that shall be notified from time-to-time. Further Sectoral Initiatives in other sectors will also be announced from time-to-time. (a) Market Diversification: Weaker demand in developed economies, triggered by

falling asset prices and increased economic uncertainty has pulled down the growth of India's exports to developed countries. There are no clear signals as to when the markets in developed countries would revive.

With a view to insulate Indian exports from decline in demand from developed countries, the new poi icy has focused on diversification of Indian exports to other markets, especially those located in Latin America, Africa, parts of Asia and Ocenia. To achieve diversification of Indian exports, following initiatives have been taken under this policy:

26 new countries have been included within the ambit of Focus Market Scheme.

The incentives provided under Focus Market Scheme have been increased from 2.5% to 3%.

There has been a significant increase in the outlay under 'Market Linked Focus Product Scheme' by inclusion of more markets and products.

(b) Technological Upgradation: To usher in the next phase of export growth, India needs to move up in the value chain of export goods. This objective is sought to be achieved by encouraging technological upgradation of our export sector. A number of initiatives have been taken in this regard: EPCG Scheme at zero duty has been introduced for certain engineering

products, electronic products, basic chemicals and pharmaceuticals, apparel and textiles, plastics, handicrafts, chemicals and allied products and leather and leather products.

The existing 3% EPCG Scheme has been considerably simplified, to ease its usage by the exporters.

To encourage value-added manufacture export, a minimum 15% value addition on imported inputs under Advance Authorisation Scheme has been stipulated.

A number of products including automobiles and other engineering products have been brought under Focus Product and Market Linked Focus Product Schemes.

It has been proposed to take steps for encouraging project exports.

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(c) Support to Status Holders: The Government recognised that 'Status Holders' contribute approximately 60% of India's goods exports. To incentivise and encourage status holders as well as to encourage technological upgradation of export production, additional duty credit scrip @ 1 % of the FOB of past export shall be granted for specified product groups including leather, specific sub-sectors in engineering, textiles, plastics, handicrafts and jute. This duty credit scrip can be used for import of capital goods by these status holders. The imported capital goods shall be subject to actual user condition.

(d) Agriculture and Village Industry: Vishesh Krishi and Gram Udyog Yojana (VKGUY) has been launched for promoting exports from agricultural sector and village industry. The following initiatives have been proposed under VKGUY: Capital goods imported under EPCG will be permitted to be installed

anywhere in Agri Export Zones (AEZs). Import of restricted items, such as panels, are allowed under various export

promotion schemes. Import of inputs such as pesticides is permitted under Advance Authorisation

for agro exports. New towns of export excellence with a threshold limit of Rs 150 crore shall be

notified. Certain specified flowers, fruits and vegetables are entitled to special duty

credit scrip, in addition to the normal benefit under VKGUY.

(e) Handlooms: Specific funds are earmarked under Market Access Initiatives (MAI)/ Market

Development Assistance (MDA) Scheme for promoting hand loom exports. Duty free import entitlement of specified trimmings and embellishments is

5% of FOB value of exports during previous financial year. Duty free import entitlement of hand knotted carpet samples is 1 % of FOB

value of exports during previous financial year. Duty free import of old pieces of hand knotted carpets on consignment basis

for re-export after repair is permitted. New towns of export excellence with a threshold limit of Rs. 150 crore shall

be notified. Machinery and equipment for effluent treatment plants is exempt from

customs duty.

(f) Handicrafts: Duty free import entitlement of tools, trimmings and embellishments is 5% of

FOB value of exports during previous financial year. Handicraft EPC is authorized to import trimmings, embellishments and

consumables for exporters for whom direct importing may not be viable. Specific funds are earmarked under Market Access Initiatives (MAI)/ Market

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Development Assistance (MDA) Schemes for Handicraft exports. Countervailing Duty (CVD) is exempted on duty free import of trimmings,

embellishments and consumables. New towns of export excellence with a reduced threshold limit of Rs. 150

crore shall be notified. Machinery and equipment for effluent treatment plants are exempt from

customs duty. All handicraft exports would be treated as special focus products and entitled

to higher incentives.

(g) Gems & Jewellery: Import of gold of 8k and above is allowed under replenishment scheme

sUbject to import being accompanied by an Assay Certificate specifying purity, weight and alloy content.

Duty Free Import Entitlement (based on FOB value of preceding year's exports) of Consumables and Tools for jewellery. made out of precious metals (other than Gold and Platinum) - 2%, Gold and Platinum - 1% and Rhodium finished Silver - 3% and Cut and Polished Diamonds - 1 %.

Duty free import entitlement of commercial samples shall be Rs. 3,00,000. Duty free re-import entitlement for rejected jewellery shall be 2% of FOB

value of exports. Import of Diamonds on consignment basis for Certification/Grading and re-

export by the authorised offices/agencies of Gemological Institute of America (GIA) in India or other approved agencies will be permitted.

Personal carriage of Gems and Jewellery products in case of holding/ participating in overseas exhibitions increased to US$ 5 million and to US$ 1 million in case of export promotion tours.

Extension in number of days for re-import of unsold items in case of participation in an exhibition in USA increased to 90 days.

In an endeavour to make India a diamond international trading hub, it is planned to establish "Diamond Bourse(s)".

(h) Leather and Footwear: Duty free import entitlement of specified items is 3% of FOB value of exports

of leather garments during preceding financial year. Duty free entitlement for import of trimmings, embellishments and footwear

components for footwear, gloves, travel bags and handbags is 3% of FOB value of exports of previous financial year.

Machinery and equipment for Effluent Treatment Plants shall be exempt from basic customs duty.

Re-export of unsuitable imported materials such as raw hides and sKins and wet blue leathers is permitted.

Countervailing Duty (CVD) is exempted on lining and inter-lining material and

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raw, tanned and dressed fur skins falling under Chapter 43 of ITC (HS). Re-export of unsold hides, skins and semi-finished leather shall be allowed

from Public Bonded warehouse at 50% of the applicable export duty.

(i) Marine Sector: Imports for technological upgradation under EPCG in fisheries sector (except

fishing trawlers, ships, boats and other similar items) exempted from maintaining average export obligation.

Duty free import of specified specialised inputs/chemicals and flavouring oils is allowed to the extent of 1 % of FOB value of preceding financial year's export.

To allow import of monofilament long line system for tuna fishing at a concessional rate of duty and Bait Fish for tuna fishing at 'Nil' duty.

A self-removal procedure for clearance of seafood waste is applicable subject to prescribed wastage norms.

Marine products have been considered for incentives under Vishesh Krishi and Gramin Udyog (VKGUY) scheme.

(j) Sports Goods and Toys: Duty free import of specified specialised inputs allowed to the extent of 3% of

FOB value of preceding financial year's export. Specific funds are earmarked under Market Access Initiatives (MAI)/Market

Development Assistance (MDA) Scheme for promoting exports from this sector.

Applications relating to Sports Goods and Toys shall be considered for fast track clearance by DGFT.

Sports Goods and Toys are treated as special focus products and entitled to higher incentives.

(k) Green Products and Technologies: India aims to become a hub for production and export of green products and technologies. To achieve this objective, special initiative will be taken to promote development and manufacture of such products and technologies for exports. To begin with, focus would be on items relating to transportation, solar and wind power generation and other products as may be notified which will be incentivized under Reward Schemes of Chapter 3 of Foreign Trade Policy.

(I) Electronics and IT Hardware Manufacturing Industries: Expeditious clearance of approvals required from DGFT shall be ensured. Exporters and their associations would be entitled to utilize Market Access

Initiative (MAl) and Market Development Assistance (MDA) Schemes for promoting Electronics and IT Hardware Manufacturing industry exports.

(m) Incentives for Exports from the North Eastern Region: In order to give a fillip to exports of products from the north-eastern States, notified products of

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this region would be incentivized under Reward Schemes of Chapter 3 of Foreign Trade Policy (FTP). A self-removal procedure for clearance of seafood waste is applicable subject

to prescribed wastage norms. Marine products have been considered for incentives under Vishesh Krishi

and Gramin Udyog (VKGUY) scheme. (j) Sports Goods and Toys:

Duty free import of specified specialised inputs allowed to the extent of 3% of FOB value of preceding financial year's export.

Specific funds are earmarked under Market Access Initiatives (MAI)/Market Development Assistance (MDA) Scheme for promoting exports from this sector.

Applications relating to Sports Goods and Toys shall be considered for fast track clearance by DGFT.

Sports Goods and Toys are treated as special focus products and entitled to higher incentives.

(k) Green Products and Technologies: India aims to become a hub for production and export of green products and technologies. To achieve this objective, special initiative will be taken to promote development and manufacture of such products and technologies for exports. To begin with, focus would be on items relating to transportation, solar and wind power generation and other products as may be notified which will be incentivized under Reward Schemes of Chapter 3 of Foreign Trade Policy.

(I) Electronics and IT Hardware Manufacturing Industries: Expeditious clearance of approvals required from DGFT shall be ensured. Exporters and their associations would be entitled to utilize Market Access

Initiative (MAl) and Market Development Assistance (MDA) Schemes for promoting Electronics and IT Hardware Manufacturing industry exports.

(m) Incentives for Exports from the North Eastern Region: In order to give a fillip to exports of products from the north-eastern States, notified products of this region would be incentivized under Reward Schemes of Chapter 3 of Foreign Trade Policy (FTP).

(b) The project should be for a particular product for a particular market for the period of 2-3 years so as to get the maximum result.

(c) The proposal should not duplicate the efforts of any existing activity or organization in the same field.

(d) The assistance under the scheme for activities under the project will not be provided for which assistance under MDA has already been sanctioned.

(e) The funding for the project will be on cost-sharing basis. However, the Empowered Committee may consider for enhancement or curtailment of the

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level of assistance on the merit of the project.

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Exim Final

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Transcript of Exim Final