FOREIGN TRADE PROCEDURE & DOCUMENTATION

CONTENTS(A)EXPORT PROCEDURE

(1) INCOTERMS(2) PREPARATION OF EXPORT CONTRACT(3) PROCESSING OF EXPORT ORDER INCLUDING CUSTOMS & EXCISE

CLEARANCE(4) PRE SHIPMENT INSPECTION (5) INSURANCE(6) MODES OF PAYMENT INCLUDING UCP 600(7) FOREIGN EXCHANGE REGULATION & PROCEDURE (8) DISPUTE SETTLEMENT PROCEDURES

(B) IMPORT PROCEDURE(1) PURCHASE ORDER CUSTOMS CLEARANCE(2) DISPUTE SETTLEMENT PROCEDURES(3) IT APPLICATIONS IN CUSTOMS CLEARANCE

(C) (1) DOCUMENTARY FRAMEWORK FOR AVAILING CASH INCENTIVES INCLUDING DUTY DRAWBACK (2) TAX INCENTIVES(3) EXCISE DUTY RELIEF(4) OVERSEAS MARKETING FACILITIES(5) EXPORT FINANCE & EXPORT CREDIT(6) EXPORT PRODUCTION FACILITIES

EXPORT PROCEDURE

Export Procedure

How To Export Preliminaries for Starting Export Registration

Register with Export Promotion Council Dispatching Samples Appointing Agents Specimen Copy of Agreement Acquire an Export License Acquire Export Credit Insurance Arranging Finance Rates of Interest Understand Foreign Exchange Rates & Protect Against Their Adverse Movement Forward Contracts Procuring/Manufacturing Goods for Export & Their Inspection by Government Authorities Labeling, Packaging, Packing & Marking Goods New Excise Procedure How To Export Golden Rule Sell Experience Selling in Export On-time Deliveries Communication Testing Products Approach

Golden Rule: In order to be successful in exporting one must fully research its markets. No one should ever try to tackle every market at once. Many enthusiastic persons bitten by the export bug, fail because they bite off more than they can chew. Overseas design and product requirements must be carefully considered.

Always sell as close to the market as possible. The fewer intermediaries one has the better, because every intermediary needs some percentage for his share in his business, which means less profit for the exporter and higher prices for the customer. All goods for export must be efficiently produced. They must be produced with due regard to the needs of export markets. It is no use trying to sell windows which open outwards in a country where, traditionally, windows open inwards.

Sell Experience: If a person cannot easily export his goods, may be he can sell his experience. Alternatively, he can concentrate on supplying goods and materials to exporters' who already have established an export trade. He can concentrate on making what are termed 'own brand' products, much demanded by buyers in overseas markets which have the manufacturing know-how or facilities.

Selling in Export: In today's competitive world, everyone has to be sold. The customer always has a choice of suppliers. Selling is an honorable profession, and you have to be an expert salesman.

On-Time Deliveries: Late deliveries are not always an exporters fault. Dock strikes, go-slows, etc. occur almost everywhere in the world. If one enters into export for the first time, he must ensure of fast and efficient delivery of the promised consignment.

Communication: Communication internal and external must be comprehensive and immediate. Good communication is vital in export. When you are in doubt, pick up the phone or email for immediate clarification.

Testing Product: The risk of failure in export markets can be minimized by intelligent use of research. Before committing to a large-scale operation overseas, try out on a small scale. Use the a sample test, and any mistakes can then be corrected without much harm having been done. While the test campaign may appear to cost more initially, remember that some of the cost will be repaid by sales, so that test marketing often turns out to be cheaper.

Approach: If possible some indication of the attitudes towards the product should be established, like any sales operation. Even if the product is successful, to obtain reactions from the customer.

Preliminaries for Starting Export Business:Setting up an appropriate business organization. Choosing appropriate mode of operations Naming the Business Selecting the company Making effective business correspondence Selecting the markets Selecting prospective buyers Selecting channels of distribution Negotiating with prospective buyers Processing an export order Entering into export contract Export pricing and costing Understanding risks in international trade

Setting up an appropriate business organizationThe first and the foremost question you as a prospective exporter have to decide are about the kind of business organization needed for the purpose. You have to take a crucial decision as to whether a business will be run as a sole proprietary concern or a partnership firm or a company. The proper selection of organization will depend upon

Your ability to raise finance Your capacity to bear the risk Your desire to exercise control over the business Nature of regulatory framework applicable to you

If the size of the business is small, it would be advantageous to form a sole proprietary business organization. It can be set up easily without much expenses and legal formalities. It is subject to only a few governmental regulations. However, the biggest disadvantage of #138; sole proprietary business is limited liability to raise funds which restricts its growth. Besides, the owner has unlimited personal liability. In order to avoid this disadvantage, it is advisable to form a partnership firm. The partnership firm can also be set up with ease and economy. Business can take benefit of the varied experiences and expertise of the partners. The liability of the partner though joint and several, is practically distributed amongst the various partners, despite the fact that the personal liability of the partner is unlimited. The major disadvantage of partnership form of business organization is that conflict amongst the partners is a potential threat to the business. It will not be out of place to mention here that partnership firms are governed by the Indian Partnership Act, 1932 and, therefore they should be form within the parameters laid down by the Act.

Exporters Manual and Documentation

Company is another form of business Organization, which has the advantage of distinct legal identity and limited liability to the shareholders. It can be a private limited company or a public limited company. A private limited company can be formed by just two persons subscribing to its share capital. However, the number of its shareholders cannot exceed fifty, public cannot be invited to subscribe to its capital and the member's right to transfer shares is restricted. On the other hand, a public limited company has a minimum of seven members. There is no limit to maximum number of its members. It can invite the public to subscribe to its capital and permit the transfer of shares. A public limited company offers enormous potential for growth because of access to substantial funds. The liquidity of investment is high because of easiness of transfer of shares. However, its formation can be recommended only when the size of the business is large. For small business, a sole proprietary concern or a partnership firm will be the most suitable form of business organization in case it is decided to incorporate a private limited company, the same is to be registered with the Registrar of Companies.

For details as to be procedures for registration with the registrar of Companies, kindly refer to Nabhi's FORMATION AND MANAGEMENT OF A PRIVATE COMPANY ALONG WITH PRACTICAL PROCEDURES.

Choosing appropriate mode of operation

You can chose any of the following modes of operations:

Merchant Exporter i.e. buying the goods from the market or from a manufacturer and then selling them to foreign buyers.

Manufacturer Exporter i.e. manufacturing the goods yourself for export Sales Agent/Commission Agent/Indenting Agent i.e. acting on behalf of the seller and charging commission Buying Agent i.e. acting on behalf of the buyer and charging commission

Naming the Business

Whatever form of business Organization has been finally decided, naming the business is an essential task for every exporter. The name and style should be attractive, short and meaningful. Simple and attractive name indicating the nature of business is ideal. The office should be located preferably in a commercial complex, in clean and workable surroundings. The letter head should be simple and superb providing information concerning H.O., branches, cable address, telephone number, fax number, banker's name and address etc. Pick up a beautiful trade name and logo which reinforces your Organization's name and image.

Open a current account in the name of the Organization in whose name you intend to export. It is advisable to open the account with a bank which is authorised to deal in Foreign Exchange.

Selecting the Company

Carefully select the product to be exported. For proper selection of product, study the trends of export of different items from India. The selected product must be in demand in the countries where it is to be exported. It should be possible to procure or manufacture the selected product at most economic cost so that it can be competitively priced. It should also be available in sufficient quantity and it should be possible to supply it repeatedly and regularly. Besides, while selecting the product, it has to be ensured that you are conversant with government policy and regulations in respect of product selected for export. You should also know import regulations in respect of such commodities by the importing countries. It would be preferable if you have previous knowledge and experience of commodities selected by you for export. A non-technical person should avoid in dealing in high tech products.

Making effective Business Correspondence

You should recognize the importance of business correspondence as it is an introduction with the buyer in proxy which may clinch his response according to the impression created by the correspondence. For creating a very favorable and excellent impression, you must use a beautiful letter head on airmail paper and a good envelope, nicely printed, giving fully particulars of your firm's name, telephone, telex and fax number etc. Your language should be polite, soft, brief and to the point, giving a very clear picture of the subject to be put before the customer. Letters should be typed/ computer typed set, preferably in the language of the importing country. Also make sure that the full and correct address is written and the envelope is duly stamped. It should also be borne in mind that the aim of your business correspondence is not only to clinch the buyer's order but also to obtain the information on the following:

The specifications of the products already in use in the importing country. Whether your product meets the above specifications. If not, Whether your specifications offer any

distinct advantages in terms of prices, quality, after-sales service, etc. The import policy prevailing in the buyer's country (e.g. whether there is any import licensing, any restrictions on remittances, any pre-qualification for product/supplier, etc.)

The trade practices in the buyers' country with special reference to your product, information like whether importers import and distribute the product/high sea sales, whether agent is required to book orders from actual users etc. In case your item requires after sales service, the manner in which it can be offered. The prices at which your product sells in the retail/wholesale market, the duty structure and any other cost element to arrive at the landed cost. Information on the margins at which the product is sold. This information will help you in evolving a pricing strategy.

Study of various market segments viz. Importers, Supermarkets, Government Suppliers, Institutional Sales, Tenders, Suppliers, etc.

The various factors that rule the market viz. Quality, Price, Delivery, Brand Name, Credit Terms, etc. Role of advertising and publicity and reference to the product and the country.

A specimen export letter is given below:

Specimen of Introductory Letter to International Importers

Ref: TIL/NYK2001/ 14th Novl, 2000

The Manager (Purchase)

M/s. TIL Ltd.

.........................

.........................

(U.S.A.)

Dear Sir,

We are exporters of a wide variety of items including .......... for the last ten years. Our major buyers are ......... in .......... We are one of the registered export houses in India. We represent .......... the leading manufacturers of these items in India. These items are produced in collaboration with .........., the world famous company. We follow the ISI specifications. We believe that your company imports the items we export. We are enclosing herewith a copy of our brochure and price list for your perusal. We shall be glad to send you detailed literature/ samples of items that may be of interests to you.

Yours sincerely,

For NYK Ltd.

Manager (Marketing)

Encl: As above.

Comments:

The text can be suitably amended with reference to the manufacturing activity or/items dealt in by the exporter.

Where the manufacturing is not in collaboration with a foreign company, it need not be referred to.

Product literature (of the buyer's interest) and price list should invariably be sent along with the letter.

The price list should categorically indicate whether the prices are f.o.b., & C&f or c.i.f. etc. However, discount need not be indicated in the price list.

The profile about your company should generally include the following matters:

Company's name and address /Telex /Telephone /Cable /Fax/Email/ Date of establishment Export Executives Status: Partnership/ Company (Pvt. Ltd./Pub.Ltd) Govt.(Semi-Govt.) Bank Reference Exporting Since Value of Assets No. of Employees/ Manufacturing/ Sales/ Administration Foreign Offices/Representatives, if any Exporter/ Manufacturer/ Agent Main Line Technical Collaboration Standards/Specification followed Major Buyers- In India; Abroad

Selecting the markets

Target markets should be selected after careful consideration of various factors like political embargo, scope of exporter's selected product, demand stability, preferential treatment to products from developing countries, market penetration by competitive countries and products, distance of potential market, transport problems, language problems, tariff and non-tariff barriers, distribution infrastructure, size of demand in the market, expected life span of market and product requirements, sales and distribution

channels. For this purpose you should collect adequate market information before selecting one or more target markets. The information can be collected from various sources like Export Promotion Council (EPCs)/Commodity Boards, Federation of Indian Export Organization, (FIEO), Indian Institute of Foreign Trade (IIFT), Indian Trade Promotion Organization (ITPO), Indian Embassies Abroad, Foreign Embassies in India, Import Promotion Institutions Abroad, Overseas Chambers of Commerce and Industries, Various Directories, Journals, Market Survey Reports.

Selecting prospective Buyers

You can collect addresses of the prospective buyers of the commodity from the following sources:

Enquiries from friends and relatives or other acquaintances residing in foreign countries.

Visiting/ participating in International Trade Fairs and Exhibitions in India and abroad. Contact with the Export Promotion Councils, Commodity Boards and other Government Agencies. List given in Appendix 4 of this book).

Consulting International Yellow Pages (A Publication from New York by Dun & Bradstreet, USA or other Yellow Pages of different countries like Japan,Dubai Etc.)

Collecting addresses from various Private Indian Publications Directories available on cost at Jain Book Agency,C-9, Connaught Place, New Delhi-1. (PH. 3355686, Fax.3731117).

Collecting information from International Trade Directories/ Journals/periodicals available in the libraries of Directorate General of Commercial Intelligenceand Statistics, IIFT, EPCs, ITPO etc. A list of selected trade directories published abroad is given in Appendix 5 of this book.

Making contacts with Trade Representatives of Overseas Govt. in India and Indian Trade and Other Representatives/ International Trade Development Authorities abroad. A list of international trade development authorities abroad like Foreign Chambers of Commerce etc. is given in Nabhi's EXPORTERS MANUAL AND DOCUMENTATION.

Reading biweekly, fortnightly, monthly bulletins such as Indian Trade Journal, Export Service Bulletin, Bulletins and Magazines issued and published by Federation of Exporters' Organizations, ITPO, EPCs, Commodity Boards and other allied agencies. A list of Indian Trade Periodicals containing names and addresses of importers is given in Appendix 6 of this book.

Visiting Embassies, Consulates etc. of other countries and taking note of addresses of importers for products proposed to be exported.

Advertising in newspapers having overseas editions and other foreign newspapers and magazines etc.

Consulting ITPO,IIFT,etc.

Contacting authorised dealers in foreign exchange with whom exporter is maintaining bank account.

Overseas importers can be contacted or informed about the products by the following methods:

By corresponding and sending brochures and product literature to prospective overseas buyers.

By undertaking trips to foreign markets and establishing personal rapport with overseas buyers. The number of trips will depend on your budget and resources. But it is essential forlong-term success in international marketing to establish personal rapport. Foreign trip will provide first-hand information regarding the market, overseas customers, their requirement, taste, preference and better out communication of the merits of exporters' products.

Participation in buyer-seller meets and meeting the members of foreign delegation invited by Export Promotion Councils concerned.

Participation in international trade fairs, seminars.

Advertisement and publicity in overseas reputed newspapers and magazines. Facilities of free publicity can be availed from Import Development Centres.

Selecting channels of distribution

The following channels of distribution are generally utilised while exporting to overseas markets :

Exports through Export Consortia Export through Canalising Agencies Export through Other Established Merchant Exporters or Export Houses, or Trading Houses Direct Exports Export through Overseas Sales Agencies

Negotiating with Prospective Buyers

Whatever the channel of distribution for exporting to the overseas countries is proposed to be is utilized, it is essential that the exporters should possess the necessary skill for negotiating with the overseas channels of distribution. The ability to negatiate effectively

is needed for discussion with importers or trade agents. While conducting business negotiations, the prospective exporter should avoid conflict, controversy and criticism vis-`-vis the other party. During conversation the attitude should be to communicate effectively. There should be coherence, creativity, compromise, concessions, commonality, consensus, commitment and compensation in business negotiations. The general problem you may face is about pricing. The buyer's contention is that prices are too high. It should be noted that though the price is only one of the many issues that are discussed during business negotiations, it influences the entire negotiating process.

Since this is the most sensitive issue in business negotiations, it should be tactfully postponed until all the issues have been discussed and mutually agreed upon. As far as the price is concerned, you should try to determine the buyer's real interest in the product from the outset, only then a suitable counter proposal should be presented. It should also be remembered that the buyer may request modifications in presentation of the product. You should show the willingness to meet such request, if possible, provided that it will result in profitable export business. Price being the most important sales tool, it has to be properly developed and presented.

Therefore, in order to create a favorable impression, minimize costly errors and generate repeated business. The following points should be kept in mind while preparing the price list:

Submit a typewritten list, printed on the regular bond paper and laid out simply and clearly (with at least an inch between columns and between groupings) Prominently indicate the name of your company, its full address, telephone and fax numbers, including the country and city codes. Fully describe the items being quoted. Group the items logically( i.e. all the fabrics together, all the made-up together etc.).

Specify whether shipped by sea or by air, f.o.b. or c.i.f. and to what port.

Quote exact amount and not rounded-off figures.

Mention the dates upto which the prices quoted will remain valid.

Where there is an internal reference number which must be quoted, to keep it short (the buyer has no interest in this detail and the more complex it is, the greater is the risk of error).

As regards the factors determining your price, please refer to 'EXPORT PRICING AND COSTING'

One main point regarding export pricing is that while negotiating with overseas buyer, you may not remember the cost of a product. It may also be difficult for you to remember the profit margin built in various prices quoted by you. A clear jotting of this information is not free from the risk of being leaked out to the competitors or to the overseas buyers.

Some coding is, therefore, essential for the prices quoted by you so that at any stage/point of time, you can always utilise the information, enabling you to profitably negotiate with the overseas buyer. This can be done by assigning codes to the cost price.

For assigning codes to the cost price, you may select an English password consisting of 10 separate letters, each letter to represent a numerical figure. For example: 'CRAZY MOUTH' is the password selected by you, where C=1, R=2, A=3, Z=4, Y=5, M=6, O=7, U=8, T=9, H=0. This password can be successfully used for recognising various items of exports and their varieties.

Thus, a brass candle stand which is being quoted at Rs. 100(sale price) but whose cost price to you is Rs 25.50 will be coded as item number 'RYYH' and then assigned with a running serial number to make it more fascinating. You can decode the word 'RYYH' to write as Rs 25.50 so as to get an idea of difference between the Sale Price and the Cost Price, which will provide you the range within which you can negotiate with overseas buyers.

Processing an Export order

You should not be happy merely on receiving an export order. You should first acknowledge the export order, and then proceed to examine carefully in respect of items, specification, preshipment inspection, payment conditions, special packaging, labeling and marketing requirements, shipment and delivery date, marine insurance, documentation etc. if you are satisfied on these aspects, a formal confirmation should be sent to the buyer, otherwise clarification should be sought from the buyer before confirming the order. After confirmation of the export order immediate steps should be taken for procurement/manufacture of the export goods. In the meanwhile, you should proceed to enter into a formal export contract with the overseas buyer.

Entering into an Export contract

In order to avoid disputes, it is necessary to enter into an export contract with the overseas buyer. For this purpose, export contract should be carefully drafted incorporating comprehensive but in precise terms, all relevant and important conditions of the trade deal.

There should not be any ambiguity regarding the exact specifications of goods and terms of sale including export price, mode of payment, storage and distribution methods, type of packaging, port of shipment, delivery schedule etc. The different aspects of an export contract are enumerated as under :

Product, Standards and Specifications Quantity Inspection Total Value of Contract Terms of Delivery

Taxes, Duties and Charges Period of Delivery/Shipment Packing, Labeling and Marking Terms of Payment-- Amount/Mode & Currency Discounts and Commissions Licenses and Permits Insurance Documentary Requirements Guarantee Force Majeure of Excuse for Non-performance of contract Remedies Arbitration It will not be out of place to mention here the importance of arbitration clause in an export contract Court proceedings do not offer a satisfactory method for settlement of commercial disputes, as they involve inevitable delays, costs and technicalities. On the other hand, arbitration provides an economic, expeditious and informal remedy for settlement of commercial disputes. Arbitration proceedings are conducted in privacy and the awards are kept confidential. The Arbitrator is usually an expert in the subject matter of the dispute. The dates for arbitration meetings are fixed with the convenience of all concerned. Thus, arbitration is the most suitable way for settlements of commercial disputes and it may invariably be used by businessmen in their commercial dealings.

The Indian Council of Arbitration Federation House, Tansen Marg, New Delhi. (Ph. 3319251 Fax:3320714) is a specialized arbitration institution providing arbitration facilities for all types of domestic or international commercial disputes. You should use their services as far a possible.

BRIEF SPECIMEN CONTRACT FORM FOR SALE PURCHASE TRANSACTIONS

EXPORTS AND IMPORTS Name and address of the parties.......(state correct appellation and complete address of the parties)

We, the above named parties have entered into this contract for the sale/purchase, etc. ....... (state briefly the purpose of the contract) on this ........(date) at ........(place)..... subject to the following terms and conditions:

Goods ................ Quantity ...............Quality................. (Describe the quantity, quality and the other specifications of the goods precisely as per the agreement. An agency for inspection/certification of quality and/or quantity may also be stipulated). Price................ Mode of payment ...................(Quote the price, terms, i.e. ex-works/FOB(free on board) CIF(Cost, Insurance & Freight) etc. in the currency agreed upon and describe the mode of payment i.e. payment against L/C(letter of credit)/DA (document against acceptance) /D/P(document against payment)etc. It is also desirable to mention the exchange rate.)

Shipment...............(Specify date of delivery and the maximum period upto which delivery could be delayed and for which reasons, port of shipment and delivery should be mentioned). Packing and marking...............(Requirements to be specified precisely) Insurance .................(State the type of insurance cover required, i.e. FPA(free from particular average)/WA (with average)/ All Risks, etc. State also the party responsible for insurance) Brokerage/Commission ........(if any payable may be mentioned) Passing of the property and of risk. The property or ownership of the goods and the risk shall finally pass to the buyer at such stage as the parties may agree, i.e. when the goods are delivered at the seller's place of work/pass the ship's rails/are covered by insurance etc. as per agreed terms). Arbitration

Arbitration clause recommended by the Indian Council of Arbitration: "All disputes or differences whatsoever arising between the parties out of relating to the construction, meaning and operation or effect of this contract or the breach thereof shall be settled by arbitration in accordance with the rules of the arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties."(or any other arbitration clause that may be agreed upon between the parties). 3.Any other special condition, prevalent in or relevant to the particular line of trade or transaction, may also be specified.

Sd/-Seller

Sd/-Buyer

Notes: The above specimen contract form, drawn up in brief essentials, is meant for simple small scale transactions and is intended to draw the attention of the parties to important aspects of the trade deal in drafting the contract. The parties are free to add to or modify the terms as per the peculiar nature of their trade transaction. They may also consult with advantage, experienced commercial or arbitration bodies for the purpose or study published literature on the subject. The use of the arbitration clauses in commercial contracts is becoming increasingly commom, particularly in export-import transactions, with a view to promoting smooth and swift flow of business. The Indian Council of Arbitration (ICA) which is partly founded by the Government of India, provides comprehensive institutional arbitration service to all government departments and public undertakings as well as private traders, exporters and importers in India for amicable and quick settlement of all types of commercial disputes. It has been suggested by the Ministry of Commerce that all commercial Organizations should make use of the arbitration clause of the Council in their commercial contracts with Indian and foreign parties.

Export Pricing and Costing

Export pricing should be differentiated from export costing. Price is what we offer to the customer. Cost is the price that we pay/incur for the product. Price includes our profit margin; cost includes only expenses we have incurred. Export pricing is the most important tool for promoting sales and facing international competition. The price has to be realistically worked out taking into consideration all export benefits and expenses. However, there is no fixed formula for successful export pricing. It will differ from exporter to exporter depending upon whether the exporter is a merchant exporter or a manufacturer exporter or exporting through a canalising agency. You should also assess the strength of your competitor and anticipate the move of the competitor in the market. Pricing strategies will depend on various circumstantial situations. You can still be competitive with higher prices but with better delivery package or other advantages.

Your prices will be determined by the following factors:Range of products offered Prompt deliveries and continuity in supply After-sales service in products like machine tools, consumer durables Product differentiation and brand image Frequency of purchase Presumed relationship between quality and price Specialty value goods and gift items Credit offered Preference or prejudice for products originating from a particular source Aggressive marketing and sales promotion Prompt acceptance and settlement of claims Unique value goods and gift items

Export Costing is basically Cost Accountant's job. It consists of fixed cost and variable cost comprising various elements. It is advisable to prepare an export costing sheet for every export product. For the format of the export costing sheet and other relevant details refer to Nabhi's EXPORTERS MANUAL AND DOCUMENTATION.As regards quoting the prices to the overseas buyer, the same are quoted in the following internationally accepted terms:

Ex-Works: 'Ex-works' means that your responsibility is to make goods available to the buyer at works or factory. The full cost and risk involved in bringing the goods from this place to the desired destination will be borne by the buyer. This term thus represents the minimum obligation for you. It is mostly used for sale of plantation commodities such as tea, coffee and cocoa.

Free on Rail(FOR): Free on Truck(FOT):These terms are used when the goods are to be carried by rail, but they are also used for road transport. Your obligations are fulfilled when the goods are delivered to the carrier.

Free Alongside Ship (FAS): Once the goods have been placed alongside the ship, your obligations are fulfilled and the buyer notified. The buyer has to contract with the sea carrier for the carriage of the goods to the destination and pay the freight. The buyer has to bear all costs and risks of loss or damage to the goods hereafter.

Free on Board (FOB): Your responsibility ends the moment the contracted goods are placed on board the ship, free of cost to the buyer at a port of shipment named in the sales contract. 'On board' means that a 'Received for Shipment' B/L (Bill of Lading) is not sufficient. Such B/L if issued must be converted into 'Shipped on Board B/L' by using the stamp 'Shipped on Board' and must bear signature of the carrier or his authorised representative together with date on which the goods were 'boarded'.

Cost and Freight (C&F): You must on your own risk and not as an agent of the buyer, contract for the carriage of the goods to the port of destination named in the sale contract and pay the freight. This being a shipment contract, the point of delivery is fixed to the ship's rail and the risk of loss or of damage to the goods is transferred from the seller to the buyer at that very point. As will be seen though you bear the cost of carriage to the named destination, the risk is already transferred to the buyer at the port of shipment itself.

Cost Insurance Freight (CIF): The term is basically the same as C&F, but with the addition that you have to obtain insurance at your cost against the risks of loss or damage to the goods during the carriage.

Freight or Carriage Paid (DCP): While C&F is used for goods which are to be carried by sea, the term "DCP" is used for land transport only, including national and international transport by road, rail and inland waterways. You have to contract for the carriage of the goods to the agreed destination named in the contract of the sale and pay freight. Your obligations are fulfilled when the goods are delivered to the first carrier and not beyond. In case the buyer desires you to insure the goods till the destination, he would add 'including insurance' before the word 'Paid in Freight' or 'Carriage Paid to'.

EXS/EX-Ship: This is an arrival contract and means that you make the goods available to the buyer in the ship at the named port of destination as per sales contract. You have to bear the full cost and risk involved in bringing the goods there. Your obligation is fulfilled before the customs border of the foreign country and it is for the buyer to obtain necessary import license at his own risk and expense.

EXQ/Ex-Quay: Ex-Quay means that you make the goods available to the buyer at a named quay. As in the term 'Ex-Ship' the points of division of costs and risks coincide, but they have now been moved one step further -- from the ship into the quay or wharf i.e. after crossing the customs border at destination. Therefore, in addition to arranging for carriage and paying freight and insurance you have to bear the cost of unloading the goods from the ship.

Delivered at Frontier (DAF): The term is primarily intended to be used when the goods are to be carried by rail or road. Your obligations are fulfilled when the goods have arrived at the frontier, but before the 'Customs border' of the country named in the sales contract.

Delivery Duty Paid (DDP): This term may be used irrespective of the type of transport involved and denotes your maximum obligation as opposed to 'Ex-Works'. You have not fulfilled his obligation till such time that the goods are made available at his risk and cost to the buyer at his premises or any other named destination. In the latter case necessary documents (e.g. transport document or Warehouse Warrant) will have to be made available to the buyer to enable him to take delivery of goods. The term 'duty' includes taxes, fees and charges.Therefore, the obligation to pay VAT (Value Added Tax) levied upon importation will fall upon you. It is, therefore, advisable to use 'exclusive of VAT' after the words 'duty paid'.

FAO/FOB Airport: 'FOB Airport' is based on the same main principle as the ordinary FOB term. You fulfill your obligation by delivering the goods to the air carrier at the airport of departure. Without the buyer's approval delivery at a town terminal outside the airport is not sufficient, your obligations with respect to costs and risks do not extend to the arrival of the goods at the destination.

Free Carrier (Named Point) FRC: The term has been designed particularly to meet the requirements of modern transport like 'multi-modal' transport as container or 'roll-on-roll-off' traffic by trailers and ferries. The principles on which the term is based is same as applicable to FOB except that the seller or the exporter fulfills his obligations when he delivers the goods into the custody of the carrier at the named point.

Freight Carriage and Insurance Paid (CIP): The term is similar to 'Freight or Carriage Paid to'. However, in case of CIP you have additionally to procure transport insurance against the risk of loss or damage to the goods during the carriage. You contract with the insurer and pay the insurance premium.Back

Understanding risks in International trade

While selling abroad, you may undergo the following risks:Credit risk Currency risk Carriage risk Country risk

These risks can be insured to a great extent by taking appropriate steps. Credit risk against the buyer can be covered by insisting upon an irrevocable letter of credit from the overseas buyer. An appropriate policy from Export Credit and Guarantee Corporation of India Ltd. can also be obtained for this purpose. Country risks are also covered by the ECGC. As regards currency risk, i.e. possible loss due to adverse fluctuation in exchange

rate, You should obtain forward cover from your bank authorised to deal in foreign exchange. Alternatively, you should obtain export order in Indian rupee. Carriage risk, i.e. possible loss of cargo in transit can be covered by taking a marine insurance policy from the general insurance companies.

Registration Registration with Reserve Bank Of India: No longer required. Prior to 1.1.1997 it was compulsory for every exporter to obtain an exporters' code number from the Reserve Bank of India before engaging in export. This has since been dispensed with and registration with the licensing authorities is sufficient before commencing export or import.

Registration with Regional Licensing: Authorities (obtaining IEC Code Number) The Customs Authorities will not allow you to import or export goods into or from India unless you hold a valid IEC number. For obtaining IEC number you should apply to Regional Licensing Authority (list given in Appendix 2) in duplicate in the prescribed form given in Appendix 1. Before applying for IEC number it is necessary to open a bank account in the name of your company / firm with any commercial bank authorized to deal in foreign exchange. The duly signed application form should be supported by the following documents:

Bank Receipt (in duplicates)/Demand Draft for payment of the fee of Rs. 1,000/-.

Certificate from the Banker of the applicant firm as per Annexure 1 to the form given in Appendix 1 of this Book.

Two copies of Passport size photographs of the applicant duly attested by the banker to the applicants.

A copy of Permanent Account Number issued by Income Tax Authorities. If PAN has not been allotted, a copy of application of PAN submitted to Income Tax Authorities.

In case the application is signed by an authorised signatory, a copy of the letter of legal authority may be furnished.

If there is any non-resident interest in the firm and NRI investment is to be made with repatriation benefits, a simple declaration indicating whether it is held with the general/specific permission of the RBI on the letter head of the firm should be furnished. In case of specific approval, a copy may also be furnished.

Declaration by the applicant that the proprietors/partners/directors of the applicant firm/company, as the case may be, are not associated as proprietor/partners/directors with any other firm/company which has been caution-listed by the RBI. Where the applicant is so associated with a caution-listed firm/company the IEC No. is allotted with a condition that he can export only with the prior approval of the RBI.

Exporter's Profile as per form attached to Appendix 1 of this book (See Appendix 1A of this Book). The Regional Licensing Authority concerned will on merits grant an IEC number to the applicant. The number should normally be given within 3 days provided the application is complete in all respects and is accompanied by the prescribed documents. An IEC number allotted to an applicant shall be valid for all its branches/divisions as indicated on the IEC number.Register With Export Promotion Council In order to enable you to obtain benefits/concession under the export-import policy, you are required to register yourself with an appropriate export promotion agency by obtaining registration-cum- membership certificate.

For this purpose you should apply in the prescribed form, given at Appendix 3 of this Book to the Export Promotion Council relating to your main line of business.

For list of Registering Agencies, please refer to Appendix 4 of this Book. However, if the export is such that it is not covered by any EPC, RCMC in respect thereof may be obtained from the Regional Licensing Authority concerned.

An application for registration should be accompanied by a self certified copy of the Importer-Exporter code number issued by the Regional Licensing Authority concerned and bank certificate in support of the applicant's financial soundness. In case an exporter desires to get registration as a manufacturer exporter, he should furnish evidence to that effect. In the case of a manufacturer exporter the licensing authority may seek copy of registration with SSI/any other sponsoring authority in addition to the application in the prescribed form for the Import Export Code Number.

If the application for registration is granted, the EPC or FIEO shall issue the RCMC indicating the status of the applicant as merchant exporter or manufacturer exporter. The RCMC shall be valid for five years ending 31st March of the licensing year. The certificate shall be deemed to be valid from 1st April of the licensing year in which it was issued.

Registration With Sales Tax Authorities: Goods which are to be shipped out of the country for export are eligible for exemption from both Sales Tax and Central Sales Tax. For this purpose, you should get yourself registered with the Sales Tax Authority of your state after following the procedure prescribed under the Sales Tax Act applicable to your State.Despatching Samples As the overseas buyers generally insist for the samples before placing confirmed orders, it is essential that the samples are attractive, informative and have retention and reminder value. Besides, the exporter should know the Government policy and procedures for export of samples from India. He should also be aware about the cheapest modes of sending samples.

In this connection, it is advised that the postal channel is comparatively cheaper than sending samples by air. While sending samples through postal channel due regard should

be given to weight and dimension of the post parcels as postal authorities have prescribed maximum weight and dimension for the post parcels handled by them. Where it is not possible to send the samples by post parcels, the same may be sent by air. So far as the Government policy regarding export of samples is concerned, distinction has been made between export of commercial samples and gift parcels. In terms of Para 11.4 of the Import Export Policy as modified upto 31.3.1999, goods including edible items of value not exceeding Rs.1,00,000 in a licensing year may be exported as a gift. Items mentioned as restricted for exports in the ITC (HS) Classifications of Export & Import Items shall not be exported as a gift without a license except in the case of edible items. Export of bonafide trade and technical samples having indelible marking as "sample not for sale" is allowed freely without any limit. However, in such cases where indelible marking is not available, the samples may be allowed for a value not exceeding US $ 10,000, per consignment. In addition the exporter has the option to avail the facility of free samples upto US $ 5,000 or 1% of the preceding year's exports, whichever is higher. An application for export of gifts/samples in excess of the limits specified above may be made to the DGFT.

Special provisions have been made for export of garment samples. Garment samples are allowed to be exported only by exporters who are registered with the Apparel Export Promotion Council (AEPC) or the Wool and Woolen Export Promotion Council for woolen Knitwears. Export of samples to be sent by post parcel or air freight are further divided into 3 categories, namely : 1.Samples of value upto Rs.10,000, 2.Samples of value less than Rs. 25,000, 3.Samples of value more than Rs. 25,000.Where the value of the articles is less than Rs. 10,000, the exporter should file a simple declaration that the sample does not involve foreign exchange and its value is less than Rs. 10,000.Where the value of samples is more than Rs. 10,000 but less than Rs. 25,000 you should obtain a value certificate from the authorised dealer in foreign exchange (i.e. your bank). For this purpose, you should submit a commercial invoice certifying thereon that the parcel does not involve foreign exchange and the aggregate value of the samples exported by you does not exceed Rs. 25,000 in the current calendar year.If the value of samples exceeds Rs. 25,000 you should obtain Gr/PP waiver from the Reserve Bank of India.

Export of trade samples is allowed by sea/air (as distinguished from sea/airmail) without any value restriction, provided the customs authorities are satisfied about the bona fide of the goods that they do not fall in the export control restrictions. However, customs authorities may ask for suitable documentary evidence in this regard viz. correspondence etc. with the overseas buyer. Trade samples against which the foreign buyer agrees to make payment can be exported in the same manner in which normal exports are effected. Samples can also be carried personally by you while traveling abroad provided these are otherwise permissible or cleared for export as explained earlier.

However, in case of precious jewelry/stone items, you should declare the same to the customs authorities while leaving the country and obtain necessary endorsement on export certificate issued by the Jewelry Appraiser of the Customs.

Appointing Agents Selling through an overseas agent is an effective strategy. These agents serve as a source of market intelligence. Regularly sending the latest trends on the current fashion, taste and price in the market. Being a man on the spot, the agent is in a position to render his advice to exporter or new methods and strategy for pushing up sales of your products. He also provides you support in the matter of transportation, reservation of accommodation, appointment with the government as and when required by you. In some countries it is compulsory under their law to sell through local agents only. It is, therefore, essential that you should carefully select your overseas agent.

Consider the points listed below when appointing an Agent :Size of the agent's company Date of foundation of the agent's company Company's ownership and control Company's capital, funds, available and liabilities Name, age and experience of the company's senior executives Number, age and experience of the company's salesman Oher agencies that the company holds, including those of competing products and turn-over of each Length of company's association with other principal New agencies that the company obtained or lost during the past year Company's total annual sales and the trends in its sales in recent years Company's sales coverage, overall and by area Number of sales calls per month and per salesman by company staff Any major obstacles expected in the company's sales growth Agent's capability to provide sales promotion and advertising services Agent's transport facilities and warehousing capacity Agent's rate of commission; payment terms required References on the agents from banks, trade associations and major buyers

Some source of information on agents are:Government Departments Trade Associations Chambers of Commerce Banks Independent Consultants Export Promotion Councils Advertisement Abroad. Specimen Copy of Agreement An agreement made this the ....... day ....... of between .......(name and address) hereinafter called the exporters of the first part and ........ (name and address) hereinafter called the importers of the second part, wherein the exporters grant to the importers the importation and selling right in the territory of ..........(fill name of country) for .........(names and brief description of product) subject to the terms and conditions given below :

The exporter agrees that during the currency of the agreement he will not correspond or in any way deal with any part in the territory specified unless requested to do so by the importers.

The exporter agrees that any orders or enquiries relating to the specified territory received by him during the currency of this agreement will be passed on to the importers to deal with.

The exporter agrees that he will make shipment of all orders received from the importers by earliest shipping opportunity unless prevented from so doing by circumstances beyond the former's control.

The exporter agrees to charge the importers for all goods ordered during the currency of this agreement the prices detailed in Price List No. ......... appended to this agreement unless any order is received at least one month after notification of price changes by the exporter to the importer.

The exporter agrees to pay the importer commission on ......... (fill in the dates of each year during the currency of this agreement) at the rate of ...... per cent of ....... the F.O.B. value of all orders satisfactorily completed during the ...... months preceding the dates specified.

The exporter agrees that he will allow to the importers ........ per cent ....... of the value of all business satisfactorily completed with the importers during the currency of this agreement as contribution towards the importer's costs in publicising the products covered by this agreement. This allowance is to be settled by deduction from the manufacturer's invoices to the importers.

The importers agree that during the currency of this agreement they will not sell, recommend or in any other way deal with any competing or rivaling lines in the territory specified.

The importers agree that they will use their best efforts and endeavors at all times during the currency of this agreement to promote the sales of products covered by this agreement.

The importers agree that they will make net and full payment for all goods ordered through confirmed and irrevocable letter of credit established in ........... (name of manufacturer's town or city). OR The importers agree that they will make net and full payment for all goods ordered against presentation of draft and shipping documents in ......... (Name of importer's town or city). OR The importers agree that they will immediately upon presentation at ......... and retire such drafts net and in full upon maturity.

The importers agree that they will write to the manufacturer at least once each calendar month and will send to the manufacturer a full market report on the prospects for sale of the products covered by this agreement every six months.

The importer agrees that they will place regular and adequate order with the manufacturer amounting in total to not less than ........ during the first calendar year and not less than Rs. .......... in each and every subsequent year during the currency of this agreement.

This agreement shall become valid with effect from the date of shipment of the substantial order amounting in value of not less than Rs. ........ and remain in force for a period of twelve calendar months there from subject to either party being at liberty to terminate this agreement without notice in the event of the other party being in breach of any of the terms and conditions stated herein.

Notwithstanding anything herein aforesaid if during the first twelve calendar months the importers have placed satisfactory orders with the exporters amounting to not less than Rs. ....... this agreement shall be automatically renewed year after year provided that in the twelve calendar months immediately preceding the expiry date satisfactorily business amounting in total to not less than Rs. ....... has been placed by the importers with the manufacturer.

Any disputes arising under this agreement shall be settled in accordance with Indian Law in (.............)

Witness.............. (Exporter)

Witness.............. (Importer)Acquire Export License Exports free unless regulated: The current Export Licensing Policy of the Government of India is contained in the new Import Export Policy and Procedures, 1997-2002 as amended upto 31.3.1999. The Policy and Procedures are amended from time to time and for latest position kindly refer to. However, for the sake of information of the prospective exporters, it may be stated that all goods may be exported without any restriction except to the extent such exports are regulated by the ITC (HS) Classifications of Export and Import items or any other provisions of this policy or any other law for the time being in force. The Director General of Foreign Trade may, however, specify through a Public Notice such terms and conditions according to which any goods, not included in the ITC (HS) Classifications of Export and Import items may be exported without a license. Such terms and conditions may include Minimum Export Price (MEP), registration with specified authorities, quantitative ceilings and compliance with other laws, rules, regulations.

Application for an Export License: An application for grant of export license in respect of items mentioned in Schedule 2 of ITC (HS) Classifications of Export and Import items may be made in the form given in Appendix-18A or 18B or 18C, as the case may be, to the Director General of Foreign Trade and shall be accompanied by the documents

prescribed therein. The Export Licensing Committee under the Chairmanship of Export Commissioner shall consider such applications on merits for issue of export licenses special High Powered Licensing Committee under the Chairmanship of Director General of Foreign Trade shall consider applications for export of dual purpose chemicals and for special materials, equipment and technologies, as specified in Schedule 2 Appendix 5 and Schedule 2 Appendix 6 respectively of the book p 7 3 titled ITC(HS) Classifications of Export and Import items on the basis of guidelines issued in this regard from time to time.

Export of Canalised Items: An application for export of canalised items mentioned in ITC (HS) Classifications of Export and Import items may be made to the Director General of Foreign Trade.

Trade Fairs/Exhibitions: Any Indian wishing to organise any Trade Fair/Exhibition in India or abroad, would be required to obtain a certificate from an officer of the rank not below that of an Under Secretary to the Government of India, in the Ministry of Commerce, or an Officer of India Trade Promotion Organization, duly authorised by its chairman in this behalf, to the effect that such exhibition, fair or as the case may be, similar show or display, has been approved or sponsored by the Government of India in the Ministry of Commerce or the India Trade Promotion Organization and the same is being held in public interest.

Gifts/Spares/Replacement Goods: For export of gifts, indigenous/imported spares and replacement goods in excess of the prescribed ceiling/period, an application may be made to the Director General of Foreign Trade.

Export through Courier Service: Import/Exports through a registered courier service is permitted as per the Notification issued by the Department of Revenue. However, importability/exportability of such items shall be regulated in accordance with the policy.Acquire Export Credit Insurance Export credit insurance protects you from the consequences of the payment risks, both political and commercial. It enables you to expand your overseas business without fear of loss. Further, it creates a favorable climate for you under which you can hope to get timely and liberal credit facilities from the banks at home.

You can obtain Export Credit from the Export Credit and Guarantee Corporation of India Limited. In order to provide you Export Credit Insurance, the following covers are issued by the ECGC :

Standard policies to protect you against the risk of not p 7 3 receiving payment while trading with overseas buyers on short-term credit.

Specific policies designed to protect you against the risk of not receiving payment in respect of:

exports on deferred payment terms

services rendered to foreign parties construction work, including turnkey projects undertaken abroad

The policies are either:

Whole Turnover Policies in the form of 'Open Cover' in respect of shipments made during 24 months period. You have to obtain credit limit on each one of your buyers to enable ECGC to approve a limit on the basis of credit worthiness of the buyer. These policies are basically similar to whole turnover policies but only apply to specific contracts.

Specific Policies for exports of capital goods on medium or long-term credit, turnkey projects, civil construction works and technical services.These policies are basically similar to whole turnover policies but only apply to specific contracts.

Financial guarantees issued to banks against risk involved in providing credit or guarantee facilities to you, and

Special schemes viz. transfer guarantee issued to protect banks which add confirmation to letters of credit, Insurance cover for Buyers' Credit, Lines of Credit, Joint Ventures and Overseas Investment Insurance, and Exchange Fluctuation Risk Insurance. The other guarantees which banks can offer to youthrough ECGC schemes are :--- Bid Bonds,--- Advance Payments Guarantee,--- Bank guarantee for due performance of the contract by the exporter,---Bank guarantee for payment of retention money,--- Bank guarantee for loans in foreign currencies. Details of these schemes can be obtained from your own banker or local office of the Export Credit and Guarantee Corporation of India Ltd.

The Shipments (Comprehensive Risks) Policy is the one ideally suited to cover risks in respect of goods exported on short-term credit. Shipments to associates or to agents and those against letter of credit can be covered for only political risks by suitable endorsements to the shipments (comprehensive risks) Policy. Premium is charged on such shipments at lower rates.

For obtaining a policy you should apply to the nearest office of the ECGC in the prescribed Form no.121 (obtainable from ECGC) along with the following documents :

Bank Certificate about the financial position Application form for fixing the credit limit Name/address of foreign buyer fixing sub-limits

After examining the proposal, ECGC would send the exporter an offer letter stating the terms of its cover and premium rates. The policy will be issued after the exporter conveys his consent to the premium rate and pays a non-refundable policy fee of Rs. 100 for policies with maximum liability limit p 7 3 upto Rs. 5 lakhs; Rs. 200 between Rs. 5 lakhs and Rs. 20 lakhs and Rs. 100 for each additional Rs. 10 lakhs or part thereof subject to a ceiling of Rs. 2500.As commercial risks are not covered in the absence of a credit limit,

you are advised to apply to ECGC for approval of credit limit on buyer in the prescribed Form No:144 (obtainable from ECGC) before making shipment. Credit limit is the limit upto which claim can be paid under the policy for losses on account of commercial risks. If no application for credit limit on a buyer has been made, ECGC accepts liability for commercial risks upto a maximum of Rs. 5,00,000 for D.P./C.A.D. transactions and Rs. 2,00,000 for D.A. transactions provided that at least three shipments have been effected to the buyer during the preceding two years on similar terms, at least one of them was not less than the discretionary limit availed of by the exporter and the buyer had made payment on the due dates.Arranging Finance Financial assistance to the exporters are generally provided by Commercial Banks, before shipment as well as after shipment of the said goods. The assistance provided before shipment of goods is known as per-shipment finance and that provided after the shipment of goods is known as post-shipment finance.Pre-shipment finance is given for working capital for purchase of raw-material, processing, packing, transportation, ware-housing etc. of the goods meant for export. Post-shipment finance is provided for bridging the gap between the shipment of goods and realization of export proceeds. The later is done by the Banks by purchasing or negotiating the export documents or by extending advance against export bills accepted on collection basis. While doing so, the Banks adjust the pre-shipment advance, if any, already granted to the exporter.

Pre-Shipment Finance

An application for pre-shipment advance should be made by you to your banker along with the following documents:

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 should be given. An undertaking that the advance will be utilized for the specific purpose of procuring/manufacturing/shipping etc., of the goods meant for export only, as stated in the relative confirmed export order or the L/C. If you are a sub-supplier and want to supply the goods to the Export/Trading/Star Trading House or Merchant Exporter, an undertaking from the Merchant

Exporter or Export/Trading/Star Trading House stating that they have not/will p 7 3 not avail themselves of packing credit facility against the same transaction for the same purpose till the original packing credit is liquidated. Copies of Income Tax/Wealth Tax assessment Order for the last 2-3 years in the case of sole proprietary and partnership firm. Copy of Exporter's Code Number (CNX). Copy of a valid RCMC (Registration-cum-Membership Certificate) held by you and/or the Export/Trading/StarTrading House Certificate. Appropriate policy/guarantee of the ECGC.

Any other document required by the Bank. For encouraging exports, R.B.I. has instructed the banks to grant Preshipment advance at a concessional rate of interest. The present rate of interest is 10% p.a. for Preshipment advance up to an initial period of 180 days. Preshipment advance for a further period of 90 days is given at the concessional rate of

13% p.a. Banks are free to determine the interest rate for advances beyond 270 days and upto 360 days.

Following special schemes are also available in respect of pre-shipment finance:

Exim Bank's scheme for grant of foreign currency pre-shipment credit to exporters for financing cost of imported inputs for manufacture of export products.

Scheme of export packing credit to sub-suppliers from export order.

Packing credit for deemed exports.

Pre-shipment Credit in Foreign Currency (PCFC). For further details refer to Nabhi's "How to Borrow from Financial and Banking Institutions".

Post Shipment Finance

Post-shipment finance is the finance provided against shipping documents. It is also provided against duty drawback claims. It is provided in the following forms:

Purchase of Export Documents drawn under Export Order: Purchase or discount facilities in respect of export bills drawn under confirmed export order are generally granted to the customers who are enjoying Bill Purchase/Discounting limits from the Bank. As in case of purchase or discounting of export documents drawn under export order, the security offered under L/C by way of substitution of credit-worthiness of the buyer by the issuing bank is not available, the bank financing is totally dependent upon the credit worthiness of the buyer, i.e. the importer, as well as that of the exporter or the beneficiary. The documents dawn on DP basis are parted with through foreign correspondent only when payment is received while in case of DA bills documents (including that of title to the goods) are passed on to the overseas importer against the acceptance of the draft to make payment on maturity. DA bills are thus unsecured. The bank financing against export bills is open to the risk of non-payment. Banks, in order to enhance security, generally opt for ECGC policies and guarantees which are issued in favor of the exporter/banks to protect their interest on percentage basis in case of non-payment or delayed payment which is not on account of mischief, mistake or negligence on the part of exporter. Within the total limit of policy issued to the customer, drawee-wise limits are generally fixed for individual customers. At the time of purchasing the bill bank has to ascertain that this drawee limit is not exceeded so as to make the bank ineligible for claim in case of non-payment.

Advances against Export Bills Sent on Collection: It may sometimes be possible to avail advance against export bills sent on collection. In such cases the export bills are sent by the bank on collection basis as against their purchase/discounting by the bank. Advance against such bills is granted by way of a 'separate loan' usually termed as 'post-shipment loan'. This facility is, in fact, another form of post- shipment advance and is sanctioned by the bank on the same terms and conditions as applicable to the facility of

Negotiation/Purchase/Discount of export bills. A margin of 10 to 25% is, however, stipulated in such cases. The rates of interest etc., chargeable on this facility are also governed by the same rules. This type of facility is, however, not very popular and most of the advances against export bills are made by the bank by way of negotiation/purchase/discount.

Advance against Goods Sent on Consignment Basis: When the goods are exported on consignment basis at the risk of the exporter for sale and eventual remittance of sale proceeds to him by the agent/consignee, bank may finance against such transaction subject to the customer enjoying specific limit to that effect. However, the bank should ensure while forwarding shipping documents to its overseas branch/correspondent to instruct the latter to deliver the document only against Trust Receipt/Undertaking to deliver the sale proceeds by specified date, which should be within the prescribed date even if according to the practice in certain trades a bill for part of the estimated value is drawn in advance against the exports.

Advance against Undrawn Balance: In certain lines of export it is the trade practice that bills are not to be drawn for the full invoice value of the goods but to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc. to be ascertained after approval and inspection of the goods. Banks do finance against the undrawn balance if undrawn balance is in conformity with the normal level of balance left undrawn in the particular line of export subject to a maximum of 10% of the value of export and an undertaking is obtained from the exporter that he will, within 6 months from due date of payment or the date of shipment of the goods, whichever is earlier surrender balance proceeds of the shipment. Against the specific prior approval from Reserve Bank of India the percentage of undrawn balance can be enhanced by the exporter and the finance can be made available accordingly at higher rate. Since the actual amount to be realised out of the undrawn balance, may be less than the undrawn balance, it is necessary to keep a margin on such advance.

Advance against Retention Money: Banks also grant advances against retention money, which is payable within one year from the date of shipment, at a concessional rate of interest up to 90 days. If such advances extend beyond one year, they are treated as deferred payment advances which are also eligible for concessional rate of interest.

Advances against Claims of Duty Drawback: Duty Drawback is permitted against exports of different categories of goods under the 'Customs and Central Excise Duty Drawback Rules, 1995'. Drawback in relation to goods manufactured in India and exported means a rebate of duties chargeable on any imported materials or excisable materials used in manufacture of such goods in India or rebate on excise duty chargeable under Central Excises Act, 1944 on certain specified goods. The Duty Drawback Scheme is administered by Directorate of Duty Drawback in the Ministry of Finance. The claims of duty drawback are settled by Custom House at the rates determined and notified by the Directorate. As per the present procedure, no separate claim of duty drawback is to be filed by the exporter. A copy of the shipping bill presented by the exporter at the time of making shipment of goods serves the purpose of claim of duty drawback as well. This

claim is provisionally accepted by the customs at the time of shipment and the shipping bill is duly verified. The claim is settled by customs office later. As a further incentive to exporters, Customs Houses at Delhi, Mumbai, Calcutta, Chennai, Chandigarh, Hyderabad have evolved a simplified procedure under which claims of duty drawback are settled immediately after shipment and no funds of exporter are blocked.

However, where settlement is not possible under the simplified procedure exporters may obtain advances against claims of duty drawback as provisionally certified by customs.

Negotiation of Export documents Drawn under L/C: This aspect has been discussed in the chapter on Special Care for negotiation of Export Documents under Letter of Credit.Rates of Interest The rate of interest depends on the nature of the Bills, i.e., whether it is a demand bill or usance bill. Like pre-shipment, post-shipment finance is also available at concessional rate of interest. Present Rates of interest are as under:

Demand Bills for transit period Not exceeding ( as specified by FEDAI) 10% p.a.

Usance Bills (for total period comprising usance period of ex-port bills, transit period as specified by FEDAI and grace period, wherever applicable:

Upto 90 days 10% p.a. Beyond 90 days and upto six 12% p.a.months from the date of shipment. Beyond six months from the 20% date of Shipment (Minimum)

Against duty drawback etc., receive- Not exce-vable from Government covered by adding 10%ECGC guarantees (upto 90 days) p.a. 4. Against undrawn balance (upto 90 days) -- do -- 5.Against retention money (for suppl- -- do -- ies portion only) payable within one year from the date of shipment (upto90 days)

Normal Transit Period: Foreign Exchange Dealers Association of India (FEDAI) has fixed transit period for export bills drawn on different countries in the world. The concept of this transit period is that an export bill should normally be realised within that period. The transit period so fixed by FEDAI is known as 'Normal Transit Period' and mainly depends on geographical location of a particular country.

Direct and Indirect Bill: If the currency of the bill is the same as the currency of the country on which it is drawn, it is termed as direct bill, e.g. an export bill in US $ drawn on a place in U.S.A. However, if the currency of the bill in which it is drawn is different than the currency of the country on which it is drawn, it is termed as indirect bill, e.g. an export bill in US $ drawn on a place in Japan. The normal transit period fixed for indirect bill is on higher side as compared to transit period fixed for direct bills.

Notional Due Date: To determine the due date of an export bill we have to consider the following 3 components: (1) Normal transit period as fixed by FEDAI (2) Usance period of the bill (3) Grace period if applicable in the country on which the bill is drawn. Grace

period is applicable only in the case of usance bills. The notional due date of an export bill may thus be calculated after adding all the above 3 components The concessional rate of interest is chargeable upto the notional due date subject to a maximum of 90 days.

FORFAITING FINANCE BY AUTHORISED DEALERS: Reserve Bank has now permitted the authorised dealers (Banks) to arrange forfeiting of medium term export receivables p 7 3 on the same lines as per the scheme of EXIM Bank and many International forfeiting agencies have now become active in Indian market. Forfeiting may be usefully employed as an additional window of export finance particularly for exports to those countries for which normal exports credit is not intended by the commercial banks.It must be noted that charges of forfeiting are eventually to be passed on to the ultimate buyer and should, therefore, be so declared on relative export declaration forms.

EXTERNAL COMMERCIAL BORROWINGS: Proposals for raising foreign currency loans/credits viz., Buyer's Credits, Supplier's Credits or Lines of Credits by firms/companies/lending institutions, banks, etc. for financing cost of import of goods, technology or for any other purposes, other than short-term loans/credits maturing within one year should first be submitted to government of India, Ministry of Finance (Department Economic Affairs), ECB Division, New Delhi for necessary clearance. The proposals are considered by the government on merits of each case and in the light of prevailing Government policy. For details refer to (1) NABHI'S FOREIGN EXCHANGE MANUAL & (2) NABHI'S MANUAL OF SEBI GUIDELINES ON CAPITAL ISSUES, EURO ISSUES, MERCHANT BANKNG & MUTUAL FUNDS

EXIM BANK FINANCE: Besides commercial banks, export finance is also made available by the EXIM bank. The EXIM bank provides financial assistance to promote Indian exports through direct financial assistance, overseas investment finance, term finance for export production and export development, pre-shipment credit, lines of credit, re-lending facility, export bills re-discounting, refinance to commercial banks, finance for computer software exports, finance for export marketing and bulk import finance to commercial banks. The EXIM Bank also extends non-funded facility to Indian exports in the form of guarantees. The diversified lending programme of the EXIM Bank now covers various stages of exports, i.e. from the development export markets to expansion of production capacity for exports, production for export and post shipment financing. The EXIM Bank's focus is on export of manufactured goods, project exports, exports of technology, services and export of computer software.

Forfaiting Finance from EXIM Bank: A new financing option for the Indian exporters is available under the forfaiting finance Scheme recently introduced by the EXIM Bank. Forfaiting is a form of trade finance involving discounting of medium-term export receivables with or without recourse to the exporter. The arrangement envisages discounting by Indian exporters of bill of exchange/promissory notes relating to export transactions which are "avalised" or guaranteed by the buyer's bankers with overseas

forfaiting agencies on "without recourse" basis.Briefly, the procedure involved in the scheme of for p 7 3 faiting finance by the Exim Bank is as follows:

Exporter initiates negotiations with the prospective overseas buyer with regard to the basic contract price, period of credit, rate of interest, etc., After successful negotiations, he furnishes the relevant particulars such as name and country of overseas buyer, contract value, nature of goods, tenure of credit, name and country of guaranteeing bankers to the Exim Bank and requests for an indicative discounting quote. Exim Bank obtains the indicative quote of forfaiting discount together with commitment fee and other charges, if any, to be paid by the exporter, from an overseas forfaiting agency.

On receipt of the indicative quote from the Exim Bank, the exporter finalises the terms of the contract, loading the discount and other charges in the value and approaches Exim Bank for obtaining a firm quote. Exim Bank arranges to get the same from an appropriate overseas forfaiting agency and furnishes the same to the exporter. At this stage, exporter would be required to confirm acceptance of the arrangement to Exim Bank within a specific period as stipulated by that Bank.

The export contract clearly indicates that the overseas buyer shall prepare a series of avalised Promissory Notes in favour of the exporter and hand them over against the shipping documents to his banker. The Prommissory Notes will be endorsed with the words without recourse by the exporter and handed over to his banker in India for onward transmission to the Exim Bank.

Alternatively, the export contract may provide for exporter to draw a series of Bills of exchange on the overseas buyer which will be sent with the shipping documents through latter's banker for acceptance by the overseas buyer. Overseas buyer's banker will handover the documents against acceptance of Bills of Exchange by the buyer and signature of 'aval' or the guaranteeing bank. Avalised and accepted bills of exchange will be returned to the exporter through his banker. Exporter will endorse avalised Bills of Exchange with the words 'without recourse' and return them to his banker for onward transmission to the Exim Bank.

Exim Bank will forward the Bills of Exchange/Promissory Notes after verification to the forfaiting agency for discounting by the latter.

Exim Bank will arrange to collect the discounted proceeds of Promissory Notes/Bills of Exchange from the overseas forfaiting agency and effect payment to the nostro account of the exporter's bank as per the latter's instruction.Understand Foreign Exchange Rates & Protect Against their Adverse Movement Exchange Rates: Export contracts are concluded either in Indian rupee or in foreign currency. Where the contracts are in Indian rupee, the related documents are also prepared in Indian rupees and no conversion is involved. However, where the bill is drawn in foreign currency, like US $, , DM etc., you will get Indian rupees only after the conversion of foreign currency at the appropriate exchange rate. Thus the exchange rates become very important to determine the Indian rupees payable. A favorable exchange

rate will fetch you more rupees and vice-versa. It, therefore, becomes essential for you to gain some basic knowledge about exchange rate, the working out of its quotation by the banks, the factors determining the exchange rates in the market and the precautions you should take so as to avoid possible losses in future, due to adverse movement of the exchange rates. In the following paragraphs we shall endeavor to explain these issues. The rates applied by the banks for converting foreign currency into Indian rupees and vice versa are known as exchange rates. In other words, exchange rate is the rate at which one currency can be exchanged for another. There are two systems of quoting exchange rates :

Direct Quotation: Where the price of foreign currency is quoted in terms of home or local currency. In this system variable units of home currency equivalent to a fixed unit of foreign currency is quoted. For example : US $ 1 = Rs. 40.00

Indirect Quotation: Where exchange rates are quoted in terms of variable units of foreign currency as equivalent to a fixed number of units of home currency. For example : US $ 2,500 = Rs. 40.00 Till 1.8.1993 banks were required to quote all the rates on indirect basis as foreign currency equivalent to Rs. 100 except in case of sale/purchase of foreign currency notes and traveller cheques where exchange rates on direct quotation basis were quoted.

From 2.8.1993 banks are quoting rates on direct basis only.There is distinction between inter-bank exchange rates and merchant rates. Merchant rates are the exchange rates applied by the bankers for transactions with their customers for various purposes, such as import, export, travel, remittances etc. These rates are calculated by the banks as per the guidelines issued by the Foreign Exchange Dealers Association of India (FEDAI). On the other hand inter-bank rates are the rates for transactions amongst the authorised dealers in foreign exchange. These rates depend on the market conditions. It is not in out of place to mention here that exchange rates are volatile and, therefore, you should make sincere efforts to choose appropriate time for tendering your export documents to the bank for purchase/negotiation. Therefore, plan your affairs in such a way that the documents are delivered to the bank when exchange rates are favorable enabling you to get more Indian rupees after conversion of foreign currency amount of the bill into Indian rupees. A distinction is also made between spot rates and forward rates. Spot rates are applicable on the day of transact p 7 3 tion , i.e, the same day, whereas forward rates are the rates fixed in advance for a transaction which will mature at a specified date or during a specified period in future. Quotations for spot rates only are generally available and the customers have to enter into specific contracts for forward rates. Foreign exchange rates are always quoted as two way price i.e., a rate at which the bank is willing to buy foreign currency (buying rate) and a rate at which the bank sells foreign currency (selling rate). Banks do expect some profit in exchange operations and there is always some difference in buying and selling rates. However, the maximum spread available to banks is restricted in terms of ceiling imposed by Reserve Bank of India. All exchange rates by authorised dealers are quoted in terms of their capacity as buyer or seller. Different sets of exchange rates are applied for various types of foreign exchange transactions as under :

TT Selling Rate: This rate is applied for all clean remittances outside India i.e., for selling foreign currency to its customer by the bank such as for issuance of bank drafts, mail/telegraphic transfers etc. Bill Selling Rate: This rate is applied for all foreign remittances outside India as proceeds of import bills payable in India. This rate is a little worse than TT selling rate.

TT Buying Rate: This rate is applied for purchase of foreign currency by banks where cover is already obtained by banks in India. Thus all foreign inward remittances which are made payable in India are converted by applying this rate. A mail transfer issued by a bank in Dubai for US $ 10,000 drawn on (say) Oriental Bank of Commerce in New York.

Bills Rate: This rate is applied for purchase of sight export bills which will result in foreign remittance to India after realization. This rate is gworsening than TT buying rate and, in addition, interest will also be recovered by the bank for the period for which the bank is out of funds.Forward Contracts Elimination of exchange risk due to movement in the exchange rat can be avoided by the following options:

By invoicing in Indian Rupees. By fixing the Foreign Exchange Contract.

First alternative is possible only when the buyer agrees to it. He may have his own reasons for not agreeing to invoice in Indian rupees. The second alternative is commonly resorted to. This alternative involves booking of forward exchange contract with your bank.

This means that pending submission of documents to the bank for purchase/negotiation, you have made firm commitment with the bank under which you agree to sell to the bank foreign exchange at a future date/period and the bank agrees to purchase at the firm rate the foreign exchange to be tendered by you on that date / during the agreed period.

Thus you are in a position to know in advance the exchange rate you are going to get on submission of your export documents. Thus, though you have to pay some charge for booking a forward contract, you are certain about the rupee amount of the bill on conversion of foreign currency at a future date. For booking a forward contract, you should approach your bank with whom you are enjoying a credit limit.

The bank will book a forward contract only against a firm export order showing description and quantity of the goods to be supplied, aggregate price and approximate date of shipment. The bank can accept telex, cable order/fax in this regard, provided you give an undertaking to produce the original one. Where shipment has already been completed, forward contract will be booked on the basis of export bill tendered by you. It can also be booked against an irrevocable Letter of Credit provided L/C is complete in all respects and you give a declaration to the bank that you have not booked any forward contract against the underlying sale contract covering shipments under the L/C.You must

ensure delivery of the related documents within the agreed period of the contract. In case you fail to deliver the documents within the specified period, the forward contract needs to be cancelled and fresh contract booked for which your bank will levy cancellation charges as per the FEDAI Rules.

In case the documents are delivered before the stipulated period, it will involve early delivery and bank will levy charges for the early delivery, as per FEDAI Rules. Where the documents are not delivered at all, contract has to be cancelled either at your request or by the bank itself under certain circumstances, and this will entail cancellation charges as per the FEDAI Rules.

It, therefore becomes extremely important that the period of delivery of the export documents is carefully chosen and strictly adhered to, so as to avoid unnecessary charges on account of early delivery or cancellation of forward contracts. However, facility for substitution of export order is permitted by RBI on specific request if the unfulfilled export order and the substituted order is for the same commodity.Procuring/Manufacturing Goods for Export & their Inspection by Government Authorities Procuring / Manufacturing Goods

Once you are ready with the infrastructure for exporting goods and have obtained necessary finance, you should proceed to procure the goods for export. Procuring the goods should be done with extreme care and caution as to the quality and cost. However, procuring the raw materials etc. and manufacturing the goods for export will need extra efforts on your part. If you are an established exporter, you can have the facility of procuring raw materials under the Duty Exemption Scheme.

Compulsory Quality Control & Preshipment Inspection

An important aspect about the goods to be exported is compulsory quality control and pre-shipment inspection. Under the Export(Quality Control and Inspection) Act, 1963, about 1000 commodities under the major groups of Food and Agriculture, Fishery, Minerals, Organic and Inorganic Chemicals, Rubber Products, Refractoriness, Ceramic Products, Pesticides, Light Engineering, Steel Products, Jute Products, Coir and Coir Products, Footwear and Footwear Products / Components are subject to compulsory pre-shipment inspection.

At times, foreign buyers lay down their own standards / specifications which may or may not be in consonance with the Indian standards. They may also insist upon inspection by their own nominated agencies. These issues should be sorted out before confirmation of order. Specific provisions have also been made for compulsory inspection of textile goods.

Products having ISI Certification mark or Agmark are not required to be inspected by any agency. These products do not fall within the purview of the export inspection agencies network. The Customs Authorities allow export of such goods even if not accompanied

by any pre-shipment inspection certificate, provided they are otherwise satisfied that the goods carry ISI Certification or the Agmark.

Depending upon the nature of products, goods meant for export are inspected for quality in the following manner: Consignment to Consignment Inspection Each individual consignment is inspected by the Export Inspection Agency, Commodity Board and certificate of inspection is issued. The application for inspection for goods has to be submitted well in advance before the expected date of shipment of the consignment. Inspection of the consignment is generally carried out either at the premises of the exporter, provided adequate facilities exist therein for inspection, or at the port of shipment. The export inspection agency has a right to exercise supervision of inspected consignment(s) at any place or time.

The application should be made in duplicate in the new prescribed form 'Intimation for Inspection' as per standardised pre-shipment export documents to the nearest office of the respective Export Inspection Agency along with the following documents :

Particulars of the consignment intended to be exported. A crossed cheque/draft for the amount of requisite inspection fees or an Indian Postal Order.

Copy of the Commercial Invoice. Copy of letter of credit. Details of packing specifications. Copy of the export order/contract, indicating inter alia the buyer's requirement that goods are strictly according to the prescribed specifications, or as per samples etc.

After satisfying itself that the consignment of exportable goods meets the requirements stipulated in the export contract/order, the inspection agency issues, generally within four days of receipt of intimation for inspection, the necessary certificate of inspection to the exporter in the prescribed proforma in five copies.

The certificate is issued in the standardised form which is aligned pre-shipment export document. (Three copies for exporter, original copy for customs use, the second copy for the use of the foreign buyer and the third copy for the exporter's use, fourth copy for Data Bank, Export Inspection Council, New Delhi and the fifth copy is retained with the agency for their own office record).

In-Process Quality Control (IPQC)

Certain products like chemicals or engineering goods are subject to this control. The inspection is done at various stages of production. The exporter has to get his unit registered as "Export Worthy" and keep record of processing and production. Inspection by the officers of Export Inspection Agency is done from time to time. The certification of inspection on the end-products is then given without in-depth study at the shipment stage. Under this system, export is allowed on the basis of adequacy of in-process quality control and inspection measures exercised by the manufacturing units themselves. The

certificates of inspection in favor of the units approved under the scheme are issued by the Export Inspection Agencies (EIAs) in the normal course. However, these units are kept under surveillance by the EIAs and random spot checks of the consignments are carried out by them. Units approved under this system of in-process quality control may themselves issue the certificate of inspection, but only for the products for which they have been granted IPQC facilities. However, these units have the option either to get the certificate from the Export Inspection Agencies (EIAs) or issue the same themselves. Consequently, the manufacturer exporters of products approved under the IPQC have been recognised as an agency for pre-shipment inspection for export of engineering products for which they have been approved by the Export Inspection Agencies at Bombay, Calcutta, Cochin, Delhi and Madras.

Self Certification Scheme

Large manufacturers/exporters, export houses/tradingp 7 3 houses are allowed the facility of Self-Certification on the theory that the exporter himself is the best judge of the quality of his products and will not allow his reputation to be spoiled in the international market by compromising on quality. The industrial units having proven reputation and adequate testing facilities have to apply to the Director (Inspection and Quality Control), Export Inspection Council of India, 11th Floor, Pragati Tower, 26 Rajendra Place, New Delhi-110008. They are granted a certificate valid for a period of one year, allowing them self-certification facility. The facility is available to manufacturers of engineering products, chemical and allied products and marine products. During this period the exporter can issue a certificate signed by himself or by a person authorised by him. The certificate has to indicate the number and date of EIA's reference for registration under Self-Certification Scheme. It has to be issued in the aligned format as per new standardised pre-shipment documents. The approval of an industrial unit under this scheme is notified in the Gazette of India and the exporter has to pay a lump sum fee to the export inspection agencies depending upon his export turnover.

Minimum Quality Norms prescribed by the Export Inspection Council should be maintained and achieved for the grant of facility under Self-Certification Scheme.

ISO 9000

The discussion on quality control and preshipment inspection will be incomplete without saying a few words about ISO 9000.The ISO-9000 Series of Standards evolved by the International Standards Organization has been accepted worldwide as the norm assuring high quality of goods. The ISO-9000 is also the hallmark of a good quality- oriented system for suppliers and manufacturers. It identifies the basic principles underlying quality, and specifies the procedures and criteria to be followed to ensure that what leaves the manufacturer / supplier's premises fully meets the customers requirements. The ISO-9000 series of standards are basically quality assurance standards and not product standards.ISO-9000 spells out how a company can establish, document and maintain an effective and economic quality control system which will demonstrate to the customer that the company is committed to quality. The series of Standards aims the following:

Increased customer confidence in the company Shift from a system of inspection, to one of quality management Removing the need for multiple assessments of suppliers Gaining management commitment Linking quality to cost-effectiveness Giving customers what they need

The implementation of ISO-9000 Standards involves:

Management education Writing quality policy Nominating a quality representative Identifying responsibilities Identifying business processes Writing a quality manual Writing procedures Writing work instructions

It is thus clear that the ISO-9000 series of standards constitute of concept of Total Quality Management (TQM).Labeling, Packaging, Packing and Marking Goods An important stage after manufacturing of goods or their procurement is their preparation for shipment. This involves labeling, packaging, packing and marking of export consignments. Labeling requirements differ from country to country and the same should be ascertained well in advance from the buyer. The label should indicate quality, quantity, method of use etc. Special international care labels have been specified for the textile items by GINITEX, and the same should be scrupulously adhered to. Packaging fulfills a vital role in helping to get your export products to the market in top condition, as well as in presenting your goods to the overseas buyer in an attractive way. While packaging, quality should not be compromised merely to cut down costs, packaging should also be in conformity with the instructions issued by the importer. Packing refers to the external containers used for transportation . The shape of packing cases play a very important role in packing the cargo, and the nature of packing material to be used will depend upon the items exported As regard specification for the size, weight and strength care must be taken to ensure that the weight of standard case does not exceed 50 Kg. for easy handling of the cargo. Before packing and sealing the goods, it should be ensured that all the contents are properly placed in the case and the list of contents of packing notes should be prepared so that the buyer, the Customs authorities and the Insurance authorities can easily check the contents of each and every case.

The consolidated statement of contents for a number of case is called the Packing List, which should be prepared in the prescribed standardised format.

Marking means to mark the address, number of packages etc. on the packets. It is essential for identification purpose and should provide information on exporters' mark,

port of destination, place of destination, order number and date, gross, net and tare weight and handling instructions. It should also be ensured that while putting marks, the law of buyer's country is duly compiled with.

All shipping cases should be marked a number with special symbols selected by the exporters or the importers, so that the competitors cannot find out the details of the customers and the country of destination or supplier's country of despatch. Care should also be taken to ensure that the marking conforms to those written in the invoice, insurance certificate, bill of lading and other documents. The International Cargo Handling Co-ordination, Association has set out for the use of exporters a number of recommendations for the marking of goods carried by ocean-going vessels. They are equally useful for sending goods by other modes of transportation.

Suggestions:

The marks should appear in certain order. Essential data should be placed in oblong frames with lines 1.5 centimeters thick, and subsidiary information should be placed in another type of frame.

Declaration on large packages should be placed on two continuous sides, and for consignments bound together on a pallet, also on the top.

Handling instructions should be placed on all four sides. Similar packages, such as goods in sacks, should be marked on two opposite sides.

Lettering should be at least 7.5 centimeters high for essential data, and at least 3.5 centimeters for subsidiary data. If the package is too small for such letter, other sizes may be used, but in the same ratio. The sizes of the symbols should also be in proportion to the size of the package and of the other markings.

Only fast dyes should be used for lettering. Essential data should be in black and subsidiary data in a less conspicuous colour; red and orange lettering should be reversed for dangerous goods only. For food packed in sacks, only harmless dyes should be employed, and the dye should not come through the packing in such a way as to affect the goods.

Stick-on labels should only be used on individual package or parcel and all old labels should be removed. Marking should be made by stencil or by branding or by pencil or brush without a stencil. If stencils are used, care should be taken that the letters and figures are perfectly legible to prevent confusion. This is especially true of the letters and figures --- B.R.P, O, G-G-D-C, H.N; 3-8 : 6-9 and 1-7.

The surface to be marked should be smooth and clean. If packages are to be bonded, they can be marked before this is done; the hoops should not however, cover the markings.

The figure should indicate the total number of packages making up the consignment and the consecutive number of the individual package. For example :1520/15/1 identifies the first package of a total number of 15 packets and 1520/15/15 the last one.

The name of the ship and the bill of lading number should be shown when this is possible. Handling instructions must appear in the language of the exporter and importer, and also, if possible, in the language of the countries where goods are to be handled en route or trans shipped.New Excise Procedure All excisable goods exported out of India are exempt from payment of Central Excise Duties, for which two different procedures have been approved

Rebate of Duty on Goods Export Procedure

Under the first procedure, known as 'Rebate of duty on Goods Export. The manufacturer has first to pay the excise duty on goods meant for export and then claim refund of the same after exportation of such goods to countries except Nepal and Bhutan. This is done under Rule 12 of Central Excise Rules. Under this rule, rebate of duty is granted for the finished stage as well as input stage. Rebate of duty in respect of the excisable materials used in the manufacture of the exported goods shall not be allowed if the exporter avails of the drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995 or Modvat. The following procedure should be followed while exporting under the rebate of duty. Removal of goods under claim of rebate from a factory or warehouse without examination by the Central Excise Officers. The exporters are allowed to remove the goods for export on their own without getting the goods examined by the Central Excise Officers. Form AR4 in such cases should be prepared in sixtuplicate, giving all particulars and declarations. The exporter shall deliver triplicate, and quadruplicate, quintuplicateand sixtuplicate copies of AR4 to the Superintendent of Central Excise having jurisdiction over the factory or the warehouse, within 24 hours of the removal of the consignment and would retain the original and duplicate copies for presenting along with the consignment to the Customs Officer at the point of export. The jurisdictional superintendent of Central Excise examines the information contained in AR4 and verifies the facts of payment of duty and other certificates/declarations made by the exporter. After he is satisfied that the information contained in the AR4 is true, he signs at appropriate places in the four copies of AR4 submitted to him and plus his stamp with his name and designation below his signature. He would then dispose of the triplicate, quadruplicate, quintuplicate and sixtuplicate copies of AR4 as under:-

Triplicate: To there bate sanctioning authority viz. Maritime Commissioner of Central Excise or the assistant commissioner of Central Excise declared by the exporter on the AR4. This copy on the request of exporter may be sealed and handed over to the exporter / his authorized agent for presenting to the rebate sanctioning authority.

Quadruplicate: To the Chief Accounts Officer in the Commissionerate Headquarters.

Quintuplicate: Office copy to be retained by the Central Excise Officer.

Sixtuplicate: To be given to the exporter.

Procedure for exports under Central Excise Seal Where the exporter desires the sealing of the goods by the Central Excise Officers so that the export goods may not be examined by the Customs Officers at the Port/Airport of shipment, he should present an AR4 application in sixtuplicate to the Superintendent of Central Excise having jurisdiction over the factory/warehouse at least 24 hours before the intended removal of the export goods from the factory/warehouse. The Superintendent of Central Excise may depute an Inspector of Central Excise or may himself go for sealing and examination of the export consignment. Where the AR4 indicates that the export is in discharge of an export obligation under a Quantity-based advance License or a Value-based Advance License issued under the Duty Exemption Scheme, in such cases the consignment is invariably examined and sealed by the Superintendent of Central Excise himself. The Central Excise Officer examining the consignment would draw samples wherever necessary in triplicate. He would hand over two sets of samples, duly sealed, to the exporter or his authorized agent, for delivering to the Customs Officers at the point of export. He would retain the third set for his records. The export consignment is carefully examined vis-`-vis the description of goods, their value and other particulars/declarations on the AR4. The Central Excise Officer verifies the facts of payment of duty and other certificates/declarations made by the exporter. After he is satisfied that the information contained in the AR4 is true he would allow the clearances and also sign all the six copies of the AR4 at appropriate places and put his stamp with his name and designation below his signature. The copies of AR4 are disposed of as under:

Original and Duplicate: To the exporter for presenting to Customs Officer at the point of export along with the export consignment.

Triplicate: To the rebate sanctioning authority i.e. Maritime Commissioner of Central Excise or the jurisdictional Assistant Commissioner of Central Excise, as declared by the exporter on the AR4. The Central Excise officer may handover this copy under the sealed cover on exporter's request.

Quadruplicate: To the Chief Accounts Officer at his Commissionerate Headquarters.

Quintuplicate: To be retained for records.

Export under Bond Procedure

Under the second procedure known as "Exports Under Bond" goods can be exported out of India except to Nepal or Bhutan without prior payment of duty subject to the execution of the Bond with security / security for a sum equivalent to the duty chargeable on the goods to be exported. This is done under Rule 13 of Central Excise Rules which deals with export of goods in Bond as well as utilisation of raw materials etc. without payment of duty for manufacture and export of excisable goods. The following procedure has been prescribed in this regard.

INCOTERMS

International Commercial Terms (INCOTERMS) 

The INCOTERMS (International Commercial Terms) is a universally recognized set of definitions of international trade terms, such as FOB, CFR and CIF, developed by the International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on a commercial term like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance, and other costs and risks.

The INCOTERMS was first published in 1936---INCOTERMS 1936---and it is revised periodically to keep up with changes in the international trade needs. The complete definition of each term is available from the current publication---INCOTERMS 2000. The publication is available at your local Chamber of Commerce affiliated with the International Chamber of Commerce (ICC).

Many importers and exporters worldwide are accustomed to and may still use the INCOTERMS 1980, the predecessor of INCOTERMS 1990 and INCOTERMS 2000.

Under the INCOTERMS 2000, the international commercial terms are grouped into E, F, C and D, designated by the first letter of the term (acronym), as follows:

International Commercial Terms( INCOTERMS )

 GROUP  TERM     Stands for

E EXW Ex Works

F FCA Free Carrier

FAS Free Alongside Ship

FOB Free On Board

C CFR Cost and Freight

CIF Cost, Insurance and Freight

CPT Carriage Paid To

CIP Carriage and Insurance Paid To

D DAF Delivered At Frontier

DES Delivered Ex Ship

DEQ Delivered Ex Quay

DDU Delivered Duty Unpaid

DDP Delivered Duty Paid

Incoterms

INCO Terms are internationally accepted commercial terms defining the respective roles of the buyer and seller in the arrangement of transportation and other responsibilities, and clarify when the ownership of the merchandise takes place. They are used in conjunction with a sales agreement or other method of transacting the sale. Below is an example of how INCO Terms work in action. The definitions provided here are the most common uses of each term, but are not the only way these terms are used. Pay close attention to the location listed for each term, as this indicates where payment details change from Shipper to Consignee.

EXW (Ex Works) - (factory, mill, warehouse: your door) Title and risk pass to buyer including payment of all transportation and insurance cost from the seller's door. Used for any mode of transportation.

FCA (Free Carrier) - (pick a place after your origin to start) Title and risk pass to buyer including transportation and insurance cost when the seller delivers goods cleared for export to the carrier. Seller is obligated to load the goods on the Buyer's collecting vehicle; it is the Buyer's obligation to receive the Seller's arriving vehicle unloaded.

FAS (Free Alongside Ship) - (port, after all origin port charges) Title and risk pass to buyer including payment of all transportation and insurance cost once delivered alongside ship by the seller. Used for sea or inland waterway transportation. The export clearance obligation rests with the seller.

FOB (Free On Board) - (port-same as FAS) Risk pass to buyer including payment of all transportation and insurance cost once delivered on board the ship by the seller. Used for sea or inland waterway transportation.

CFR (Cost and Freight) - (destination port-paid to arrival at destination port) Title, risk and insurance cost pass to buyer when delivered on board the ship by seller who pays the transportation cost to the destination port. Used for sea or inland waterway transportation.

CIF (Cost, Insurance and Freight) - (destination port-same as CFR, but includes insurance) Title and risk pass to buyer when delivered on board the ship by seller who pays transportation and insurance cost to destination port. Used for sea or inland waterway transportation.

CPT (Carriage Paid To) - (place at destination-includes all destination port charges) Title, risk and insurance cost pass to buyer when delivered to carrier or seller who pays transportation and insurance cost to destination. Used for any mode of transportation.

CIP (Carriage and Insurance Paid To) - (place at destination-same as CPT, but includes insurance) Title and risk pass to buyer when delivered to carrier by seller who pays transportation and insurance cost to destination. Used for any mode of transportation.

DAF (Delivered to Frontier) - (border of country-same as paid by seller to border-all other charges to buyer) Title, risk and responsibility for import clearance pass to buyer when delivered to named border point by seller. Used for any mode of transportation. (border of country-same as paid by seller to border-all other charges to buyer) Title, risk and responsibility for import clearance pass to buyer when delivered to named border point by seller. Used for any mode of transportation.

DES (Delivered Ex Ship) - (on board ship to destination port) Title, risk, responsibility for vessel discharge and import clearance pass to buyer when seller delivers goods on board the ship to destination port. Used for sea or inland waterway transportation.

DEQ (Delivered Ex Quay i.e. Duty Paid) - (destination port-includes duties and taxes, but not destination charges or delivery) Title and risk pass to buyer when delivered on board the ship at the destination point by the seller who delivers goods on dock at destination point cleared for import. Used for sea or inland waterway transportation.

DDU (Delivered Duty Unpaid) - (consignee door-excluding duties and taxes) Title, risk, and responsibility for vessel discharge and import clearance pass to buyer when seller delivers goods on board the ship to destination port. Used for sea or inland waterway transportation.

DDP (Delivered Duty Paid) - (consignee door-includes all charges origin to destination) Title and risk pass to buyer when seller delivers goods to named destination point cleared for import. Used for any mode of transportation.

Note: EXW, CPT, CIP, DAF, DDU and DDP are commonly used for any mode of transportation. FAS, FOB, CFR, CIF, DES, and Incoterms 2000

Incoterms (International Commercial Terms) are a set of rules for the specification of commonly used

contractual commercial terms in foreign trade. They were first developed and implemented by the International

Chamber of Commerce (ICC) in 1936. The present version is Incoterms 2000 (6th revision).

Incoterms are primarily intended to regulate how goods are delivered. They specify the division of costs relating

to freight, insurance coverage, import and export duties etc. and also regulate the question of the transfer of

risk from the seller to the purchaser.

Agreeing Incoterms in purchase agreements avoids, or at least significantly limits, differing interpretations of

commercial terms in different countries.

The graphic is subject to the copyright of Logwin. It is based on the trading conditions of INCOTERMS 2000. For details please follow the link to the  INCOTERMS 2000 conditionsDEQ are us

ed for sea and inland waterway.

INCOTERMS 2000Chart of Responsibility

When negotiating an international sales contract, both parties need to pay as much attention to the terms of sale as to the sales price.  To make it as clear as possible, an international set of trade terms (INCOTERMS) has been adopted by most countries that defines exactly the responsibilities and risks of both the buyer and seller including while the merchandise is in transit.

The following chart summarizes the responsibilities of both the buyer and seller for each of the current 13 INCOTERMS.addition, a definition for each term is included at the bottom of the page.

For a more complete description of each of the INCOTERMS, The IBT Guide to INCOTERMS 2000 book published by International Business Training fully and clearly defines each of the new INCOTERMS that became effective January 1, 2000, and includes a number of case studies that demonstrate the use of the different terms in real-life situations.

* There are actually two FCA terms: FCA Seller's Premises where the seller is responsible only for loading the goods and not responsible for inland freight; and FCA Named Place (International Carrier) where the seller is responsible for

inland freight.

 

The 13 INCOTERMS

Origin Terms

EXW - Ex-Works, named place where shipment is available to the buyer, not loaded.The seller will not contract for any transportation.

International Carriage NOT Paid by Seller

FCA - Free Carrier, unloaded at the seller's dock OR a named place where shipment is available to the international carrier or agent, not loaded.This term can be used for any mode of transport.

FAS - Free Alongside Ship, named ocean port of shipment.Ocean shipments that are NOT containerized.

FOB - Free On Board vessel, named ocean port of shipment.This term is used for ocean shipments only where it is important that the goods pass the ship's rail.

International Carriage Paid by the Seller

CFR - Cost and Freight, Named ocean port of destination.This term is used for ocean shipments that are not containerized.

CIF - Cost, Insurance and Freight, named ocean port of destination.This term is used for ocean shipments that are not containerized.

CPT - Carriage Paid To, named place or port of destination.This term is used for air or ocean containerized and roll-on roll-off shipments.

CIP - Carriage and Insurance Paid To, named place or port of destination.This term is used for air or ocean containerized and roll-on roll-off shipments.

Arrival At Stated Destination

DAF - Delivered At Frontier, named place of destination, by land, not unloaded.This term is used for any mode of transportation but must be delivered by land.

DES - Delivered Ex-Ship, named port of destination, not unloaded.This term is used for ocean shipments only.

DEQ - Delivered Ex-Quay, named port of destination, unloaded, not cleared.This term is used for ocean shipments only.

DDU - Delivered Duty Unpaid, named place of destination, not unloaded, not cleared.This term is used for any mode of transportation.

DDP - Delivered Duty Paid, named place of destination, not unloaded, cleared.This term is used for any mode of transportation.

"INCOTERMS 2000" is one in a series of short articles published by International Business Training, a division of InterMart, Inc. These articles are designed to help businesses and individuals succeed in the global marketplace.

  EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ DDU DDP

SERVICES

Ex Works

Free Carrier

Free Alongside

Ship

Free Onboard Vessel

Cost & Freight

Cost Insurance & Freight

Carriage Paid To

Carriage Insurance Paid To

Delivered At

Frontier

Delivered Ex Ship

Delivered Ex Quay

Duty Unpaid

Delivered Duty

Unpaid

Delivered Duty Paid

Warehouse Storage

Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

WarehouseLabor Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Export Packing Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Loading Charges Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Inland Freight Buyer Buyer/Seller*

Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Terminal Charges

Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Forwarder's Fees

Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller

Loading On Vessel

Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Ocean/Air Freight

Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller

Charges On  Arrival At Destination

Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Buyer Buyer Seller Seller Seller

Duty, Taxes & Customs Clearance

Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller

Delivery To Destination

Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller

 

 

 

                    TERM

SERVICE

EXWEx-Works

FCAFree Carrier

FASFree Alongside Ship

  WhoPays WhoPays WhoPays

Warehouse storage at point of origin

Seller Seller Seller

Warehouse labor at point of origin

Seller Seller Seller

Export packing Seller Seller Seller

Loading at point of origin

Buyer Seller Seller

Inland freight Buyer Buyer Seller

Port receiving charges

Buyer Buyer Seller

Forwarders fee Buyer Buyer Seller

Loading on ocean carrier

Buyer Buyer Buyer

Ocean/Air freight charges

Buyer Buyer Buyer

Charges at foreign Port/Airport

Buyer Buyer Buyer

Customs, Duties & Taxes abroad

Buyer Buyer Buyer

Delivery charges to final destination

Buyer Buyer Buyer

                    TERM

SERVICE

CIP Carriage & Insurance Paid To

DAFDelivery At Frontier

DESDelivered Ex-Ship

DEQDelivered Ex-Quay, Duty Unpaid

DDUDelivered Duty Unpaid

  WhoPays WhoPays WhoPays WhoPays WhoPays

Warehouse storage at point of origin

Seller Seller Seller Seller Seller

Warehouse labor at point of origin

Seller Seller Seller Seller Seller

Export packing Seller Seller Seller Seller Seller

Loading at point of origin Seller Seller Seller Seller Seller

Inland freight Seller Seller Seller Seller Seller

Port receiving charges Seller Seller Seller Seller Seller

Forwarders fee Seller Seller Seller Seller Seller

Loading on ocean carrier Seller Seller Seller Seller Seller

Ocean/Air freight charges Seller Seller Seller Seller Seller

Charges at foreign Port/Airport

Seller Seller Buyer Seller Seller

Customs, Duties & Taxes abroad

Buyer Buyer Buyer Buyer Buyer

Delivery charges to final destination

Buyer Buyer Buyer Buyer Seller

What are changes for Incoterms 2010

Incoterms have become the international standard for international business rules.

On 1st January 2011, International Chamber of Commerce

(ICC)’sIncoterms 2010 will replace Incoterms 2000 as the

new authoritative text for determining how costs, risks, and

other responsibilities are allocated to the seller and buyer in

an international sales contract.Incoterms 2010

The last revision was in 2000 and much has changed in

global trade since then. In particular Cargo security has

become a key factor in transportation for many countries

across the globe. Following several of consideration from

legal expert the new version has been created, with special

consideration paid to security-related shipment clearance

and the use of the rules for U.S. domestic transactions. The

latest version of the Incoterms rules will reflect these

changes and will also involve updates and consolidations of

the former rules.

For Incoterms 2010, four terms have been deleted from the

list: DAF, DES, DEQ and DDU and two have been added to

DAT and DAPIncoterms – the new system

The new classification system will now divide the eleven

Incoterms into two groups (previously in four groups):

ALL MODES OF TRANSPORTATION:

EXW: Ex Works

FCA: Free Carrier

CPT: Carriage Paid To

CIP: Carriage and Insurance Paid

DAT: Delivered At Terminal

DAP: Delivered At Place

DDP: Delivered Duty Paid

SEA AND INLAND WATERWAY TRANSPORTATION:

FAS: Free Alongside Ship

FOB: Free On Board

CFR: Cost and Freight

CIF: Cost, Insurance, and Freight

With revisions to the current Incoterms it is important to

study these to ensure contracts are appropriate after 31st

December 2010.

There is simple to follow video here which explains the

charges – Incoterms Changes

SkymartIncoterms 2010 or 2011?

Incoterms 2010 or 2011?

The much heralded 2010 revision to Incoterms   are

reportedly not due for implementation until January 2011.

‘Incoterms’ are a set of rules for inter-company trade which

help traders in different countries understand one another.

There are at present 13 recognised Incoterms that cover

most forms of transaction from pick up at factory door

through to delivered premises, taxes paid and all variations

inbetween.Incoterms review

Incoterms are reviewed over the years to reflect changes in

the way goods are moved around the globe and the terms

under which they are traded. The last revision to these terms

took place in 2000.

As you can imagine, getting all Global Trade Organizations to

agree on revisions to these terms is not easily co-ordinated

and can take some time. At present the International

Chamber of Commerce Drafting Group are due to meet in

March 2010 to prepare a fourth revision of the draft. The

earliest indication of finalizing the terms is indicated as

October 2010 with earliest implementation being January

2011.Incoterms Changes

There is not a great deal of change expected to the

Incoterms 2000, the main changes are expected to be;

Clearer differentials between, what used to be called multi-

modal terms, now referred to as ‘omnimodal’ terms, and

purely marine terms.

There are expected to be fewer than the present 13

incoterms, removing some which are in essence the same

terms.

There will be the introduction of a new incoterm to cover

domestic transactions, such as those conducted within the EU.

PREPARATION OF EXPORT CONTRACT

The export contract

Introduction

An export contract (also referred to as a sales contract) is essentially an agreement between you and a foreign importer to do business. The export contract can take many different forms. For example:

1. A telephonic offer to sell, covering essential issues such as the product details, quantities offered, price per unit, delivery particulars and payment terms, made by the exporter to the foreign buyer (or an offer to buy from the importer to the exporter) and confirmed by the second party is one example of a legitimate export contract. Such an agreement may or may not be confirmed in writing. Telephonic contracts are somewhat risky and are not that common in international trade. They may occur, however, between long-standing trade partners or between reputable firms dealing in commodities that are subject to rapid price fluctuations.

2. Similarly, any written offer (quotation), either contained in a formal written contract and posted or couriered to the importer, or sent by e-mail, fax, telex or cable to the importer, and confirmed (usually also in writing) by the importer, is another form of legitimate contract. Again this could also be a written offer to buy, initiated by the importer, which is then confirmed by the exporter, although this is seldom the way it works unless it is a long-standing customer.

3. A proforma invoice sent by fax, e-mail, courier or post to the importer (usually on his/her request) and confirmed by the importer, is another common form of export contract. The confirmation could be as simple as the importer writing "I agree to these terms and conditions" on the proforma invoice and signing it or perhaps the importer may generate a separate, signed document agreeing to the proforma invoice which is then attached as reference. Alternatively, the importer may indicate that (s)he is happy with the proforma invoice, but may request a formal contract containing the terms and conditions stipulated in the proforma invoice to be drawn up and signed by both parties.

The first offer is seldom accepted

It is seldom the case that the importer will accept the first offer made by the exporter and normally this first offer will be followed by a series of counter-offers sent back and forth between the exporter and the importer until each party is satisfied with the terms and conditions outlined in the final offer and agree to abide by it.

You need to be clear and precise

Whatever form the export contract takes, you need to be careful in formulating this document as they are drawn up between companies from countries which may have very different legal systems, regulations and attitudes to doing business. These differences may cause disputes even when trading with other fairly developed nations. The challenge is to make your export contracts as clear, precise and comprehensive as is possible.

The provisions in the contract

The basic provision of any contract for the sale of goods is that you, the seller (in this case, the exporter), will transfer ownership of the goods to your buyer (the importer) in exchange for payment (which, in international trade, made be made in a foreign currency). The export contract needs to specify the terms and conditions for doing this, and should at least describe:

Who is party to the contract The validity of the contracts The goods being sold (usually described in some detail) The purchase price of the goods and the currency in question The terms of payment Inspection of the goods if required Where the goods should be delivered At what point transfer of title to the goods takes place Any warranty and/or maintenance conditions associated with

the sale Who is responsible for obtaining import or export licenses, if

these are required What supporting documentation and/or certificates are required Who is responsible for paying import duties and other taxes

Any contract performance security requirements, such as bank letters of guarantee

What will happen if either of the parties defaults or cancels The provisions for independent mediation or arbitration to

resolve disputes, and whether this would take place in South Africa or the importer's country, or elsewhere

The contract's completion date

The role of Incoterms

To provide a common terminology for international shipping and minimize misunderstandings over contract terms, the International Chamber of Commerce has developed a set of terms known as Incoterms. These are the basic terms used in international sales contracts, and you can learn more about them at the Incoterms 2000 Web site or in the Glossary of International Trade Terms in Appendix A.

Intellectual Property (IP)licensing contracts are particularly tricky

If the contract involves the licensing of proprietary information or technology, be very sure that it's precise about the licensee's rights. Vagueness about these rights can create serious problems and can lead to the loss of your intellectual property. If the licensee uses your technology to create other technologies, for example, this can severely undermine the value of your asset.

Make sure the contract is signed by all contracting parties

Also - and this would seem obvious, but it's sometimes overlooked - be sure that all parties to the contract have signed it. For instance, if you're working through a representative, be sure that the actual buyer signs the contract. The representative's signature is not necessarily enough, because without the buyer's signature, there is no written evidence that the buyer owes you money. Last but certainly not least, have the contract examined by a lawyer familiar with the export market.

Export Contracts© International Trade Centre, International Trade Forum - Issue 1/2001

Make sure your contracts include the minimum requirements for a successful transaction.

Q. What are the essential elements of an export contract?

No one contract serves as a model for all export situations. There are, however, minimum general requirements for an export contract, outlined below:

• Name and addresses of the parties. State clearly and fully the parties to the contract.

• Product, standards and specifications. State the product name, as well as technical names (if any); sizes in which the product is to be supplied (if relevant); applicable national or international standards and specifications; specific buyer requirements; and sample specifications.

• Quantity. Specify units of measure in both figures and words.

• Inspection. State the nature, manner and focus of the envisaged inspection, as well as the inspection agency. A number of goods are now subject to pre-shipment inspection by designated agencies, and foreign buyers may stipulate their own inspection agencies and conditions for inspection.

• Total value. State the total contract value in words and figures, and specify the currency.

• Terms of delivery. State the delivery terms, based on one of the Incoterms 1990. Note: a new version of Incoterms will be applicable 1 January 2000.

• Taxes, duties and charges. Clarify responsibility for all taxes. The prices quoted by the seller may be inclusive of taxes, duties, and

charges. Levies in the country of importation (if any) may be the buyer’s responsibility.

• Delivery. Specify the place of dispatch and delivery. Also state whether the period of delivery will run from the date of the contract, from the date of notification of the issue of an irrevocable letter of credit, or from the date of receipt of the notice of issuance of the import licence by the seller.

• Part-shipment, trans-shipment and consolidation of cargo. State whether the parties to the contract have agreed on part-shipment or trans-shipment. Indicate the port of trans-shipment and the number, if any, of partial shipments agreed. If the goods are likely to be shipped under a “consolidation of export cargos” scheme, mention this in the contract.

• Packaging, labelling and marking. Note all packaging, labelling and marking requirements in the contract.

• Terms of payment: amount, mode and currency. When quoting different payment terms, the exporter should specify whether the prices are based on the current rate of exchange of in-country currency, or on the basis of another currency (such as US dollars). Address payment terms for exchange rate fluctuations as well.

• Discounts and commissions. Speci-fy the amount of discount or commission to be paid and by whom (by the exporter or by the importer). Stipulate the basis of calculation of commission and rate to be applied. Discount or commission rates may or may not be included in the export price agreed upon by the exporter and importer.

• Licences and permits. State whether the export transaction will require any export or import licences, and whose responsibility and expense it will be to obtain them. Import licences may be difficult to obtain in the buyer’s country.

• Insurance. A contract should provide for the insurance of goods against loss, damage, or destruction during transportation. Specify the type of risk covered and the extent of coverage.

• Documentary requirements. Documents needed for international trade transactions fall into four categories:

– Documents for export and subsequent import of goods.

– Documents for the buyer to take delivery of the goods.

– Documents relating to payment.

– Special documents required by the nature of the goods, and conditions of sale (e.g., certain engineering goods may involve documents relating to construction, repair and maintenance).

Common export documents include the bill of exchange; commercial invoice and other invoices; bill of lading or airway bill; insurance policy; and letter of credit.

• Product guarantee. Fix and specify the length of the period of guarantee.

• Delay in delivery. Define the damages due to the buyer from the seller in the event of late delivery owing to reasons other than force majeure.

• Force majeure or excuse for non-performance of contract. Include provisions in the contract defining the circumstances which would relieve partners of their liability for non-performance of the contract. Such provisions are called force majeure and are intended to identify the relief which may be available to either party to the contract should supervening circumstances occur during the period of validity of the contract.

• Remedial action. As defaults in contractual obligations by any of the parties can occur, it is always advisable to include in the sale or purchase contract certain specific remedial actions. These remedial actions should reflect the mandatory provisions of the law applicable to the contract.

• Applicable law. State the law of the country which is to govern the contract.

• Arbitration. Include an arbitration clause to facilitate amicable and quick settlement of disputes or differences that may arise between the parties.

• Signature of the parties. The signing of the contract indicates the agreement of both parties to the terms and conditions of the contract.

How you finance an export contract is something to consider as soon as you begin negotiations or preparation of your tender.

Single-Page View  Financing production 

Winning an export contract is one thing—financing it is another.

To fulfil your export contract, you may need substantial funds upfront to pay for production costs such as:

buying raw materials or components buying or hiring equipment hiring labour paying bank fees for contract bonds.However, payment in an export contract is typically after delivery. And because the exports are transported internationally, the period from starting work to getting paid is usually longer than in domestic contracts. These factors can leave a gap in your cash flow and put severe strain on your working capital, both for export production and for the day-to-day operation of your business.

So how you finance an export contract is something to consider as soon as you begin negotiations or preparation of your tender. What will your cash flow needs be throughout the contract, from initial costs to shipping and final delivery?

If you can’t finance an export contract from funds within your business, you may be able to source some additional working capital through loans from the directors, family members or friends. However, if you need a substantial sum to finance a contract, you’ll probably need to consider loans from commercial lenders or look at ways to manage your cash flow to access additional funds.

The key financial issues are:

How do I borrow to finance export production?How do I manage cash flow to finance export production?To find government grants and tax concessions available to you at this stage of the export journey, use the search tool on the right.

How do I borrow to finance export production?If you’re looking to borrow money from a bank or other financial institution to finance export production, two options are a secured loan or a commercial bill facility. The amount you can borrow will depend largely on the value of the assets that you can provide as security for the loan. Common forms of security are cash, fixed assets like commercial property and equipment and Australian accounts receivable. You may be able to include your export accounts receivable as security for a secured loan, but this depends on your bank’s assessment of the extra non-payment risk of your overseas transactions.How do I manage cash flow to finance production?Solutions to improve your cash flow and gain access to funds for export production include:

converting some or all of your accounts receivable into cash through:

Be sure you can gain a competitive advantage with favorable payment terms or by helping your buyer arrange finance.

Single-Page View

 Winning contracts 

Access to finance can be a powerful tool in winning export business.

When there’s intense competition for international contracts, you need to be sure that you can fulfil your buyer’s tender requirements or can gain a competitive advantage with favourable payment terms or by helping your buyer arrange finance.

Whether you’re negotiating a deal with a potential buyer or submitting a tender, here are the key financial issues you’ll face:

How can I give my buyer competitive payment terms?How can I help my customer arrange finance to buy from me?How do I provide a contract bond to my buyer?To find government grants and tax concessions available to you at this stage of the export journey, use the search tool on the right.

How can I give my buyer competitive payment terms?When competing to win contracts, the payment terms you offer an overseas buyer can make or break the deal. Many buyers will expect to pay you only after you’ve made delivery. If competitors are offering generous payment terms, you may need to match those terms to make your offer attractive.

'Getting paid' explains the payment methods frequently used in international trade. In each, payment occurs at a different point in the export transaction. Generally, the later the payment date, the greater

your risk of non-payment.Open account and documentary collection (documents against acceptance) are the payment methods generally most favourable to the buyer.How can I help my customer arrange finance to buy from me?If you’re involved in a long-term export contract, such as the sale of capital equipment or goods or services for a large overseas project, your overseas buyer may often be unable or unwilling to pay for their entire export order at one time.

If so, you may gain a competitive edge by helping your buyer arrange finance, enabling them to purchase your goods or services over an extended period. Some tenders will require you to include an option for a buyer finance arrangement.

Two arrangements which help your buyer purchase your export goods are:

buyer finance —a loan to your buyer from a bank or other financial institution.

finance lease —you sell your equipment to a leasing company, which leases it to your buyer.

How do I provide a contract bond to my buyer?Your buyer may want assurance that you can deliver products and services on time and to the required standard. Contract bonds (also called guarantees) are often requirements of tenders and conditions of export contracts. They protect your buyer from loss if you don’t enter into a contract after winning a bid or tender or don’t comply with your obligations under the contract.

Being able to provide contract bonds to potential buyers means you can compete effectively for export contracts.

Contract bonds often required by buyers are:

tender or bid   bond advance payment bond performance bond warranty bond .

PROCESSING OF EXPORT ORDER INCLUDING CUSTOMS & EXCISE CLEARANCE

Export Order Processing

This is a complete system for processing of export orders. It supports the entire life cycle of an order, from its receipt until preparation of all final documents. All statutory documents are prepared as user defined layouts. You can do the follow-ups of pending orders and period wise analysis of orders. Procedures for Advance License and DEPB schemes are also integrated. You can keep track of L/C's received against orders.The system module details are explained below:

ORDERS FOR EXPORTS1. ENTRY:- You can enter Customer orders. The order from customers can be broadly bifurcated as Our Exports, Third party & Merchant exports. In case of Order is through the agent, Agents name can be recorded. An order can have multiple products. Product wise quantities and its delivery schedule can be recorded. From point of view of, factory dispatch what packing the product will be delivered (with its Pack Qty and UoM) can also be specified.

The Delivery Schedule supports concept of Lot Sample (that is Pr-Shipment Samples, generally abbreviated as P.S.S.). You can specify the date of P.S.S. required. In addition, Date Of Dispatch of goods from factory, Shipment Date and the actual date of delivery to can be specified.One can record terms and conditions of the order. Delivery/Shipping details, Banking information, L/C Reference and the insurance, if applicable, can be entered.

2. PACKING CREDITS:- Packing credit availed from a bank can be recorded for the total order value. 3. ORDER CONFIRMATION:- The hard copy of the Order confirmation to the can be printed on the pre-printed or plain stationary.4. VARIOUS DATE UPDATES/ENTRY:- Useful to modify the order schedule dates.

As dates change, you can easily modify, without going into each order's detailed schedules. Dates of Delivery, Shipment, Factory Dispatch, and P.S.S., all of them can be modified. There are internal checks for verifying consistency in these dates. For example, P.S.S. Date cannot be after the Ship Date!5. PRE-SHIPMENT SAMPLES:- One may send one or more Lot Samples (P.S.S.) for an order's delivery schedule. All P.S.S. sent could be recorded.

PACKLIST1. PACKLIST ENTRY:- One of more orders can ship together in a Packlist. Multiple delivery schedules of orders can be consolidated in a Packlist. This is the first document in a series of export documents for a shipment. In case of export, where another party manufactures goods, Manufacturer's name can be stored. Shipping details like Vessel/Flight Name, Port of Destination, and Country of Origin. Payment terms, Transport details and insurance policy is entered. The carton wise packing is summarized in packing details. Gross, Tare, Net weights can be entered cartons wise. The same can be basis for Packing Slip for each carton. 2. PACKLIST PRINTING:- Packlist can be printed on the pre-printed stationary prescribed by the Government. One can print company's own stationery.

SHIPMENTSIn case of Third Party Merchant exports, one does not prepare a Packlist. Entry of only shipment information when the third party effects dispatches. The entry procedure is identical to the PackList. This is merely used to record delivery against the merchant exports. This enables pending order reporting to be accurate and complete

PROFORMA INVOICE1. ENTRYFor each Packlist, one Proforma Invoice is prepared. Its value is derived form the Packlist. It supports DEPB and Advance License Declarations on the Proforma Invoice.2. PROFORMA INVOICE PRINTOUTYou can print Proforma Invoice on the pre-printed stationary prescribed by Government.

FINAL INVOICE1. INVOICE ENTRYFor each Proforma Invoice one Final Invoice is prepared. Export Rer#, S/B# and Date, B/L-AWB# and Date Credit days, Freights, Insurance and FOB value can be recorded. Reference of Bank Draft, which will be prepared for this invoice, can be entered. Invoice Declaration Certificate is printed in the Final Invoice. 2. INVOICE PRINTINGThe Invoice can be printed on the pre-printed stationary as prescribed along with the Invoice Declaration Certificate.

L/Cs (LETTERS OF CREDIT)1. L/C ENTRY With each new order you can enter L/C received (with its full details) for that order.2. L/C REGISTERA register for the L/Cs received can be printed. A separate report for L/Cs expiring by a given date range is available.

DEPB SHIPMENTSDeclaration of Export Pass Book Master This is entry of DEPB Master, Enter Product, Rate and its Value CAP. This will be linked with the Proforma. Hence, no further data

entry of Proforma Invoice Certificate is required.

ADVANCE LICENSE1. ADVANCE LICENCE ENTRY Enter Product wise Advance Licenses. The Exports done against this License will get populated automatically. Enter the Imports done against this license. This gives the complete picture of Exports & Imports done for a License.2. REGISTERThis Advance License Register can be maintained for Export and Import.

WORKFLOW MAPPING & CHECKLIST INTERFACE1. WORKFLOWYou can map workflow of the complete 'Export Order Processing' steps. A shipment's documents set is listed at one place. They start with a Packlist. From the Packlist originates all other documentation. They can be printed together from one single window, where the entire workflow appears at-a-glance. This interface will take care of details like number of copies, which format template to use and so on. 2. CHECKLIST For one Packlist, using the one window workflow interface, all the documents are printed. This will update an internal log. This is particularly useful when not all documents are printed at a time and some documents are differed for later printing for want of information. It keeps track of pending documents as well as reprints. A senior officer or manager can view the log to see status of completed as well as pending pre-shipment documentation. The User name date & time of printing or re-print of the documents is stored. Thus, it takes care of user accounting.

REPORTSREGISTERS1. Order Register This is a detailed listing of the order. It prints Order wise Order #, Date, Purchase Order reference, Multiple Delivery Schedule Information, Lot Samples Sent Details, Shipments done, Pending Order quantities, and the packing details. This register can be printed for a date period, usually for a month.2. Exports Sales RegisterFor a given Party and for a given Date range, it will list all Invoices prepared, its value and the currency. It also prints the Packlist, Proforma Invoice references for that Invoice.3. Advance License Register 4. L/C Registe

PENDING ORDER ANALYSIS1. Party wise: Export Type, Product, Location, Currency 2. Product wise: Export Type, Product, Location, Currency3. Ship Date wise: Export Type, Product, Location, Currency4. Factory Dispatch Date wise: Export Type, Product, Location, Currency5. Summaries: a. Product, Currency wiseb. Currency c. L/C against Ordersd. Pack wise containers required e. Lot samples to send Status6. Queries for all the above7. Product wise, Party wise Month Column Analysis

ORDER SALES ANALYSIS1. Party wise Product wise AIR, SEA, Other orders for a period2. Product wise Party wise AIR, SEA, Other orders for a period3. Party wise Product wise Month Columnar analysis4. Product wise Party wise Month Columnar analysis

EXPORT DOCUMENTATIONS User can define document format as templates. This gives user a complete flexibility of the report formats. This avoids need for software change consequential to minor format changes.The following documents can be prepared:1. Bank Letter2. Bank Hundi/Draft3. Certificate of Origin (IMC)4. GSP Form A Bank Certificate of Export and Realization 5. Goods Claim

EXCISE CLEARANCE

Excise Clearance for Export

As a part of further simplifications and rationalisation of excise rules announced by the Finance Minister, a set of Central Excise Rules, 2002 has come into effect from 1-3-2002. Under these new rules, central excise provisions for exports (except exports to Nepal and Bhutan) have been prescribed in Rule 18 and 19.

Procedure for Export to all countries (except Nepal and Bhutan) under Payment of Duty

The procedure for export of excisable1 goods except Nepal and Bhutan on payment of duty under claim for rebate is governed by the provisions of Rule 18 of the Central Excise (No.2) Rules, 2001. The conditions, limitations and safeguards are separately contained in Notification No. 40/2001-CE(NT) dated 26"' June, 2001.

Conditions and Limitations –

(i) that the excisable goods shall be exported after payment of duty, directly from a factory or warehouse;

(ii) the excisable goods shall be exported within six months from the date on which they were, cleared for export, from the factory of manufacture or warehouse;

(iii) the rebate claim by filing electronic declaration shall be allowed from such place of export and such date, as may be specified by the Board in this behalf;

(iv) that the market price of the excisable goods at the time of exportation is not less than the amount of rebate of duty claimed;

(v) that the amount of rebate of duty admissible is not less than five hundred rupees.

Sealing of goods and examination at place of dispatch

(a) For the sealing of goods intended for export at the place of despatch, the exporter shall present the goods along with four copies of application in the Form ARE-I to the Superintendent or Inspector of Central Excise having jurisdiction over the factory of production or manufacture or warehouse, who will verify the identity of goods mentioned in the application and the particulars of the duty paid or payable, and if found in order, he shall seal each package or the container in the manner as may be specified by the Commissioner of Central Excise and endorse each copy of the application in token of having such examination done;

(b) The said Superintendent or Inspector of Central Excise shall return the original and duplicate copies of application to the exporter.

(c) The triplicate copy of application shall be, —

      (i) sent to the officer with whom rebate claim is to be filed, either by post or by handing over to the exporter in a tamper proof sealed cover after posting the particulars in official records, or

     (ii) Sent to the Excise Rebate Audit Section at the place of export in case rebate is to be claimed by electronic declaration on Electronic Data Interchange system of Customs.

(d) The exporter may prepare quintuplicate copy of application for claiming any other export incentive. This copy shall be dealt in the same manner as the original copy of application.

(e) where goods are not exported directly from the factory of manufacture or warehouse, the triplicate copy of application shall be sent by the Superintendent having jurisdiction over the factory of manufacture or warehouse who shall, after verification forward the triplicate copy in the manner specified in sub-paragraph (c) above.

Despatch of goods by self-sealing and self-certification

(a) Where the exporter desires self-sealing and self-certification for removal of goods from the factory or warehouse, the exporter or a person duly authorised by such exporter, shall certify on all the copies of the application that the goods have been sealed in his presence, and shall send the original and duplicate copies of the application along with the goods at the place of export, and shall send the triplicate and quadruplicate copies of the application to the Superintendent or Inspector of Central Excise having jurisdiction over the factory or warehouse within twenty four hours of removal of the goods.

(b) The said Superintendent or Inspector of Central Excise shall, after verifying the particulars of the duty paid or duty payable and endorsing the correctness or otherwise, of these particulars -

      (i) send to the officer with whom rebate claim is to be filed, either by post or by handing over to the exporter in a tamper proof sealed cover after posting the particulars in official records, or

     (ii) send to the Excise Rebate Audit Section at the place of export in case rebate is to be claimed by electronic declaration on Electronic Data Interchange system of Customs.

(c) The exporter may prepare quintuplicate copy of application for claiming any other export incentive. This copy shall be dealt in the same manner as the original copy of application.

Examination of goods at the place of export

(a) On arrival at the place of export, the goods shall be presented together with original, duplicate and quintuplicate (optional) copies of the application to the Commissioner of Customs or other duly appointed officer;

(b) The Commissioner of Customs or other duly appointed officer shall examine the consignments with the particulars as cited in the application and if he finds that the same are correct and exportable in accordance with the laws for the time being in force, shall allow export thereof and certify on the copies of the application that the goods have been duly exported citing the shipping bill number and date and other particulars of export,

Provided that if the Superintendent or Inspector of Central Excise has sealed packages or container at the place of despatch, the officer of customs shall inspect the packages or container with reference to declarations in the application to satisfy himself about the exportability thereof and if the seals are found intact, he shall allow export.

(c) The officer of customs shall return the original and quintuplicate (optional copy for exporter) copies of application to the exporter and forward the duplicate copy of application either by post or by handing over to the exporter in a tamper proof sealed cover to the officer specified in the application, from whom exporter wants to claim rebate,

Provided that where exporter claims rebate by electronic declaration on Electronic Data Inter-change system of Customs, the duplicate shall be sent to the Excise Rebate Audit Section at the place of export.

(d) The exporter shall use the quintuplicate copy for the purposes of claiming any other export incentive;

Presentation of claim for rebate to Central Excise

(a) Claim of the rebate of duty shall be lodged along with original copy of the application to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise having jurisdiction over the factory of manufacture or warehouse or, as the case may be, the Maritime Commissioner;

(b) The Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise having jurisdiction over the factory of manufacture or warehouse or, as the case may be, Maritime Commissioner of Central Excise shall compare the duplicate copy of application received from the Officer of Customs with the original copy received from the exporter and with the triplicate copy received from the Central Excise Officer and if satisfied that the claim is in order, he shall sanction the rebate either in whole or in part.

Claim of rebate by electronic declaration

An exporter may enter the requisite information in the Shipping Bill filed at such place of export, as may be specified by the Board, for claiming rebate by electronic declaration on Electronic Data Inter-change system of Customs. The details of the corresponding application shall be entered in the Electronic Data Inter-change system of Customs upon arrival of the

goods in the Customs area. After goods are exported or order under section 51 of the Customs Act, 1962 (52 of 1962) has been issued, the rebate of excise duty shall, if the claim is found in order, be sanctioned and disbursed by the Assistant Commissioner of Customs or the Deputy Commissioner of Customs.

Procedure for Export to all countries (except Nepal and Bhutan) without Payment of Duty

The procedure for export of all excisable goods, except to Nepal and Bhutan, without payment of duty from the factory of the production or the manufacture or warehouse or any other premises as may be approved by the Commissioner of Central Excise, is governed by the provisions of Rule 19 of the Central Excise (No. 2) Rules, 2002. The conditions, limitations and safeguards are separately contained in Notification No. 42/ 2001-CE(NT) dated 26 th June, 2002.

Conditions

(i) that the exporter shall furnish a General Bond (Surety/Security) to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise having jurisdiction over the factory, warehouse or such approved premises, as the case may be, or the Maritime Commissioner or such other officer as authorised by the Board on this behalf, in a sum equal at least to the duty chargeable on the goods, with such surety or sufficient security, as such officers may approve for the due arrival thereof at the place of export and their export therefrom under Customs or as the case may be postal supervision. The manufacturer-exporter may furnish a letter of undertaking in the Form specified in lieu of a bond;

(ii) that goods shall be exported within six months from the date on which these were cleared for export from the factory of the production or the manufacture or warehouse or other approved premises within such extended period as the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise or Maritime Commissioner may in any particular case allow;

(iii) that when the export is from a place other than registered factory or warehouse, the excisable goods are in original packed condition and identifiable as to their origin.

Procedure for removal without payment of duty

(a) After furnishing bond, a merchant-exporter shall obtain certificates in Form CT-1 issued by the Superintendent of Central Excise having jurisdiction over the factory or warehouse or approved premises or Maritime Commissioner or such other officer as may be authorised by the Board on this behalf and on the basis of such certificate he may procure excisable goods without payment of duty for export by indicating the quantity, value and duty involved therein;

(b) the exporter who has furnished bond shall ensure that the debit in bond account does not exceed the credit available therein at any point of time;

(c) the manufacturer-exporter may remove the goods without payment of duty after furnishing the letter of undertaking as specified under condition (1);

(d) such General bond or letter of undertaking shall not be discharged unless the goods are duly exported, to the satisfaction of the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise or Maritime Commissioner or such other officer as

may be authorised by the Board on this behalf within the time allowed for such export or are otherwise accounted for to the satisfaction of such officer, or until the full duty due upon any deficiency of goods, not accounted so and interest, if any, has been paid.

Sealing of goods and examination at place of despatch

(a) For the sealing of goods intended for export at the place of despatch, the exporter shall present the goods along with four copies of application in the Form A.R.E.-l to the Superintendent or Inspector of Central Excise who will verify the identity of goods mentioned in the application and the particulars of the duty paid or payable, and if found in order, he shall seal each package or the container in the manner as may be specified by the Commissioner of Central Excise and endorse each copy of the application in token of having such examination done;

(b) the said Superintendent or Inspector of Central Excise shall return the original and duplicate copies of application to the exporter mid retain the quadruplicate copy;

(c) the triplicate copy of application shall be sent to the officer to whom bond or letter of undertaking has been furnished, either by post or by handing over to the exporter in a tamper proof sealed cover after posting the particulars in official records;

(d) the exporter may prepare quintuplicate copy of application for claiming any other export incentive. This copy shall be dealt in the same manner as the original copy of application;

(e) in case of export by parcel post after the goods intended for export has been sealed, the exporter shall affix to the duplicate application sufficient postage stamps to cover postal charges and shall present the documents, together with the package to which it refers, to the postmaster at the office of booking.

Despatch of goods by self-sealing and self-certification

(a)          (a) where the exporter desires self-sealing and self-certification for removal of goods from the factory, warehouse or any approved premises, the exporter or a person duly authorised, shall certify on all the copies of the application that the goods have been sealed in his presence, and shall send the original and duplicate copies of the application along with the goods at the place of export, and shall send the triplicate and quadruplicate copies of the application to the Superintendent or Inspector of Central Excise having jurisdiction over the factory, warehouse, any such approved premises within twenty four hours of removal of the goods; 

b)           (b) the Superintendent or Inspector of Central Excise shall, after verifying the particulars of the bond or letter of undertaking and endorsing the correctness or otherwise, of the particulars on the application, send to the officer to whom the bond or letter of undertaking has been furnished either by post or by handing over to the exporter in a tamper proof sealed cover after recording the particulars in the official records;

(c)          The exporter may prepare quintriplicate copy of application for claiming any other export incentive. This copy shall be dealt in the same manner as the original copy of application;

Examination of goods at the place of export

(a)       On arrival at the place of export, the goods shall be presented together with original, duplicate and quintuplicate (optional) copies of the application to the Commissioner of Customs or other duly appointed officer;

(b)        The Commissioner of Customs or other duly appointed officer shall examine the goods with the particulars as specified in the application and if he finds that the same are correct arid exportable in accordance with the laws for the time being in force, shall allow export thereof and certify on the copies of the application that the goods have been duly exported citing the shipping bil

PRE-SHIPMENT INCPECTION

Pre-Shipment Inspection CertificationPre-Shipment Inspection (PSI) is inspection of goods being exported prior to the shipment by a mandated Pre-Shipment Inspection (PSI) Agency. A PSI Agency carries out verification of quality, quantity, price (including currency exchange rate and financial terms) and customs classification for the destination country and then issues a Certificate with these details. Also, the scope of a PSI Agency includes Packing & Marking and Supervision of Loading.

In international trade most of the countries today require Pre-Shipment Inspection. It is virtually impossible to get customs clearance in a "Member Country" for goods without Pre-Shipment Inspection. The term "Member Country" here implies any country which is party to the World Trade Organization's (WTO) GATT and other Multilateral Trade Agreements and is defined as "a Member of which the government or any government body contracts for or mandates the use of preshipment inspection activities". 

Ravi Energie is a mandated PSI Agency and a Pre-Shipment Inspection (PSI) Certificate from Ravi Energie is required for Customs Clearance in the “Member Countries”. Clean Report of Findings (CRF) is also issued by Ravi Energie Group after inspection, specifying that the goods have been inspected before shipment and the price of the goods exported has been verified and both of these conform to the documented specifications. The CRF also known as PVoC in some countries is provided for the customs clearance purpose to the buyer or to the seller for the L/C requirements. In case the Report of Findings is adverse, a Discrepancy Report (DR) is issued to all parties. Ravi Energie Group also provides services related to Conformity Assessment, Non Negotiable Reports of Findings (NNRF) and Pre-export Verification of Conformity (PVoC). Please Contact Us for details.

We have a unique global network and being an independent inspection agency that's just around the corner, we can provide services at virtually every harbor and airport around the world. Our logistics and locations makes it easier and affordable for Clients to avail our services and at the same time, the strict guidelines followed by us for our inspections assures our Clients and also the “Member” nations that no corruption is involved.

Being a member of International Federation of Inspection Agencies (IFIA), we follow strict guidelines as defined by IFIA for all Inspections and staunchly believe in our Social Responsibility. All our personals involved in PSI undergo a rigorous training schedule which includes fire-arms detection, explosives detection, checking for radio-activity, etc. We also regularly carry our internal audits and have a

unique client and employee feedback system through which we make sure that all the rules for inspections are being followed. 

Pre-Shipment Inspection (PSI)Industries serviced: Government & InstitutionsSend us a request

E-MAIL USwebinfo.gs@intertek.com

CALL USEMEA:+44 1277 223400Asia Pacific:+852 2310 9923Americas:+1 305 513 3000Resources Product Conformity Programmes Brochure (pdf 2.05mb) Intertek offers pre-shipment inspection schemes to governments as a way of protecting import revenues for themselves and their citizens.Governments implement these programmes to ensure that imports comply with their regulations. Non-compliance with these regulations can result in:

The loss of valuable duty and tax revenue The loss of foreign exchange reserves (in countries where exchange controls

exist) The importation of substandard or prohibited goodsHow It Works

A physical inspection of goods before they are shipped, in the country of export, establishes the exact nature of the goods.

The invoice and other documents are then scrutinised, and an accurate valuation, and customs tariff code, are assigned. These are used, in conjunction with the client country's published duty rates, to calculate the correct duties and taxes payable.

An Intertek certificate is issued to the importer. This is used to substantiate the payment of full duty, prior to clearing the goods.

The actual duty collected is compared with the Intertek certificates, and any shortages can be investigated and corrected.

Benefits

Intertek Pre-Shipment Inspection (PSI) maximises duty collections. By undertaking

duty assessment in the country of export, importers have no opportunity to pressurize customs to assign lower rates.

Compliance with the World Trade Organization (WTO) Agreement on Customs Valuation is now mandatory for all members. Without Intertek PSI, countries introducing the Agreement invariably experience a reduction in revenue collections. Intertek ensures that the Agreement is fully implemented as required by the WTO, and in a way that maintains duty revenue collections.

Trade facilitation: inefficient Customs administrations and the failure of importers to comply with import procedures can both delay trade. An Intertek certificate ensures rapid Customs clearance, by undertaking the necessary physical and documentary inspections before the consignment is dispatched.

Intertek PSI deters capital flight in countries where exchange controls exist by preventing deliberately inflated invoicing. This can deplete foreign exchange reserves, which can also reduce the taxable income declared by multinational companies.

Intertek PSI significantly reduces the incidence of illegal imports, such as radioactive waste, by inspecting shipments in the country of export before dispatch.

As a PSI programme takes effect, so a vast database of vital trade information is created, which can be supplied to the Client Government in a variety of formats, as an aid to economic decision making and to induce confidence in donors

Exporter and Importer Services Pre-Shipment Inspection for Exports to Bangladesh Pre-Shipment Inspection for Exports to Mozambique Pre-Shipment Inspection for Exports to Uzbekistan Governments and Institutions A to Z Pre-Shipment Inspection for Exports to the Philippines

Pre-shipment inspection

From Wikipedia, the free encyclopedia

The introduction to this article provides insufficient context for those unfamiliar with the subject. Please help improve the articlewith a good introductory style. (October 2009)

Pre-shipment inspection, also called preshipment inspection or PSI, is an important and reliable quality control method for checking goods' quality while clients buy from the suppliers.

After ordering a number of articles, the buyer lets a third party control the ordered goods before they are dispatched to him. Normally an independent inspection company is assigned with the task of the PSI, as it is in the interest of the buyer that somebody not connected with the deal in any way verifies the amount and quality. This way the buyer makes sure, he gets the goods he paid for.

Although increasing numbers of clients would like to collect suppliers' information from the Internet, this contains high risks because it is not a face-to-face transaction, and Internetphishing and fraud can corrupt it. Pre-shipment inspection can greatly avoid this risk and ensure clients get quality products from suppliers.

The pre-shipment inspection is normally agreed between a buyer, a supplier, and a bank, and it can be used to initiate payment for a letter of credit. A PSI can be performed at different stages:

Checking the total amount of goods and packing Controlling the quality and/or consistency of goods Verifying compliance with the standards of the destination

country (e.g. ASME or CE mark)

The first stage is often performed by the transport company, but for the latter two stages a proper inspection company is needed. Similarly, if between the buyer and seller money transfer via a letter of credit is agreed upon, it is necessary to assign a reputable inspection company. In case of the letter of credit, after inspection of the goods, an inspection certificate is sent to the bank issuing the letter of credit and the buyer, initiating the money transfer. Inspection companies are classified in two classes:

- Free-market companies: These are privately owned companies, which sell their services to the market. Danger with these might be, especially if it is a smaller company, that they might be paid as well by the manufacturer, thus working in his interest.

- State owned inspection companies: Only very few companies operating on the market are state-owned or partly state-owned. The shareholding of governmental institutions guarantees the independence and objectivity.

A higher form of the PSI is called expediting, in this the dates of delivery and the production are controlled as well.

Some countries, like Botswana, require PSIs for all goods entering the country

in order to fight corruption. In these cases the PSI must be performed by the company

designated by the country.

Contents

 [hide]

1   PSI and corruption charges 2   References 3   External links 4   Pre-Shipment Inspectors in alphabetical order

5   See also

[edit]PSI and corruption charges

The Worldbank recommends pre-shipment inspections (PSI) as a means to fight corruption especially in developing countries. As the SGS is one of the worldwide market leaders in PSI, it profits well from these means. Recent international charges show the companies involvement furthering corruption instead of fighting it due to the payment of millions of dollars to government members and their families. Most known is the payment to the then husband of Pakistani president Benazir Bhutto, Asif Ali Zardari [1] [2] . Further irregularities were published about the contracts with Paraguay [3]  and the Philippines [4] [5] .

Performing a PSI verifies that all finished product conforms to your specifications and that the quality of your product has remained

consistent throughout production. Any non-conforming or hazardous product is identified, allowing you to make an informed decision, prior to payment and shipment.

Pre-Shipment Inspection (PSI) FAQ'sQ: Where can one find out provisions related to import of metal scrap to India?

A: It is advised to refer the “Hand Book of Procedure Vol-1” for Imports & Exports- published by Directorate General of Foreign Trade, Ministry of Commerce, Government of India. It is advised to refer the amendments to it published as Public Notices/ Notifications and Circulars. Section 2.32 in HBP lists

majority of provisions for metal scrap.

Q: Is it possible to find the provisions related to import of metal scrap to India on Internet?A: The URL is http://dgft.delhi.nic.in

Q: What are the restrictions related to type of metal scrap is allowed for import to India?A: Import of any form of metallic waste, scrap is allowed subject to the condition that it does not contain hazardous, toxic waste, radioactive contaminated waste / scrap containing radioactive material, any type of arms, ammunition, mines, shells, live or used cartridge or any other explosive material in any form either used or otherwise.

Q: What can be the action if the scrap contains explosives/ toxic waste/ radioactive material/ arms or ammunitions?A: There are stringent actions possible – criminal proceedings including actions related to National Security. The exporter is also banned permanently to export to India Q: What different types of metal scrap are allowed freely for export to India?

A:EXIM Code Item

  720410 00 Waste and scrap of cast iron

  72042190 Other  72042920 Of High speed steel  72042990 Other  72043000 Waste and scrap of tinned iron or steel

  72044100Turnings, shavings, chips, milling waste, saw dust, fillings, trimmings and stampings, whether or not in bundles

  72044900 Other  72045000 Re-melting scrap ingots  74040010 Copper scrap  74040022 Brass scrap  75030010 Nickel scrap  76020010 Aluminum scrap  79020010 Zinc scrap  80020010 Tin scrap

  81042010 Magnesium scrap Q: What are the provisions for types of metallic waste and scrap other than above?A: Import of other kinds of metallic waste and scrap is allowed in terms of conditions of ITC (HS).

Q: What are the documents to be furnished by the Importer of metal scrap for Custom clearance? A: a) Pre-shipment inspection certificate as per the format in Annexure-I to Appendix 5 from any Inspection & Certification agencies given in Appendix-5 to the effect that:

1. The consignment does not contain any type of arms, ammunition, mines, shells, cartridges, radioactive, contaminated or any other explosive material in any form either used or otherwise

2. The imported item (s) is actually a metallic waste/ scrap/ seconds/ defective as per the internationally accepted

parameters for such a classification.b) Copy of the contract between the importer and the exporter stipulating that the consignment does not contain any type of arms, ammunition, mines, shells, cartridges, radioactive contaminated, or any other explosive material in any form either used or otherwise. Q: What is Appendix-5 as mentioned above?A: Appendix-5 is a List of “Inspection Agencies” who can carry out Inspection and Certification known as “Pre-Shipment Inspection” or “PSI” or “PSI-C”. Ravi Energie Inc.  is one of the Inspection Agency enlisted in Appendix-5 of Hand Book of Procedure. 

Q: Is there any Country related restriction for exports to India for metal SCRAP?A: Import from Hodaideh, Yemen and Bandar Abbas, Iran is allowed only in shredded form.

Q: Which are the Ports where Custom clearance is done?A: Shredded form: Import of metallic waste and scrap mentioned above (listed in para 2.32.2 of HBP Vol. 1) in shredded form is permitted through all ports of India.Un-shredded form: Import of scrap is allowed only through following designated ports and no exceptions are allowed even in case of EOUs, SEZs:-Chennai, Cochin, Ennore, JNPT, Kandla, Mormugao, Mumbai, New Mangalore, Paradip, Tuticorin, Vishakhapatnam, ICD Loni, Ghaziabad, Pipava, Mundra, Kolkata, ICD Ludhiana, ICD Dadri (Greater Noida), ICD Nagpur, ICD Jodhpur, ICD Jaipur, ICD Udaipur, CFS Mulund, ICD Kanpur, ICD Ahmedabad, ICD Pitampur and ICD Malanpur”.

Q: Is High Sea sale possible for metallic scrap?A: There is no restriction so far imposed on “High Sea Sale” as a trade procedure

Q: Which are the Professional Bodies or Associations active for improvements in the field of metal recycling?A: BIR- Bureau International Recycling- URL is www.bir.org ISRI- Institute of Scrap Recycling Industries, Inc. – USA URL is www.isri.org

Q: How is metal scrap classified? A: Internationally accepted code is ISRI Code and it can be referred to on ISRI website http://www.isri.org

Q: Is mixed metal scrap allowed for Import to India?A: As of today there are no restrictions. However quantitative details or percentage-wise classification is required

Q: Are the machine components or parts allowed as metal scrap for imports in India? A: No. But the legal opinion with us is- if the rejected or damaged parts which cannot be used as machines or machine parts and can only be recycled (e.g. melting) are to be allowed to be imported to India.  

Q: Are defective or secondary metals/ secondary steels allowed for import to India? A: The wordings in Section 2.32 of HBP Vol. 1 are: “Import of any form of metallic waste, scrap will be subject to the condition that it will not contain hazardous, toxic waste, radioactive contaminated waste / scrap containing radioactive material, any type of arms, ammunition, mines, shells, live or used cartridge or any other explosive material in any form either used or otherwise”.  Hence, secondary steels/ metals are allowed upon the Inspection and Certification by an Agency enlisted in Appendix-5 of HBP Vol-1 like Ravi Energie Inc. There are separate Customs Notifications for Secondary Metals which are advised to be referred to.

Q: What are the prices of metal scrap considered for valuation purpose by Customs in India? A: For some items (like nickel and other), there are notifications published by Government of India from time to time which are referred to for the purpose of calculation of Custom Duty.

Q: Can the composition of scrap of metallic alloy be asked for by the Customs in India? A: Yes as the composition has some relation to the prices, Customs can ask for the details or analysis.

Q: Is metal waste with other non-metallic items allowed for imports to India? A: Yes but it is for certain recyclers who have other permissions like those related to Pollution.

Q: What are the policies and procedures for seconds and defective, rags, PET bottles / waste and ships?A: Import policy for seconds and defective, rags, PET bottles / waste, and ships is given in ITC (HS) published by Ministry of Commerce, Government of India.

INSURANCE

Insurance Insurance is system by which the losses suffered by a few are spread over many, exposed to similar risks. Insurance is a protection against financial loss arising on the happening of an unexpected event. Insurance policy helps in not only mitigating risks but also provides a financial cushion against adverse financial burdens suffered

Marine Insurance at a Glance (what it covers)

Cargo Insurance covers transits by:- Water - Air - Road or Rail - Registered Post Parcel - Courier Or any combination of the above.

For Whom? Buyers, Sellers, Import/Export merchants, Buying Agents,

Contractors and Banks-in fact any one engaged in the business of movement of goods.During the course of transit, the cargo may not always be at your risk. For instance, you can sell it to a buyer. Our Marine Cargo Policies cover your interest in the cargo insured and also extends to cover the interests of any third party to whom you have assigned interest upon transfer of ownership, as determined by the Terms of Sale.

Why Insure? If there is one class of insurance that is an absolute

necessity, it is Marine!Your cargo can be damaged on exposure to a wide variety of risks, including an accident of the vehicle carrying the cargo, failure of the stevedores in the port area, and damage to the container that can be washed overboard. If you think Piracy is a thing of the past, you will be surprised to find that this is very much alive and well! To summarise, your cargo can be damaged by stranding, grounding, sinking, burning, collisions, faults or errors in navigation, heavy weather, entry of sea or river water, jettison, washing overboard, ship's sweat, condensation, improper stowage by the carrier, hook damage, theft or pilferage, war, strikes or natural perils. The Carrier pays for loss only when the Carrier causes damage. Again, the Carrier is only required to pay a limited amount per package and not for the full value of the cargo. This is another reason for insuring your cargo.

Responsibility for Arranging Insurance

Who arranges insurance-the buyer or the seller? Or do both need some protection?The answer depends on the Sale Contract the two enter into. For each Sale Term such as FOB, CFR, DDP, DDU etc., we have tailor-made policies for both the seller and the buyer respectively.

. Nature of Risks to Cargo

The nature of risks that cargo is exposed to during transit can be the standard risks of transport or exceptional risks like war, strike or similar events. The losses that these risks can cause are termed as particular average or general average.

Particular average refers to physical loss or damage relating to loss in weight or quantity suffered by the insured goods in transit. Damage may occur during transit either by sinking, grounding, collision of a vessel, derailment of a train, collision or overturning of a truck, air-craft accidents or fire, affecting both the means of transport and the cargo. All these are major events causing heavy losses.

There may also be accidents that affect the cargo only like flood, wetting by sea water or rain or snow, condensation/ sweat, breakage/ damage due to shock, vibrations, acceleration and deceleration forces, turbulence, damage by odour, following contact with other goods, theft, pilferage. hijacking, etc. 

Other damages occur during handling such as loading onto the vessel, handling in the ship's hold, discharge, trans-shipment, etc. principally when transferring the cargo at various trans-shipment points or damages when the goods are stored in various intermediate warehouses. 

In addition to actual physical damage, expenses may be incurred owing to efforts to preserve the insured goods from further damage or loss, to minimise the extent of damage or to enable the insured goods to complete their journey.

General Average is a loss that is specific to marine cargo insurance only and is in fact the oldest known form of insurance dating back to over 3000 years. Although the subject has developed today into an extremely complex one, the principle is fairly simple.

The sacrifice of one person's goods in order to save a venture will be borne by those whose goods are saved. Therefore, if a vessel is in danger and the only way to prevent it from sinking is to throw one person's cargo overboard, then the rest of the cargo owners and the vessel owner will make up the loss to that person in proportion to the value of their goods in relation to the total amount saved.

Coverage

The main coverage provide against risks to cargo are on the basis of Institute Cargo Clauses A, B and C. These were introduced by the London market but has been adopted in India. In addition, for insurance coverage on internal movements within India, Inland Transit Clauses are used. The covers available under these clauses can be enumerated as under:

Institute Cargo Clause C or ICC 'C'

This is the most restricted coverage and subject to the listed exclusions, covers loss or damage to the subject matter insured caused by

Fire or explosions.

Stranding, grounding, sinking or capsizing Overturning or derailment. Collision or contact of vessel craft or conveyance with 

any external object other than water. Discharge of cargo at port of distress.

General Average losses. Jettison.

This Clause covers major casualties during the land or sea transit and tends to be used for cargo that is not easily damaged like scrap steel, coal, oil in bulk, etc.

Institute Cargo Clause B or ICC 'B'

This cover is wider and apart from the risks covered under ICC 'C', it also covers loss or damage to cargo caused by

Earthquake, volcanic eruption or lightning.

Water damage by entry of sea/ river water. Total loss of package lost overboard. Total loss of package dropped during loading and

unloading.

These is significant additional coverage against wet damage from sea, lake or river water and accidents in loading and discharge are covered but there is no coverage for theft, pilferage, shortage and non-delivery.

Institute Cargo Clause A or ICC 'A'

This option is the widest of all three and is generally summed up as 'All Risks' of loss or damage to the insured cargo. The words 'All Risks' have been the subject of careful examination in legal cases over the years and should be understood, in the context of the 'A' Clause, to cover fortuitous loss but not loss that occurs inevitably. 

The cover includes everything under both the foregoing Clauses and also

Breakage.

Scratching, chipping, denting and bruising. Theft, malicious damage, non-delivery. All water damages including rain water damage.

Exclusions

The Institute Cargo Clauses incorporates the following exclusions from the scope of cover.

Wilful misconduct of the assured:

Even if the loss is proximately caused by an insured peril it is excluded if it is attributable to the wilful misconduct (deliberate damage) of the Assured.

Ordinary leakage, ordinary loss in weight or volume or ordinary wear and tear:

Examples of the losses excluded in this category includes evaporation, natural shrinkage and pre-existing damages, for instance, machinery and second-hand motor cars.

Insufficiency or unsuitability of packing or preparation of packing of the insured cargo:

It is the duty of the insured to act as if he is uninsured. Clearly, if goods are sent insufficiently packed to withstand the normal handling anticipated during transit, then any loss that arises as a result should not be for insurance companies to pay.

Inherent vice or nature of the cargo:

Examples of excluded loss would include blowing of tins containing foodstuffs or spontaneous combustion of a cargo liable for self-heating.

Delay:

The insurance company is not responsible for any loss, damage or expense caused by delay although the delay is caused by a peril insured against. Losses through delay could include loss of market or deterioration in respect of perishable goods that would be irrecoverable

even if the cause of the delay was a peril insured such as a collision.

Insolvency or financial default of carriers:

This exclusion was introduced to discourage the assured from shipping their goods on vessels whose owners, managers, charterers or operators might be in financial distress. In practice the clause would exclude all types of claims for recovery and forwarding of goods arising from abandonment of an insured voyage where the proximate cause was the financial distress of one of the aforementioned parties.

Un-seaworthiness and unfitness of the vessel or conveyance:

This only applies where the assured or their agents were privy to this information prior to loading.

War, strikes, riots and civil commotion:

These risks are excluded under all the clauses but can be insured by payment of an additional premium

Premium Rating

Marine Insurance business in India is largely non-tariffed. Although, certain guidelines provide the premium rates chargeable, insurance companies normally take into account certain important factors while charging the premium rates. The nature of goods, their size and weight and packing are taken into consideration. 

Hazardous and fragile goods attract a higher rate than normal cargo. The voyage to be undertaken is also an important factor. Some locations may be difficult to reach because of a poor or deteriorated infrastructure or due to trans-shipment during the voyage. 

The quality of the vessel or conveyance is of great significance. Risks increase considerably when an old or substandard vessel or a vessel of poor classification is used

for the movement of cargo. Shipments by such vessels attract a loading in the premium rate.

The conditions of the insurance policy also have a bearing on the premium rates. The wider the cover sought the more the premium. In certain cases excesses or deductibles are imposed to avoid small losses. 

For higher excesses volunteered by the assured, a reduction in the rate is allowed. Loss prevention methods adopted like sending goods in containers merit discounts in the premium. Further the loss experience of the insured if favourable to the insurer also enables a discount in the premium rate

Sum Assured

Unlike most insurance policies the marine cargo policy is an Agreed Value policy. These contracts, which are based on the value of the sales contract, allow an element of profit to be included in the Sum Assured. Normally the value taken as Sum Assured is the C.I.F value plus a nominal extra of about 10 percent to accommodate any fluctuation in the market value of goods during the period of transit or an element of profit.

Although the marine cargo policies are on agreed value basis it is useless to insure for a higher amount than the market value of the cargo, as the losses settled are on the basis of market value at the time and place of loss, subject to the maximum of Sum Assured selected. 

By insuring for a higher value, the assured would only land up paying a higher premium without any consequent benefit.

Types of Policies

Various types of policies are available in the Indian market to cater to the varied needs of a cross section of clients, such as

Specific Voyage or Time Policies

These policies are issued to firms that require coverage for a specific voyage. It is suitable for those firms who seldom require marine cargo policies in the course of their trade.

These policies are issued on a "from and to" basis and the cover commences once the goods leave the place of origin named in the policy and terminates on delivery at the place of destination. Sometimes these policies are also issued in terms of duration of the voyage, in which case the cover commences on the date and time specified for the same in the policy.

Open Policies

Exporters/ importers, firms and companies that handle a large turnover of goods take such policies. It becomes extremely cumbersome for them to take specific voyage policies, each and every time they engage in transportation of their goods as they need to handle innumerable transactions during a given period of time.

Instead, they take an Open Policy that is normally issued for a period of one year and insure a part of their annual turnover at the beginning of the policy and go on declaring the value of their consignments to the insurance companies each time they send them.

For instance, an exporter's annual turnover is Rs.10 crores per year and approximately Rs.1 crore worth of goods is exported every month. Each consignment is valued at Rs.5 lakhs. There are about 20 trips every month. It is impracticable for him to take 20 specific voyage policies every month and so he takes an Open Policy for Rs.2 crores, and goes on sending declaration slips, giving certain details about the transit and its value, to the insurance company. Every time the exporter sends a declaration the Sum Assured under

the policy is reduced by the said amount. Before the entire Sum Assured is exhausted, the exporter again pays the premium to cover another Rs.2 crores and reinstates the Sum Assured and continues like this.

At the end of the policy term, it is likely that a certain balance amount of Sum Assured remains pending, in which case the premium corresponding to the balance amount left over is refunded to him.

In Open Policies it is a condition precedent to liability that each and every transit of the Assured are declared for insurance. This is essential since this policy gives an automatic protection to the transit of the Assured and in case he forgets to declare a particular transit and a loss takes place in that particular transit, the insurance company accepts the loss as covered in the policy, provided there is sufficient balance of Sum Assured at that time.

A Special Declaration Policy is a particular variant of the Open Policy. This policy can only be taken by concerns with an annual turnover of Rs.2 crores and above. In this policy the entire annual turnover has to be declared at the commencement of the policy and the entire premium is paid in advance. 

Since the Assured has to pay the premium in advance they get a discount ranging from 20 percent to 50 percent on the premium. This policy is suitable for concerns having a very large turnover and it becomes administratively difficult for them to keep track of the Sum Assured for the purpose of reinstating the same once exhausted. 

In such policies, the Assured is allowed to make their declarations on a monthly or even quarterly basis.

Duty Insurance Policy

Customs duties form a major part of the cost of imported goods. Once the goods land at the port of destination custom, duty becomes payable. In case the goods are damaged during the transit from the port to the importer's warehouse, the c.i.f value is not sufficient to represent the actual value of the goods since the custom duties should have already been paid. 

This additional element of cost can be covered by a Duty Insurance Policy. Claims under a duty policy are only payable if the claim is otherwise admissible in the marine cargo policy covering the goods.

Seller's Contingency Policy

In almost all export transactions where credit is allowed by the seller to the buyer and the goods are not exported on c.i.f. basis, responsibility for the goods passes to the buyer when the goods are loaded on to the overseas vessel but ownership does not change until the buyer accepts the goods and relative documents.

Thus, if the seller is allowing credit to the buyer has shipped goods of f.o.b. (free on board) terms, where the responsibility for loss or damage to the goods is passed to the buyer when the goods are loaded on to the overseas vessel, the seller has no control over the conditions of the insurance cover arranged by the buyer.

In the event of loss of or damage to the goods in transit from a peril insured against and the buyer refusing to pay for such loss or damage, the seller could stand to lose financially. Seller's Interest or Contingency Interest cover could help to prevent this. 

The cover is normally arranged as an extension of f.o.b cover. The seller's interest cover in effect

retrospectively reinstates cover, as per Institute Cargo Clauses as provided for in the policy and allows the seller to be protected in an area where he has no control over the insurance arrangement.

Claims Procedure

Once damage is discovered the Assured should make every effort to reduce the loss and/or prevent further loss to the consignment as provided under the sue and labour clause of the policy. This could include re-bagging, re-cooperating barrels, separating wet cargo from dry, etc.

Reasonable expenses incurred in taking such steps are reimbursable by the insurance company in addition to the payment of the claim itself. In other words, the insurance company expects the Assured to do exactly what he would have done if the shipments were uninsured.

After this is done the Assured should notify the insurance company so that survey of the damage can be arranged as promptly as possible if necessary. As stipulated in the Insurance Act, all claims amounting to Rs.20,000/- and above are required to be surveyed by a licensed surveyor. 

A survey report issued by the surveyors will attest to the circumstances, nature, origin, cause and extent of loss and damage. The carrier or his agent should also be notified immediately and advised of the time and place of the survey, so that they can be represented.

It is also essential that a monetary claim be notified immediately in writing against the Carrier, Port Trust or any other responsible party, in whose custody the consignment was at the time of loss, as soon as the loss is known or upon taking delivery. 

This can be in any form, but must include the full transit details, a description of the loss or damage and should state that the Carriers or other party will be held responsible for

the loss or damage with an indication of the estimated amount of loss.

After payment of a claim on the basis of a Subrogation Letter and a Power of Attorney obtained from the Assured, the insurance company proceeds against the Carriers or any other responsible party for recovery of the amount as per the laid down laws. If the rights of recovery against the liable parties are not protected, the amount recoverable from the liable party but prejudiced by the Assured, will be deducted from the claim amount and the balance amount will be paid. 

However, if the amount of recovery prejudiced is not ascertainable, the claim will be settled on non standard basis for an amount not exceeding 75 percent of the assessed loss. Documents Required for Marine Insurance Claim: Original Invoice & packing List - if forming part of Invoice Document of declaration of consignment Damage Certificate from the carrier

Export Credits

Export credit is providing pre-shipment and post-shipment credit either in Indian rupees or in foreign currency to an exporter. The credit is given for short term i.e. upto 6 months, medium/ long term which extends more than 6 months according to the eligibility of the products and projects. Usually medium/ long term export credit is given after inspecting the supplier's credits.

To promote the export promotion drive, the Government of India established Export Credit Guarantee Corporation of India Limited (ECGC) in 1957 to cover the risk of exporting on credit. This Organization offers a range of services to exporters.

They are as mentioned below: It provides credit risk insurance covers to the

exporters against there loss in export of goods and services.

It offers guarantees to the banks and financial institutions in order to enable the exporters to obtain better facilities from them.

It provides Overseas Investment Insurance to the Indian companies investing in joint ventures abroad as equity of loan.

Export Credit InsuranceExport credit insurance protects the exporter from the consequences of the payment risks due to the far-reaching political and economic changes. Outbreak of war or civil war might block or delay the payment for goods already exported. Coup or an insurrection in the importing country may also bring the same result. Export credit insurance is obtained from the ECGC with the following issued covers:

Standard policies to protect the exporter against the risk of not receiving the payment while trading with overseas buyers on short-term credit.

Specific policies which is designed to protect the exporter against the risk of not receiving the payment in respect of:

o Exports on deferred payment terms o Services rendered to the foreign parties o Construction work which also includes

the turnkey projects undertaken abroad.

The policies are one of the following: Whole Turnover Policies in the form of

'Open Cover' in respect of shipments made during 24 months period DP, DA and open delivery terms. Shipment details has to be declared on monthly basis.

Specific policies for exports of capital goods

on medium or long-term credit, turnkey projects, civil construction works and technical services.

Modes of payment including ucp-600

Methods of payment in export

International Payment TermsCash in AdvanceT/T payment in advanceD/P (document against payment)Documentary Letters of Credit and Documentary DraftsLetters of CreditLetter of CreditLetter Of Credit (L/C)Documentary Collection (Draft)Documentary DraftsOpen Account

Other Payment MechanismsForeign CurrencyPayment ProblemsExport Credit InsuranceMixed Payments

Sample Draft/Transmittal LetterSample Irrevocable Letter of Credit

Terms Ranked from LEAST RISK to MOST RISK for the Seller. When establishing international terms of payment it is a good idea to consult your banker.

Method Usual Time of Payment

Goods Available To Buyer

Risk to Seller Risk to Buyer

Comments

CASH IN ADVANCE

Before shipment

After payment

None Complete - relies on seller to ship exactly the goods expected, as quoted and ordered

Seller's goods must be special in one way or another, or special circumstances prevail over normal trade practices (example, goods manufactured to buyer-only specification).

CASH AGAINST DOCUMENTS

After shipment

After payment

If payment not honoured, goods must be returned or resold.

Assures shipment but not content, unless inspection or check-in is

Security to the seller is assured if the transfer of funds is confirmed prior

Storage, handling, return freight expenses may be incurred

allowed before payment

to buyer taking possession of the goods.

LETTER OF CREDIT (See next two items.)

    Commercial Invoice must match the Letter of Credit exactly. Dates must be carefully headed - "Stale" documents are unacceptable for collection.

  Letters of Credit require total accuracy in conforming to terms, conditions, and documentation.

Confirmed Irrevocable Credit

After shipment is made, documents presented to the Bank

After payment

Gives the seller a double assurance of payments - Depends on the terms of the letter of credit.

Assures shipment is made but relies on exporter to ship goods as described in documents. Terms may be negotiated prior to letter of credit agreement, alleviating buyer's degree of

The inclusion of a second assurance of payment (usually a "reputable" Bank) prevents surprises, adds assurance that issuing bank has been deemed acceptable by confirming bank. Adds cost and an additional requirement to

risk. seller.

Unconfirmed Irrevocable Credit

Same as above

Same as above

Seller has single bank assurance of payment and seller remains dependent on foreign bank. Seller should contact his banker to determine whether or not the issuing bank has sufficient assets to cover the amount.

Same as above

Credit can be changed only by mutual agreement, as stipulated in a sales agreement. Becomes open account with buyer's bank as collection agent. Foreign bank may have problems making payment in sum or timeliness.

DRAFTS/ BILLS OF EXCHANGE (See next two items.)

Remittance time from buyer's bank to seller's bank may still take one week to one month

  Drafts, by design, should contain terms and conditions mutually agreed upon

  A draft may be written with virtually any term or condition agreeable to both parties. When determining draft tenor (terms and conditions) consult with your banker and freight forwarder to determine the

most desirable means of doing business in a given country.

Sight Draft (with documents against acceptance)

On presentation of draft to buyer.

After payment to buyer's bank.

If draft not honoured, goods must be returned or resold. Storage, handling, return freight expenses may be incurred.

Assures shipment but not content, unless inspection or check-in is allowed before payment.

A draft can be a collection instrument used to exchange possession and title to goods for payment. Seller is essentially drawing a check against the bank account of the buyer. Buyer's bank must have pre-approval, or seek approval of the buyer prior to honouring the check. Payable upon presentation of documents.

Time Drafts (with documents against acceptance)

On maturity of the draft

Before payment, after acceptance

Relies on buyer to honour draft upon presentation.

Assures shipment but not content, time of maturity allows for adjustments, if agreed to

Payable based upon the acceptance of an obligation to pay the seller at a specified time. Although a time draft has

by seller. more collection leverage than an invoice, it remains only a promissory note, with conditions.

OPEN ACCOUNT

As agreed, usually by invoice

Before payment

Relies completely on buyer to pay account as agreed

None All terms of payment, including extra charges and terms should be mutually understood and agreed upon prior to open account initiation. Companies conducting on-going business are candidates for open account terms of payment. Seller must measure not only buyer's credit reliability but the country's as well.

Cash in Advance

Receiving payment by cash in advance of the shipment might seem

ideal. In this situation, the exporter is relieved of collection problems and has immediate use of the money. A wire transfer is commonly used and has the advantage of being almost immediate. Payment by check, may result in a collection delay of up to six weeks. Therefore, this method may defeat the original intention of receiving payment before shipment.

Many exporters accept credit cards in payment for exports of consumer and other products, generally of a low follar value, sold directly to the end user. Domestic and international rules governing credit card transactions sometimes differ, so U.S. merchants should contact their credit card processor for more specific information. International credit card transactions are typically done by telephone or fax. Due to the nature of these methods, exporters should be aware of fraud. Merchants should determine the validity of transactions and obtain the proper authorizations.

For the buyer, however, advance payment tends to create cash flow problems, as well as increase risks. Furthermore, cash in advance is not as common in most of the world as it is in the United States. Buyers are often concerned that the goods may not be sent if payment is made in advance. Exporters that insist on this method of payment as their sole method of doing business may find themselves losing out to competitors who offer more flexible payment terms.

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T/T payment in advance

T/T means telegraphic transfer, or simply wire transfer. It's the simplest and easiest payment method to use.

T/T payment in advance is usually used when the sample and small quantity shipments are transported by air. The reason why is that the documents like air waybill, commercial invoice and packing list will be sent to you along with the shipment by the same plane. As soon as the shipment arrives, you can clear the customs and pick up the goods with the documents. As it's acknowledged, T/T payment in advance presents

risk to the importer if the supplier is not an honest one.

It takes 3-4 days for us to received the wire transfer made from anywhere in the world.

 

D/P (document against payment)

The exporter (we) makes shipment and sends the shipping documents to the exporter's bank (the Bank of China) for collection. The Bank of China then sends the shipping documents along with a collection letter to the importer's bank, who then sends a collection notice to the importer. The importer makes payment upon receiving the notice, and only after payment does the importer receive the original shipping documents with which you take the physical possession of the goods.

The major advantage of the use of a cash against documents payment is the low cost, versus using a letter of credit. But, this is offset by the risk that the importer will for some reason reject the documents (or they will not be in order). Since the cargo would already be loaded (to generate the documents), we have little recourse against the importer in cases of non-payment. So, a payment against documents arrangement involves a high level of trust between the exporter and the importer.

 

Documentary Letters of Credit and Documentary Drafts

Documentary letters of credit or documentary drafts are often used to protect the interests of both buyer and seller. These two methods require that payment be made based on the presentation of documents conveying the title and that specific steps have been taken. Letters of credit and drafts can be paid immediately or at a later date. Drafts that are paid upon presentation are called sight drafts. Drafts that are to be paid at a later date, often after the buyer receives the goods, are called

time drafts or date drafts.

Since payment by these two methods is made on the basis of documents, all terms of payment should be clearly specified in order to avoid confusion and delay. For example, "net 30 days" should be specified as "30 days from acceptance." Likewise, the currency of payment should be specified as "US$30,000." International bankers can offer other suggestions.

Banks charge fees - based mainly on a percentage of the amount of payment - for handling letters of credit and smaller amounts for handling drafts. If fees charged by both the foreign and U.S. banks are to be applied to the buyer's account, this should be explicitly stated in all quotations and in the letter of credit.

The exporter usually expects the buyer to pay the charges for the letter of credit, but some buyers may not agree to this added cost. In such cases, the exporter must either absorb the costs of the letter of credit or risk losing that potential sale. Letters of credit for smaller amounts can be somewhat expensive since fees can be high relative to the sale.

 

Letters of Credit

A letter of credit adds a bank's promise to pay the exporter to that of the foreign buyer provided that the exporter has complied with all the terms and conditions of the letter of credit. The foreign buyer applies for issuance of a letter of credit from the buyer's bank to the exporter's bank and therefore is called the applicant; the exporter is called the beneficiary.

Payment under a documentary letter of credit is based on documents, not on the terms of sale or the physical condition of the goods. The letter of credit specifies the documents that are required to be presented by the exporter, such as an ocean bill of lading (original and several copies), consular invoice, draft, and an insurance policy. The letter of credit also contains an expiration date. Before payment, the bank

responsible for making payment, verifies that all document conform to the letter of credit requirements. If not, the discrepancy must be resolved before payment can be made and before the expiration date.

A letter of credit issued by a foreign bank is sometimes confirmed by a U.S. bank. This confirmation means that the U.S. bank (the confirming bank), adds its promise to pay to that of the foreign bank (the issuing bank). If a letters of credit is not confirmed, it is advised through a U.S. bank and thus called an advised letter of credit. U.S. exporters may wish to confirm letters of credit issued by foreign banks if they are unfamiliar with the foreign banks or concerned about the political or economic risk associated with the country in which the bank is located. An Export Assistance Center or international banker can assist exporters in evaluating the risks to determine what might be appropriate for specific export transactions.

A letter of credit may either be irrevocable and thus, unable to be changed unless both parties agree; or revocable where either party may unilaterally make changes. A revocable letter of credit is inadvisable as it carries many risks for the exporter.

A change made to a letter of credit after it has been issued is called an amendment. Banks also charge fees for this service. It should be specified in the amendment if the exporter or the buyer will pay these charges. Every effort should be made to get the letter of credit right the first time since these changes can be time-consuming and expensive.

To expedite the receipt of funds, wire transfers may be used. Exporters should consult with their international bankers about bank charges for such services.

A Typical Letter of Credit Transaction

Here are the typical steps of an irrevocable letter of credit that has been confirmed by a U.S. bank:

1. After the exporter and buyer agree on the terms of a sale, the buyer arranges for its bank to open a letter of credit that specifies the documents needed for payment. The buyer determines which

documents will be required.

2. The buyer's bank issues, or opens, its irrevocable letter of credit includes all instructions to the seller relating to the shipment.

3. The buyer's bank sends its irrevocable letter of credit to a U.S. bank and requests confirmation. The exporter may request that a particular U.S. bank be the confirming bank, or the foreign bank may select a U.S. correspondent bank.

4. The U.S. bank prepares a letter of confirmation to forward to the exporter along with the irrevocable letter of credit.

5. The exporter reviews carefully all conditions in the letter of credit. The exporter's freight forwarder is contacted to make sure that the shipping date can be met. If the exporter cannot comply with one or more of the conditions, the customer is alerted at once.

6. The exporter arranges with the freight forwarder to deliver the goods to the appropriate port or airport.

7. When the goods are loaded, the freight forwarder completes the necessary documentation.

8. The exporter (or the freight forwarder) presents the documents, evidencing full compliance with the letter of credit terms, to the U.S. bank.

9. The bank reviews the documents. If they are in order, the documents are sent to the buyer's bank for review and then transmitted to the buyer.

10. The buyer (or the buyer's agent) uses the documents to claim the goods.

11. A draft, which accompanies the letter of credit, is paid by the buyer's bank at the time specified or, if a time draft, may be discounted to the exporter's bank at an earlier date.

Example of a Confirmed Irrevocable Letter of Credit

The example of a confirmed irrevocable letter of credit in (see below) illustrates the various parts of a typical letter of credit. In this sample, the letter of credit was forwarded to the exporter, The Walton Building Supply Company (A), by the confirming bank, Megabank Corporation (B), as a result of c letter of credit being issued by the Third Hong Kong Bank, Hong Kong (C), for the account of the importer, HHB Hong Kong (D). The date of issue was March 8, 1997 (E), and the exporter must submit the proper documents (e.g., a commercial invoice in one original and three copies) (F) by June 23, 1997 (G) in order for a sight draft (H) to be honored.

Tips on Using a Letter of Credit

When preparing quotations for prospective customers, exporters should keep in mind that banks pay only the amount specified in the letter of credit - even if higher charges for shipping, insurance, or other factors are incurred and documented.

Upon receiving a letter of credit, the exporter should carefully compare the letter's terms with the terms of the exporter's pro forma quotation. This step is extremely important, since the terms must be precisely met or the letter of credit may be invalid and the exporter may not be paid. If meeting the terms of the letter of credit is impossible or if any of the information is incorrect or even misspelled, the exporter should contact the customer immediately and ask for an amendment to the letter of credit.

The exporter must provide documentation showing that the goods were shipped by the date specified in the letter of credit or the exporter may not be paid. Exporters should check with their freight forwarders to make sure that no unusual conditions may arise that would delay shipment.

Documents must be presented by the date specified for the letter of credit to be paid. Exporters should verify with their international bankers that there will be sufficient time to present the letter of credit for payment.

Exporters may request that the letter of credit specify that partial shipments and transshipment will be allowed. Specifying what will be allowed can prevents unforeseen last minute problems.

 

Letter of Credit

An irrevocable Letter of Credit is also an often used payment method. It is often referred to an L/C. Letters of Credit are formal payment methods that offer a lot of protection to the parties.

Simply put, a letter of credit is a letter written by the importer's bank to the exporter. It verifies that the payment will be guaranteed when the bank is presented with the concrete documents (bill of lading, and freight documents). Most letters of credit are "irrevocable" once the importer has had them sent.

A letter of credit usually includes applicant (you, the importer), beneficiary (our I/E agent), opening bank, negotiating bank, specification and quantity of the goods, amount of money, loading port and destination port, shipment date, the validity date of the L/C, terms and conditions agreed by both the importer and seller, and the documents required by the importers (bill of lading, commercial invoice, packing list, insurance certificate, etc.)

The L/C payment procedure is usually as follows:

a. You (the importer) applies to open the L/C to us (the seller) through a bank who can open the L/C in your country. b. The opening bank will inform The Bank of China that the L/C has been opened. c. The Bank of China will inform us that the L/C has been established. d. We'll check all the terms and conditions listed in the L/C. If all terms and conditions are acceptable, we'll arrange the shipment within the time specified in the L/C. e. After the goods are loaded onto the ship without any damage, the captain will issue the clean bill of lading to us. f. We will submit the clean bill of lading and other relevant documents to The Bank of China to gather the payment. Only with clean bill of lading

can you claim the ownership of the goods.g. The Bank of China will send the clean bill of lading and relevant documents to your bank (the opening bank). h. The opening bank will inform you that all documents are received. i. You will go to the bank to make the payment to get the clean bill of lading and relevan documents. j. With all of these documents, you can clear the import Customs and pick up the goods after the goods arrive on the destination sea port.

The typical L/C scenario takes 14-21 days to complete.

 

Letter Of Credit (L/C)

L/C is the most used payment term in International Trade and I'll be fairly specific on this topic. L/C is a perfect procedure to equally protect your interests and your buyer's interests. Using L/C as a term of payment, you risk almost nothing and at the same time it ensures the buyer that goods are shipped before the payment has occurred. However, you only will be paid if all terms stipulated in the L/C are met and all documents specified in the L/C strictly comply with agreed conditions and are presented in time.

Before choosing L/C as a term of trade, you must understand what it is, how it works and what you can do to minimise risks involved in the L/C payment process.

L/C, its Forms and Types

Letters of Credit are regulated by International Chamber of Commerce under the Uniform Customs and Practice for Documentary Credits (UCP 500). I strongly recommend you obtain this document from the International Trade Department of your financial institution or from ICC Australia* and read it very carefully. Sometimes it's difficult to understand what it means, as the document is drafted for the banking professionals and its language is very technical. Do not hesitate to call your bank and ask questions. Any mistakes, unclear or incorrectly stipulated terms, even typos in a L/C may cost you dearly.

In "plain English", L/C is a conditional bank guarantee of payment for supplied goods. "Conditional" means that to get paid you have to present the bank-guarantor with documents, which strictly comply with the terms and conditions specified in the L/C.

There are different forms and types of L/C, which you may (or should not) use in your operations, viz

Revocable and Irrevocable L/C "A revocable L/C may be amended or cancelled by the Issuing Bank at any moment and without prior notice to the Beneficiary." (UCP 500, Article 8,a). This is as simple, as that. Never accept this form of L/C in your export arrangements.

Agree that the L/C is irrevocable before you go any further in your L/C negotiations. Although UCP 500 requires that L/C should indicate whether it is revocable or irrevocable (Article 6, b), it also says "in the absence of such indication the Credit shall be deemed to be irrevocable." (Article 6, c)

Confirmed L/CWhen you export to a country with economical or political instability or if you are unfamiliar with the Issuing Bank, you should require that the L/C be confirmed by a first-class bank. If L/C is confirmed, the confirming bank is liable for the payment.

Transferable L/CTransferable L/C is a perfect financial tool for middlemen to secure their margin without involving any funds. It allows dealing with more than one beneficiary. When a transferable L/C is issued in your favour, you can transfer it to your seller and use it as a payment.

L/C "can be transferred only if it is expressly designated as "transferable" (UCP 500, Article 48, b). Transferable L/C must correspond with the original L/C, "with the exception of:- the amount of the L/C,- any unit price,- the expiry date,- the last date for presentation of documents,

- the period for shipment,any or all of which may be reduced or curtailed." (UCP 500, Article 48, h)

L/C payable at sight"Payable at sight" means that you'll be paid "immediately" (in fact, it may take up to 7 days) after presentation of the documents stipulated in the L/C to the Issuing Bank or to the Confirming Bank if it was confirmed.

L/C payable on the maturity dateIf deferred payment was agreed, you'll be paid on the maturity date indicated in the L/C after presentation of the documents stipulated in the L/C to the Issuing Bank. Don't forget to specify the date from which the deferring period starts (e.g. 90 days after date of transport document).

The payments under L/C are usually made by the bank upon receipt of the documents stipulated in the L/C and a bill of exchange issued by you.

The bill of exchange (the draft) is an unconditional order in writing, signed and addressed by the drawer (you) to the drawee (the paying bank), requiring the drawee to pay the drawer a certain sum of money according to the terms of the L/C.

Under L/C, always draw the draft on the bank, not on the buyer.

How L/C worksThere are at least four participants, when dealing with L/C:- The buyer – the Applicant- You - the Beneficiary- Bank, the payment will come from – the Issuing Bank- Bank, the payment will go to – the Advising Bank.

The diagram below shows how participants are involved in the process of payment under L/C:

1. The Applicant and the Beneficiary negotiate terms and conditions of the L/C2. The Applicant applies to the Issuing Bank to issue the L/C3. The Issuing Bank issues the L/C and forwards it to the Advising Bank4. The Advising Bank checks the apparent authenticity of the L/C and advises the L/C to the Beneficiary5. The Beneficiary checks if the L/C complies with the commercial agreements and if all terms and conditions specified in the L/C can be satisfied and ships the goods6. The Beneficiary assembles the documents specified in the L/C, checks the documents for discrepancies with the L/C, draws the draft and presents the draft and the documents to the Advising Bank7. The Advising Bank bears the draft and the documents against terms and conditions of the L/C and forwards them to the Issuing Bank8. The Issuing Bank checks if the documents comply with the L/C and makes a payment immediately (if the L/C is available by sight) or on a certain date (if L/C is available by deferred payment)

Another party, which may be involved in the L/C procedure, is the Nominated Bank.

The Advising BankThe Advising Bank advises you that a L/C is received and available to you and informs you about the terms and conditions of the L/C. The advising bank is not responsible for the payment of the L/C.

The Advising Bank is not necessarily a bank where you usually banking. Shop around. Try to find a bank, which has a corresponding bank in your buyer's country and can offer you a better deal in terms of charges

involved in the payment under L/C.

The Issuing BankThe Issuing Bank is the key player in the procedure, the one who makes the payment. Try to negotiate with the buyer which bank will issue the L/C. Ask the Advising Bank if it has a corresponding bank in the buyer's country and suggest this bank to the buyer as the issuing bank.

If the Advising Bank does not have a corresponding bank in the buyer's country, ask the bank to recommend you a well-known bank with high credit rating and insist your buyer has the L/C issued by this bank. The Advising Bank will be able to provide you with the information on financial status and credibility of the Issuing Bank.

If the Issuing Bank is not internationally recognised and your banker or you have any doubts that the Issuing Bank, for any political or economical reason, may fail to make a payment under the L/C, I would strongly recommend that the L/C be confirmed by another bank.

The Nominated BankThe Nominated Bank is the bank, which is authorized by the Issuing Bank "to pay, to incur a deferred payment undertaking, to accept Draft(s) or to negotiate." (UCP 500, Article 10, b)

The Issuing Bank may authorise the Nominated Bank to negotiate the drafts and/or documents. Negotiation means that the nominated Bank – in this case the Negotiating Bank - gives value to such draft(s) and/or documents, not just examination of the documents. (UCP 500, Article 10, b)

Confirmation of L/CThe confirmation of the L/C by another bank - the Confirming Bank - means that if the Issuing Bank refuses to make the payment, the Confirming Bank is responsible for this payment.

The best-case scenario is when the Advising Bank confirms the L/C. If the Advising Bank does not agree to confirm the L/C, ask the bank to recommend you another bank to be the Confirming Bank.

Keep in mind that "Branches of a bank in different countries are considered another bank." (UCP 500, Article 2). That means that Citibank in Poland, for instance, is an independent financial institution and has its own financial status and credit rating, which is very different compared with the rating of Citibank in Australia.

If you are dealing with a buyer from a country with an unstable political or economical situation, always ask for the confirmation of the L/C.

There are additional charges for the confirmation of the L/C, which depend on the risk involved in dealing with the particular country. The responsibility to pay for the confirmation is negotiable and usually is paid by the buyer. However, if it wasn't agreed prior to the issuance of the L/C, you are the one who will pay for this service.

When L/C is to be confirmed the payment process is different and is shown in the following diagram:

1. The Applicant and the Beneficiary negotiate terms and conditions of the L/C2. The Applicant applies to the Issuing Bank to issue the L/C 3. The Issuing Bank issues the L/C and forwards it to the Advising Bank4. The Confirming Bank confirms the L/C to the Advising Bank5. The Advising Bank checks the apparent authenticity of the L/C and advises the L/C to the Beneficiary

6. The Beneficiary checks if the L/C complies with the commercial agreements and if all terms and conditions specified in the L/C can be satisfied and ships the goods7. The Beneficiary assembles the documents specified the Issuing Bank in the L/C checks the documents for discrepancies with the L/C and presents them to the Advising Bank8. The Advising Bank bears the documents against terms and conditions of the L/C and forwards them to the Confirming Bank9. The Confirming Bank checks if the documents comply with the L/C and makes payment immediately (if the L/C is available by sight) or on a certain date (if L/C is available by deferred payment)10. The Issuing Bank reimburses the funds to the Confirming Bank immediately after the payment

There is another advantage in using confirmed L/C. Assume that after long negotiations your potential buyer is ready to strike a deal, which is very profitable for you. The only condition you are not comfortable with is the deferred payment of 90 days after the shipping date. You feel that you may have some problems with cash flow, because you have to pay for the freight, packaging and so on. Well, with the confirmed L/C you won't.

A confirmed L/C may be used not only for securing the payment under the L/C but also as a security to obtain additional funds from the Advising Bank. Generally, the Advising Bank can discount the L/C in your favour as soon as the documents stipulated in the L/C are presented to the bank and checked. The funds will be considered as a loan, which will be automatically reimbursed by the Confirming Bank on the maturity date indicated in the L/C.

Information that an L/C must have Although the buyer applies for L/C, it is essential for you to be absolutely sure that the L/C was prepared correctly and there is no legitimate ground for refusal of payment under the L/C.

L/C must enclose:

- Full Applicant's name and address- Full Beneficiary's name and address

- Issuing Bank details- Advising Bank details- Form and type of credit (e.g. irrevocable, transferable)- Issue date- Expiry date- The latest date of shipment (usually "no later than")- Expiry date for presentation of documents- Amount payable under L/C- Currency of payment- Port of loading- Port of discharge- Terms of delivery - Indication of the payment of the freight (Freight Prepaid/Freight Collect)- Allowances for partial shipment or transshipment if needed- Type of payment availability (e.g. at sight, on the maturity date) - Description of goods (must correspond with the description given in the invoice) - List of documents required for the payment - Accountability for bank charges

Documents that may be stipulated in an L/CYou should negotiate which documents are to be included in the L/C before the L/C is issued. Always try to keep this list as short as possible. Never agree to include a document that must be signed or authorised by the buyer's representative or a document that may never be produced (say, a certificate, which should be issued by a foreign agency).

I would like to underline that there is a difference between the documents you have to present under the L/C and the documents you have to supply according to the contract. It is not necessary to mention all documents required by the contract in the L/C.

Most likely, you will be required to present a commercial invoice, a transport document and an insurance policy (certificate).

The list of additional documents depends on the agreement made between you and the buyer. Usually the buyer will include documents

needed for the customs clearance. The list may include:

- Certificate of origin- Certificate of quality- Weight certificate- Pre-shipment inspection certificate- Packing declaration- Packing list- Fumigation certificate, and so on

The detailed explanation of the above documents is given in the "Export Documentation" section of these tutorials.

In relation to L/C, there are several issues about the documents you should keep in mind:

- Specify how many original documents and how many copies are to be presented.- The description of goods stipulated in the L/C must correspond with the description given in the invoice. "Must", in this case, means "must". If the invoice states "100% Fruit Juice" and the L/C – "Australian Fruit Juice", it is enough for the bank to refuse the payment and this decision most likely be supported by the court.- L/C may require a "clean" transport document. That means the document "which bears no clause or notation which expressly declares a defective condition of the goods and/or the packaging". (UCP 500, Article 32, a)

Delays cause troublesL/C indicates three dates, which must be met to be paid:

- the latest date for shipment,- the expiry date for presentation of documents and- the expiry date of the L/C

When negotiating the date of shipment, be sure that you are able to ship the goods before this date. Always allow extra time for the amendments of the L/C. If the L/C contains any errors or you cannot fulfill all terms and conditions stipulated in the L/C do not ship the goods until all necessary amendments are made. Do not forget to include the

amendment allowing "later shipment".

Try to obtain all possible documents before the shipment. If the document can be issued only after the goods are shipped (e.g. transport documents), be sure that you'll get it before the date stated in the L/C. If L/C does not indicate the date of presentation of the documents, "banks will not accept documents presented to them later than 21 days after the date of shipment". (UCP 500, Article 43, a)

The expiry date of the L/C should allow you not only to assemble and check all documents but also to correct errors, which might be identified by the bank. The bank has up to 7 days to examine the documents and inform you if there are any discrepancies. These discrepancies must be corrected and the documents must be resubmitted to the bank prior to the expiry date. "In any event, documents must be presented not later than the expiry date of the Credit." (UCP 500, Article 43, a)

Freight Payment"Freight" is the term, which refers to the transportation charges (UCP 500, Article 33, a). L/C usually requires indicating whether you or the buyer is liable for the freight payment. The responsibility to pay freight depends on the agreed terms of delivery.

If the agreed delivery terms include freight (e.g. CFR, CIF, CIP), then the L/C will require that the transport document clearly indicate that freight has been paid or prepaid and the words "Freight Prepared" appear on the transport document.

"The words "freight prepayable" or "freight to be prepaid" or words of similar effect, if appearing on transport documents, will not be accepted as constituting evidence of the payment of freight" (UCP 500, Article 33, c)

If the agreed delivery terms do not include freight (e.g. EXW, FCA, FAS, FOB), then the L/C will require that the transport document indicate that freight is to be paid by the buyer and the words "Freight Collect" appear on the transport document.

Minimising the risks

When dealing with L/C pay careful attention to the following:

- Prior to the issuance of the L/C, negotiate exactly what documents must be presented to the bank. - Try to agree to present as few documents as possible and to have descriptions as simple as possible.- Always include your requirements for the L/C in the pro-forma invoice.- Once issued, the L/C can only be altered or cancelled by consent of all parties.- Remember that L/C is a bank-to-bank agreement and is not a substitute for the contract between you and the buyer.- Be sure that you are in a position to provide the bank with all documents stipulated in the L/C in time.- Always indicate L/C as "irrevocable".- Check the Additional Conditions and be sure that you are able to meet them.- If you have any doubts that the Issuing Bank, for any political or economical reason, can fail to make a payment, the L/C must be confirmed by the Advising Bank or by any other bank, whose confirmation will be accepted by the Advising Bank. - If there are any discrepancies and the L/C has to be amended, do not ship goods before these amendments are made.

Re-published from Australian Export Online -Export61

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Documentary Collection (Draft)

Documentary collections are regulated by the Uniform Rules for Collections issued by the International Chamber of Commerce (URC 522). This document can also be obtained from the International Trade Department of your financial institution or from ICC Australia*.

Documentary Collection or Draft is the term when you ship the goods before the payment is made and then draw a draft on the buyer, not on the bank, like under L/C. Under documentary collections banks have no

responsibility for the payment.

There are two types of documentary collections - sight draft, also know as "Documents Against Payment", and time draft, also known as "Documents Against Acceptance".

Sight Draft

"Sight draft" is payable by the buyer immediately after notification by the buyer's bank of the receipt of the draft and transport documents.

Under this method of payment you (the Drawer) negotiate the terms with the buyer (the Drawee), specify the documents required for the payment, ship the goods and draw the draft on the buyer. The draft and the documents required for the payment are presented to your bank (Remitting Bank) and after examination are forwarded to the buyer's bank (Presenting Bank). The Presenting Bank holds the title documents (usually the transport documents) and will release them to the buyer only after the payment was made.

Sight draft procedure is shown in the diagram below:

1. The Drawer and the Drawee negotiate terms and conditions of the transaction2. The Drawer ships the goods3. The Drawer draws a draft and presents it to the Remitting Bank along with other documents4. The Remitting Bank examines the documents and the draft and forwards them to the Presenting Bank5. The Presenting Bank notifies the Drawee of receipt of the documents

6. The Presenting Bank holds the documents until the payment is made by the Drawee7. The Drawee examines the documents and makes the payment for the supplied goods8. The Presenting Bank releases the documents to the Drawee

Sight drafts have some similarity with L/C. You deal with documents and through banks, and the buyer cannot take the possession of the goods before the payment is occurred.

However, the payment is not guaranteed. If the buyer for any reason refuses to pay, you have to deal with goods "on the water" or stacked in the customs zone in a foreign country. It can be very costly to ship your goods back or to sell them urgently. In both cases, there are substantial additional expenses (warehousing, cost of transportation to a new destination, significant discount, etc.). In some cases, the buyer who failed to pay was one of the bidders at the resulting auction and had bought the goods for a fraction of the initial price.

It is also possible, that the buyer will delay the payment. Although legally the payment has to be made immediately upon receipt of the draft by the buyer's bank, the buyer may hold the payment until the goods are delivered.

Time Draft

Unlike the sight draft, when dealing with time drafts, the buyer may take possession of the goods before the payment. Under the time draft, you agree on a deferring period, ship the goods and draw a draft. For the title documents to be released, the buyer has to accept the draft by issuing written evidence of his willingness to pay on the agreed maturity date (usually by signing and dating the draft).

Dealing with the 'time draft', always draw a draft against the certain date specified in the other document. (For example, "Payable at 60 days after invoice date/bill of lading date/the draft date")

The time draft, in fact, is very similar to "open account" terms – you have no control over the goods, nor over the payment. The only difference is that, in addition to the contract of sale, you have the

buyer's written guarantee to make a payment on a certain date. You have to rely on the buyer. The consequences of the refusal to pay are the same as the consequences of the refusal to pay under "open account" (see below).

Drafts are normally issued in a set of two (First of Exchange and Second of Exchange) or singly (Sola Bill of Exchange). ) Two drafts are usually drawn to ensure that at least one draft reaches the Drawee when they are dispatched separately. When two drafts are issued they may be numbered "1" and "2" and marked "First of Exchange (Second Unpaid)" and "Second of Exchange (First Unpaid)".

Documentary collection is cheaper then L/C but the risk involved is much greater, especially with the time draft. I wouldn't recommend these terms, unless you are dealing with a well-known trusted buyer or the transaction is insured.

 

Documentary Drafts

A draft, sometimes also called a bill of exchange, is analogous to a foreign buyer's check. Like checks used in domestic commerce, drafts carry the risk that they will be dishonored. However, in international commerce, title does not transfer to the buyer until he pays the draft, or at least engages a legal undertaking that the draft will be paid when due.

Sight Drafts

A sight draft is used when the exporter wishes to retain title to the shipment until it reaches its destination and payment is made. Before the shipment can be released to the buyer, the original ocean bill of lading (the document that evidences title) must be properly endorsed by the buyer and surrendered to the carrier. It is important to note that air waybills of lading, on the other hand, do not need to be presented in order for the buyer to claim the goods. Hence, risk increases when a

sight draft is being used with an air shipment.

In actual practice, the ocean bill of lading is endorsed by the exporter and sent via the exporter's bank to the buyer's bank. It is accompanied by the sight draft, invoices, and other supporting documents that are specified by either the buyer or the buyer's country (e.g., packing lists, consular invoices, insurance certificates). The foreign bank notifies the buyer when it has received these documents. As soon as the draft is paid, the foreign bank turns over the bill of lading thereby enabling the buyer to obtain the shipment.

There is still some risk when a sight draft is used to control transferring the title of a shipment. The buyer's ability or willingness to pay might change from the time the goods are shipped until the time the drafts are presented for payment; there is no bank promise to pay standing behind the buyer's obligation. Additionally, the policies of the importing country could also change. If the buyer cannot or will not pay for and claim the goods, returning or disposing of the products becomes the problem of the exporter.

Time Drafts and Date Drafts

A time draft is used when the exporter extends credit to the buyer. The draft states that payment is due by a specific time after the buyer accepts the time draft and receives the goods (e.g., 30 days after acceptance). By signing and writing "accepted" on the draft, the buyer is formally obligated to pay within the stated time. When this is done the time draft is then called a trade acceptance. It can be kept by the exporter until maturity or sold to a bank at a discount for immediate payment.

A date draft differs slightly from a time draft in that it specifies a date on which payment is due, rather than a time period after the draft is accepted. When either a sight draft or time draft is used, a buyer can delay payment by delaying acceptance of the draft. A date draft can prevent this delay in payment though it still must be accepted.

When a bank accepts a draft, it becomes an obligation of the bank and thus, a negotiable investment known as a banker's acceptance. A

banker's acceptance can also be sold to a bank at a discount for immediate payment.

 

Open Account

In a foreign transaction, an open account can be a convenient method of payment if the buyer is well established, has a long and favorable payment record, or has been thoroughly checked for creditworthiness. With an open account, the exporter simply bills the customer, who is expected to pay under agreed terms at a future date. Some of the largest firms abroad make purchases only on open account.

However, there are risks to open account sales. The absence of documents and banking channels might make it difficult to pursue the legal enforcement of claims. The exporter might also have to pursue collection abroad, which can be difficult and costly. Another problem is that receivables may be harder to finance, since drafts or other evidence of indebtedness are unavailable. There are several ways to reduce credit risk,through such means as export credit insurance and factoring.

Exporters contemplating a sale on open account terms should thoroughly examine the political, economic, and commercial risks. They should also consult with their bankers if financing will be needed for the transaction before issuing a pro forma invoice to a buyer.

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Other Payment Mechanisms

Consignment sales

International consignment sales follow the same basic procedures as in

the United States. The goods are shipped to a foreign distributor who sells them on behalf of the exporter. The exporter retains title to the goods until they are sold, at which point payment is sent to the exporter. The exporter has the greatest risk and least control over the goods with this method. Additionally, receiving payment may take quite a while.

It is wise to consider risk insurance with international consignment sales. The contract should clarify who is responsible for property risk insurance that will cover the merchandise until it is sold and payment is received. In addition, it may be necessary to conduct a credit check on the foreign distributor.

Countertrade

International countertrade is a trade practice whereby one party accepts goods, services, or other instruments of trade in partial or whole payment for its products. This type of trade fulfills financial, marketing, or public policy objectives of the trading parties. For example, a firm might trade by bartering because it or its trading partner lacks foreign exchange.

Many U.S. exporters consider countertrade a necessary cost of doing business in markets where U.S. exports would otherwise not be sold. One consideration for smaller firms is that this type of trade may cause cash flow problems. Therefore, many smaller exporters do not consider this an option as they wish to do business in U.S. dollars.

There are several types of countertrade, including counterpurchase and barter. Counterpurchase is quite common. In this situation, exporters agree to purchase a quantity of goods from a country in exchange for that country's purchase of the exporter's product. These goods are typically unrelated but have an equivalent value. Another form of this practice is contractually linked, parallel trade transactions that each involve a separate financial settlement. For example, a countertrade contract may provide that the U.S. exporter will be paid in a convertible currency as long as the U.S. exporter (or another entity designated by the exporter) agrees to purchase a related quantity of goods from the

importing country.

Barter arrangements in international commerce are not as common, because the parties' needs for the goods of the other seldom coincide and because valuation of the goods may be problematic. This type of countertrade occurs without money exchanging hands as merchandise is traded directly for other merchandise or services. Barter might occur by swapping (one good for another) or by switching (using a chain of buyers and sellers in different markets to barter).

U.S. exporters can take advantage of countertrade opportunities by trading through an intermediary with countertrade expertise, such as an international broker, an international bank, or an export management company. One drawback to this type of exporting is that there are often higher transaction costs and greater risks than with other kinds of export transactions.

The Department of Commerce can advise and assist U.S. exporters on countertrade requirements. The Financial Services and Countertrade Division of ITA's Office of Finance, monitors countertrade trends, disseminates information (including lists of potentially beneficial countertrade opportunities), and provides general assistance to enterprises seeking barter and countertrade opportunities. For more information, contact the Financial Services and Countertrade Division/Office of Finance, International Trade Administration, U.S. Department of Commerce, Washington, D.C. 20230; telephone 202-482-4471.

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Foreign Currency

A buyer and a seller who are in different countries rarely use the same currency. Payment is usually made in either the buyer's or the seller's currency or in a third mutually agreed-upon currency.

One of the risks associated with foreign trade is the uncertainty of the future exchange rates. The relative value between the two currencies

could change between the time the deal is concluded and the time payment is received. If the exporter is not properly protected, a devaluation or depreciation of the foreign currency could cause the exporter to lose money. For example, if the buyer has agreed to pay 500,000 French francs for a shipment and the franc is valued at 20 cents, the seller would expect to receive US$100,000. If the franc later decreased in value to be worth 19 US cents, payment under the new rate would be only US$95,000, a loss of US$5,000 for the seller. On the other hand, if the foreign currency increases in value the exporter would get a windfall in extra profits. Nonetheless, most exporters are not interested in speculating on foreign exchange fluctuations and prefer to avoid risks.

If the buyer asks to make payment in a foreign currency, the exporter should consult an international banker before negotiating the sales contract. Banks can offer advice on the foreign exchange risks that exist with a particular currency. Some international banks can also help hedge against such a risk, by agreeing to purchase the foreign currency at a fixed price in dollars, regardless of the currencies value at the time the customer pays. Banks will normally charge a fee or discount the transaction for this service. If this mechanism is used, the bank's fee should be included in the price quotation.

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Payment Problems

In international trade, problems involving bad debts are more easily avoided than rectified after they occur. Credit checks and the other methods that have been discussed in this chapter can limit the risks. Nonetheless, just as in a company's domestic business, exporters occasionally encounter problems with buyers who default on their payment. When these problems occur in international trade, obtaining payment can be both difficult and expensive. Even when the exporter has insurance to cover commercial credit risks, a default by a buyer still requires the time, effort, and cost of the exporter to collect a payment. The exporter must exercise normal business prudence in exporting and

exhaust all reasonable means of obtaining payment before an insurance claim is honored. Even then there is often a significant delay before the insurance payment is made.

The simplest (and least costly) solution to a payment problem is to contact and negotiate with the customer. With patience, understanding, and flexibility, an exporter can often resolve conflicts to the satisfaction of both sides.

This point is especially true when a simple misunderstanding or technical problem is to blame and there is no question of bad faith. Even though the exporter may be required to compromise on certain points - perhaps even on the price of the committed goods - the company may save a valuable customer and profit in the long run.

However, if negotiations fail and the sum involved is large enough to warrant the effort, a company should obtain the assistance and advice of its bank, legal counsel, and other qualified experts. Since arbitration is often faster and less costly, this step is preferable to legal action if both parties can agree to take their dispute to an arbitration agency. The International Chamber of Commerce handles the majority of international arbitration and is usually acceptable to foreign companies because it is not affiliated with any single country. For information contact the vice president for arbitration, U.S. Council of the International Chamber of Commerce, telephone 212-354-4480.

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Export Credit Insurance

The payments in International Trade can be insured. The credit insurance enables you to expand your exports without fear of loss. I suggest that you try to insure payments under documentary collections, consignment and open account terms. You may even consider the insurance of the unconfirmed L/C.

The export credit insurance, issued by a financial institution in your favour, protects you against non-payments by the buyer or by the

Issuing Bank (in case of insuring an unconfirmed L/C) due to commercial (insolvency, fraud) or political risk. In case of non-payment, you will usually receive 80-90% of the debt.

The credit insurance not only guarantees you the payment, but also enables you to provide better terms to your buyers. Remember the dilemma between high and low risk payment terms? Well, credit insurance is the solution for this predicament.

The insured payment also allows you to obtain additional funds from a bank. Similar to the discounting of funds under confirmed L/C, your bank will usually provide you with trade finance and use your credit insurance as a security.

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Mixed Payments

Quite often you can compromise with the buyer by using different terms of payment for one transaction.

Remember that I suggested you insist the buyer pay in advance when the goods are required to be customised? I also mentioned that "cash in advance" is the least preferred term for the buyer. The solution is mixed payments. You estimate the cost involved in customisation, which has to be prepaid and the balance may be payable under different terms, L/C, for instance.

When you experience difficulties with cash flow and do not have available funds to prepay freight and other pre-shipment expenses, you also may consider mixed payments.

Using mixed payments, you can avoid losses, which occur when the buyer refuses the payment under the sight draft.

If the mixed payments were negotiated, the proportion has to be clearly indicated in the contract of sale. For example: "Terms of Payment:

20% cash with the order 80% by irrevocable Letter of Credit confirmed by first class bank and payable at sight via the-advising-bank's-name and location in favour  of your-company-name"

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Sample Draft/Transmittal Letter

1. U.S. DOLLARS - Enter the entire amount to be collected; if not in U.S. dollars, specify currency.

2. DATE - Enter the date the Draft is issued.

3. OF THIS FIRST EXCHANGE (SECOND UNPAID) - Enter the terms of payment (also called the Tenor of the draft): at 45 Days, at Sight, At 30 days B/L, etc. "Second Unpaid" refers to the duplicate copy of the draft (OF THIS SECOND EXCHANGE, FIRST UNPAID); once payment has been made against either copy, the other becomes void.

4. PAY TO THE ORDER OF - Enter the name of the party to be paid (Seller, "Payee"); this may be the the Seller of the Seller's bank, and will be the party to whom the foreign Buyer's bank will remit payment.

5. UNITED STATES DOLLARS - Enter the amount from Field 1 in words; if payment is not to be made in U.S. Dollars, block out "United States Dollar" and enter correct currency.

6. CHARGE TO ACCOUNT OF - Enter the name and address of the paying party (Buyer, "Drawee"). For Letter of Credit payments, enter the name and address of the Buyer's opening bank as well as the L/C number and issue date.

7. NUMBER - Enter an identification, or Draft, number, as assigned by the Seller to reference the transaction.

8. AUTHORIZED SIGNATURE - The signature of the authorized individual for the Seller or the seller's agents ("Drawer").

9. FORWARD DRAFT TO - Enter the name and address to whom the Draft is being sent. Unless this is a letter of credit being negotiated in the U.S., this should be the name and address of a foreign bank.

10. FORWARDING DATE - Enter the date the Draft is being sent to the bank in Field 9.

11. DRAFT NUMBER - Enter the Seller's Draft number, as noted in Field 7 above.

12. PURPOSE OF DRAFT - Check the applicable box if the draft is part of letter of credit negotiation, a collection, or an acceptance.

13. LIST OF DOCUMENTS - Enter the number and type of each original and duplicate document to be included with this Transmittal Letter. Any document attached will eventually be released to the Buyer.

14. DELIVER ALL DOCUMENTS - Check either "Deliver all documents in one mailing" or "Deliver documents in two mailings." Generally, documents are delivered in one mailing.

15. DELIVER DOCUMENTS AGAINST - Ensure that the type of Draft attached (Block 3) is compatible with the "deliver against" instructions. Sight Drafts should accompany "Deliver against Payment" instructions, while Time Drafts should accompany "Deliver against Acceptance" instructions.

16. BANK CHARGES - The correspondent bank will not pay unless all charges are collected. Based on your agreement with the Buyer, indicate which party is responsible for both the remitting and presenting bank's charges. By checking "all charges for Account of Drawee," the Buyer is responsible for these charges; if the Buyer does not pay (or is not to pay) these charges, and id "Do Not Waive Charges" has not been checked, the Seller will be billed for expenses incurred.

17. PROTEST - Check "Protest" (specify "for nonpayment" or for "non-acceptance," depending on the type of draft attached - see instruction, Field 15) if you wish the correspondent bank to process written, notarized documentation in event that the Buyer refuses to pay or accept the Draft. Additional Bank expenses associated with a protest are usually charged to the Seller.

18. PRESENT ON ARRIVAL - Check if you wish the Draft to be presented on the arrival of the goods to the Buyer.

19. ADVISE - Check the appropriate blocks, and block-out the non-applicable terms, if you wish to be advised of payment/acceptance or non-payment or non-payment/non-acceptance.

20. IN CASE OF NEED - Enter the representative of the Seller in the

country to which the Draft and documents are going, if one exists; check the block which describes the representative's authority.

21. OTHER INSTRUCTIONS - Enter any instructions to either the remitting or correspondent banks, such as remittance instructions, clarification of protest procedures, multiple-draft instructions, etc.

22. REFER ALL QUESTIONS - Enter the name of the contact, and his/her address & telephone number, in the Seller's country; specify if this contact is employed by the Shipper (Seller) or the Seller's agent (Freight Forwarder).

23. AUTHORIZATION - Enter the person authorized to sign the Transmittal Letter (see Field 8 above), the date prepared, and the authorized person's signature.

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Sample Irrevocable Letter of Credit

The example of a confirmed irrevocable letter of credit in illustrates the various parts of a typical letter of credit. In this sample, the letter of credit was forwarded to the exporter, The Walton Building Supply Company (A), by the confirming bank, Megabank Corporation (B), as a result of c letter of credit being issued by the Third Hong Kong Bank, Hong Kong (C), for the account of the importer, HHB Hong Kong (D). The date of issue was March 8, 1997 (E), and the exporter must submit the proper documents (e.g., a commercial invoice in one original and three copies) (F) by June 23, 1997 (G) in order for a sight draft (H) to be honored.

 

          Uniform Customs and Practice for Documentary Credits - UCP600                                            (2007 Revision) A. General Provisions and Definitions       1. Application of UCP     2. Definitions      3. Interpretations      4. Credits vs. Contracts      5. Documents vs. Goods, Services or Performance B. Form and Notification of Credits      6. Availability, Expiry Date and Place for Presentation     7. Issuing Bank Undertaking    8. Confirming Bank Undertaking    9. Advising of Credits and Amendments    10 Amendments    11. Teletransmitted and Pre-Advised Credits     12. NominationC. Liabilities and Responsibilities      13. Bank-to-Bank Reimbursement Arrangements     14. Standard for Examination of Documents    15. Complying Presentation     16. Discrepant Documents, Waiver and Notice D. Documents     17. Original Documents and Copies    18. Commercial Invoice    19. Transport Document Covering at Least Two Different Modes of Transport    20. Bill of Lading    21. Non-Negotiable Sea Waybill    22. Charter Party Bill of Lading    23. Air Transport Document    24. Road, Rail or Inland Waterway Transport Documents    25. Courier Receipt, Post Receipt or Certificate of Posting    26. "On Deck", "Shipper's Load and Count", "Said by Shipper to Contain" and Charges Additional to Freight     27. Clean Transport Document     28. Insurance Document and CoverageE. Miscellaneous Provisions     29. Extension of Expiry Date or Last Day for Presentation    30. Tolerance in Credit Amount, Quantity and Unit Prices    31. Partial Drawings or Shipments    32. Installment Drawings or Shipments    33. Hours of Presentation    34. Disclaimer on Effectiveness of Documents    35. Disclaimer on Transmission and Translation    36. Force Majeure    37. Disclaimer for Acts of an Instructed Party    38. Transferable CreditsF. Assignment of Proceeds     39. Assignment of Proceeds   ¡¡   ¡¡ 

 

A. GENERAL PROVISIONS AND DEFINITIONS   Article 1. Application of UCP The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication no. 600 ("UCP") are rules that apply to any documentary credit ("credit") (including, to the extent to which they may be applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject to these rules. They are binding on all parties thereto unless expressly modified or excluded by the credit.    Article 2. DefinitionsFor the purpose of these rules:

Advising bank means the bank that advises the credit at the request of the issuing bank.

Applicant means the party on whose request the credit is issued.

Banking day means a day on which a bank is regularly open at the place at which an act subject to these rules is to be performed.

Beneficiary means the party in whose favor a credit is issued.

Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.

Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honor or negotiate a complying presentation.

Confirming bank means the bank that adds its confirmation to a credit upon the issuing bank's authorization or request.

Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honor a complying presentation.

Honor means:

a. to pay at sight if the credit is available by sight payment.

b. to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment.

c. to accept a bill of exchange ("draft") drawn by the beneficiary and pay at maturity if the credit is available by acceptance.

Issuing bank means the bank that issues a credit at the request of an applicant or on its own behalf.

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.

Nominated Bank means the bank with which the credit is available or any bank in the case of a credit available with any bank.

Presentation means either the delivery of documents under a credit to the issuing bank or nominated bank or the documents so delivered.

Presenter means a beneficiary, bank or other party that makes a presentation.

Article 3. IntrepretationsFor the purpose of these rules:

Where applicable, words in the singular include the plural and in the plural include the singular.

A credit is irrevocable even if there is no indication to that effect.

A document may be signed by handwriting, facsimile signature, perforated signature, stamp, symbol or any other mechanical or electronic method of authentication.

A requirement for a document to be legalized, visaed, certified or similar will be satisfied by any signature, mark, stamp or label on the document which appears to satisfy that requirement.

Branches of a bank in different countries are considered to be separate banks.

Terms such as "first class", "well known", "qualified", "independent", "official", "competent" or "local" used to describe the issuer of a document allow any issuer except the beneficiary to issue that document.

Unless required to be used in a document, words such as "prompt", "immediately" or "as soon as possible" will be disregarded.

The expression "on or about" or similar will be interpreted as a stipulation that an event is to occur during a period of five calendar days before until five calendar days after the specified date, both start and end dates included.

The words "to", "until", "till", "from" and "between" when used to determine a period of shipment include the date or dates mentioned, and the words "before" and "after" exclude the date mentioned.

The words "from" and "after" when used to determine a maturity date exclude the date mentioned.

The terms "first half" and "second half" of a month shall be construed respectively as the 1st to the 15th and the 16th to the last day of the month, all dates inclusive.

The terms "beginning", "middle" and "end" of a month shall be construed respectively as the 1st to the 10th, the 11th to the 20th and the 21st to the last day of the month, all dates inclusive..   Article 4.  Credits vs. Contractsa. A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honor, to negotiate or to fulfil any other obligation under the credit is not subject to claims or defences by the applicant resulting from its relationships with the issuing bank or the beneficiary.

A beneficiary can in no case avail itself of the contractual relationships existing between banks or between the applicant and the issuing bank.

b. An issuing bank should discourage any attempt by the applicant to include, as an integral part of the credit, copies of the underlying contract, proforma invoice and the like.  Article 5.  Documents vs. Goods, Services or PerformanceBanks deal with documents and not with goods, services or performance to which the documents may relate.       B. FORM AND NOTIFICATION OF CREDITS  

Article 6.  Availability, Expiry Date and Place for Presentation

a. A credit must state the bank with which it is available or whether it is available with any bank. A credit available with a nominated bank is also available with the issuing bank.

b. A credit must state whether it is available by sight payment, deferred payment, acceptance or negotiation.

c. A credit must not be issued available by a draft drawn on the applicant.

d.

i. A credit must state an expiry date for presentation. An expiry date stated for honor or negotiation will be deemed to be an expiry date for presentation.

ii. The place of the bank with which the credit is available is the place for presentation. The place for presentation under a credit available with any bank is that of any bank. A place for presentation other than that of the issuing bank is in addition to the place of the issuing bank.

e. Except as provided in sub-article 29 (a), a presentation by or on behalf of the beneficiary must be made on or before the expiry date.   Article 7. Issuing Bank Undertakinga. Provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that they constitute a complying presentation, the issuing bank must honor if the credit is available by:

i. sight payment, deferred payment or acceptance with the issuing bank;

ii. sight payment with a nominated bank and that nominated bank does not pay;

iii. deferred payment with a nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity;

iv. acceptance with a nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;

v. negotiation with a nominated bank and that nominated bank does not negotiate.

b. An issuing bank is irrevocably bound to honor as of the time it issues the credit.

c. An issuing bank undertakes to reimburse a nominated bank that has honored or negotiated a complying presentation and forwarded the documents to the issuing bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. An issuing bank's undertaking to reimburse a nominated bank is independent of the issuing bank's undertaking to the beneficiary. 

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Article 8. Confirming Bank Undertakinga. Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must:

i. honor, if the credit is available by

a. sight payment, deferred payment or acceptance with the confirming bank;

b. sight payment with another nominated bank and that nominated bank does not pay;

c. deferred payment with another nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity;

d. acceptance with another nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;

e. negotiation with another nominated bank and that nominated bank does not negotiate.

ii. negotiate, without recourse, if the credit is available by negotiation with the confirming bank.

b. A confirming bank is irrevocably bound to honor or negotiate as of the time it adds its confirmation to the credit.

c. A confirming bank undertakes to reimburse another nominated bank that has honored or negotiated a complying presentation and forwarded the documents to the confirming bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not another nominated bank prepaid or purchased before maturity. A confirming bank's undertaking to reimburse another nominated bank is independent of the confirming bank's undertaking to the beneficiary.

d. If a bank is authorized or requested by the issuing bank to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation. .   Article 9. Advising of Credits and Amendmentsa. A credit and any amendment may be advised to a beneficiary through an advising bank. An advising bank that is not a confirming bank advises the credit and any amendment without any undertaking to honor or negotiate.

b. By advising the credit or amendment, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received.

c. An advising bank may utilize the services of another bank ("second advising bank") to advise the credit and any amendment to the beneficiary. By advising the credit or amendment, the second advising bank signifies that it has satisfied itself as to the apparent authenticity of the advice it has received and that the advice accurately reflects the terms and conditions of the credit or amendment received.

d. A bank utilizing the services of an advising bank or second advising bank to advise a credit must use the same bank to advise any amendment thereto.

e. If a bank is requested to advise a credit or amendment but elects not to do so, it must so inform, without delay, the bank from which the credit, amendment or advice has been received.

f. If a bank is requested to advise a credit or amendment but cannot satisfy itself as to the apparent authenticity of the credit, the amendment or the advice, it must so inform, without delay, the bank from which the instructions appear to have been received. If the advising bank or second advising bank elects nonetheless to advise the credit or amendment, it must inform the beneficiary or second advising bank that it has not been able to satisfy itself as to the apparent authenticity of the credit, the amendment or the advice.  Article 10. Amendmentsa. Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.

b. An issuing bank is irrevocably bound by an amendment as of the time it issues the amendment. A confirming bank may extend its confirmation to an amendment and will be irrevocably bound as of the time it advises the amendment. A confirming bank may, however, choose to advise an amendment without extending its confirmation

and, if so, it must inform the issuing bank without delay and inform the beneficiary in its advice.

c. The terms and conditions of the original credit (or a credit incorporating previously accepted amendments) will remain in force for the beneficiary until the beneficiary communicates its acceptance of the amendment to the bank that advised such amendment. The beneficiary should give notification of acceptance or rejection of an amendment. If the beneficiary fails to give such notification, a presentation that complies with the credit and to any not yet accepted amendment will be deemed to be notification of acceptance by the beneficiary of such amendment. As of that moment the credit will be amended.

d. A bank that advises an amendment should inform the bank from which it received the amendment of any notification of acceptance or rejection.

e. Partial acceptance of an amendment is not allowed and will be deemed to be notification of rejection of the amendment.

f. A provision in an amendment to the effect that the amendment shall enter into force unless rejected by the beneficiary within a certain time shall be disregarded.  Article 11. Teletransmitted and Pre-Advised Credits a. An authenticated teletransmission of a credit or amendment will be deemed to be the operative credit or amendment, and any subsequent mail confirmation shall be disregarded.

If a teletransmission states "full details to follow" (or words of similar effect), or states that the mail confirmation is to be the operative credit or amendment, then the teletransmission will not be deemed to be the operative credit or amendment. The issuing bank must then issue the operative credit or amendment without delay in terms not inconsistent with the teletransmission.

b. A preliminary advice of the issuance of a credit or amendment ("pre-advice") shall only be sent if the issuing bank is prepared to issue the operative credit or amendment. An issuing bank that sends a pre-advice is irrevocably committed to issue the operative credit or amendment, without delay, in terms not inconsistent with the pre-advice. 

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Article 12. Nominationa. Unless a nominated bank is the confirming bank, an authorization to honor or negotiate does not impose any obligation on that nominated bank to honor or negotiate, except when expressly agreed to by that nominated bank and so communicated to the beneficiary.

b. By nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that nominated bank.

c. Receipt or examination and forwarding of documents by a nominated bank that is not a confirming bank does not make that nominated bank liable to honor or negotiate, nor does it constitute honor or negotiation..       C. LIABILITIES AND RESPONSIBILITIES   Article 13. Bank-to-Bank Reimbursement Arrangements¡¤ a. If a credit states that reimbursement is to be obtained by a nominated bank ("claiming bank") claiming on another party ("reimbursing bank"), the credit must state if the reimbursement is subject to the ICC rules for bank-to-bank reimbursements in effect on the date of issuance of the credit.

b. If a credit does not state that reimbursement is subject to the ICC rules for bank-to-bank reimbursements, the following apply:

i.An issuing bank must provide a reimbursing bank with a reimbursement authorization that conforms with the availability stated in the credit. The reimbursement authorization should not be subject to an expiry date.

ii.A claiming bank shall not be required to supply a reimbursing bank with a certificate of compliance with the terms and conditions of the credit.

iii.An issuing bank will be responsible for any loss of interest, together with any expenses incurred, if reimbursement is not provided on first demand by a reimbursing bank in accordance with the terms and conditions of the credit.

iv.A reimbursing bank's charges are for the account of the issuing bank. However, if the charges are for the account of the beneficiary, it is the responsibility of an issuing bank to so indicate in the credit and in the reimbursement authorization. If a reimbursing bank's charges are for the account of the beneficiary, they shall be deducted from the amount due to a claiming bank when reimbursement is made. If no reimbursement is made, the reimbursing bank's charges remain the obligation of the issuing bank.

c. An issuing bank is not relieved of any of its obligations to provide reimbursement if reimbursement is not made by a reimbursing bank on first demand. .   Article 14. Standard for Examination of Documentsa. A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation.

b. A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation.

c. A presentation including one or more original transport documents subject to articles 19, 20, 21, 22, 23, 24 or 25 must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as described in these rules, but in any event not later than the expiry date of the credit.

d. Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.

e. In documents other than the commercial invoice, the description of the goods, services or performance, if stated, may be in general terms not conflicting with their description in the credit.

f. If a credit requires presentation of a document other than a transport document, insurance document or commercial invoice, without stipulating by whom the document is to be issued or its data content, banks will accept the document as presented if its content appears to fulfill the function of the required document and otherwise complies with sub-article 14 (d).

g. A document presented but not required by the credit will be disregarded and may be returned to the presenter.

h. If a credit contains a condition without stipulating the document to indicate compliance with the condition, banks will deem such condition as not stated and will disregard it.

i. A document may be dated prior to the issuance date of the credit, but must not be dated later than its date of

presentation.

j. When the addresses of the beneficiary and the applicant appear in any stipulated document, they need not be the same as those stated in the credit or in any other stipulated document, but must be within the same country as the respective addresses mentioned in the credit. Contact details (telefax, telephone, email and the like) stated as part of the beneficiary's and the applicant's address will be disregarded. However, when the address and contact details of the applicant appear as part of the consignee or notify party details on a transport document subject to articles 19, 20, 21, 22, 23, 24 or 25, they must be as stated in the credit.

k. The shipper or consignor of the goods indicated on any document need not be the beneficiary of the credit.

l. A transport document may be issued by any party other than a carrier, owner, master or charterer provided that the transport document meets the requirements of articles 19, 20, 21, 22, 23 or 24 of these rules.   Article 15. Complying Presentationa. When an issuing bank determines that a presentation is complying, it must honor.

b. When a confirming bank determines that a presentation is complying, it must honor or negotiate and forward the documents to the issuing bank.

c. When a nominated bank determines that a presentation is complying and honors or negotiates, it must forward the documents to the confirming bank or issuing bank..   Article 16. Discrepant Documents, Waiver and Noticea. When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank determines that a presentation does not comply, it may refuse to honor or negotiate.

b. When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14 (b).

c. When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honor or negotiate, it must give a single notice to that effect to the presenter.

The notice must state:

i. that the bank is refusing to honor or negotiate; and

ii. each discrepancy in respect of which the bank refuses to honor or negotiate; and

iii.

a) that the bank is holding the documents pending further instructions from the presenter; or

b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or

c) that the bank is returning the documents; or

d) that the bank is acting in accordance with instructions previously received from the presenter.

d. The notice required in sub-article 16 (c) must be given by telecommunication or, if that is not possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation.

e. A nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may, after providing

notice required by sub-article 16 (c) (iii) (a) or (b), return the documents to the presenter at any time.

f. If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.

g. When an issuing bank refuses to honor or a confirming bank refuses to honor or negotiate and has given notice to that effect in accordance with this article, it shall then be entitled to claim a refund, with interest, of any reimbursement made.

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 D. DOCUMENTS

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Article 17. Original Documents and Copiesa. At least one original of each document stipulated in the credit must be presented.

b. A bank shall treat as an original any document bearing an apparently original signature, mark, stamp, or label of the issuer of the document, unless the document itself indicates that it is not an original.

c. Unless a document indicates otherwise, a bank will also accept a document as original if it:

i. appears to be written, typed, perforated or stamped by the document issuer's hand; or

ii. appears to be on the document issuer's original stationery; or

iii. states that it is original, unless the statement appears not to apply to the document presented.

d. If a credit requires presentation of copies of documents, presentation of either originals or copies is permitted.

e. If a credit requires presentation of multiple documents by using terms such as "in duplicate", "in two fold" or "in two copies", this will be satisfied by the presentation of at least one original and the remaining number in copies, except when the document itself indicates otherwise. .   Article 18. Commercial Invoicea. A commercial invoice:

i. must appear to have been issued by the beneficiary (except as provided in article 38);

ii. must be made out in the name of the applicant (except as provided in sub-article 38 (g));

iii. must be made out in the same currency as the credit; and

iv. need not be signed.

b. A nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may accept a commercial invoice issued for an amount in excess of the amount permitted by the credit, and its decision will be binding upon all parties, provided the bank in question has not honored or negotiated for an amount in excess of that permitted by the credit.

c. The description of the goods, services or performance in a commercial invoice must correspond with that

appearing in the credit   Article 19. Transport Document Covering at Least Two Different Modes of Transporta. A transport document covering at least two different modes of transport (multimodal or combined transport document), however named, must appear to:

i. indicate the name of the carrier and be signed by:

- the carrier or a named agent for or on behalf of the carrier, or

- the master or a named agent for or on behalf of the master.

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

ii. indicate that the goods have been dispatched, taken in charge or shipped on board at the place stated in the credit, by:

- pre-printed wording, or

- a stamp or notation indicating the date on which the goods have been dispatched, taken in charge or shipped on board.

The date of issuance of the transport document will be deemed to be the date of dispatch, taking in charge or shipped on board, and the date of shipment. However, if the transport document indicates, by stamp or notation, a date of dispatch, taking in charge or shipped on board, this date will be deemed to be the date of shipment.

iii. indicate the place of dispatch, taking in charge or shipment and the place of final destination stated in the credit, even if:

a. the transport document states, in addition, a different place of dispatch, taking in charge or shipment or place of final destination,

or

b. the transport document contains the indication "intended" or similar qualification in relation to the vessel, port of loading or port of discharge.

iv. be the sole original transport document or, if issued in more than one original, be the full set as indicated on the transport document.

v. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage (short form or blank back transport document). Contents of terms and conditions of carriage will not be examined.

vi. contain no indication that it is subject to a charter party.

b. For the purpose of this article, transhipment means unloading from one means of conveyance and reloading to another means of conveyance (whether or not in different modes of transport) during the carriage from the place of dispatch, taking in charge or shipment to the place of final destination stated in the credit.

c.

i. A transport document may indicate that the goods will or may be transhipped provided that the entire carriage is covered by one and the same transport document.

ii. A transport document indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment. .         Article 20. Bill of Ladinga.A bill of lading, however named, must appear to:

i. indicate the name of the carrier and be signed by:

- the carrier or a named agent for or on behalf of the carrier, or

- the master or a named agent for or on behalf of the master.

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

ii. indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by:

- pre-printed wording, or

- an on board notation indicating the date on which the goods have been shipped on board.

The date of issuance of the bill of lading will be deemed to be the date of shipment unless the bill of lading contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment.

If the bill of lading contains the indication "intended vessel" or similar qualification in relation to the name of the vessel, an on board notation indicating the date of shipment and the name of the actual vessel is required.

iii. indicate shipment from the port of loading to the port of discharge stated in the credit.

If the bill of lading does not indicate the port of loading stated in the credit as the port of loading, or if it contains the indication "intended" or similar qualification in relation to the port of loading, an on board notation indicating the port of loading as stated in the credit, the date of shipment and the name of the vessel is required. This provision applies even when loading on board or shipment on a named vessel is indicated by pre-printed wording on the bill of lading.

iv. be the sole original bill of lading or, if issued in more than one original, be the full set as indicated on the bill of lading.

v. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage (short form or blank back bill of lading). Contents of terms and conditions of carriage will not be examined.

vi. contain no indication that it is subject to a charter party.

b. For the purpose of this article, transhipment means unloading from one vessel and reloading to another vessel during the carriage from the port of loading to the port of discharge stated in the credit.

c.

i. A bill of lading may indicate that the goods will or may be transhipped provided that the entire carriage is covered by one and the same bill of lading.

ii. A bill of lading indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment, if the goods have been shipped in a container, trailer or LASH barge as evidenced by the bill of lading.

d. Clauses in a bill of lading stating that the carrier reserves the right to tranship will be disregarded 

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Article 21. Non-Negotiable Sea Waybilla. A non-negotiable sea waybill, however named, must appear to:

i. indicate the name of the carrier and be signed by:

- the carrier or a named agent for or on behalf of the carrier, or

- the master or a named agent for or on behalf of the master.

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

ii. indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by:

- pre-printed wording, or

- an on board notation indicating the date on which the goods have been shipped on board.

The date of issuance of the non-negotiable sea waybill will be deemed to be the date of shipment unless the non-negotiable sea waybill contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment.

If the non-negotiable sea waybill contains the indication "intended vessel" or similar qualification in relation to the name of the vessel, an on board notation indicating the date of shipment and the name of the actual vessel is required.

iii. indicate shipment from the port of loading to the port of discharge stated in the credit.

If the non-negotiable sea waybill does not indicate the port of loading stated in the credit as the port of loading, or if it contains the indication "intended" or similar qualification in relation to the port of loading, an on board notation indicating the port of loading as stated in the credit, the date of shipment and the name of the vessel is required. This provision applies even when loading on board or shipment on a named vessel is indicated by pre-printed wording on the non-negotiable sea waybill.

iv. be the sole original non-negotiable sea waybill or, if issued in more than one original, be the full set as indicated on the non-negotiable sea waybill.

v. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage (short form or blank back non-negotiable sea waybill). Contents of terms and conditions of carriage will not be examined.

vi. contain no indication that it is subject to a charter party.

b. For the purpose of this article, transhipment means unloading from one vessel and reloading to another vessel during the carriage from the port of loading to the port of discharge stated in the credit.

c.

i. A non-negotiable sea waybill may indicate that the goods will or may be transhipped provided that the entire carriage is covered by one and the same non-negotiable sea waybill.

ii. A non-negotiable sea waybill indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment, if the goods have been shipped in a container, trailer or LASH barge as evidenced by the non-negotiable sea waybill.

d. Clauses in a non-negotiable sea waybill stating that the carrier reserves the right to tranship will be disregarded.  Article 22. Charter Party Bill of Ladinga. A bill of lading, however named, containing an indication that it is subject to a charter party (charter party bill of lading), must appear to:

i. be signed by:

- the master or a named agent for or on behalf of the master, or

- the owner or a named agent for or on behalf of the owner, or

- the charterer or a named agent for or on behalf of the charterer.

Any signature by the master, owner, charterer or agent must be identified as that of the master, owner, charterer or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the master, owner or charterer.

An agent signing for or on behalf of the owner or charterer must indicate the name of the owner or charterer.

ii. indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by:

- pre-printed wording, or

- an on board notation indicating the date on which the goods have been shipped on board.

The date of issuance of the charter party bill of lading will be deemed to be the date of shipment unless the charter party bill of lading contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment.

iii. indicate shipment from the port of loading to the port of discharge stated in the credit. The port of discharge may also be shown as a range of ports or a geographical area, as stated in the credit.

iv. be the sole original charter party bill of lading or, if issued in more than one original, be the full set as indicated on the charter party bill of lading.

b. A bank will not examine charter party contracts, even if they are required to be presented by the terms of the credit.

  Article 23. Air Transport Documenta. An air transport document, however named, must appear to:

i. indicate the name of the carrier and be signed by:

- the carrier, or

- a named agent for or on behalf of the carrier.

Any signature by the carrier or agent must be identified as that of the carrier or agent.

Any signature by an agent must indicate that the agent has signed for or on behalf of the carrier.

ii.indicate that the goods have been accepted for carriage.

iii. indicate the date of issuance. This date will be deemed to be the date of shipment unless the air transport document contains a specific notation of the actual date of shipment, in which case the date stated in the notation will be deemed to be the date of shipment.

Any other information appearing on the air transport document relative to the flight number and date will not be considered in determining the date of shipment.

iv. indicate the airport of departure and the airport of destination stated in the credit.

v. be the original for consignor or shipper, even if the credit stipulates a full set of originals.

vi. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage. Contents of terms and conditions of carriage will not be examined.

b. For the purpose of this article, transhipment means unloading from one aircraft and reloading to another aircraft during the carriage from the airport of departure to the airport of destination stated in the credit.

c.

i. An air transport document may indicate that the goods will or may be transhipped, provided that the entire carriage is covered by one and the same air transport document.

ii. An air transport document indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment. 

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Article 24. Road, Rail or Inland Waterway Transport Documentsa. A road, rail or inland waterway transport document, however named, must appear to:

i. indicate the name of the carrier and:

- be signed by the carrier or a named agent for or on behalf of the carrier, or

- indicate receipt of the goods by signature, stamp or notation by the carrier or a named agent for or on behalf of the carrier.

Any signature, stamp or notation of receipt of the goods by the carrier or agent must be identified as that of the carrier or agent.

Any signature, stamp or notation of receipt of the goods by the agent must indicate that the agent has signed or acted for or on behalf of the carrier.

If a rail transport document does not identify the carrier, any signature or stamp of the railway company will be accepted as evidence of the document being signed by the carrier.

ii. indicate the date of shipment or the date the goods have been received for shipment, dispatch or carriage at the place stated in the credit. Unless the transport document contains a dated reception stamp, an indication of the date of receipt or a date of shipment, the date of issuance of the transport document will be deemed to be the date of shipment.

iii. indicate the place of shipment and the place of destination stated in the credit.

b.

i. A road transport document must appear to be the original for consignor or shipper or bear no marking indicating for whom the document has been prepared.

ii. A rail transport document marked "duplicate" will be accepted as an original.

iii. A rail or inland waterway transport document will be accepted as an original whether marked as an original or not.

c. In the absence of an indication on the transport document as to the number of originals issued, the number presented will be deemed to constitute a full set.

d. For the purpose of this article, transhipment means unloading from one means of conveyance and reloading to another means of conveyance, within the same mode of transport, during the carriage from the place of shipment, dispatch or carriage to the place of destination stated in the credit.

e.

i. A road, rail or inland waterway transport document may indicate that the goods will or may be transhipped provided that the entire carriage is covered by one and the same transport document.

ii. A road, rail or inland waterway transport document indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment.  Article 25. Courier Receipt, Post Receipt or Certificate of PostingCourier Receipt, Post Receipt or Certificate of Posting

a. A courier receipt, however named, evidencing receipt of goods for transport, must appear to:

i. indicate the name of the courier service and be stamped or signed by the named courier service at the place from which the credit states the goods are to be shipped; and

ii. indicate a date of pick-up or of receipt or wording to this effect. This date will be deemed to be the date of shipment.

b. A requirement that courier charges are to be paid or prepaid may be satisfied by a transport document issued by a courier service evidencing that courier charges are for the account of a party other than the consignee.

c. A post receipt or certificate of posting, however named, evidencing receipt of goods for transport, must appear to be stamped or signed and dated at the place from which the credit states the goods are to be shipped. This date will

be deemed to be the date of shipment.  Article 26. "On Deck", "Shipper's Load and Count", "Said by Shipper to Contain" and Charges Additional to Freighta. A transport document must not indicate that the goods are or will be loaded on deck. A clause on a transport document stating that the goods may be loaded on deck is acceptable.

b. A transport document bearing a clause such as "shipper's load and count" and "said by shipper to contain" is acceptable.

c. A transport document may bear a reference, by stamp or otherwise, to charges additional to the freight.  Article 27. Clean Transport DocumentA bank will only accept a clean transport document. A clean transport document is one bearing no clause or notation expressly declaring a defective condition of the goods or their packaging. The word "clean" need not appear on a transport document, even if a credit has a requirement for that transport document to be "clean on board".  Article 28. Insurance Document and Coveragea. An insurance document, such as an insurance policy, an insurance certificate or a declaration under an open cover, must appear to be issued and signed by an insurance company, an underwriter or their agents or their proxies.

Any signature by an agent or proxy must indicate whether the agent or proxy has signed for or on behalf of the insurance company or underwriter.

b. When the insurance document indicates that it has been issued in more than one original, all originals must be presented.

c. Cover notes will not be accepted.

d. An insurance policy is acceptable in lieu of an insurance certificate or a declaration under an open cover.

e. The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment.

f.

i.The insurance document must indicate the amount of insurance coverage and be in the same currency as the credit.

ii. A requirement in the credit for insurance coverage to be for a percentage of the value of the goods, of the invoice value or similar is deemed to be the minimum amount of coverage required.

If there is no indication in the credit of the insurance coverage required, the amount of insurance coverage must be at least 110% of the CIF or CIP value of the goods.

When the CIF or CIP value cannot be determined from the documents, the amount of insurance coverage must be calculated on the basis of the amount for which honor or negotiation is requested or the gross value of the goods as shown on the invoice, whichever is greater.

iii. The insurance document must indicate that risks are covered at least between the place of taking in charge or shipment and the place of discharge or final destination as stated in the credit.

g. A credit should state the type of insurance required and, if any, the additional risks to be covered. An insurance

document will be accepted without regard to any risks that are not covered if the credit uses imprecise terms such as "usual risks" or "customary risks".

h. When a credit requires insurance against "all risks" and an insurance document is presented containing any "all risks" notation or clause, whether or not bearing the heading "all risks", the insurance document will be accepted without regard to any risks stated to be excluded.

i. An insurance document may contain reference to any exclusion clause.

j. An insurance document may indicate that the cover is subject to a franchise or excess (deductible).  Article 29. Extension of Expiry Date or Last Day for Presentationa. If the expiry date of a credit or the last day for presentation falls on a day when the bank to which presentation is to be made is closed for reasons other than those referred to in article 36, the expiry date or the last day for presentation, as the case may be, will be extended to the first following banking day.

b. If presentation is made on the first following banking day, a nominated bank must provide the issuing bank or confirming bank with a statement on its covering schedule that the presentation was made within the time limits extended in accordance with sub-article 29 (a).

c. The latest date for shipment will not be extended as a result of sub-article 29 (a).  Article 30. Tolerance in Credit Amount, Quantity and Unit Pricesa. The words "about" or "approximately" used in connection with the amount of the credit or the quantity or the unit price stated in the credit are to be construed as allowing a tolerance not to exceed 10% more or 10% less than the amount, the quantity or the unit price to which they refer.

b. A tolerance not to exceed 5% more or 5% less than the quantity of the goods is allowed, provided the credit does not state the quantity in terms of a stipulated number of packing units or individual items and the total amount of the drawings does not exceed the amount of the credit.

c. Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the amount of the credit is allowed, provided that the quantity of the goods, if stated in the credit, is shipped in full and a unit price, if stated in the credit, is not reduced or that sub-article 30 (b) is not applicable. This tolerance does not apply when the credit stipulates a specific tolerance or uses the expressions referred to in sub-article 30 (a).   Articie 31. Partial Drawings or Shipmentsa. Partial drawings or shipments are allowed.

b. A presentation consisting of more than one set of transport documents evidencing shipment commencing on the same means of conveyance and for the same journey, provided they indicate the same destination, will not be regarded as covering a partial shipment, even if they indicate different dates of shipment or different ports of loading, places of taking in charge or dispatch. If the presentation consists of more than one set of transport documents, the latest date of shipment as evidenced on any of the sets of transport documents will be regarded as the date of shipment.

A presentation consisting of one or more sets of transport documents evidencing shipment on more than one means of conveyance within the same mode of transport will be regarded as covering a partial shipment, even if the means of conveyance leave on the same day for the same destination.

c. A presentation consisting of more than one courier receipt, post receipt or certificate of posting will not be regarded as a partial shipment if the courier receipts, post receipts or certificates of posting appear to have been stamped or signed by the same courier or postal service at the same place and date and for the same destination.   Article 32. Installment Drawings or Shipments

If a drawing or shipment by installments within given periods is stipulated in the credit and any installment is not drawn or shipped within the period allowed for that installment, the credit ceases to be available for that and any subsequent installment   Article 33. Hours of PresentationA bank has no obligation to accept a presentation outside of its banking hours.   Article 34. Disclaimer on Effectiveness of DocumentsA bank assumes no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document, or for the general or particular conditions stipulated in a document or superimposed thereon; nor does it assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods, services or other performance represented by any document, or for the good faith or acts or omissions, solvency, performance or standing of the consignor, the carrier, the forwarder, the consignee or the insurer of the goods or any other person.  Article 35. Disclaimer on Transmission and TranslationA bank assumes no liability or responsibility for the consequences arising out of delay, loss in transit, mutilation or other errors arising in the transmission of any messages or delivery of letters or documents, when such messages, letters or documents are transmitted or sent according to the requirements stated in the credit, or when the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in the credit.

If a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, whether or not the nominated bank has honored or negotiated, an issuing bank or confirming bank must honor or negotiate, or reimburse that nominated bank, even when the documents have been lost in transit between the nominated bank and the issuing bank or confirming bank, or between the confirming bank and the issuing bank.

A bank assumes no liability or responsibility for errors in translation or interpretation of technical terms and may transmit credit terms without translating them.

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 E. MISCELLANEOUS PROVISIONS

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Article 36. Force MajeureA bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control.

A bank will not, upon resumption of its business, honor or negotiate under a credit that expired during such interruption of its business.   Article 37. Disclaimer for Acts of and Instructed Partya. A bank utilizing the services of another bank for the purpose of giving effect to the instructions of the applicant does so for the account and at the risk of the applicant.

b. An issuing bank or advising bank assumes no liability or responsibility should the instructions it transmits to another bank not be carried out, even if it has taken the initiative in the choice of that other bank.

c. A bank instructing another bank to perform services is liable for any commissions, fees, costs or expenses ("charges") incurred by that bank in connection with its instructions.

If a credit states that charges are for the account of the beneficiary and charges cannot be collected or deducted from proceeds, the issuing bank remains liable for payment of charges.

A credit or amendment should not stipulate that the advising to a beneficiary is conditional upon the receipt by the advising bank or second advising bank of its charges.

d. The applicant shall be bound by and liable to indemnify a bank against all obligations and responsibilities imposed by foreign laws and usages.   Article 38. Transferable Creditsa. A bank is under no obligation to transfer a credit except to the extent and in the manner expressly consented to by that bank.

b. For the purpose of this article:

Transferable credit means a credit that specifically states it is "transferable". A transferable credit may be made available in whole or in part to another beneficiary ("second beneficiary") at the request of the beneficiary ("first beneficiary").

Transferring bank means a nominated bank that transfers the credit or, in a credit available with any bank, a bank that is specifically authorized by the issuing bank to transfer and that transfers the credit. An issuing bank may be a transferring bank.

Transferred credit means a credit that has been made available by the transferring bank to a second beneficiary.

c. Unless otherwise agreed at the time of transfer, all charges (such as commissions, fees, costs or expenses) incurred in respect of a transfer must be paid by the first beneficiary.

d. A credit may be transferred in part to more than one second beneficiary provided partial drawings or shipments are allowed.

A transferred credit cannot be transferred at the request of a second beneficiary to any subsequent beneficiary. The first beneficiary is not considered to be a subsequent beneficiary.

e. Any request for transfer must indicate if and under what conditions amendments may be advised to the second beneficiary. The transferred credit must clearly indicate those conditions.

f. If a credit is transferred to more than one second beneficiary, rejection of an amendment by one or more second beneficiary does not invalidate the acceptance by any other second beneficiary, with respect to which the transferred credit will be amended accordingly. For any second beneficiary that rejected the amendment, the transferred credit will remain unamended.

g. The transferred credit must accurately reflect the terms and conditions of the credit, including confirmation, if any, with the exception of:

- the amount of the credit,

- any unit price stated therein,

- the expiry date,

- the period for presentation, or

- the latest shipment date or given period for shipment,

any or all of which may be reduced or curtailed.

The percentage for which insurance cover must be effected may be increased to provide the amount of cover stipulated in the credit or these articles.

The name of the first beneficiary may be substituted for that of the applicant in the credit.

If the name of the applicant is specifically required by the credit to appear in any document other than the invoice, such requirement must be reflected in the transferred credit.

h. The first beneficiary has the right to substitute its own invoice and draft, if any, for those of a second beneficiary for an amount not in excess of that stipulated in the credit, and upon such substitution the first beneficiary can draw under the credit for the difference, if any, between its invoice and the invoice of a second beneficiary.

i. If the first beneficiary is to present its own invoice and draft, if any, but fails to do so on first demand, or if the invoices presented by the first beneficiary create discrepancies that did not exist in the presentation made by the second beneficiary and the first beneficiary fails to correct them on first demand, the transferring bank has the right to present the documents as received from the second beneficiary to the issuing bank, without further responsibility to the first beneficiary.

j. The first beneficiary may, in its request for transfer, indicate that honor or negotiation is to be effected to a second beneficiary at the place to which the credit has been transferred, up to and including the expiry date of the credit. This is without prejudice to the right of the first beneficiary in accordance with sub-article 38 (h).

k. Presentation of documents by or on behalf of a second beneficiary must be made to the transferring bank..         F. ASSIGNMENT OF PROCEEDS  Article 39. Assignment of ProceedsThe fact that a credit is not stated to be transferable shall not affect the right of the beneficiary to assign any proceeds to which it may be or may become entitled under the credit, in accordance with the provisions of applicable law. This article relates only to the assignment of proceeds and not to the assignment of the right to perform under the credit.¡¡

DISPUTE SETTELMENT PROCEDURES

ANNEX-E DISPUTE SETTLEMENT PROCEDURES CHAPTER I SCOPE Article I 1. Any dispute that may arise in connection with the interpretation, application or non-compliance with the provisions of this Agreement, shall be submitted to this Dispute Settlement Procedure established in this Annex. 2. Any dispute regarding matters arising under this Agreement that are regulated also in the agreements negotiated at the WTO may be settled in accordance with this Annex or with the Understanding on Rules and Procedures Governing the Settlement of Disputes of the WTO (DSU). 3. After the conclusion of consultations as established in Chapter II of this Annex, the Parties shall endeavor to reach an agreement on a single forum. If no agreement is reached on the forum, the complaining Party shall select the forum of dispute. 4. Once a dispute settlement procedure has been initiated under this Annex or under the WTO Agreement, the forum selected shall exclude the other for the same subject matter of the dispute. However, this provision may be reviewed by the Committee, within 5 years of implementation of this Agreement. 5. For the purpose of paragraph 4, a dispute settlement procedure shall be considered initiated under the WTO whenever the complaining Party requests for the establishment of a Panel under Article 6 of the DSU. Likewise, a dispute settlement procedure shall be considered initiated under this Annex whenever a Party requests for the establishment of an arbitral panel under Article 9. CHAPTER II CONSULTATIONS Article 2 1. Parties shall make all reasonable efforts to settle the disputes referred to in Article 1 through consultations with a view to reaching a mutually satisfactory solution. 2. Consultations shall be conducted, in the case of Chile by the General Director, General Directorate for International Economic Affairs, and in the case of India, by the Secretary, Department of Commerce, or their representatives. Article 3 The request for consultations shall be submitted to the other Party in writing and shall identify the measure(s), gives the reasons of the request and a brief summary of the legal basis of the dispute. All requests for consultations shall be notified to the other Party, in conformity with Article 19. Article 4 1. The Party to which the request is made shall reply within 10 days after the date of its receipt. 2. The Parties shall provide sufficient information as may be reasonably available in order to facilitate the consultations. Consultations shall be confidential.

3. Consultations shall last no more than thirty (30) days after the date of receipt of the request unless the Parties extend the consultations for a mutually agreed period in order to settle the dispute. Consultations on matters regarding perishable agricultural goods shall last no more than twenty (20) days of the date of receipt of the request. CHAPTER III Intervention of the Committee Article 5 1. If consultations fail to settle a dispute within the period established in Article 4, the complaining Party may request in writing to the other Party, for convening a meeting of the Committee, with the specific purpose of dealing with the case. 2. The request shall identify any measure (s) at issue and shall state the facts and the legal basis of the dispute, indicating the applicable provisions of the Agreement. Article 6 1. The Committee shall meet within thirty (30) days of the date of receipt of the request referred to in Article 5. In matters regarding perishable agricultural goods, the meeting of the Joint Committee shall commence within twenty (20) days of the date of the receipt of the request. 2. For the purposes of determining the term mentioned in paragraph 1, the other Party shall notify immediately, and no later than 5 days of the receipt of the request. Article 7 The Committee may, by consensus, examine jointly two or more requests under this Chapter only when, by their nature, they are related. Article 8 1. The Committee shall examine the dispute and give the opportunity to the Parties to present their positions and, if necessary, to give additional information in order to reach a mutually satisfactory solution. 2. The Committee shall issue its recommendations within thirty (30) days of the date of its first meeting. In matters regarding perishable agricultural goods the time period shall be twenty (20) days. CHAPTER IV ARBITRAL PROCEEDING Article 9 Request for an Arbitral Panel If the consultations and the Joint Committee procedures fail to settle a dispute within the timeframes established under Chapters II and III respectively of this Annex, the Party, which made the request for consultations, may make a written request for establishment of an arbitral panel to the other Party under this Article. The request shall identify the specific measure(s) at issue and provide brief statement of the legal basis. Unless the Parties otherwise agree, the arbitral panel shall be established and perform its functions in a manner consistent with the provisions of this Annex.

Article 10 Composition of Arbitral Panels 1. The arbitral panel shall comprise three members. 2. In the written request pursuant to Article 9, the complaining Party requesting the establishment of an arbitral panel shall designate one member of that arbitral panel. 3. Within 15 days of the receipt of the request referred to in paragraph 2, the responding Party shall designate one member of the arbitral panel. If a party fails to appoint an arbitrator within 15 days, then the arbitrator appointed by the other Party shall act as the sole arbitrator of the arbitral panel. 4. The Parties shall by agreement appoint the third arbitrator within 15 days of the appointment of the second arbitrator. The arbitrator so appointed shall chair the arbitral panel. If the Parties are unable to agree on the chair of the arbitral panel within 15 days after the date on which the second arbitrator has been appointed, the chair shall be appointed in the presence of both Parties by a draw of lot from a list comprising three nominees of each Party, fulfilling the qualifications and criteria laid down in paragraph 6. If a Party fails to submit its list of three nominees within ten days of the other Party submitting its list, the Chair shall be appointed by a draw of lot from the list already submitted by the other Party. 5. Except in case of sole arbitrator established under paragraph 3, the Chair of the arbitral panel shall not be a national of either Party, nor have his or her usual place of residence in the territory of either Party, nor be employed by either Party, nor have dealt with the matter before the arbitral panel in any capacity. 6. All arbitrators shall: (a) have expertise or experience in law, international trade, other matters covered by this Agreement, or the resolution of disputes arising under international trade agreements; (b) be chosen strictly on the basis of objectivity, reliability, and sound judgment; and (c) be independent of, and not to take instructions from, any Party. 7. If an arbitrator appointed under this Article resigns or becomes unable to act, a successor arbitrator shall be appointed within 15 days in accordance with the selection procedure as prescribed for the appointment of the original arbitrator and the successor shall have all the powers and duties of the original arbitrator. 8. The date of establishment of the arbitral panel shall be the date on which the Chair is appointed, or in the case of sole arbitrator on the date of expiry of timeframe set out in paragraph 3. Article 11 Rules of Procedures 1. Unless the Parties otherwise agree, the panel shall conduct its proceedings in accordance with the Rules of Procedure (Appendix E) and may, after consulting with the Parties, adopt additional procedural rules not inconsistent with this Annex. 2. The Committee may modify the Rules of Procedure. 3. Unless the Parties otherwise agree within 20 days from the date of the delivery of the request for the establishment of the panel, the terms of reference shall be: "To examine, in the light of the relevant provisions of this Agreement, the matter referred to in the panel request and to make findings, determinations and recommendations as provided in Article 13 and to deliver the written reports referred to in Articles 13 and 14."

Article 12 Experts and Technical Advice At the request of a Party to the arbitral panel proceedings or on its own initiative, the arbitral panel may seek information and technical advice from any person or body that it deems appropriate, provided that the Parties to the arbitral panel proceedings so agree and subject to such terms and conditions as Parties may agree. The arbitral panel shall provide the Parties a copy of any information or technical advice submitted and an opportunity to provide comments. Article 13 Initial Report 1. Unless the Parties otherwise agree, the arbitral panel shall base its report on the relevant provisions of this Agreement, on the submissions and arguments of the Parties, and on any other information before it pursuant to Article 12. 2. Unless the Parties otherwise agree, the arbitral panel shall, within 90 days after establishment, present to the Parties an initial report containing: (a) findings of fact, including any findings pursuant to the request under Article 9; (b) its determination as to whether the measure at issue is inconsistent with the obligations of this Agreement; and (c) recommendations to bring the measure in to compliance with the Agreement and the reasonable period of time within which to bring the measure into compliance. 3. The Parties may submit written comments on the initial report within 14 days of its presentation. The arbitral panel may, at the request of a Party, reconsider its report and make any further examination that it considers appropriate after considering such written comments. The final report shall include a discussion of any comment by the Parties. Article 14 Final Report 1. The arbitral panel shall present a final report to the Parties, including any separate opinions on matters not unanimously agreed, within 30 days of presentation of the initial report, unless the Parties otherwise agree. 2. No arbitral panel may, either in its initial report or its final report, disclose which panellists are associated with the majority or minority of the opinions. 3. The final report of the arbitral panel shall be made publicly available within fifteen (15) days of its delivery to the Parties, unless the Parties agree otherwise. Article 15 Implementation of Final Report 1. The final report of an arbitral panel shall be binding on the Parties and shall not be subject to appeal. The Party concerned shall implement the decision contained in the final report of the arbitral panel in the manner and within the time-frame that it recommends, unless the Parties decide otherwise. 2. If, at any time up to thirty (30) days prior to the deadline for implementation determined under paragraph 1, the Party concerned considers that it will require further time to comply with the final report of the arbitral panel, it may inform the complaining Party of the extra period that it requires, and simultaneously shall enter into negotiations with a view to developing a mutually acceptable compensation for this additional period until it comes into compliance with the final report. The Parties may agree to extend the deadline for implementation determined under paragraph 1, any time within twenty (20) days prior to the expiry of the deadline for implementation determined previously.

3. Notwithstanding paragraph 2, where the final report of the panel states that a measure is not in compliance with this Agreement, the responding Party shall bring its measure in conformity with the provisions of the Agreement. 4. Where there is disagreement as to the existence or consistency with this Agreement of measures taken within the reasonable period of time to comply with the decision of the arbitral panel, such dispute shall be decided through recourse to the dispute settlement procedures in this Annex, including wherever possible by resorting to the original arbitral panel. 5. The arbitral panel shall provide its report to the Parties within 60 days after the date of the referral of the matter to it. When the arbitral panel considers that it cannot provide its report within this timeframe, it shall inform the Parties in writing of the reasons for such delay together with an estimate of the period within which it will submit its report. Any delay shall not exceed a further period of 30 days unless the Parties otherwise agree. Article 16 Non-Implementation - Suspension of Benefits 1. If the arbitral panel established under Article 15 finds that the measure of the Party concerned is not in compliance with final report of the arbitral panel under Article 14, the Party concerned, if so requested by the complaining party, shall immediately enter into negotiations with the complaining party with a view to reaching a mutually acceptable compensation or solution. If no mutually acceptable compensation or solution has been reached within 15 days after the request of the complaining Party to enter into negotiations, the complaining Party may suspend the application of benefits of equivalent effect to the responding Party. 2. The suspension of benefits shall last until the responding Party implements the decision of the arbitral panel’s final report or until the Parties reach a mutually satisfactory agreement on the dispute. 3. In considering what benefits to suspend pursuant to paragraph 1 the complaining Party may seek to suspend benefits in the same sector(s)5 as that affected by the measure that the arbitral panel has found to be inconsistent with the obligations derived of this Agreement. 4. Upon written request of the Party concerned, the original arbitral panel shall determine whether the level of benefits proposed to be suspended by the complaining Party is not commensurate with equivalent effects pursuant to paragraph 1. If the arbitral panel cannot be established with its original members, the procedures set out in Article 10 shall be applied. 5. The arbitral panel shall present its determination within 60 days from the request made pursuant to paragraph 4. The ruling of the panel shall be final and binding. It shall be delivered to the Parties and be made publicly available. 6. Any suspension of benefits shall be restricted to benefits accruing to the other Party under this Agreement. _____________________ 5

The Parties agree that for the purposes of this Article, “sector” will have the same meaning as in provisions of article 22.3(f) of the Dispute Settlement Understanding of WTO Agreement. Article 17 Expenses Each Party shall bear the costs of its own member of the arbitral panel and of its representation in the arbitral proceedings; the costs related to the chairman and any other costs shall be borne equally by the Parties.

Article 18 Private Rights Neither Party may provide for a right of action under its domestic law against the other Party on the ground that a measure of the other Party is inconsistent with this Agreement. CHAPTER V GENERAL PROVISIONS Article 19 All communications between the Parties shall be transmitted in the case of the Republic of Chile to the General Director, General Directorate for International Economic Affairs, and in the case of the Republic of India, to the Secretary, Department of Commerce, or their representatives. Article 20 The periods referred to in this Annex are expressed in consecutive days, including non-working days, and shall be calculated as from the day immediately following the relevant act or fact. If the period begins or ends on a non working day, the period shall be deemed to be starting or expiring on the following working day. Article 21 Documents and acts related to the proceedings established in this Annex shall be confidential. Article 22 1. At any time during the proceeding the complaining Party may abandon its claim or the Parties may reach an agreement. In either case the dispute shall be closed. The Committee shall be notified in order to take any necessary measures. 2. A Party is deemed to have abandoned its claim this Annex, if it does not pursue its claim under Article 9 within twelve (12) months of the conclusion of consultations under Chapter II. Article 23 All timeframes stipulated in this Annex may be reduced, waived or extended by mutual agreement of the Parties. APPENDIX E RULES OF PROCEDURES General provisions 1. For the purposes of this Agreement and Annex E: “arbitral panel” means an arbitral panel established pursuant to Article 9; “complaining Party” means a Party that requests the establishment of an arbitral panel under Article 9; and “responding Party” means a Party that has been complained against pursuant to Article 9.

Notifications 2. Any request, notice, written submissions or other document shall be delivered by either Party or the arbitral panel by delivery against receipt, registered post, courier, facsimile transmission, telex, telegram or any other means of telecommunication that provides a record of the sending thereof. 3. A Party shall provide a copy of each of its written submissions to the other Party and to each of the arbitrators. A copy of the document shall also be provided in electronic format. 4. Minor errors of a clerical nature in any request, notice, written submission or other document related to the arbitral panel proceeding may be corrected by delivery of a new document clearly indicating the changes. Initial submissions 5. The complaining Party shall deliver its initial written submission no later than 20 days after the composition of the arbitral panel. The responding Party shall deliver its written counter-submission no later than 20 days after the date of delivery of the initial written submission. Operation of arbitral panels 6. The chair of the arbitral panel shall preside all of its meetings. 7. Except as otherwise provided in these rules, the arbitral panel may conduct its own activities by any means, including telephone, facsimile transmissions or computer links. 8. The drafting of any report shall remain the exclusive responsibility of the arbitral panel. Only arbitrators may take part in the deliberations of the arbitral panel. Hearings 9. The arbitral panel shall fix the date and time of the hearing in consultation with the Parties. The Chair shall notify in writing to the Parties the date and time of the hearing. 10. Unless the Parties otherwise agree, the hearing shall be held in the responding Party’s territory. The responding Party shall be in charge of the logistical administration of dispute settlement proceedings, in particular the organization of hearings, unless otherwise agreed. 11. The arbitral panel may convene additional hearings if the Parties so agree. 12. All arbitrators shall be present at hearings. No later than five days before the date of a hearing, each Party shall deliver a list of the names of its representatives or advisers who will be attending the hearing. The hearings of the arbitral panels shall be held in closed session, unless the Parties decide otherwise. The arbitral panel shall conduct the hearing in the following manner: argument of the complaining Party; argument of the responding Party; rebuttal arguments of the Parties; the reply of the complaining Party; the counter-reply of the responding Party. The arbitral panel may set time limits for oral arguments to ensure that each Party is afforded equal time. 13. Within 10 days after the date of the hearing, each Party may deliver a supplementary written submission responding to any matter that arose during the hearing. Questions in writing 14. The arbitral panel may at any time during the proceedings address questions in writing to one or both Parties. The arbitral panel shall deliver the written questions to the Parties to whom the questions are addressed.

15. A Party to whom the arbitral panel addresses written questions shall deliver a copy of any written reply to the other Party and to the arbitral panel. Each Party shall be given the opportunity to provide written comments on the reply within 5 days after the date of delivery. Confidentiality 16. Each Party shall treat as confidential the information submitted by the other Party to the arbitral panel which that Party has designated as confidential. Where a Party to a dispute submits a confidential version of its written submissions to the arbitral panel, it shall also, upon request of the other Party, provide a non-confidential summary of the information contained in its submissions that could be disclosed to the public. Nothing in these rules shall preclude a Party from disclosing statements of its own positions to the public. Ex parte contacts 17. The arbitral panel shall not meet or contact a Party in the absence of the other Party. No Party may contact any arbitrator in relation to the dispute in the absence of the other Party or other arbitrators. No arbitrator may discuss an aspect of the subject matter of the proceeding with a Party or both Parties in the absence of the other arbitrators. Working language 18. The working language of the dispute settlement proceedings shall be English.

IMPORT PROCEDURES:

PURCHASE ORDER CUSTOMS CLEARANCE

: Imports ::

Documentation:

The documents, which are mainly required for customs clearance, are:

a. Invoice. b. Packing List. c. Bill of entry/Air way Bill. d. Purchase Order. e. Country of origin certificate. f. Chemical test certificate. g. Insurance Certificate h. Freight Certificate i. Technical Write up/Catalogue/Drawing. j. Chartered Engineer’s Certificate (in case of import of 2nd hand goods)

Classification of Import Items as per Custom Tariff

Customs classification is the main thing by which the duty rate of the import item is determined. Customs classification is mainly done on the basis of the use of the item sought to be imported barring few cases where duty rate is determined from the material of construction. Reading together the wording of the relevant section notes, chapter notes and the tariff headings also determine classification. Therefore it is extremely important that the import items are classified properly for the purpose of paying duty correctly. The two main documents required for the same are -

1. Purchase order

2. Invoice.

clearance procedure

Import clearance procedure has been computerized by Customs with the incorporation of E.D.I. system (Electronic Data Interchange system). Under this system the entire customs formalities are done through the computerized system. Importers are only required to submit one declaration in a specified format. After completion of the clearance formalities, computer generated duplicate & triplicate copy of the Bill of entry is given to the party. The duplicate copy of the Bill of entry is the importer’s copy to be kept by the party for future correspondence. The triplicate copy is the exchange control copy, which is required to be submitted to RBI for remittance purposes. Duty payment formalities have also changed. Nowadays, the duty payment advice is also generated through the computer. The duty amount is deposited in the bank. The fund is then electronically transferred to Customs account.

Manual processing is still done for certain categories of import. For Example, All import clearance through Haldia.

Valuation - Imported Goods

Most of the customs duties are ad- valorem. Therefore the goods are to be valued for the purpose of assessment. The relevant statutory provisions are section 14 of the customs tariff Act 1962 and customs valuation (Determination of price of imported goods) rules 1944 framed under section14 (1a) and brought into force w.e.f. 16.08.1988, commonly referred to as valuation rules. These rules follow the GATT and WTO provisions where under the transaction value or the invoice value is taken for the purpose of assessment. Unless the invoice price already includes ocean freight and insurance, these elements have to be added to make it CIF value: -

1. For Air cargo: Actual air freight, but not exceeding 20% of FOB value.

1. Where actual sea/air freight

Is not ascertainable: 20% of FOB value

2. Where actual insurance is not ascertainable: 1.125% of FOB value.

Landing charges is to be taken as 1% of CIF value to get the assessable value for the purpose of assessment.

In case of collaboration agreement loading of 1% of the assessable value will be done and the customs will resort to provisional assessment till the valuation certificate is obtained.

Warehousing

If the importer does not want to use the entire stock immediately or he is not in a position to pay the full customs duty leviable on the goods, he can file an into bond Bill of entry for warehousing of the goods. Public warehouse run by central ware Housing Corporation or by state warehousing corporation has come up at all centre’s. In certain case customs allow licensing of private bonded warehouses. In our case customs have given us license to convert a portion of our godown at 1GR Jetty as private bonded warehouse. The goods can be cleared for Home consumption on payment of duty by filing Ex-bond Bill of Entry. Except for capital goods intended for 100% export oriented units, warehousing is allowed for a period of one year only suitably reducible for perishable goods and extendable for other goods by Commissioner of Customs for six months and by Chief Commissioner thereafter provided the goods are not likely to deteriorate during the extended period. Interest on warehouse goods at a flat rate of 24% is chargeable after completion of six months of warehousing period. Interest is not payable for over-stay if goods at the time of removal from warehouse were duty free.

Duty Entitlement Pass Book Scheme (DEPB)

This scheme is patterned on the credit- debit system of central excise cenvat scheme. Under this scheme, exporters are granted duty credits on the basis of pre-notified entitlement rates, which will allow them to import non-capital items duty free

In case of goods imported under DEPB scheme found unfit for consumption, the commissioner may allow their re-export and grant a DEPB entitlement certificate equal to 98% of DEPB credit debited at the time of their import. If export proceeds are not realized within six months or such extended period as may be allowed by RBI, or are short realized, the passbook holder should pay in cash an amount equivalent to the amount of credit obtained against such exports or against the value not realized. However post export DEPB is transferable without waiting for realization of export proceeds in respect of shipments against irrevocable letter of credit.

EPCG Scheme

Import of capital goods at 5% concessional rate under EPCG scheme, subject to export obligation is now applicable to all sectors and to all capital goods without any threshold limit. No payment of additional customs duty and special additional duty applies. The scheme has also been extended to identified service sectors also. There is an across the board stipulation of FOB export obligation of 5 times of CIF value of imports (or 4times the CIF value of capital goods on a net foreign exchange basis) which is to be fulfilled in a period of eight years. Relocation of imported capital goods in the factory of the supporting manufacturers and service providers is permitted provided their name and address is endorsed on the license. A person holding EPCG license may also source capital goods from a domestic unit instead of importing them, at the same rate of duty. In return the domestic unit would become eligible for import of components for manufacture of capital goods. He can also replenish the components after supply of capital goods to the EPCG license holder. Where drawback is claimed, export does not count for discharge of export obligation under EPCG scheme.

Project Imports

In exercise of the powers conferred by section 157 of Customs Act 1962 and in suppression of the project import regulation 1965 this regulations have been made. These regulations shall apply for assessment and clearance of the goods falling under heading no.98.01 of the first schedule of the customs tariff Act 1975. The assessment under the said heading shall be available only to those goods which are imported against one or more specific contracts, which have been registered with the appropriate custom house in the manner specified in the regulation 5 and such contract or contracts has or have been so registered before any order is made by the proper officer of customs permitting the clearance of the goods for home consumption or in case of the goods cleared for home consumption without payment of duty subject to re-export in respect of fairs, exhibitions

etc .duly sponsored or approved by the Govt. of India or Trade Fair Authority of India, as the case may be, before the date of payment of duty.

The benefit of import under project is available for new expansion or substantial expansion of an existing plant, which will increase the existing installed capacity by not less than 25%. Under this scheme plant, equipment can be imported with spares (Subject to 10% of the value of the main equipment) under the same customs tariff heading thereby saving Customs duty.

:: Exports ::

The Government encourages export mainly because it is one of the best sources of foreign exchange earnings. Many a times an exporter who is specially new to the business faces problems for exporting as they are not fully aware of the documents required for export of a cargo.

TMILL can be a unique experience to the exporters as we are based in all major cities in India and also have associates worldwide.

Presently all major ports have gone under the EDI system so the first thing that an importer/exporter should do is EDI registration. Exporters are also required to have BIN (Business Identification Number) for which they need to apply to DGFT in the prescribed format.

The format gives the list of documents required from the shipper and also the documents required by the shipper. A few most frequently asked questions are also incorporated for general awareness. Documents can be arranged for the shipper if he desires so, as such the shipper may spell out their requirement as detailed below:

Shipper to fill in details:Cargo details No & type of containers Cargo readiness (dt) –

1.Cargo will be factory stuffed or dock stuffed

2.Who will provide labour

3.Who will be the transporter – Shipper nominated or TMILL nominated

4.Cargo – Haz/non-haz.

5.Port of loading and destination.

6.Freight agreed –

7.Payment terms-

8.Documents required from shipper –Letter of authorization Packing list Invoice PAN no. IEC no. BIN no. Order Copy

Point no. 9 & 10 to be filled by the TMILL, Shipper may give his option.

9.Documents to be arranged for the shipperDrawback shipping bill 2 copies of packing list and invoice duly custom signed Insurance certificate Short shipment notice , if any GR duly custom signed Bill of Lading Freight certificate Certificate of origin – Agency name.

10.Shipper may please mention his option (TMILL or Shipper himself will do)Who will prepare the Bill of Lading - TMILL, Shipper Who will do the Insurance - TMILL, Shipper Who will pay freight - TMILL, Shipper Who will arrange the Certificate of origin- TMILL, Shipper

DUTY DRAWBACK

EXPORT PROMOTION SCHEMES

I . Duty Drawback Scheme:

Under Duty Drawback Scheme relief of Customs and Central Excise Duties suffered on the inputs used in the manufacture of export product is allowed to Exporters. The admissible duty drawback amount is paid to exporters by depositing it into their nominated bank account.

Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944, empower the Central Government to grant such duty drawback. Customs and Central Excise Duties Drawback Rules, 1995 have been framed outlining the procedure to be followed for the purpose of grant of duty drawback (for both kinds of duties suffered) by the Customs Authorities processing export documentation.

b. Under Duty Drawback Scheme, an exporter can opt for either All Industry Rate (AIR) of Duty Drawback Scheme or brand rate of Duty Drawback Scheme. Major portion of Duty Drawback is paid through AIR duty Duty Drawback Scheme which essentially attempts to compensate exporters of various export commodity for average incidence of customs and Central Excise duties suffered on the inputs used in their manufacture. Brand rate of duty drawback is granted in terms of rules 6 & 7 of Customs and Central Excise Duties Drawback Rules, 1995 in cases where the export product does not have any AIR or duty drawback rate, or where the AIR duty drawback rate notified is considered by the exporter insufficient to compensate for the Customs/Central Excise duties suffered on inputs used in the manufacture of export products. For goods having an AIR the brand rate facility to particular exporters is available only if it is established that the compensation by AIR is less than 80% of the actual duties suffered in the manufacture of the export goods.

c. Duty Drawback facilities on re-export of duty paid goods is also available in terms of Section 74 of Customs Act, 1962. Under this Scheme part of the customs duty paid at the time of import is remitted on re-export of the goods subject to identification of the goods at the time of export examination and prescribed procedure being followed.

Procedure for Claiming Drawback:

d. The drawback on export goods – whether under AIR or Brand Rate is to be claimed at the time of export and requisite particulars have to be filled in the prescribed format of shipping bill/bill of export under Drawback. Triplicate copy of the Shipping Bill is treated as claim for Drawback. The claim is also to be accompanied by certain documents as laid down in the Duty Drawback Rules. If the requisite documents are not furnished or there is any deficiency, the claim may be returned after shipment for complying with the requirements and furnishing requisite information/documents (e.g. Brand Rate letter which may not be available at the time of export but becomes available after shipment).

II. Duty Exemption Scheme:

a. Duty Exemption Scheme is an export promotion scheme and it enables import of inputs required for export production free of Customs duty. Advance Licences are issued under Duty Exemption Scheme to allow import of inputs, which are physically incorporated in the export product (after making normal allowance for wastage). In addition, fuel, oil, energy catalysts, etc., which are consumed in the course of their use to obtain the export product can also be allowed under the scheme. Value and quantity of each item permitted duty free import are specified in the Advance Licence. Standard input-output norms (SIONs) notified by the DGFT under para 7.8 of the Handbook of Procedures (Vol.I) or as modified facilitate determination of the proportion of various inputs which can be used or are required in the manufacture of different resultant products.

b. Advance Licences are issued for Physical exports, Intermediate supplies and Deemed exports. Advance Licences are also issued on the basis of annual requirement for exports/supplies. This enables the exporter to plan out his manufacturing/export programme on long term basis. Advance Licences for deemed exports are issued to (i) manufacturer exporter or main contractor in case of deemed exports, and (ii) Merchant

exporter having supporting manufacturer. c. All Advance Licences and/or materials, imported thereunder are not transferable even

after completion of export obligation. Advance Licences are issued with a positive value addition stipulation. However, for exports for which payments are not received in freely convertible currency, the same are subject to higher value addition.

d. In order to ensure proper monitoring and utilisation of inputs imported against Advance Licences (except Advance Licence for deemed exports), a Duty Entitlement Exemption Certificate (DEEC) Book is issued alongwith the Advance Licence by DGFT authorities. At the time of import and export against Advance Licence, entries are made in the DEEC Book by Customs to keep record of the import/export made against it. After completion of export obligation and imports against the Advance Licence, the DEEC book, Advance Licence and relevant export/import documents are submitted to Customs for logging (reconciling) of DEEC Book. Thereafter the Advance Licence, DEEC book and export/import documents are submitted to DGFT authorities for issue of export obligation (EO) discharge certificate. On the basis of EO discharge certificate issued by DGFT, redemption of bond/B.G. filed by the Advance Licence holder with Customs is allowed.

e. Advance Licence are issued on pre-export or post export basis in accordance with the Export/Import Policy and procedure in force on the date of issue of licence and are subject to the fulfillment of a time bound export obligation as in the licence. The Advance Licence holder fulfils export obligation (EO) by exporting the resultant product specified in the Advance Licence upto specifed quantity/value. In order to ensure fulfillment of such export obligation, the Advance Licence holder executes a bond with or without Bank Guarantee (B.G) with Customs undertaking to fulfill the specified export obligation. In the event of failure to fulfil the specified EO., the licence holder becomes liable to pay differential Customs duty with interest @ 24% per annum on such duty.

f. Advance Licence holder for deemed export is permitted import of materials which are required in the manufacture of resultant product free of Customs duty. The licence holder is required to fulfil his EO by supplying the resultant product to the project, specified in the said licence, in India and in the event of failure to do so, he is required to pay differential Customs duty with interest @ 24% per annum on such duty.

g. All Advance Licences are normally valid for import of goods upto 18 months from the date of issue and the relevant DGFT authority (who issues the licence) is competent to grant revalidation. DGFT authority (who issues the licence) is also competent to grant extension of EO period beyond the normal EO period of 18 months. No duty drawback is normally admissible to an Advance Licence holder. However the licence holder is entitled to claim brand rate of duty drawback in respect of inputs which are not imported against the advance licence and on which Customs/excise duty has been paid.

h. Since Advance Licence Scheme involves technicalities, its operation has been restricted to limited ports, airports, ICDs, etc. which are notified for the purpose. Commissioners of Customs have, however, been empowered to permit export/import under the Scheme from any other place which has not been notified, on case to case basis by making suitable arrangements at such other places.

(Reference: Customs notification No.48/99-Customs, dated 29.4.99 and 50/2000-Cus., and 51/2000-Customs, both dated 27.4.2000 ).

III. Duty Remission Scheme:

Duty Remission Scheme consists of:

a. Duty Free Replenishment Certificate and

b. Duty Entitlement Passbook Scheme.

A. Duty Free Replenishment Certificate(DFRC) Scheme:

a. DFRC Scheme licences are issued permitting duty free import of inputs which were used in the manufacture of export product on post export basis as replenishment.

b. Duty Free Replenishment Certificate (DFRC) Licence is issued to a merchant-exporter or manufacturer-exporter. DFRC licences are issued only in respect of export products covered under the Standard Input Output Norms (SION) as notified by DGFT. DFRC Licences are issued for import of inputs, as per SION, having same quality, technical characteristics and specifications as those used in the export product and as indicated in the shipping bills. The validity of such licences is normally 18 months and relevant DGFT authority (who issues the licence) is competent to grant extension of validity period. DFRC licence and or the material(s) imported against it are freely transferable.

c. Exporters operating under DFRC Scheme are entitled for availing AIR of duty drawback in respect of those duty paid materials, whether imported or indigenous, used in the export product, which are not specified in the DFRC licence. Brand rate of duty drawback can also be availed in respect of such inputs.

B. Duty Entitlement Pass Book(DEPB) Scheme:

a. DEPB Scheme was first announced on 1.4.1997 under EXIM Policy 1997-2002. It is an export promotion scheme and envisages grant of DEPB Credit Entitlement to an exporter at the time of export at an ad-valorem rate notified by DGFT, in relation to FOB value of the export product. The DGFT have so far notified DEPB rates for nearly 2000 export products. These rates are based on the computation of Basic Customs Duty suffered by the exporters on the inputs listed in the Standard Input-Output Norms (SION) applicable to the export product. The crucial feature of the DEPB Scheme is that all the inputs listed in the Standard Input-Output Norms are deemed to have been imported and to have suffered Customs duties. DEPB rates are finalised by the DEPB Committee, chaired by Additional DGFT and consists of representative from Ministry of Finance also. Value caps have been imposed on export products having DEPB rates of 15% or more to curb the tendency of unscrupulous exporters to avail most of the runaway benefits by over-invoicing export.

b. The normal validity period of a DEPB Scrip is 12 months and DGFT authority (who issues the scrip) is empowered to grant revalidation. These scrips are for a certain amount of DEPB credit and can be utilised for adjusting Customs Duties (Basic or CVD) against import of any products, other than capital goods, into India, without the necessity of any co-relation between the export product and the import goods, i.e. it is not necessary to import only the relevant inputs corresponding to the export product.

c. The DEPB and/or the items imported against it are freely transferable. Import against DEPB scrips is allowed at the port specified in the DEPB which is the port from where exports have been made. Imports from a port other than the port of export are also allowed under TRA (Telegraphic Release Advice) facility as per the terms and conditions of the notification issued by Department of Revenue.

d. No duty drawback is allowed on exports made under DEPB Scheme. However, in cases where CVD is paid in cash on imported inputs, or where indigenous duty paid inputs, not specified in SION, are used in the manufacture of export product, in such cases brand rate of duty drawback is admissible as per circular issued by the Ministry of Finance, provided CENVAT Credit in respect of such duty incidence is not availed.

IV. Export Promotion capital Goods (EPCG) Scheme:

a. Under EPCG Scheme import of capital goods which are required for the manufacture of resultant export product specified in the EPCG Licence is permitted at concessional rate of Customs duty. This Scheme also enables upgradation of technology of the indigenous industry. For this purpose EPCG Licences are issued on the basis of approval granted by EPCG Committee. The EPCG Committee comprises of officers from DGFT, MOF and concerned Administrative Ministry. EPCG licences are issued to manufacturer exporters and merchant exporter with or without supporting manufacturer, and service providers. The licence specifies the value/quantity of resultant export product to be exported against it. In the case of manufacturer/merchant exporters, such Export Obligation (EO) is required to be fulfilled by exporting resultant products manufactured with the help of imported capital goods. In the case of service providers the export obligation is required to be fulfilled by earning foreign exchange through rendering service.The Customs Notification 44/2002 dated 19.4.2002 grants exemption to capital goods, components and spares, when imported under EPCG Scheme, from so much of Customs duty leviable thereon which is specified and which is in excess of the amount calculated at the rate of five percent ad valorem and from the whole of the additional duty and special additional duty leviable thereon. In order to ensure fulfillment of specified export obligation as also to secure interest of revenue, the licence holder is required to file bond with or without bank guarantee with the Customs Authority prior to commencement of import of capital goods. Bank guarantee equal to 50% of the differential duty is required to be filed by the licence holder excepting the following cases;

where the licence holder is a manufacturer exporter having export turnover of Rs.1 crore or above during preceding financial year and he has a clean track record; and

(ii)

where the licence holder is certified as a superstar trading house, star trading house, etc. by DGFT.

In such cases, a mere bond is sufficient.

b. Capital goods imported under EPCG Scheme are subject to actual user condition and the same cannot be transferred/sold till the fulfillment of export obligation specified in the licence. In order to ensure that the capital goods imported under EPCG Scheme are utilized in the manufacture of resultant export product, after importation/clearance of capital goods from Customs, the licence holder is required to produce certificate from the jurisdictional Central Excise Authority(CEA) or Chartered Engineer(CE) confirming installation of such capital goods in the declared premises.

c. In order to ensure proper accountal of fulfillment of export obligation, the EPCG licence holder is required to indicate the EPCG licence No/date on the body of the Shipping Bill. After fulfillment of specified export obligation, the licence holder submits relevant export documents alongwith EPCG licence to the DGFT authorities for the purpose of obtaining EO discharge certificate. After obtaining EO discharge certificate from DGFT, the licence holder produces the same before Customs for the purpose of obtaining redemption of bond/B.G. filed by him. In order to ensure that the licence holder maintains a specified level of export obligation throughout the EO period, in addition to overall EO, yearwise/blockwise EO are also specified. A gestation period of 1 year is allowed for the purpose of installation of capital goods and commencement of production.

d. In cases where the EPCG licence holder is unable to maintain the specified level of yearwise/blockwise EO or overall EO., extension of yearwise/blockwise EO period upto a maximum of 1 year/block is allowed by DGFT Authority. Similarly in cases where the licence holder is not able to fulfill overall EO within specified period, extension of 1 year is allowed. In

case of default in EO the licence holder has to pay differential Customs duty alongwith 24% interest per annum on such duty.

e. Exporter of goods manufactured with the help of Capital Goods imported under the EPCG Scheme is entitled to input duty incidence neutralisation benefits like Drawback, DFRC, Advance Licence, etc. in accordance with the terms of the individual scheme(s).

 

 

EXCISE DUTY RELIEF

1. What is relief2. Community status of vehicle 3. Transfer of normal residence4. Cypriots coming to Cyprus to resume or take up permanent residence 5. Aliens residing permanently in Cyprus6. Families with more than three children7. Information

1. What is relief It is the customs regime whereby goods are placed in free circulation and home use with partial or total relief from excise duties, notwithstanding their tariff classification, provided they are transferred in Cyprus under certain conditions and for specific purposes. A legal provision specifying a relief is a prerequisite for granting it.

Reliefs are granted for a number of goods for various reasons. This part refers only to reliefs on private motor vehicles which are of interest to the public when brought from European Union (EU) member states.

2. Community status of vehicle Goods in free circulation in the EU move from one member state to another without payment of further Customs import duty. To be exempt from paying further import duty in Cyprus, proof of Community status of the goods must be provided. If you are transferring to Cyprus a vehicle for private use from another member state, you may prove its Community status by producing:

for a brand brand new or used vehicle, T2L or Τ2LF document; or for used vehicles, the number plates and the vehicle registration document issued by previous member state.

The T2L or Τ2LF document can be obtained from the previous member state Customs Service or through your vehicle supplier or the shipper In case of failure to provide above mentioned proof of vehicle’s Community status, the importation will be classed as having arrived from a third country and the vehicle will be liable to import duty in addition to the excise duty and VAT.

3. Transfer of normal residence If you are resident in another member state of the EU and you have decided to transfer your normal residence to Cyprus, under certain conditions you are entitled to transfer your personal property without having to pay excise duty and VAT. You will find all the information in the Guide to Customs Procedures titled “Transfer of normal residence”.

If part of your personal property is a motor vehicle, you are required to declare it to the nearest Customs Station within 24 hours from the date of its arrival. If a public holiday or weekend follows the date of arrival, you must make the declaration on the first working day after the expiration of the 24 hours deadline.

In order not to be deprived of your vehicle until you make an application for relief and receive an answer, you may be allowed to drive the vehicle temporarily under Form C.104O. A copy of Form C.104O will be given to you by Customs and you must keep it in the vehicle all the time and produce it to a Customs or Police Officer if so requested.

You may submit your application for relief to any Customs Office or to Customs Headquarters. If you get a positive answer, the procedure is not terminated there. You will have to complete form SAD. If you cannot complete it on your own, you may use the services of a clearing agent. You may submit your SAD at any Regional Customs Office, accompanied by Form C.104O, which will be kept by Customs. You will not pay excise duty or VAT.

Customs will issue Form C72A and a copy will be given to you. The vehicle must be then produced, together with Form C72A and other documents relating to your vehicle, to the Inland Transport Department for inspection and registration purposes.

If you get a negative answer from Customs because you do not meet the criteria for being granted a relief for the vehicle, you have the following options: to pay the excise duty and VAT (if the latter is payable); to place it in a customs warehouse; to send it to another member state of the EU; or to export it to a third country.

For more information on payment of excise duty and VAT, please visit relevant page.

4. Cypriots coming to Cyprus to resume or take up permanent residence

4.1. Legal provisions Sub-section 16(A), (B) and (C) of item P of the Schedule to the Customs and Excise Duties (Reliefs on Import of Goods) Regulations of 2004, P.I.380/2004.

4.2. Entitled persons Under the conditions laid down below, you are entitled to relief from excise duties if you are: - A. a citizen of the Republic and, during the last twelve years preceding your arrival in Cyprus, you have worked abroad for a total period of at least ten years;

B. a Cypriot returning to resume permanent residence in Cyprus, after permanent residence abroad for a continuous period of at least the last ten years prior to your arrival;

C. a person of Cypriot origin in the male line, arriving to take up permanent residence in Cyprus after permanent residence abroad for a continuous period of at least the last ten years prior to your arrival.

4.3. What your are entitled to You are entitled to apply for relief on new or used “saloon” type motor vehicles, “station-wagons”, “Jeep” type vehicles and mini-buses capable of carrying up to nine persons, as provided by the customs legislation. You are not entitled to apply for motorcycles or other types of motor vehicles.

4.4. Extent of relief If you fall under categories A and B, you will be granted relief from excise duty not exceeding €11.960,21, and if you fall under category C, you will be granted relief from excise duty not exceeding €5.125,80. This means that if the excise duty exceeds €11.960,21 or €5.125,80, as the case may be, you will have to pay the difference.

If you have applied for relief on a new vehicle, you will have to pay the VAT. If however the vehicles is used, for which VAT has been paid in another member state of the EU and which has not been refunded as a result of the transfer of the vehicle from that member state, you will not be required to pay VAT.

4.5. Prerequisites for granting the relief In all cases, the motor vehicle must be imported into Cyprus within one year from the date of your arrival to take up permanent residence in Cyprus.

Relief is restricted to only one motor vehicle per family. Family is taken to mean the spouse and dependent children. Independent children may apply in their own right

4.6. Procedure for granting the relief Relief is granted on a claim for relief made by you personally, on arrival from abroad to take up permanent residence in Cyprus. If you fall under category A or B or C, you must

submit application P16A, P16B or P16C (greek only) respectively. The claim must be submitted to the Relief Section of Customs Headquarters in Nicosia and be accompanied by the following evidence: passports of yourself and your family proving your 10-year stay abroad before you arrive to take up permanent residence in Cyprus, and photocopies of the first pages which show the particulars of the holder and of those pages having stamps of entry and exit from ports and airports; your university degree(s), where applicable; marriage certificate, where applicable; purchase or lease agreement of a house in Cyprus; documents showing the importation of household effects in Cyprus; details of any other vehicle you or any other member of your family may possess; your driving licence (of Cyprus or of the country you are coming from).

In case you do not have passports for part of the 10-year period, you may produce other official documents which prove your permanent and continuous stay abroad (e.g. income tax returns, social insurance records, children’s school attendance certificates, medical records and other relevant documents, as the case may be). If you get a positive answer, the procedure is not terminated there. You will have to complete form SAD. If you cannot complete it on your own, you may use the services of a clearing agent. You may produce your SAD at any Regional Customs Office. Customs will issue Form C72A and a copy will be give to you. The vehicle must be then produced, together with Form C72A and other documents relating to your vehicle, to the Inland Transport Department for inspection and registration purposes.

4.7. Conditions to be observed after importation You shall not sell, lend, pledge, rent, export, transfer or dispose off it otherwise without the prior approval of the Director of Customs.

Persons entitled to drive the vehicle, in addition to you, are your spouse and children who live in the same town, suburb or community where you live, as long as they live permanently in Cyprus.

If you decide to dispose off the vehicle on which relief was granted you will be required to pay the excise duty. For payment of excise duty, please visit the relevant page.

In case of death of the person entitled to the relief, the deeds of the vehicle are transferred to the living spouse without any liabilities to Customs.

Any infringement of the aforesaid conditions constitutes an unlawful act and carries severe penalties.

5. Aliens residing permanently in Cyprus 5.1. Legal provisions Sub-section 17 of item P of the Schedule to the Customs and Excise Duties (Reliefs on Import of Goods) Regulations of 2004, P.I.380/2004.

5.2. Entitled persons Under the conditions laid down below, you are entitled to relief from excise duty if you are an alien national having taken up permanent residence in Cyprus without exercising a profession or occupation of any sort.

5.3. What you are entitled to You are entitled to apply for relief on new or used “saloon” type motor vehicles, “station-wagons”, “Jeep” type vehicles and mini-buses capable of carrying up to nine persons, as provided by the customs legislation. You are not entitled to apply for motorcycles or other types of motor vehicles.

5.4. Extent of relief Relief is granted on the whole amount of excise duty for one vehicle per person.

If you have claimed relief on a new vehicle, you will have to pay VAT. If however the vehicle is used and VAT on it has been paid in another member state of the EU and has not been refunded because of its transfer from that state, you will not have to pay VAT.

5.5. Prerequisites for granting of relief Relief will be granted if: you have taken up residence in Cyprus and do not exercise a profession or occupation of any sort; none of the members of your family shall be engaged in any type of work in Cyprus; the vehicle shall be transferred to Cyprus within a reasonable time period from the approval of the application.

5.6. Procedure for granting of relief Relief is granted on a claim for relief made by you personally by completing Form P17, on arrival from abroad to take up permanent residence in Cyprus. The claim must be submitted to the Relief Section of Customs Headquarters in Nicosia and be accompanied by the following evidence: passports of yourself and of your spouse; evidence of the place of stay (purchase or lease agreement of a house in Cyprus, permission to purchase immovable property within Cyprus); certificate of registration as an alien; residence permit from the Immigration Officer; your driving licence (of Cyprus or of the country you are coming from); documentary evidence that you are financially independent and that you receive an income from abroad (e.g. bank statements, pension payment certificates, etc.).

If you get a positive answer, the procedure is not terminated there. You will have to complete form SAD. If you cannot complete it on your own, you may use the services of a clearing agent. You may produce your SAD at any Regional Customs Office. Customs will issue Form C72A and a copy will be give to you. The vehicle must be then produced,

together with Form C72A and other documents relating to your vehicle, to the Inland Transport Department for inspection and registration purposes.

5.7. Conditions to be observed after importation You shall not sell, lend, pledge, rent, export, transfer or dispose off it otherwise without the prior approval of the Director of Customs.

Persons entitled to drive the vehicle, in addition to you, are your spouse and dependants.

The duty-free replacement of the vehicle is permitted on condition that you continue to reside in Cyprus and you have disposed off the duty-free vehicle previously placed in free circulation and use under relief. If you decide to dispose off the vehicle on which relief was granted you will be required to pay the excise duty. For payment of excise duty, please relevant page.

Any infringement of the aforesaid conditions constitutes an unlawful act and carries severe penalties.

6. Families with more than three children 6.1. Legal provisions Sub-section 14 of item P of the Schedule to the Customs and Excise Duties (Relief’s on Import of Goods) Regulations of 2004, P.I.380/2004.

6.2. Entitled persons Under the conditions laid down below, you are entitled to relief from excise duty if you are a citizen of the Republic with four or more dependant children and you have not received any subsidy from the State for the purchase of vehicle.

A child is considered dependent if that child is: Below the age of 18; Over 18 years old and is a student of secondary or tertiary education in Cyprus or abroad; Over 18 years old and is in the National Guard doing his service; of any age and unmarried and invalid and who has not exercised his/her right to apply for a duty-free vehicle or has not been given financial assistance by the State to purchase a vehicle.

6.3. What you are entitled to You are entitled to apply for relief from excise duty on new or used passenger motor vehicles, which can transport from eleven to twelve persons including the driver. Instead of claiming relief however, you may apply to the Ministry of Finance for a special subsidy for the purchase of motor vehicle.

6.4. Prerequisites for granting of relief

Relief is granted for one vehicle only, to be driven solely by the entitled person. The replacement of one excise free vehicle with another excise free vehicle is not allowed.

6.5. Procedure for granting of relief

Relief is granted on a claim for relief made by you personally (there is no specific form). The claim must be submitted to the Relief Section of Customs Headquarters in Nicosia and be accompanied by the following evidence: Marriage certificate; Your children’s birth certificates; Documentary evidence for dependant children over 18 years old; “Association of Families of over three children” membership card; Cypriot driving license.

If you get a positive answer, the procedure is not terminated there. You will have to complete form SAD. If you cannot complete it on your own, you may use the services of a clearing agent. You may produce your SAD at any Regional Customs Office. Customs will issue Form C72A and a copy will be give to you. The vehicle must be then produced, together with Form C72A and other documents relating to your vehicle, to the Inland Transport Department for inspection and registration purposes.

6.6. Conditions to be observed after importation You shall not sell, lend, pledge, rent, export, transfer or dispose off it otherwise without the prior approval of the Director of Customs.

Any infringement of the aforesaid conditions constitutes an unlawful act and carries severe penalties

7. Information For more information, you may write to the following address:

The Director,Department of Customs and ExciseCorner M. Karaoli and Gr. Afxentiou, NicosiaThe postal address is: Director of Customs, Customs Headquarters, 1440, Nicosia.

Fax no 22302031 E-mail; headquarters@customs.mof.gov.cy

For oral inquiries you may call any of the following telephone numbers of the Relief Section at Customs Headquarters: 22601657 and 22601658.

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EXPORT FINANCE & EXPORT CREDIT

IntroductionFinancial assistance is extended by the banks to the exporters at pre-shipment and post-shipment stages.

Financial assistance extended to the exporter prior to shipment of goods from India falls within the scope of

pre-shipment finance while that extended after shipment of the goods falls under post-shipment finance.

While the pre-shipment finance is provided for working capital for the purchase of raw material, processing,

packaging, transportation, warehousing etc.of the goods meant for export, post-shipment finance is

generally provided in order to bridge the gap between shipment of goods and the realization of proceeds.

For raising funds in India, investors can raise a substantial portion of the project cost in India through debt

and equity instruments. Applications for long-term loans can be made to State Financial Corporations when

the project is small - generally less than Rs.50 million - or to national-level financial institutions, such as IDBI

and IFCI, when the project is large. Institutions expect concrete project and market reports, with reasonably

firm costs and implementation plans. Other long term financing options include leasing, hire purchase,

deferred payment guarantee etc. Capital markets are increasingly the preferred route for raising finances in

India, through equity shares, debentures and hybrids. Investors can freely access the capital market and in

most cases freely price the issue. Investors with both small as well as large fund requirements can mobilise

funds from the market. Private placement with institutional investors is also possible. Indian companies also

have the option of raising funds from international capital markets. Short-term finances for working capital

requirements are available from commercial banks and through instruments such as fixed deposits, inter-

corporate deposits and commercial paper.

EXIM Bank approves 917 mn export financing

PR Newswire | 21 Oct, 2010

WASHINGTON: The board of directors of the Export-Import Bank of the United States (Ex-Im) today

approved a $917 million export finance guarantee to support U.S. exports from Bucyrus International,

located in Milwaukee, Wisconsin and other U.S. vendors, to the Sasan Power, Ltd. coal-fired power plant

in Madhya Pradesh, India.

The companies, including Bucyrus, will sell and export mining and associated equipment to Sasan Power

for the 3,960-megawatt power plant. According to the Metropolitan Milwaukee Association of Commerce,

the project will support approximately 1,000 jobs at Bucyrus and its suppliers throughout the United

States.

Today's approval followed a thorough, three-month financial, technical and environmental due diligence

review conducted by Bank specialists.

In July, Reliance Power, Ltd., the owner of Sasan Power, signed a memorandum of understanding with

Ex-Im Bank indicating its commitment to build a new 250-megawatt renewable energy facility, which will

rank among the largest renewable energy projects in India. Moreover, the Sasan project will comply with

Ex-Im's new environmental guidelines that limit carbon emissions to 850 grams of CO2 per kilowatt hour.

"The board's approval of the Sasan power project resulted from carefully balancing the need to support

American jobs and energy exports, while simultaneously encouraging development of renewable energy

facilities," said Ex-Im Bank Chairman and President Fred P. Hochberg. "We are pleased that Reliance

Power, under the leadership of Anil Ambani, is taking steps to reduce the environmental effects of their

activities and has long term plans which include power production with renewable energy alternatives."

In fiscal 2010, which ended last month, Ex-Im financing totaled a record $24.5 billion, supported an

estimated $33 billion in export sales and 227,000 U.S. jobs. Its renewable energy transactions tripled and

small-business export financing reached $5 billion, also all-time records.

Ex-Im, an independent, self-sustaining federal agency, provides export financing, strengthens U.S. export

competitiveness, and helps create and maintain U.S. jobs. It functions at no cost to American taxpayers.

The Bank provides a variety of financing products and services, including working capital guarantees to

help small and medium-sized U.S. businesses, export-credit insurance to protect against nonpayment by

foreign buyers, and loan guarantees and direct loans to assist foreign buyers of U.S. goods and services.

EXPORT CREDIT

Please  refer  to  our  circular DBOD. IBD. BC. No.41/ 23.37.001/ 2006-07   dated November 6, 2006 in terms of which the prudential limit on funded / non-funded credit facilities extended by banks in India to Indian Joint Ventures (JVs) (where the holding by the Indian company is more than 51%) / Wholly Owned Subsidiaries (WOS) abroad, was enhanced from the then existing limit of 10% to 20% of their unimpaired capital funds (Tier I and Tier II capital).

2. In this connection, a reference is invited to paragraph 173 of the Governor's Annual Policy Statement for the year 2007-08 (copy of the paragraph enclosed as Annex). Accordingly, it has been decided to permit banks in India to extend funded and/or non-funded credit facilities to wholly owned step-down subsidiaries of subsidiaries of Indian companies (where the holding by the Indian company is more than 51%) abroad.

3.  Before granting the facility, banks should ensure that:

The set up of the step down subsidiary should be such that the banks can effectively monitor the facilities granted by them.

Proper systems for management of credit and interest rate risks arising out of such cross border lending are in place.

Section 25 of the Banking Regulation Act, 1949 is complied with. The resource base for such lending should be the funds held in foreign currency

accounts such as FCNR (B), EEFC, RFC etc. in respect of which the banks have to manage exchange risk.

Maturity mismatches arising out of such transactions are within the overall gap limits approved by RBI.

All existing safeguards and prudential guidelines relating to capital adequacy, exposure norms etc. applicable to domestic funded /non-funded exposures are adhered to.

Grant of such facilities is to be based on proper appraisal and commercial viability of the project and the countries  where the step-down subsidiary is located.

There should be no restriction in the countries where the step-down subsidiaries are located in regard to (a) the companies obtaining foreign currency loans and on repatriation or repayment thereof and (b) non-resident banks to have a legal charge on securities / assets  in the country as well as right of disposal, in case of need.

Para 173 of     Annual Policy Statement 2007-08

173. Over the years, Indian industry has been successfully building up its presence abroad with increasing overseas acquisitions and as a consequence, the exposure of banks to such financing is rising. As overseas markets are expected to offer better opportunities for growth and bring in higher revenue and volumes, it is proposed: