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The most complex & important tool of International Trade is Language. Small changes
in wording can have a major impact on all the aspects of Business agreement, esp. in
International Trade. For Business terminology to be effective, phrases must mean the
same thing through out the industry. This is where Incoterms comes into existence.
ICC introduced the first version of Incoterms - short for "International Commercial
Terms" - in 1936. Since then, ICC expert lawyers and trade practitioners have updated it
many times to keep pace with the development of international trade. Effective January
1 of 2000, the ICC once again updated Incoterms to follow the modern trends in
international trade. They should now be incorporated under the reference "Incoterms
2000" into contracts that are effective from January 2000 or any date thereafter.
Incoterms 2000 are internationally accepted commercial terms defining the respective
roles of the buyer (Importer) and seller (Exporter) in the arrangement of transportation
and other responsibilities and clarify when the ownership of the merchandise takes
place. These terms are incorporated into export-import sales agreements and contracts
worldwide and are a necessary part of foreign trade.
The main objective of Incoterms2000 defines the responsibilities and the obligations of
a seller (Exporter) and a buyer (Importer) within the framework of international contracts
of trade concerning loading, transport, type of transport, insurances and delivery. Its first
function is about a distribution of transport charges. The second role of the
Incoterms2000 is to define the place of transfer and the transport risks involved in order
to justify the ownership for support and damage of goods by shipments sent by the
seller (exporter) or the buyer (importer) in an event of execution of transport.
Incoterms safeguard the following issues in the Foreign Trade contract or International
Trade Contract:
a) To determine the critical point of the transfer of the risks of the seller to the buyer in
the process forwarding of the goods (risks of loss, deterioration,robbery of the goods)
allow the person who supports these risks to make arrangements in particular in term of
insurance.
b) To specify is going to subscribe the contract of carriage that is to say the seller or the
buyer.
c) To distribute between the seller and the buyer the logistic and administrative
expenses at the various stages of the process.
e) To fix respective obligations for the achievement of the formalities of exportation and
/or importation, the payment of the rights and taxes of importation as well as the supply
of the documents.
International Commercial Terms are a series of international trade terms that are used
worldwide to divide the transaction costs and responsibilities between the seller and the
buyer and reflect state-of-the-art transportation practices.
Incoterms deal with the questions related to the delivery of the products from the seller
(exporter) to the buyer (importer). This includes the carriage of products, export and
import clearance responsibilities, who pays for what, and who has risk for the condition
of the products at different locations within the transport process. Incoterms are always
linked to a physical location and has nothing to do with the transfer of ownership.
INCOTERMS are most frequently listed by category. Below are the 13 international
Incoterms adopted by the International Chamber of Commerce.
Group E (Departure):
1) EXW - Ex Works (...named place): Ex works means that the seller (exporter)
delivers when he places the goods at the disposal of the buyer (importer) at the
seller's premises or another named place (i.e. works, factory, warehouse, etc.)
not cleared for export and not loaded on any collecting vehicle.
This term thus represents the minimum obligation for the seller (exporter), and
the buyer (importer) has to bear all costs and risks involved in taking the goods
from the seller's premises. However, if the parties wish the seller (exporter) to be
responsible for the loading of the goods on departure and to bear the risks and
all the costs of such loading, this should be made clear by adding explicit wording
to this effect in the contract of sale.
2) FCA - Free Carrier (...named place): Free Carrier means that the seller
(exporter) delivers the goods, cleared for export, to the carrier nominated by the
buyer (importer) at the named place. It should be noted that the chosen place of
delivery has an impact on the obligations of loading and unloading the goods at
that place. If delivery occurs at the seller's premises, the seller (exporter) is
responsible for loading. If delivery occurs at any other place, the seller (exporter)
is not responsible for unloading.
If the buyer (importer) nominates a person other than a carrier to receive the
goods, the seller (exporter) is deemed to have fulfilled his obligation to deliver the
goods when they are delivered to that person.
3) FAS - Free Alongside Ship (...named port of shipment): Free Alongside Ship
means that the seller (exporter) delivers when the goods are placed alongside
the vessel at the named port of shipment. This means that the buyer (importer)
has to bear all costs and risks of loss of or damage to the goods from that
moment.
The FAS term requires the seller (exporter) to clear the goods for export.
However, if the parties wish the buyer (importer) to clear the goods for export,
this should be made clear by adding explicit wording to this effect in the contract
of sale.
This term can be used only for sea or inland waterway transport.
4) FOB - Free On Board (...named port of shipment): Free on Board means that
the seller (exporter) delivers when the goods pass the ship's rail at the named
port of shipment. This means that the buyer (importer) has to bear all costs and
risks of loss of or damage to the goods from that point.
The FOB term requires the seller (exporter) to clear the goods for export. If the
parties do not intend to deliver the goods across the ship's rail, the FCA term
should be used.
This term can be used only for sea or inland waterway transport.
5) CFR - Cost & Freight (...named port of destination): Cost and Freight means
that the seller (exporter) delivers when the goods pass the ship's rail in the port of
shipment. The seller (exporter) must pay the costs and freight necessary to bring
the goods to the named port of destination but the risk of loss of or damage to
the goods, as well as any additional costs due to events occurring after the time
of delivery, are transferred from the seller (exporter) to the buyer (importer).
The CFR term requires the seller (exporter) to clear the goods for export. If the
parties do not intend to deliver the goods across the ship's rail, the CPT term
should be used.
This term can be used only for sea and inland waterway transport.
However, in CIF the seller (exporter) also has to procure marine insurance
against the buyer's risk of loss of or damage to the goods during the carriage.
Consequently, the seller (exporter) contracts for insurance and pays the
insurance premium. The buyer (importer) should note that under the CIF term the
seller (exporter) is required to obtain insurance only on minimum cover. Should
the buyer (importer) wish to have the protection of greater cover, he would either
need to agree as much expressly with the seller (exporter) or to make his own
extra insurance arrangements.
The CIF term requires the seller (exporter) to clear the goods for export. If the
parties do not intend to deliver the goods across the ship's rail, the CIP term
should be used.
This term can be used only for sea and inland waterway transport.
Consequently, the seller (exporter) contracts for insurance and pays the
insurance premium. The buyer (importer) should note that under the CIP term the
seller (exporter) is required to obtain insurance only on minimum cover. Should
the buyer (importer) wish to have the protection of greater cover, he would either
need to agree as much expressly with the seller (exporter) or to make his own
extra insurance arrangements.
This term may be used irrespective of the mode of transport including multimodal
transport.
Group D (Arrival):
However, if the parties wish the seller (exporter) to be responsible for the
unloading of the goods from the arriving means of transport and to bear the risks
and costs of unloading, this should be made clear by adding explicit wording to
this effect in the contract of sale.
This term may be used irrespective of the mode of transport when goods are to
be delivered at a land frontier. When delivery is to take place in the port of
destination, on board a vessel or on the quay (wharf), the DES or DEQ terms
should be used.
If the parties wish the seller (exporter) to bear the costs and risks of discharging
the goods, then the DEQ term should be used.
This term can be used only when the goods are to be delivered by sea or inland
waterway or multimodal transport on a vessel in the port of destination.
If the parties wish to include in the seller's obligations all or part of the costs
payable upon import of the goods, this should be made clear by adding explicit
wording to this effect in the contract of sale.
This term can be used only when the goods are to be delivered by sea or inland
waterway or multimodal transport on discharging from a vessel onto the quay
(wharf) in the port of destination. However if the parties wish to include in the
seller's obligations the risks and costs of the handling of the goods from the quay
to another place (warehouse, terminal, transport station, etc.) in or outside the
port, the DDU or DDP terms should be used.
12) DDU - Delivered Duty Unpaid (...named port of destination): Delivered duty
unpaid means that the seller (exporter) delivers the goods to the buyer
(importer), not cleared for import, and not unloaded from any arriving means of
transport at the named place of destination. The seller (exporter) has to bear the
costs and risks involved in bringing the goods thereto, other than, where
applicable, any "duty" (which term includes the responsibility for and the risks of
the carrying out of customs formalities, and the payment of formalities, customs
duties, taxes and other charges) for import in the country of destination. Such
"duty" has to be borne by the buyer (importer) as well as any costs and risks
caused by his failure to clear the goods for import in time.
However, if the parties wish the seller (exporter) to carry out customs formalities
and bear the costs and risks resulting therefrom as well as some of the costs
payable upon import of the goods, this should be made clear by adding explicit
wording to this effect in the contract of sale.
This term may be used irrespective of the mode of transport but when delivery is
to take place in the port of destination on board the vessel or on the quay (wharf),
the DES or DEQ terms should be used.
13) DDP - Delivered Duty Paid (...named port of destination): Delivered duty
paid means that the seller (exporter) delivers the goods to the buyer (importer),
cleared for import, and not unloaded from any arriving means of transport at the
named place of destination. The seller (exporter) has to bear all the costs and
risks involved in bringing the goods thereto including, where applicable (Refer to
Introduction paragraph 14), any "duty" (which term includes the responsibility for
and the risk of the carrying out of customs formalities and the payment of
formalities, customs duties, taxes and other charges) for import in the country of
destination.
Whilst the EXW term represents the minimum obligation for the seller (exporter),
DDP represents the maximum obligation. This term should not be used if the
seller (exporter) is unable directly or indirectly to obtain the import license.
However, if the parties wish to exclude from the seller's obligations some of the
costs payable upon import of the goods (such as VAT), this should be made
clear by adding explicit wording to this effect in the contract of sale.
If the parties wish the buyer (importer) to bear all risks and costs of the import,
the DDU term should be used. This term may be used irrespective of the mode of
transport but when delivery is to take place in the port of destination on board the
vessel or on the quay (wharf), the DES or DEQ terms should be used.
INCOTERMS
The most complex & important tool of International Trade is Language. Small changes
in wording can have a major impact on all the aspects of Business agreement, esp. in
International Trade. For Business terminology to be effective, phrases must mean the
same thing through out the industry. This is where Incoterms comes into existence.
Incoterms is devised & published by the International Chamber of Commerce in 1936.
Incoterms or International commercial terms are a series of international sales terms
widely used throughout the world. INCOTERMS are designed to create a bridge
between different members of the industry by acting as a uniform language they can
use.
ICC introduced the first version of Incoterms - short for "International Commercial
Terms" - in 1936. Since then, ICC expert lawyers and trade practitioners have updated it
many times to keep pace with the development of international trade. Effective January
1 of 2000, the ICC once again updated Incoterms to follow the modern trends in
international trade. They should now be incorporated under the reference "Incoterms
2000" into contracts that are effective from January 2000 or any date thereafter.
Incoterms 2000 are internationally accepted commercial terms defining the respective
roles of the buyer (Importer) and seller (Exporter) in the arrangement of transportation
and other responsibilities and clarify when the ownership of the merchandise takes
place. These terms are incorporated into export-import sales agreements and contracts
worldwide and are a necessary part of foreign trade.
The main objective of Incoterms2000 defines the responsibilities and the obligations of
a seller (Exporter) and a buyer (Importer) within the framework of international contracts
of trade concerning loading, transport, type of transport, insurances and delivery. Its first
function is about a distribution of transport charges. The second role of the
Incoterms2000 is to define the place of transfer and the transport risks involved in order
to justify the ownership for support and damage of goods by shipments sent by the
seller (exporter) or the buyer (importer) in an event of execution of transport.
Incoterms safeguard the following issues in the Foreign Trade contract or International
Trade Contract:
a) To determine the critical point of the transfer of the risks of the seller to the buyer in
the process forwarding of the goods (risks of loss, deterioration,robbery of the goods)
allow the person who supports these risks to make arrangements in particular in term of
insurance.
b) To specify is going to subscribe the contract of carriage that is to say the seller or the
buyer.
c) To distribute between the seller and the buyer the logistic and administrative
expenses at the various stages of the process.
International Commercial Terms are a series of international trade terms that are used
worldwide to divide the transaction costs and responsibilities between the seller and the
buyer and reflect state-of-the-art transportation practices.
Incoterms deal with the questions related to the delivery of the products from the seller
(exporter) to the buyer (importer). This includes the carriage of products, export and
import clearance responsibilities, who pays for what, and who has risk for the condition
of the products at different locations within the transport process. Incoterms are always
linked to a physical location and has nothing to do with the transfer of ownership.
INCOTERMS are most frequently listed by category. Below are the 13 international
Incoterms adopted by the International Chamber of Commerce.
Group E (Departure):
1) EXW - Ex Works (...named place): Ex works means that the seller (exporter)
delivers when he places the goods at the disposal of the buyer (importer) at the
seller's premises or another named place (i.e. works, factory, warehouse, etc.)
not cleared for export and not loaded on any collecting vehicle.
This term thus represents the minimum obligation for the seller (exporter), and
the buyer (importer) has to bear all costs and risks involved in taking the goods
from the seller's premises. However, if the parties wish the seller (exporter) to be
responsible for the loading of the goods on departure and to bear the risks and
all the costs of such loading, this should be made clear by adding explicit wording
to this effect in the contract of sale.
2) FCA - Free Carrier (...named place): Free Carrier means that the seller
(exporter) delivers the goods, cleared for export, to the carrier nominated by the
buyer (importer) at the named place. It should be noted that the chosen place of
delivery has an impact on the obligations of loading and unloading the goods at
that place. If delivery occurs at the seller's premises, the seller (exporter) is
responsible for loading. If delivery occurs at any other place, the seller (exporter)
is not responsible for unloading.
If the buyer (importer) nominates a person other than a carrier to receive the
goods, the seller (exporter) is deemed to have fulfilled his obligation to deliver the
goods when they are delivered to that person.
3) FAS - Free Alongside Ship (...named port of shipment): Free Alongside Ship
means that the seller (exporter) delivers when the goods are placed alongside
the vessel at the named port of shipment. This means that the buyer (importer)
has to bear all costs and risks of loss of or damage to the goods from that
moment.
The FAS term requires the seller (exporter) to clear the goods for export.
However, if the parties wish the buyer (importer) to clear the goods for export,
this should be made clear by adding explicit wording to this effect in the contract
of sale.
This term can be used only for sea or inland waterway transport.
4) FOB - Free On Board (...named port of shipment): Free on Board means that
the seller (exporter) delivers when the goods pass the ship's rail at the named
port of shipment. This means that the buyer (importer) has to bear all costs and
risks of loss of or damage to the goods from that point.
The FOB term requires the seller (exporter) to clear the goods for export. If the
parties do not intend to deliver the goods across the ship's rail, the FCA term
should be used.
This term can be used only for sea or inland waterway transport.
5) CFR - Cost & Freight (...named port of destination): Cost and Freight means
that the seller (exporter) delivers when the goods pass the ship's rail in the port of
shipment. The seller (exporter) must pay the costs and freight necessary to bring
the goods to the named port of destination but the risk of loss of or damage to
the goods, as well as any additional costs due to events occurring after the time
of delivery, are transferred from the seller (exporter) to the buyer (importer).
The CFR term requires the seller (exporter) to clear the goods for export. If the
parties do not intend to deliver the goods across the ship's rail, the CPT term
should be used.
This term can be used only for sea and inland waterway transport.
6) CIF - Cost, Insurance & Freight (...named port of destination): Cost,
Insurance and Freight means that the seller (exporter) delivers when the goods
pass the ship's rail in the port of shipment. The seller (exporter) must pay the
costs and freight necessary to bring the goods to the named port of destination
but the risk of loss of or damage to the goods, as well as any additional costs due
to events occurring after the time of delivery, are transferred from the seller
(exporter) to the buyer (importer).
However, in CIF the seller (exporter) also has to procure marine insurance
against the buyer's risk of loss of or damage to the goods during the carriage.
Consequently, the seller (exporter) contracts for insurance and pays the
insurance premium. The buyer (importer) should note that under the CIF term the
seller (exporter) is required to obtain insurance only on minimum cover. Should
the buyer (importer) wish to have the protection of greater cover, he would either
need to agree as much expressly with the seller (exporter) or to make his own
extra insurance arrangements.
The CIF term requires the seller (exporter) to clear the goods for export. If the
parties do not intend to deliver the goods across the ship's rail, the CIP term
should be used.
This term can be used only for sea and inland waterway transport.
This term may be used irrespective of the mode of transport including multimodal
transport
Consequently, the seller (exporter) contracts for insurance and pays the
insurance premium. The buyer (importer) should note that under the CIP term the
seller (exporter) is required to obtain insurance only on minimum cover. Should
the buyer (importer) wish to have the protection of greater cover, he would either
need to agree as much expressly with the seller (exporter) or to make his own
extra insurance arrangements.
This term may be used irrespective of the mode of transport including multimodal
transport.
Group D (Arrival):
However, if the parties wish the seller (exporter) to be responsible for the
unloading of the goods from the arriving means of transport and to bear the risks
and costs of unloading, this should be made clear by adding explicit wording to
this effect in the contract of sale.
This term may be used irrespective of the mode of transport when goods are to
be delivered at a land frontier. When delivery is to take place in the port of
destination, on board a vessel or on the quay (wharf), the DES or DEQ terms
should be used.
If the parties wish to include in the seller's obligations all or part of the costs
payable upon import of the goods, this should be made clear by adding explicit
wording to this effect in the contract of sale.
This term can be used only when the goods are to be delivered by sea or inland
waterway or multimodal transport on discharging from a vessel onto the quay
(wharf) in the port of destination. However if the parties wish to include in the
seller's obligations the risks and costs of the handling of the goods from the quay
to another place (warehouse, terminal, transport station, etc.) in or outside the
port, the DDU or DDP terms should be used.
12) DDU - Delivered Duty Unpaid (...named port of destination): Delivered duty
unpaid means that the seller (exporter) delivers the goods to the buyer
(importer), not cleared for import, and not unloaded from any arriving means of
transport at the named place of destination. The seller (exporter) has to bear the
costs and risks involved in bringing the goods thereto, other than, where
applicable, any "duty" (which term includes the responsibility for and the risks of
the carrying out of customs formalities, and the payment of formalities, customs
duties, taxes and other charges) for import in the country of destination. Such
"duty" has to be borne by the buyer (importer) as well as any costs and risks
caused by his failure to clear the goods for import in time.
However, if the parties wish the seller (exporter) to carry out customs formalities
and bear the costs and risks resulting therefrom as well as some of the costs
payable upon import of the goods, this should be made clear by adding explicit
wording to this effect in the contract of sale.
This term may be used irrespective of the mode of transport but when delivery is
to take place in the port of destination on board the vessel or on the quay (wharf),
the DES or DEQ terms should be used.
13) DDP - Delivered Duty Paid (...named port of destination): Delivered duty
paid means that the seller (exporter) delivers the goods to the buyer (importer),
cleared for import, and not unloaded from any arriving means of transport at the
named place of destination. The seller (exporter) has to bear all the costs and
risks involved in bringing the goods thereto including, where applicable (Refer to
Introduction paragraph 14), any "duty" (which term includes the responsibility for
and the risk of the carrying out of customs formalities and the payment of
formalities, customs duties, taxes and other charges) for import in the country of
destination.
Whilst the EXW term represents the minimum obligation for the seller (exporter),
DDP represents the maximum obligation. This term should not be used if the
seller (exporter) is unable directly or indirectly to obtain the import license.
However, if the parties wish to exclude from the seller's obligations some of the
costs payable upon import of the goods (such as VAT), this should be made
clear by adding explicit wording to this effect in the contract of sale.
If the parties wish the buyer (importer) to bear all risks and costs of the import,
the DDU term should be used. This term may be used irrespective of the mode of
transport but when delivery is to take place in the port of destination on board the
vessel or on the quay (wharf), the DES or DEQ terms should be used.
The seller makes the goods available at its premises. The buyer is responsible for
unloading. This term places the maximum obligation on the buyer and minimum
obligations on the seller. The Ex Works term is often used when making an initial
quotation for the sale of goods without any costs included. EXW means that a seller has
the goods ready for collection at his premises (works, factory, warehouse, plant) on the
date agreed upon. The buyer pays all transportation costs and also bears the risks for
bringing the goods to their final destination. The seller doesn't load the goods on
collecting vehicles and doesn't clear them for export. If the seller does load the good, he
does so at buyer's risk and cost. If parties wish seller to be responsible for the loading of
the goods on departure and to bear the risk and all costs of such loading, this must be
made clear by adding explicit wording to this effect in the contract of sale.
2010
The eighth published set of pre-defined terms, Incoterms 2010 defines 11 rules, reducing the 13
used in Incoterms 2000 by introducing two new rules ("Delivered at Terminal", DAT; "Delivered
at Place", DAP) that replace four rules of the prior version ("Delivered at Frontier", DAF;
"Delivered Ex Ship", DES; "Delivered Ex Quay", DEQ; "Delivered Duty Unpaid", DDU).[6] In
the prior version, the rules were divided into four categories, but the 11 pre-defined terms of
Incoterms 2010 are subdivided into two categories based only on method of delivery. The larger
group of seven rules applies regardless of the method of transport, with the smaller group of four
being applicable only to sales that solely involve transportation over water.
The seven rules defined by Incoterms 2010 for any mode(s) of transportation are:
The four rules defined by Incoterms 2010 for international trade where transportation is entirely
conducted by water are:
Loadi Loadi
ng Carria Unload
ng on
Loadi Export- Carria Unload Carriag Import
charg ge to ing
truck Imp
ng on Custom ge to ing of e to custo
Incote es in port charges
in Insura ort
truck s port truck in place of ms
rm port of in port
port nce taxe
(carri declarat of port of destinat cleara
of impor of
of s
er) ion export export ion nce
expor t import
impor
t t
Buy
EXW Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
er
Buy
FCA Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
er
Buy
FAS Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer
er
Loadi Loadi
ng Carria Unload ng on
Loadi Export- Carria Unload Carriag Import
charg ge to ing truck Imp
ng on Custom ge to ing of e to custo
Incote es in port charges in Insura ort
truck s port truck in place of ms
rm port of in port port nce taxe
(carri declarat of port of destinat cleara
of impor of of s
er) ion export export ion nce
expor t import impor
t t
Buy
FOB Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer
er
Buy
CFR Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer
er
Buy
CIF Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Seller Buyer
er
Buy
DAT Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer
er
Buy
CPT Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer
er
Buy
DAP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer
er
Buy
CIP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer
er
Selle
DDP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
r
Previous terms from Incoterms 2000 that were eliminated from Incoterms 2010
See also
Commercial law
International Commercial Terms (Incoterms)
International trade
International trade law
Uniform Commercial Code (UCC)
United Nations Convention on Contracts for the International Sale of Goods
Locating buyer
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Letter of credit
Letter of Credit
The specified bank makes the payment upon the successful presentation of
the required documents by the seller within the specified time frame. Note
that the Bank scrutinizes the 'documents' and not the 'goods' for making
payment. Thus the process works both in favor of both the buyer and the
seller. The Seller gets assured that if documents are presented on time and
in the way that they have been requested on the LC the payment will be
made and Buyer on the other hand is assured that the bank will thoroughly
examine these presented documents and ensure that they meet the terms
and conditions stipulated in the LC.
1) Strict Compliance
How strict compliance? Some courts insist upon literal compliance, so that a
misspelled name or typographical error voids the
exporter's/beneficiary's/seller's demand for payment. Other courts require
payment upon substantial compliance with documentary requirements. The
bank may insist upon strict compliance with the requirements of the L/C. In
the absence of conformity with the L/C, the Seller cannot force payment and
the bank pays at its own risk. Sellers should be careful and remember that
the bank may insist upon strict compliance with all documentary
requirements in the LC. If the documents do not conform, the bank should
give the seller prompt, detailed notice, specifying all discrepancies and
shortfalls.
Letters of credit deal in documents, not goods. L/Cs are purely documentary
transactions, separate and independent from the underlying contract
between the Buyer and the Seller. The bank honoring the L/C is concerned
only to see that the documents conform with the requirements in the L/C. If
the documents conform, the bank will pay, and obtain reimbursement from
the Buyer/Applicant. The bank need not look past the documents to examine
the underlying sale of merchandise or the product itself. The letter of credit
is independent from the underlying transaction and, except in rare cases of
fraud or forgery, the issuing bank must honor conforming documents. Thus,
Sellers are given protections that the issuing bank must honor its demand
for payment (which complies with the terms of the L/C) regardless of
whether the goods conform with the underlying sale contract.
1) Time Lines:
The letter of credit should have an expiration date that gives sufficient time
to the seller to get all the tasks specified and the documents required in the
LC. If the letter of credit expires, the seller is left with no protection. Most LC
s fail because Sellers/Exporters/Beneficiaries were unable to perform within
the specified time frame in the LC. Three dates are of importance in an LC:
a) The date by when shipment should have occurred. The date on the Bill of
Lading.
b) The date by when documents have to be presented to the Bank
c) The expiry date of the LC itself.
A good source to give you an idea of the timelines would be your freight
forwarding agent. As a seller check with your freight forwarding agent to see
if you would be in a position to comply.
Letters of credit are about documents and not facts; the inability to produce
a given document at the right time will nullify the letter of credit. As a
Seller/Exporter/Beneficiary you should try and run the compliance issues
with the various department or individuals involved within your organization
to see if compliance would be a problem. And if so, have the LC amended
before shipping the goods.
When goods are bought or sold abroad the transaction is complicated by a number of factors:
The buyer and seller are most likely widely separated by legal or natural borders.
The buyer and seller may be unacquainted with each others business standing and integrity.
Import / export and exchange control regulations dictate the use of a letter of credit.
Whereas in a shop or market the buyer actually handles, examines and physically takes away a
purchase from a distance cannot always ensure that the articles agreed upon for sale are those
eventually obtained. Obviously, what is required for such transactions is a form of proceeding
which protect the interests of the parties involved. To satisfy both, wide use is made of the
documentary credit advised through the banking system, calling for the exporter to present to a
bank documents evidencing shipment or dispatch of the required merchandise for which, if the
documents are in order he will be paid. These documents often convey title to the goods
themselves, so that the buyer not only knows what he is getting but can ensure that he, rather
than an un-entitled party, is able to obtain release of the goods when they arrive at destination.
Essentially, a credit is a written undertaking given by the buyers bank, (the issuing bank), to
pay an exporter of goods, the beneficiary.
The beneficiary, usually through an advising or confirming bank in the beneficiarys country, is
guaranteed to receive payment provided the terms and conditions of the credit are complied with
and documents called for by the credit are presented within the time limit specified.
Through years of experience, we recognize many companies are reluctant to trade under the
protection of a credit due to the complexity of the transaction.
Initially a buyer establishes a documentary letter of credit, after he has negotiated with his seller
the purchase of goods and / or services. At Britam we have the experience and expertise to
handle the negotiation of a documentary credit. Even at the outset of a contract, advice and
assistance is offered to ensure a completed document is free from error, and provides a workable
instrument acceptable to both parties.
Once the order is available we will effect shipment, having firstly submitted a fully
comprehensive quotation.
All documentation called for by the letter of credit will be completed by us, to include
commercial invoices, packing lists, certificates of origin, sight drafts etc. In order to ensure that
deadlines specified in the letter of credit are met, we present the letter of credit complete to the
negotiating bank.
**Subject to consignment shipping with Britam International Ltd and recommendations for
amendments to documentary letters of credit being complied with we will indemnify the
beneficiary against bank fees for discrepancies upon presentation. Also subject to The Letter of
Credit being fully Negotiated and Presented by, and all relevant documents being produced by
Britam.International Ltd.
PART A -GENERAL
6A.9 Protection against Transit Risks under f.o.b., c.& f., etc. Contracts
6A.18 Forfaiting
6C.10 Handing Over Negotiable Copy of Bill of Lading to Master of Vessel/ Trade
Representative
6E.1 General
6E.3 Overprice
Numbering of forms
6A.4 GR and PP forms are printed by Reserve Bank for sale to authorised dealers for supply
to their customers. VP/COD forms are sold directly to exporters by the offices of the
Exchange
Control Department of Reserve Bank. GR / PP forms are printed in distinctive colours and each
set bears a printed number which appears on both copies in the set. In all remittance applications
and correspondence with the Reserve Bank relating to any export transaction, the printed
number of GR / PP form on which the relative export was declared should invariably be cited. In
case of exports declared on GR form, the 10 digit number allotted to the GR form by Customs
should also be cited in full.
Importer-Exporter Code Number
6A.5 Every person/firm/company engaged in export business in India should obtain
Importer-Exporter Code Number from the Director General of Foreign Trade (DGFT)
as required
under the Export and Import Policy. The Head/Registered office as well as its branches in India
should invariably cite the number so allotted by DGFT on GR, PP or VP/COD forms as also
SOFTEX form used for declaration of exports. Customs/Post Office/Department of Electronics
will not entertain any export forms which do not bear the Importer-Exporter Code Number
issued by DGFT.
Methods of Payment
6A.6 (i) The methods for receipt of payment for exports are given in Chapter 2. Normally,
payment must be received through the medium of an authorised dealer. It will, however, be in
order for authorised dealers to handle documents in cases where the exporter has received the
export proceeds directly from the overseas buyer in the form of bank draft, pay order, banker's
cheque, personal cheque, foreign currency notes, foreign currency travellers' cheques, etc.,
without any monetary limit provided the exporter's track record is good, he is a customer of the
concerned authorised dealer and prima facie the instrument represents payment for exports.
(ii) It will also be in order for authorised dealers to handle documents in cases where the exporter
has received the export proceeds in respect of goods sold to overseas buyers during their visits to
India in rupees from the Credit Card Servicing banks either by way of reimbursement against
charge slips signed by the ICC holders (overseas buyers) or as instantaneous credit to his bank
account in India. GR(duplicate) should be released by the authorised dealers on receipt of funds
in their Nostro account or on production of a certificate by the exporter from the Credit Card
Servicing bank in India to the effect that it has received the equivalent amount in foreign
exchange, if the authorised dealer concerned is not the Credit Card Servicing bank.
(iii) Payments towards export proceeds out of funds held in the Foreign Currency (Non-resident)
account and Non-resident (External) Rupee account is also permitted.
(iv) Payments towards export proceeds from a rupee account, held in the name of an Exchange
House with an authorised dealer, is also permissible up to Rs.2,00,000 per transaction.
Counter Trade
6A.13 (i) Counter-trade proposals involving adjustment of value of goods imported into India
against value of goods exported from India in terms of an arrangement voluntarily entered into
between the Indian party and the overseas party through an Escrow Account opened in India in
U.S. dollar will be considered by the Reserve Bank. All imports and exports under the will be
payable on balances standing to the credit of the Escrow Account but the funds temporarily
rendered surplus may be held in a short-term deposit up to a total period of three months in a
year (i.e. in a block of 12 months) and the banks may pay interest at the applicable rate. No
overdraft will be permitted in the Escrow Account nor any loans will be permitted to be granted
against funds in the account.
(ii) Application for permission for opening an Escrow Account may be made by the
overseas exporter/organisation through the authorised dealer with whom the account is proposed
to be opened, to the office of Reserve Bank under whose jurisdiction the authorised dealer is
functioning.
(iii) Reserve Bank will also consider counter trade proposals from Indian exporters
with Romania involving adjustment of value of goods exported from India to Romania against
value of goods imported from Romania into India in terms of an arrangement voluntarily entered
into with a party in Romania through an Escrow account in U.S. Dollar maintained with a bank
in Romania for the purpose. The Indian exporter should utilise the Escrow account funds within
three months from the date of credit to the Escrow account for import of goods from Romania
into India. Application for necessary permission to open a U.S. Dollar Escrow Account may be
submitted by an Indian exporter through an authorised dealer to the concerned office of Reserve
Bank under whose jurisdiction the applicant is situated. The concerned authorised dealer will be
required to monitor the transactions in the U.S. Dollar Escrow Account with banks in Romania
through a mirror account.
Export of goods on lease, hire, etc.
6A.14 Machinery, equipment, etc. are sometimes exported on lease, hire, etc. basis under
agreement with the overseas lessee against collection of hire charges and ultimate reimport of
the goods exported. Exporters who wish to export goods on such terms should approach, through
an authorised dealer, the office of the Reserve Bank under whose jurisdiction the exporter is
situated, giving full particulars.
(ii) Pure supply contracts i.e. contracts for export of goods where at least 90 per
cent
of the export value is realised within the prescribed period i.e. six months from the date of
shipment and the balance amount within a maximum period of two years from the date of
shipment, are not treated as deferred payment exports, provided the exporter does not
require/avail of any funded or non-funded facility/ies for such exports from authorised dealers.
Exporters should, therefore, directly approach ECGC for appropriate cover and Reserve Bank
for approval of the terms of payment in accordance with the procedure laid down in
Memorandum PEM.
Export on Elongated Credit Terms
6A.17 Normally, proceeds of export of goods, other than those for which exporters have been
permitted to offer commercial credit, (cf. paragraph 6A.16) have to be realised on the
due date for payment or within six months from the date of shipment whichever is earlier (or 15
months from the date of shipment in respect of exports to Indian-owned warehouses established
abroad with the permission of the Reserve Bank). In some cases, however, the overseas buyers
may be seeking longer period for payment of proceeds of commodities which are normally
exported from India on 'cash' terms generally on the ground that remittances of proceeds are not
permitted within 6 months or earlier by the buyers' country, in view of its difficult balance of
payments position. Exporters intending to export goods on such terms may submit their
proposals in form ECT through their banks to the concerned regional office of Reserve Bank for
consideration.
Forfaiting
6A.18 (i) Export-Import Bank of India (Exim Bank) has introduced a scheme of forfaiting
as an instrument of financing exports. It would be in order for authorised dealers to
allow remittance of commitment fee/service charges payable by the exporter as certified by the
Exim Bank. Such remittance may be permitted in advance in one lump-sum or at monthly
intervals as certified by the Exim Bank. Payment of these fees may be treated analogous to bank
charges. In case, however, the commitment fee and other charges exceed 1.5% of the invoice
value, the exporter should be advised to obtain prior approval of Reserve Bank.
(ii) Authorised dealers have also been permitted to introduce a scheme of forfaiting
of medium term export receivables, if they so desire. The procedure as followed by Exim Bank
may be followed by authorised dealers in this regard.
PART B - GR/PP PROCEDURE
Disposal of Copies of Export Declaration Forms
6B.1 (i) Copies of export declaration forms should be disposed of as under:
(a) GR forms should be completed by the exporter in duplicate and both the
copies submitted to the Customs at the port of shipment along with the
shipping bill. Customs will give their running serial number on both the
copies after admitting the corresponding shipping bill. The Customs serial
number will have ten numerals denoting the code number of the port of
shipment, the calendar year and a six digit running serial number. Customs
will certify the value declared by the exporter on both the copies of the GR
form at the space earmarked and will also record the assessed value. They
will then return the du
Paret 2
(a) GR forms should be completed by the exporter in duplicate and both the
copies submitted to the Customs at the port of shipment along with the
shipping bill. Customs will give their running serial number on both the
copies after admitting the corresponding shipping bill. The Customs serial
number will have ten numerals denoting the code number of the port of
shipment, the calendar year and a six digit running serial number. Customs
will certify the value declared by the exporter on both the copies of the GR
form at the space earmarked and will also record the assessed value. They
will then return the duplicate copy of the form to the exporter and retain the
original for transmission to Reserve Bank. Exporters should submit the
duplicate copy of the GR form again to Customs along with the cargo to be
shipped. After examination of the goods and certifying the quantity passed
for shipment on the duplicate copy, Customs will return it to the exporter for
submission to the authorised dealer for negotiation or collection of export
bills.
(b) Within twenty one days from shipment of goods, exporter should lodge the
duplicate copy together with relative shipping documents and an extra copy
of the invoice with the authorised dealer named on the GR form. After the
documents have been negotiated/sent for collection, the authorised dealer
should report the transaction to Reserve Bank in statement ENC under cover
of appropriate R-Supplementary Return. The duplicate copy of the form
together with a copy of invoice will be retained by the authorised dealer till
full export proceeds have been realised and thereafter submitted to Reserve
Bank duly certified under cover of appropriate R-Supplementary Return.
NOTE: In the case of exports made under deferred credit arrangement or to
joint ventures abroad against equity participation or under rupee
credit agreement, the number and date of Reserve Bank approval
and/or number and date of the relative A.D. circular should be
recorded at the appropriate place on the GR form.
(c) In cases where ECGC initially settles the claims of exporters in respect of
exports insured with them and subsequently receives the export proceeds
from the buyer/buyer's country through the efforts made by them, the share
of exporters in the amount so received is disbursed through the bank which
had handled the shipping documents. In such cases, ECGC will issue a
certificate to the bank which had handled the relevant shipping documents
after full proceeds have been received by them. The certificate will indicate
the number of GR / PP form, name of the exporter, name of the authorised
dealer, date of negotiation/bill number, invoice value and the amount
actually received by ECGC against the relevant GR / PP form. It will be in
order for authorised dealers to certify the duplicate GR/PP form on the basis
of the certificate issued by ECGC and submit them to Reserve Bank. The
certificates issued by ECGC may also be attached to the duplicate GR / PP
forms while forwarding them to Reserve Bank.
(d) Where a part of export proceeds are credited to EEFC account (paragraph
6E.1), the GR / PP / SOFTEX duplicate forms may be certified as under:
'Proceeds amounting to ......... representing ....... % of the value of
shipment credited to EEFC account maintained by the exporter
with..........'
(ii) The manner of disposal of PP forms is the same as that for GR forms. Postal
authorities will allow export of goods by post only if the original copy of the form has been
countersigned by an authorised dealer. PP forms should, therefore, be first presented by exporter
to an authorised dealer for countersignature. Authorised dealers will countersign the forms in
accordance with regulations explained in paragraph 6C.1 and return the original copy to the
exporter, who should submit the form to the post office with the parcel. The duplicate copy of
PP form will be retained by the authorised dealer to whom the exporter should submit relevant
documents together with an extra copy of invoice for negotiation/collection, within the
prescribed period of twenty one days.
(iii) In the case of VP/COD form, only one copy is required to be completed and.
submitted to post office along with the relative parcel at the time of despatch.
Shut out Shipments and Short Shipments
6B.2 (i) When part of a shipment covered by a GR form already filed with Customs is
short-shipped, exporter must give notice of short shipment to Customs in form and
manner prescribed. In case of delay in obtaining certified short shipment notice from Customs,
exporter should give an undertaking to the authorised dealer to the effect that he has filed the
short-shipment notice with the Customs and that he will furnish it as soon as it is obtained.
Authorised dealer should send the short shipment notice along with the GR duplicate to Reserve
Bank.
(ii) Where a shipment has been entirely shut out and there is delay in making
arrangements to re-ship, exporter will give notice in duplicate to Customs in the manner and in
form prescribed for the purpose attaching thereto the unused duplicate copy of GR form and the
shipping bill. Customs will verify that the goods were actually shut out, certify copy of the
notice as correct and forward it to Reserve Bank together with unused duplicate copy of the GR
form. In this case, the original GR form received earlier from Customs will be cancelled. If the
shipment is made subsequently, a fresh set of GR form must be completed.
Exports by Air
6B.3 In the absence of negotiable shipping documents in case of air consignments, exporters
sending goods by air run the risk of losing value of goods, if they are consigned directly
to overseas buyer/consignee and not to the overseas branch/correspondent of an authorised
dealer, except where they are covered by irrevocable letter of credit opened by buyer for the full
value of the goods or payment towards the full value of the goods has been received in advance.
Exporters will, therefore, be well advised to consign the goods in such cases to the concerned
overseas branch/correspondent of the authorised dealer through whom shipping documents will
be forwarded for collection, to enable the latter to instruct the overseas branch/correspondent to
arrange for issue of delivery order in favour of buyer on payment or acceptance of bill drawn by
the shipper.
Consolidation of Air Cargo
6B.4 Where air cargo is shipped under consolidation, the airline company's Master Airway
Bill will be issued to the Consolidating Cargo Agent who will in turn issue his own
House Airway
Bills (HAWBs) to individual shippers. Authorised dealers will negotiate HAWBs only if the
relative letter of credit specifically provides for negotiation of these documents in lieu of Airway
Bills issued by airline company. Authorised dealers will, however, accept freely HAWBs where
documents are to be sent on collection basis. Exporters wishing to ship air cargoes through
consolidators will be well advised to provide in the relative sale contracts with their overseas
buyers for payment being made against either HAWBs or the customary Airline Company's
Airway Bills. When, however, a letter of credit has been opened, it is the duty of the exporter to
ensure that it provides for negotiation of HAWB before forwarding the consignment.
Exports by Barges/Country Craft/Road Transport
6B.5 Following procedure should be adopted by exporters for filing original copies of GR
forms where exports are made to neighbouring countries by road, rail or river transport:
(a) In case of exports by barges/country craft/road transport, the form should
be presented by exporter or his agent at the Customs station at the border
through which the vessel or vehicle has to pass before crossing over to the
foreign territory. For this purpose, exporter may arrange either to give the
form to the person in charge of the vessel or vehicle or forward it to his
agent at the border for submission to Customs.
(b) As regards exports by rail, Customs staff have been posted at certain
designated railway stations for attending to Customs formalities in respect
of goods consigned to Pakistan, Afghanistan or Bangladesh. They will
collect the GR forms in respect of goods loaded at these stations so that
the goods may move straight on to the foreign country without further
formalities at the border. The list of designated Railway Stations is
obtainable from Railways. In respect of goods loaded at stations other
than the designated stations, exporters must arrange to present GR forms
to the Customs Officer at the Border Land Customs Station where
Customs formalities are completed.
Pp forems
ART C - AUTHORISED DEALERS' OBLIGATIONS
Countersignature on PP forms
6C.1 PP Forms will be presented by the exporter to an authorised dealer for
countersignature.
Authorised dealers should countersign PP forms after ensuring that the parcel is being
addressed to their branch or correspondent bank in the country of import. The concerned
overseas branch or correspondent should be instructed to deliver the parcel to consignee against
payment or acceptance of relative bill. Authorised dealers may, however, countersign PP forms
covering parcels addressed direct to the consignees, provided -
(a) an irrevocable letter of credit for the full value of the export has been opened in
favour of exporter and has been advised through authorised dealer concerned;
or
(b) the full value of the shipment has been received in advance by the exporter
through an authorised dealer;
or
(c) the authorised dealer is satisfied, on the basis of the standing and track record of
the exporter and the arrangements made for realisation of the export proceeds,
that he could do so.
In such cases, particulars of advance payment/letter of credit/authorised dealer's
certification of standing etc. of the exporter should be furnished on the form under
proper authentication. Any alteration in the name and address of consignee on the PP
form should also be authenticated by the authorised dealer under his stamp and
signature.
Exports by Government/Public Sector Undertakings, etc.
6C.1A As per the procedure laid down by Government of India, export contracts by
Central/State
Governments, Central & State Public Sector undertakings and autonomous bodies
should
be made on CIF basis only in respect of transportation of Government owned/controlled cargo
by foreign flag vessels (i.e. ocean transportation of cargo). In case of the contracts entered into
on terms other than CIF, a `No Objection Certificate' from the Ministry of Surface Transport
(MOST), Government of India is required to be obtained. While negotiating export documents
on behalf of aforesaid exporters, authorised dealers should ensure that necessary No Objection
Certificate from MOST has been obtained by the concerned exporters in cases of the exports
made on terms other than CIF.
Delay in Submission of Shipping Documents by Exporters
6C.2 In cases where exporters present documents pertaining to exports after the
prescribed period of twenty one days from date of export (see paragraph 6B.1),
authorised dealers may handle them without prior approval of Reserve Bank, provided they are
satisfied that it was due to reasons beyond the control of exporters.
Check-list for Scrutiny of Forms
6C.3 (i) Authorised dealer should ensure that the number of the duplicate copy of
a GR form presented to them is the same as that of the original which is usually recorded on the
Bill of Lading and the duplicate has been duly verified and authenticated by appropriate
Customs authorities.
(ii) Authorised dealers may accept Bill of Lading/Airway Bill issued on 'freight
prepaid'
basis where the sale contract is on f.o.b., f.a.s. etc. basis provided the amount of freight has been
included in the invoice and the bill. Conversely, in the case of c.i.f., c.&f. etc. contracts where
freight is sought to be paid at destination, authorised dealers should ensure that the deduction
made is only to the extent of freight declared on GR form or the actual amount of freight
indicated on the Bill of Lading/Airway Bill, whichever is less. Likewise, where the marine
insurance is taken by the exporters on buyer's account, authorised dealer should verify that the
actual amount paid is received from the buyer through invoice and the bill.
(iii ) Authorised dealers should ensure that the documents submitted do not reveal any
material inter se discrepancies in regard to description of goods exported, export value or
country of destination.
NOTES: A. The export realisable value may be more than what was originally
declared to/accepted by Customs on the GR form in certain
circumstances such as where in c.i.f. or c.&f. contracts, part or
whole of any freight increase taking place after the contract was
concluded is agreed to be borne by buyers or where as a result of
subsequent devaluation of the currency of the contract, buyers have
agreed to an increase in price.
B. In certain lines of export trade, final settlement of price may be
dependent on the results of quality analysis of samples drawn at the
time of shipment; but the results of such analysis will become
available only after the shipment has been made. Sometimes,
contracts may provide for payment of penalty for late shipment of
goods in conformity with trade practice concerning the commodity.
In these cases, while exporters declare to Customs the full export
value based on the contract price, invoices submitted along with
shipping documents for negotiation/collection may reflect a different
value arrived at after taking into account the results of analysis of
samples or late shipment penalty, as the case may be.
As such variations stem from the terms of contract, authorised
dealers may accept them on production of documentary evidence
after verifying that the arithmetical calculations showing the
variations are correct and are based on the terms of underlying
contracts.
Transfer of Documents
6C.4 Authorised dealers may accept from their constituents for negotiation or collection,
shipping documents covering exports even where the original declaration on
GR forms had been signed by some other party provided the constituent drawing the bill
countersigns on the duplicate copy of GR form, the undertaking to deliver to the authorised
dealer the foreign exchange proceeds of the shipment within the prescribed period. In case the
constituent exporter is one who is placed on exporters' caution list by Reserve Bank, authorised
dealer may negotiate the documents provided the shipment is covered by advance remittance or
by irrevocable letter of credit where the documents conform strictly to the terms of the letter of
credit.
Trade Discount
6C.5 (i) Bills in respect of exports by sea or air which fall short of the value declared on
GR forms on account of trade discount may be accepted for negotiation or collection
by
authorised dealers only if the discount has been declared by exporter on relative GR form at the
time of shipment and accepted by Customs.
(ii) In case of exports by post parcel against declaration on PP forms, post offices
will not undertake scrutiny of trade discount deductions, if any, declared on the forms.
Authorised dealers may accept deductions towards trade discount in such cases, provided the
discount declared is in conformity with the normal level of discount usually offered in the
particular line of export trade.
Advance Payments against Exports
6C.6 (i) Exporters may receive advance payments (with our without interest) from
their overseas buyers provided (a) the shipments are made within one year from
the date of receipt of advance payment, (b) the rate of interest payable does not exceed LIBOR +
100 basis points and (c) the shipments made against the advance payments are monitored by the
authorised dealer through whom the advance payment is received. The appropriations made
against every shipment must be endorsed on the original copy of the inward remittance
certificate issued for advance remittance.
(ii) In cases where exporters are unable to make shipments against advance
payments received by them for exports, authorised dealers may allow remittances towards
refund thereof (partly or fully), provided the unutilised portion of the advance is refunded within
a period of one year of its receipt on production of (a) a Chartered Accountant's certificate that
the amount is still outstanding in the books of the exporter and has not been adjusted in any
manner and (b) a declaration that the advance was not against exports to be made in pursuance
of any undertaking given to Import Trade Control authorities in regard to fulfilment of export
obligation. If, however, the advance payment was received in fulfilment of export obligation, the
refund may be allowed on production of a 'No Objection Certificate' from Import Trade Control
authorities for refund of the amount. The inward remittance certificate issued at the time of
receipt of advance payment should be called for and cancelled/suitably endorsed.
NOTE: If a portion of advance payment against exports credited to EEFC account is
to be refunded, the refund should be allowed by debit to the EEFC account in
proportion to the amount originally credited to the account. Where the
balance in the EEFC account is insufficient to cover the proportionate
amount originally credited to EEFC account, exporters should be advised to
arrange replenishment of funds from EEFC accounts maintained with other
branches/authorised dealers. Purchase of foreign exchange from the market
may be allowed only after utilising balances held in exporter's all EEFC
accounts. For this purpose, a suitable declaration may be obtained from the
exporter concerned.
(iii) Authorised dealers freely grant pre-shipment advances against `Red clause'
letters of credit in favour of their exporter-constituents. Advances made by the letter of credit
opening bank will, however, be treated as advance remittances against exports.
Part Drawings
6C.7 In certain lines of export trade, it is the practice of exporters not to draw bills for the
full invoice value of the goods but to leave a small part undrawn for payment after
adjustment due to differences in weight, quality, etc. ascertained after arrival and inspection,
weighment or analysis of the goods. In such cases, authorised dealers may negotiate bills,
provided -
(a) undrawn balance is in conformity with the normal level of balance left undrawn
in the particular line of export trade, subject to a maximum of 10 per cent of the
full export value;
and
(b) an undertaking is obtained from exporter that he will surrender/account for the
balance proceeds of the shipment within the period prescribed for realisation.
Authorised dealers should obtain the above undertaking from exporter on the
duplicate copy of GR / PP form and should vigorously follow up such undertakings.
NOTE: In cases where exporter has not been able to arrange for repatriation of the
undrawn balance in spite of best efforts, authorised dealers, on being
satisfied with the bona fides of the case, may submit duplicate copies of GR /
PP forms to Reserve Bank duly certified for the amount actually realised,
provided the exporter has realised at least the value for which the bill was
initially drawn (excluding undrawn balances) or 90% of the value declared
on GR / PP form, whichever is more and a period of one year has elapsed fro
Soft taxes
PART D - EXPORT OF COMPUTER SOFTWARE
Declaration of Software Exports
6D.1 Export of software is undertaken in physical form i.e. software prepared on magnetic
tapes and paper media as well as in non-physical form i.e. direct transmission abroad
through
dedicated earth stations/satellite links. As far as export of software in physical form is concerned
the procedure relating to declaration of shipments on GR / PP forms, handling of export
documents by authorised dealers and other allied matters is the same as applicable to export of
other goods. Export of software, in non-physical form including Video/TV software and all other
types of software products/packages, should be declared on SOFTEX form. Each set of
SOFTEX forms comprises three copies marked Original, Duplicate and Triplicate which carry
an identical pre-printed serial number. All the three forms in each set should be completed and
the entire set submitted for the purpose of valuation together with relevant documents to the
officials of Department of Electronics (DOE), Government of India.
The valuation of exports declared on SOFTEX form will be done by the designated official/s of
the Department of Electronics (DOE) at the Software Technology Parks of India (STPI). The
SOFTEX form of exporters located outside STPI as also forms in respect of export of video/TV
software will also be certified by designated official/s at the nearest STPI. DOE have made
necessary arrangement for certification/valuation of the Video/TV software declared on
SOFTEX form with the Ministry of Information and Broadcasting, Government of India, once in
a week at the STPI. The valuation of exports declared on SOFTEX form by Units located in
Export Processing Zones will be done by the designated authority of the Export Processing Zone.
(i) After certifying all the three copies of the SOFTEX form, the designated officials of
Government of India at STPI and designated authorities of Export Processing Zones will forward
the original directly to the nearest office of the Exchange Control Department of Reserve Bank
the day it is received or the next day and return the duplicate to the exporter. The triplicate will
be retained by the Department of Electronics for their record.
(ii) Within 21 days form the date of certification of the SOFTEX form, the exporter should
submit the duplicate copy together with a copy of each of the supporting documents to the
authorised dealer for negotiation/collection. The duplicate copy of the form together with
documents will be retained by the authorised dealer till full export value declared on the form or
as certified by the designated officials at STPI, whichever is higher has been realised and
repatriated to India and thereafter will be submitted to the Reserve Bank duly certified under
cover of an appropriate R Return along with a copy/ies of invoice/s.
(iii) After the documents have been negotiated/sent for collection, authorised dealers should
report the transaction to Reserve Bank in a fortnightly statement in form ENC under the cover of
appropriate R Return. Entries in the ENC statement should be made in chronological order of the
transactions as recorded in the internal register (Export Bills Register) of the authorised dealer.
(i) In respect of long duration contracts involving series of transmissions, the exporter should bill
their overseas clients periodically, i.e. at least once a month, or on reaching the 'milestone' as
provided in the contract entered into with the overseas client and the last invoice/bill should be
raised not later than 15 days form the date of completion of the contract. It would be in order for
the exporters to submit a combined SOFTEX form for all the invoices raised on a particular
overseas client, including advance remittances received in a month.
(ii) In respect of contracts involving only 'one shot operation', the invoice/bill should be raised
within 15 days from the date of transmission.
(iii) The exporter should submit SOFTEX form to the concerned official of Government of India
at STPI for valuation/certification not later than 30 days from the date of invoice/the date of last
invoice raised in a month, as indicated above.
(iv) The invoices raised on overseas clients as at (i) to (iii) above will be subject to valuation of
export value declared on SOFTEX form by the designated official of Government of India (cf.
paragraph 6D.2 above) and consequent amendment made in the invoice value, if necessary.
The full value of the software exported as declared on theSOFTEX form or as certified by the
official of Government of India at STPI, whichever is higher should be repatriated to India on
due date of payment or within 180 days from the date of invoice, whichever is earlier in the
manner prescribed in Rule 9 of the Foreign Exchange Regulation Rules, 1974.
PART E - REMITTANCES CONNECTED WITH
EXPORTS
General
6E.1 Exporters are permitted to retain up to 50% (70% in the case of 100% EOUs/Units
located in EPZ/Software Technology Parks/Electronic Hardware Technology Parks) of
the receipts from
export of goods in a foreign currency account with an authorised dealer in India titled 'Exchange
Earners' Foreign Currency (EEFC) account' (opened in terms of provisions contained in Chapter
14). The account may be maintained in any permitted currency and in any form [current, savings
(without cheque facility) or term deposit account]. The balances in these accounts may be
utilised for all bona fide payments of the account holder for purposes listed in Annexure I to
Chapter 14 subject to the production, to the authorised dealer, of the necessary documentary
evidence in support of the amount to be remitted (See paragraph 14D.4). Exporters maintaining
foreign currency accounts in terms of paragraph 6A.12 are not allowed to maintain EEFC
accounts.
NOTE: Release of exchange towards charges for advertisements on overseas TV media,
by debit to the EEFC Account, will be subject to the following
conditions/documentation:
(a) An application in form ADV giving brief description of advertisement
against item 5 of the form.
(b Exporter's declaration at the end o
)
f form ADV to the effect that the advertisement is aimed at promoting their exports.
(c) Bill/Invoice from the overseas TV company as also their confirmation that
the advertisement has already been telecast on their media, is produced.
(d) The amount of agency commission, if any, due to the Indian agent of
overseas beneficiary should be deducted before allowing the remittance.
(e) No advance remittance should be allowed.
(f) Production of Undertaking/certificate regarding payment of Income-tax
(cf. Paragraph 3B.10).
Agency Commission on Exports
6E.2 (i) Authorised dealers may allow payment of commission, either by remittance or by
deduction from invoice value, on application submitted by the exporter. The application,
by letter, should give particulars such as Importer-Exporter code number, customs/shipping bill
number and date, name of commodity, name and address of buyer/agent and export value and
should be supported by an attested copy of invoice and documentary evidence in support of the
amount to be remitted. The remittance may be allowed subject to the following conditions:
(a) (a) Amount of commission has been declared on GR / PP / SOFTEX form
and accepted by Custom authorities or Department of Electronics,
Government of India as the case may be. In cases where the commission has
not been declared on GR / PP / SOFTEX form, remittance thereof may be
allowed after satisfying about the reasons adduced by the exporter for not
declaring commission on Export Declaration Form, provided a valid
agreement/written understanding between the exporter and/or
agent/beneficiary for payment of commission subsists.
(b) Rate of commission does not exceed 12.5% of invoice value.
(c) Commission sought to be remitted is not on export of a canalised item,
project exports, or exports financed under lines of credit extended by
Government of India or Exim Bank, or exports made by Indian partners
towards equity participation in an overseas joint venture/wholly owned
subsidiary.
(d) The relative shipment has already been made.
(ii) Authorised dealers may allow payment of commission by Indian exporters, in
respect of their exports covered under counter trade arrangement through Escrow Accounts
designated in U.S. dollar, subject to the following conditions;-
(a) The payment of commission satisfies the conditions as at (a) to (d) stipulated
in paragraph 6E.2(i) above.
(b) The commission is not payable to Escrow Account holders themselves.
(c) The commission should not be allowed by deduction from the invoice value.
Overprice
6E.3 Overprice arrangements by exporters are prohibited and no remittance towards overprice
on exports will be permitted by Reserve Bank. Cases having exceptional features may be
referred to Reserve Bank explaining why the exporter is unable to remunerate overseas
intermediary by payment of agency commission instead of overprice.
Export Claims
6E.4 Authorised dealers are permitted to remit export claims, by exporters, on application by
letter containing particulars such as Importer-Exporter code number, GR / PP form
number, date of
shipment, name of commodity, invoice value, name and address of claimant, nature and amount
of claim as also documentary evidence in support of the claim, provided-
(a) the amount does not exceed 15% of invoice value;
and
(b) the relative export proceeds have already been realised and repatriated to India.
In case of exporters who have been in the export business for more than three years,
remittances may be allowed without any percentage ceiling, provided-
(a) the exporter is not on the Exporters' caution list of Reserve Bank;
and
(b) his track record is satisfactory (cf. para 6C.13)
In all such cases of remittances, the exporter should be advised to surrender
proportionate
incentives, if any, received by him.
Sdf forms
Genral provision of export import in documatation
EXPORTS
General
6E.1 Exporters are permitted to retain up to 50% (70% in the case of 100% EOUs/Units
located in EPZ/Software Technology Parks/Electronic Hardware Technology Parks) of
the receipts from
export of goods in a foreign currency account with an authorised dealer in India titled 'Exchange
Earners' Foreign Currency (EEFC) account' (opened in terms of provisions contained in Chapter
14). The account may be maintained in any permitted currency and in any form [current, savings
(without cheque facility) or term deposit account]. The balances in these accounts may be
utilised for all bona fide payments of the account holder for purposes listed in Annexure I to
Chapter 14 subject to the production, to the authorised dealer, of the necessary documentary
evidence in support of the amount to be remitted (See paragraph 14D.4). Exporters maintaining
foreign currency accounts in terms of paragraph 6A.12 are not allowed to maintain EEFC
accounts.
NOTE: Release of exchange towards charges for advertisements on overseas TV media,
by debit to the EEFC Account, will be subject to the following
conditions/documentation:
(a) An application in form ADV giving brief description of advertisement
against item 5 of the form.
(b Exporter's declaration at the end o
)
f form ADV to the effect that the advertisement is aimed at promoting their exports.
(c) Bill/Invoice from the overseas TV company as also their confirmation that
the advertisement has already been telecast on their media, is produced.
(d) The amount of agency commission, if any, due to the Indian agent of
overseas beneficiary should be deducted before allowing the remittance.
(e) No advance remittance should be allowed.
(f) Production of Undertaking/certificate regarding payment of Income-tax
(cf. Paragraph 3B.10).
Agency Commission on Exports
6E.2 (i) Authorised dealers may allow payment of commission, either by remittance or by
deduction from invoice value, on application submitted by the exporter. The application,
by letter, should give particulars such as Importer-Exporter code number, customs/shipping bill
number and date, name of commodity, name and address of buyer/agent and export value and
should be supported by an attested copy of invoice and documentary evidence in support of the
amount to be remitted. The remittance may be allowed subject to the following conditions:
(a) (a) Amount of commission has been declared on GR / PP / SOFTEX form
and accepted by Custom authorities or Department of Electronics,
Government of India as the case may be. In cases where the commission has
not been declared on GR / PP / SOFTEX form, remittance thereof may be
allowed after satisfying about the reasons adduced by the exporter for not
declaring commission on Export Declaration Form, provided a valid
agreement/written understanding between the exporter and/or
agent/beneficiary for payment of commission subsists.
(b) Rate of commission does not exceed 12.5% of invoice value.
(c) Commission sought to be remitted is not on export of a canalised item,
project exports, or exports financed under lines of credit extended by
Government of India or Exim Bank, or exports made by Indian partners
towards equity participation in an overseas joint venture/wholly owned
subsidiary.
(d) The relative shipment has already been made.
(ii) Authorised dealers may allow payment of commission by Indian exporters, in
respect of their exports covered under counter trade arrangement through Escrow Accounts
designated in U.S. dollar, subject to the following conditions;-
(a) The payment of commission satisfies the conditions as at (a) to (d) stipulated
in paragraph 6E.2(i) above.
(b) The commission is not payable to Escrow Account holders themselves.
(c) The commission should not be allowed by deduction from the invoice value.
Overprice
6E.3 Overprice arrangements by exporters are prohibited and no remittance towards overprice
on exports will be permitted by Reserve Bank. Cases having exceptional features may be
referred to Reserve Bank explaining why the exporter is unable to remunerate overseas
intermediary by payment of agency commission instead of overprice.
Export Claims
6E.4 Authorised dealers are permitted to remit export claims, by exporters, on application by
letter containing particulars such as Importer-Exporter code number, GR / PP form
number, date of
Other remittances
6E.5 Authorised dealers may effect, on behalf of their exporter constituents, remittances
connected with exports like controlling charges, expenses incurred on
dishonoured/unaccepted export
bills, legal expenses related to trade disputes, testing charges etc. provided adequate supporting
documents are submitted by the applicants.
Refund of Export Proceeds
6E.6 Refund of export proceeds in respect of goods exported from India may be allowed by
authorised dealers through whom the proceeds were originally received, provided such
goods are reimported into India on account of poor quality, etc. and provided satisfactory
documentary evidence regarding reimport of goods into India viz., Exchange Control Copy of
Bill of Entry, or postal wrappers and reasons for re-export of the goods by the foreign buyer are
produced. In all such cases exporters should be advised to surrender the proportionate incentives
availed of, if any, against the relevant export.
(iii) Authorised dealers may sell foreign currency notes and coins to travellers
proceeding abroad only in conformity with the provisions of Chapter 3 of the Manual. Foreign
currency notes/coins thus acquired will be allowed by Customs to be taken out of India on the
strength of the relative endorsement made by an authorised dealer in the traveller's passport.
Export of cheques, etc. by Authorised Dealers and Others
6G.4 General permission has been granted by Reserve Bank under its Notification No.
FERA.36/76-RB dated 10th May 1976 (as amended) to:
(a) authorised dealers to send out of India foreign currency in the form of
currency notes, coins, cheques, drafts or bills of exchange acquired by them
in the normal course of their business and within the terms of their
authorisation, and
(b) foreign citizens in or resident in India, but not permanently resident therein
as also resident Indians maintaining foreign currency accounts abroad in
pursuance of Notification No. FERA.116/92-RB dated 7th September 1992,
to take or send out of India cheques drawn on their foreign currency
accounts.
Export of Securities
6G.5 Export of securities to any place outside India requires permission of Reserve Bank.
Persons in India who are holders of foreign securities and wish to send the securities to
banks or agents
abroad for purposes of sale, transfer, etc. should apply to Reserve Bank through an authorised
dealer for the necessary export permit. Permission for export of foreign securities will be
granted, provided the authorised dealer gives an undertaking in the case of sale that the foreign
currency proceeds of the securities sold will be repatriated to India and in the case of transfer
that the securities after transfer will be received back in India within a reasonable period. In
regard to rupee securities held by non-residents, general permission for export of the
share/debenture certificates is granted by Reserve Bank at the time of granting approval for the
non-resident investment.
B. Unit Trust of India has been granted general permission by Reserve Bank
to export certificates covering units purchased by non-resident investors
from out of foreign exchange remittances in India or from their non-
resident accounts in India.
Genral provision of export and import
ENERAL PROVISIONS REGARDING IMPORTS AND EXPORTS
Exports and 2.1 Exports and Imports shall be free, except in cases where
they are regulated by the provisions of this Policy or any
Imports free other law for the time being in force. The itemwise export
and import policy shall be, as specified in ITC(HS)
unless regulated published and notified by Director General of Foreign
Trade, as amended from time to time.
Compliance with 2.2 Every exporter or importer shall comply with the
provisions of the Foreign Trade (Development and
Laws Regulation) Act, 1992, the Rules and Orders made
thereunder, the provisions of this Policy and the terms
and conditions of any licence/certificate/permission
granted to him, as well as provisions of any other law for
the time being in force. All imported goods shall also be
subject to domestic Laws, Rules, Orders, Regulations,
technical specifications, environmental and safety norms
as applicable to domestically produced goods. No import
or export of rough diamonds shall be permitted unless
the shipment parcel is accompanied by Kimberley Process
(KP) Certificate required under the procedure specified by
the Gem & Jewellery Export Promotion Council (GJEPC).
Interpretation of Policy 2.3 If any question or doubt arises in respect of the
interpretation of any provision contained in this Policy, or
regarding the classification of any item in the ITC(HS) or
Handbook (Vol.1) or Handbook (Vol.2), or Schedule Of
DEPB Rate the said question or doubt shall be referred to
the Director General of Foreign Trade whose decision
thereon shall be final and binding.
Restricted Goods 2.7 Any goods, the export or import of which is restricted
under ITC(HS) may be exported or imported only in
accordance with a licence/ certificate/ permission or a
public notice issued in this behalf.
State Trading 2.11 Any goods, the import or export of which is governed
through exclusive or special privileges granted to State
Trading Enterprise(s), may be imported or exported by
the State Trading Enterprise(s) as specified in the
ITC(HS) Book subject to the conditions specified therein.
The Director General of Foreign Trade may, however,
grant a licence/certificate/permission to any other person
to import or export any of these goods.
In respect of goods the import or export of which is
governed through exclusive or special privileges granted
to State Trading Enterprise(s), the State Trading
Enterprise(s) shall make any such purchases or sales
involving imports or exports solely in accordance with
commercial considerations, including price, quality,
availability, marketability, transportation and other
conditions of purchase or sale. These enterprises shall
act in a non discriminatory manner and shall afford the
enterprises of other countries adequate opportunity, in
accordance with customary business practices, to
compete for participation in such purchases or sales.
Trade with Russia 2.15 In the case of trade with Russia under the Debt
Repayment Agreement, the Director General of Foreign
under Debt- Trade may issue, from time to time, such instructions or
frame such schemes as may be required, and anything
contained in this Policy, in so far as it is inconsistent with
Repayment such instructions or schemes, shall not apply.
Agreement
Actual User 2.16 Capital goods, raw materials, intermediates,
components, consumables, spares, parts, accessories,
Condition instruments and other goods, which are importable
without any restriction, may be imported by any person.
However, if such imports require a licence/
certificate/permission, the actual user alone may import
such goods unless the actual user condition is specifically
dispensed with by the licensing authority.
Second Hand Goods 2.17 All second hand goods shall be restricted for imports and
may be imported only in accordance with the provisions
of this Policy, ITC(HS), Handbook (Vol.1), Public Notice
or a licence/certificate/permission issued in this behalf.
Import of samples 2.18 Import of samples shall be governed by the provisions
given in Handbook (Vol.1).
Import of Gifts 2.19 Import of gifts shall be permitted where such goods are
otherwise freely importable under this Policy. In other
cases, a Customs Clearance Permit (CCP) shall be
required from the DGFT.
Passenger Baggage 2.20 Bonafide household goods and personal effects may be
imported as part of passenger baggage. Samples of such
items that are otherwise freely importable under this
Policy may also be imported as part of passenger
baggage without a licence/certificate/permission.
Exporters coming from abroad are also allowed to import
drawings, patterns, labels, price tags, buttons, belts,
trimming and embellishments required for export, as part
of their passenger baggage without a
licence/certificate/permission.
Import on Export basis 2.21 New or second hand capital goods, equipments,
components, parts and accessories, containers meant for
packing of goods for exports, jigs, fixtures, dies and
moulds
1. AS AN INDIAN COMPANY
a. Joint Ventures; or
b. Wholly Owned Subsidiaries
1. a) Joint Venture With An Indian Foreign Companies can set up their operations in India by forging
Partner strategic alliances with Indian partners.
1. b) Wholly Owned Subsidiary Foreign companies can also set up wholly owned subsidiary in
Company sectors where 100% foreign direct investment is permitted under
the FDI policy.
1. AS AN INDIAN COMPANY
c. Joint Ventures; or
d. Wholly Owned Subsidiaries
1. a) Joint Venture With An Indian Foreign Companies can set up their operations in India by forging
Partner strategic alliances with Indian partners.
1. b) Wholly Owned Subsidiary Foreign companies can also set up wholly owned subsidiary in
Company sectors where 100% foreign direct investment is permitted under
the FDI policy.
2. AS A FOREIGN COMPANY
2. a) Liaison Office/ Representative Liaison office acts as a channel of communication between the
Office principal place of business or head office and entities in India.
Liaison office cannot undertake any commercial activity directly or
indirectly and cannot, therefore, earn any income in India. Its role is
limited to collecting information about possible market
opportunities and providing information about the company and its
products to prospective Indian customers. It can promote
export/import from/to India and also facilitate technical/financial
collaboration between parent company and companies in India.
i. Export/Import of goods
ii. Rendering professional or consultancy services
iii. Carrying out research work, in which the parent company is
engaged.
iv. Promoting technical or financial collaborations between
Indian companies and parent or overseas group company.
v. Representing the parent company in India and acting as
buying/selling agents in India.
vi. Rendering services in Information Technology and
development of software in India.
vii. Rendering technical support to the products supplied by
the parent/ group companies.
viii. Foreign airline/shipping company.
Growing Successfully
India limited companies are required by law to place on public record their statutory annual
accounts, which must often be audited. These must comply with a range of detailed disclosure
requirements set out in the Indian Companies Act. D. Batra & Co. , Chartered Accountants
ensure that all disclosure requirements are met, and are authorised to carry out independent
statutory audits. Our approach to audit concentrates effort where its most needed, keeping costs
to a minimum and providing a useful management tool. Our advice isnt just an annual event
clients rely on our experience all year round. As your profits grow, we advise on corporate tax
planning and compliance, and will negotiate with the Inland Revenue on your behalf. For more
about our Legal & Tax compliance service click here. Whenever cross border intra group
transactions arise, the difficult issue of transfer pricing is never far behind. We can help you to
determine fair prices and ensure that the documentation required by the tax authorities is in
place. Financial and tax planning for business owners and key employees is just as important to
us our personal tax, financial planning and trust departments aim to maximise your financial
growth and minimise tax bills. Our administrators can perform credit checks on potential
customers, assist with customs and shipping documentation and arrange all the appropriate
insurance. As you establish a India presence, we can follow up on our initial market strategy with
regular marketing reviews.
The Advantages
Our service list allows you to pick and choose to specifically match your needs. Our outsourcing
capability allows you to achieve India fiscal compliance cost-effectively. We look after the
peripheral issues leaving your company time to concentrate on whats really important:
succeeding in the India.
Locatng buyer
ges in the export industry have occurred in the last decade and are not reflected in the
content below.
The most common methods of exporting are indirect selling and direct selling (see
Chapter 1). In indirect selling, an export intermediary such as an export
management company (EMC) or an export trading company (ETC) normally
assumes responsibility for finding overseas buyers, shipping products, and getting
paid. In direct selling, the U.S. producer deals directly with a foreign buyer. The
paramount consideration in determining whether to market indirectly or directly is the
level of resources a company is willing to devote to its international marketing effort.
Other factors to consider when deciding whether to market indirectly or directly
include:
1. Passively filling orders from domestic buyers who then export the
product. These sales are indistinguishable from other domestic sales as far
as the original seller is concerned. Someone else has decided that the
product in question meets foreign demand. That party takes all the risk and
handles all of the exporting details, in some cases without even the
awareness of the original seller. (Many companies take a stronger interest in
exporting when they discover that their product is already being sold over-
seas.)
2. Seeking out domestic buyers who repre-sent foreign end users or
customers. Many U.S. and foreign corporations, general contractors,
foreign trading companies, foreign government agencies, foreign distributors
and retailers, and others in the United States purchase for export. These
buyers are a large market for a wide variety of goods and services. In this
case a company may know its product is being exported, but it is still the
buyer who assumes the risk and handles the details of exporting.
3. Exporting indirectly through intermediaries. With this approach, a
company engages the services of an intermediary firm capable of finding
foreign markets and buyers for its products. EMCs, ETCs, international
trade consultants, and other intermediaries can give the exporter access to
well-established expertise and trade contacts. Yet, the exporter can still
retain considerable control over the process and can realize some of the
other benefits of exporting, such as learning more about foreign competitors,
new technologies, and other market opportunities.
4. Exporting directly. This approach is the most ambitious and difficult, since
the exporter personally handles every aspect of the exporting process from
market research and planning to foreign distribution and collections.
Consequently, a significant commitment of management time and attention
is required to achieve good results. However, this approach may also be the
best way to achieve maximum profits and long-term growth. With
appropriate help and guidance from the Department of Commerce, state
trade offices, freight forwarders, international banks, and other service
groups, even small or medium-sized firms can export directly if they are able
to commit enough staff time to the effort. For those who cannot make that
commitment, the services of an EMC, ETC, trade consultant, or other
qualified intermediary are indispensable.
If the nature of the company's goals and resources makes an indirect method of
exporting the best choice, little further planning may be needed. In such a case, the
main task is to find a suitable intermediary firm that can then handle most export
details. Firms that are new to exporting or are unable to commit staff and funds to
more complex export activities may find indirect methods of exporting more
appropriate.
However, using an EMC or other intermediary does not exclude all possibility of
direct exporting for your firm. For example, your company may try exporting directly
to such "easy" nearby markets as Canada, Mexico, or the Bahamas while letting an
EMC handle more ambitious sales to Egypt or Japan. You may also choose to
gradually increase the level of direct exporting later, after experience has been
gained and sales volume appears to justify added investment.
Consulting advisers before making these decisions can be helpful. The next chapter
presents information on a variety of organizations that can provide this type of help -
in many cases, at no cost.
Distribution Considerations
Which channels of distribution should the firm use to market its products
abroad?
Where should the firm produce its products and how should it distribute
them in the foreign market?
What types of representatives, brokers, wholesalers, dealers, distributors, or
end-use customers, and so forth should the firm use?
What are the characteristics and capabilities of the available intermediaries?
Should the assistance of an EMC or ETC be obtained?
Your answers from Table 1 in Chapter 1 can help you determine if indirect or
direct exporting methods are best for your company.
Indirect Exporting
The principal advantage of indirect marketing for a smaller U.S. company is that it
provides a way to penetrate foreign markets without the complexities and risks of
direct exporting. Several kinds of intermediary firms provide a range of export
services. Each type of firm offers distinct advantages for your company.
Confirming Houses
Confirming houses or buying agents are finders for foreign firms that want to
purchase U.S. products. They seek to obtain the desired items at the lowest
possible price and are paid a commission by their foreign clients. In some cases,
they may be foreign government agencies or quasi-governmental firms empowered
to locate and purchase desired goods. An example is foreign government
purchasing missions.
One disadvantage of using an EMC is that a manufacturer may lose control over
foreign sales. Most manufacturers are properly concerned that their product and
company image be well maintained in foreign markets. An important way for a
company to retain sufficient control in such an arrangement is to carefully select an
EMC that can meet the company's needs and maintain close communication with it.
For example, a company may ask for regular reports on efforts to market its
products and may require approval of certain types of efforts, such as advertising
programs or service arrangements. If a company wants to maintain this type of
relationship with an EMC, it should negotiate points of concern before entering an
agreement, since not all EMCs are willing to comply with the company's concerns.
OETCA also maintains the Contact Facilitation Service (CFS) database, a listing of
U.S. producers of goods and services and of organizations that provide trade
facilitation services. Under a public-private sector arrangement, the CFS database is
published annually in a directory entitled The Export Yellow Pages. The directory
provides users with the names and addresses of banks, EMCs, ETCs, freight
forwarders, manufacturers, and service organizations and names the export
products or export-related services that these firms supply. By obtaining CFS
registration forms from Commerce EACs, firms can register in the database free of
charge and be listed in subsequent editions of The Export Yellow Pages.
If you are interested in additional information, contact the Office of Export Trading
Company Affairs, U.S. Department of Commerce, International Trade
Administration, Washington, DC 20230; telephone 202-482-5131.
Piggyback Marketing
Piggyback marketing is an arrangement in which one manufacturer or service firm
distributes a second firm's product or service. The most common piggy-backing
situation is when a U.S. company has a contract with an overseas buyer to provide a
wide range of products or services.
Often, this first company does not produce all of the products it is under contract to
provide, and it turns to other U.S. companies to provide the remaining products. The
second U.S. company thus piggybacks its products to the international market,
generally without incurring the marketing and distribution costs associated with
exporting. Successful arrangements usually require that the product lines be
complementary and appeal to the same customers.
Direct Exporting
The advantages of direct exporting for a U.S. company include more control over the
export process, potentially higher profits, and a closer relationship to the overseas
buyer and marketplace. However, these advantages do not come easily since the
U.S. company needs to devote more time, personnel, and corporate resources than
indirect exporting requires.
Sales Representatives
Overseas, a sales representative is the equivalent of a manufacturer's
representative in the United States. The representative uses the company's product
literature and samples to present the product to potential buyers. A representative
usually handles many complementary lines that do not conflict. The sales
representative usually works on a commission basis, assumes no risk or
responsibility, and is under contract for a definite period of time (renewable by
mutual agreement). The contract defines territory, terms of sale, method of
compensation, reasons and procedures for terminating the agreement, and other
details. The sales representative may operate on either an exclusive or a
nonexclusive basis.
Agents
The widely misunderstood term "agent" means a representative who normally has
authority, perhaps even a power of attorney, to make commitments on behalf of the
firm he or she represents. Firms in the United States and other developed countries
have stopped using the term and instead rely on the term "representative," since
agent can imply more than intended. It is important that any contract state whether
the representative or agent does or does not have legal authority to obligate the firm.
Distributors
The foreign distributor is a merchant who purchases goods from a U.S. exporter
(often at a substantial discount) and resells it for a profit. The foreign distributor
generally provides support and service for the product, thus relieving the U.S.
company of these responsibilities. The distributor usually carries an inventory of
products and a sufficient supply of spare parts and also maintains adequate facilities
and personnel for normal servicing operations. Distributors typically handle a range
of non-conflicting but complementary products. End users do not usually buy from a
distributor; they buy from retailers or dealers.
The terms and length of association between the U.S. company and the foreign
distributor are established by contract. Some U.S. companies prefer to begin with a
relatively short trial period and then extend the contract if the relationship proves
satisfactory to both parties.
Foreign Retailers
A company may also sell directly to foreign retailers, although in such transactions,
products are generally limited to consumer lines. The growth of major retail chains in
markets such as Canada and Japan has created new opportunities for this type of
direct sale. This method relies mainly on traveling sales representatives who directly
contact foreign retailers, although results might also be achieved by mailing
catalogs, brochures, or other literature. The direct mail approach has the benefits of
eliminating commissions, reducing traveling expenses, and reaching a broader
audience. For optimal results, a firm that uses direct mail to reach foreign retailers
should support it with other marketing activities.
American manufacturers with ties to major domestic retailers may also be able to
use them to sell abroad. Many large American retailers maintain overseas buying
offices and use these offices to sell abroad when practical.
The U.S. company should be aware that if a product is sold in such a direct fashion,
the company is responsible for shipping, payment collection, and product servicing
unless other arrangements are made. Unless the cost of providing these services is
built into the export price, a company could have a narrower profit than originally
intended.
A U.S. company may obtain much of this information from business associates who
currently work with foreign representatives. However, U.S. exporters should not
hesitate to ask potential representatives or distributors detailed and specific
questions. Suppliers have the right to explore the qualifications of those who
propose to represent them overseas. Well-qualified representatives will gladly
answer questions that help distinguish them from less-qualified competitors. Your
company should also consider other private-sector sources for credit checks of
potential business partners.
In addition, the U.S. company may wish to obtain at least two supporting business
and credit reports to ensure that the distributor or representative is reputable. By
using a second credit report from a different source, the U.S. firm may gain new or
more complete information. Reports from a number of companies are available from
commercial firms and from the Department of Commerce's International Company
Profiles (see Chapter 12). Commercial firms and banks are also sources of credit
information on overseas representatives. They can provide information directly or
from their correspondent banks or branches overseas. Directories of international
companies may also provide credit information on foreign firms.
If the U.S. company has the necessary information, it may wish to contact a few of
the foreign firm's existing U.S. clients to obtain an evaluation of the representative's
character, reliability, efficiency, and past performance. To protect itself against
possible conflicts of interest, it is also important for the U.S. firm to learn about other
product lines that the foreign firm represents.
Once the company has prequalified some foreign representatives, it may wish to
travel to the foreign country to observe the size, condition, and location of offices
and warehouses. In addition, the U.S. company should meet the sales force and try
to assess its strength in the marketplace. If traveling to each distributor or
representative is difficult, the company may decide to each of them at U.S. or at
worldwide trade shows.
Most representatives are interested in the company's pricing structure and profit
potential. Representatives are also concerned with the terms of payment, product
regulation, competitors and their market shares, the amount of support provided by
the U.S. firm (sales aids, promotional material, advertising, etc.), training for sales
and service staff, and the company's ability to deliver on schedule.
In the drafting of the agreement, special attention must be paid to safeguarding the
supplier's interests in cases where the representative proves less than satisfactory.
(See Chapter 8 for recommendations on specifying terms of law and arbitration).
It is vital to include an escape clause in the agreement, allowing the supplier to end
the relationship safely and cleanly if the representative does not fulfill the firm's
expectations. Some contracts specify that either party may terminate the agreement
with written notice 30, 60, or 90 days in advance. The contract may also spell out
Monday, 22 June 2009
Mate's receipts
The role of the Mate's receipts issued by the Master to the shipper is to prepare the bills of
lading. The Mate's receipts are returned back to the Master in exchange for the signed bills of
lading. (it is advisable for the Master to have a copy of all Mate's receipts on board to be able to
compare with the bills of lading presented for signature ). Obviously the description of the goods
in Mate's receipts should reflect the factual cargo being loaded. Otherwise Mate's receipts can be
claused before signing. The Mate's receipt is the evidence in its own right of the condition of the
goods as well as when same are received.
If the bills of lading can not be prepaired by the time of vessel's departure (e.g. the cargo has not
been sold yet), the Captain may be requested to authourise his agent and/or shippers to sign bills
of lading on his behalf. The Master issues a letter of authorisation to the agent and/or charterer,
and ensures that cargo description and the date of shipment are accurate in Mate's receips. He
also ensures that the mate's receipts contain all details and remarks that the bills of lading should
contain. (The letter of authorisation clearly states that the bills of lading shall be signed in
accordance with mate's reeipts. ) If the charterer and/or agent refuses to sign the bills of lading in
accordance with Mate's receipts (or accep the letter of authorisation), the Captain shall issue a
letter of protest and inform his management.
Insurance
Admiralty law
History
Amalfian Laws
Hanseatic League
Features
Freight rate
General average
Marine insurance
Marine salvage
Maritime lien
Ship mortgage
Ship registration
Ship transport
Shipping
Contracts of affreightment
Bill of lading
Charter-party
Types of charter-party
Bareboat charter
Demise charter
Time charter
Voyage charter
Parties
Carrier
Charterer
Consignee
Consignor
Shipbroker
Ship-manager
Ship-owner
Shipper
Stevedore
Judiciary
Admiralty court
International conventions
Hague-Visby Rules
Hamburg Rules
Rotterdam Rules
UNCLOS
International organisations
v
t
e
Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or
cargo by which property is transferred, acquired, or held between the points of origin and final
destination..
Cargo insurance discussed here is a sub-branch of marine insurance, though Marine also
includes Onshore and Offshore exposed property (container terminals, ports, oil platforms,
pipelines); Hull; Marine Casualty; and Marine Liability.
Contents
1 Origins of formal marine insurance
2 Practice
3 Protection and indemnity
4 Actual total loss and constructive total loss
5 Average
6 Excess, deductible, retention, co-insurance, and franchise
7 Tonners and chinamen
8 Specialist policies
9 Warranties and conditions
10 Salvage and prizes
11 Marine Insurance Act, 1906
12 See also
13 References
14 External links
15 Bibliography
The modern origins of marine insurance law in English law were in the law merchant, with the
establishment in England in 1601 of a specialized chamber of assurance separate from the other
Courts. Lord Mansfield, Lord Chief Justice in the mid-eighteenth century, began the merging of
law merchant and common law principles. The establishment of Lloyd's of London, competitor
insurance companies, a developing infrastructure of specialists (such as shipbrokers, admiralty
lawyers, bankers, surveyors, loss adjusters, general average adjusters, et al), and the growth of
the British Empire gave English law a prominence in this area which it largely maintains and
forms the basis of almost all modern practice. The growth of the London insurance market led to
the standardization of policies and judicial precedent further developed marine insurance law. In
1906 the Marine Insurance Act was passed which codified the previous common law; it is both
an extremely thorough and concise piece of work. Although the title of the Act refers to marine
insurance, the general principles have been applied to all non-life insurance.
In the 19th century, Lloyd's and the Institute of London Underwriters (a grouping of London
company insurers) developed between them standardized clauses for the use of marine insurance,
and these have been maintained since. These are known as the Institute Clauses because the
Institute covered the cost of their publication.
Within the overall guidance of the Marine Insurance Act and the Institute Clauses parties retain a
considerable freedom to contract between themselves.
Marine insurance is the oldest type of insurance. Out of it grew non-marine insurance and
reinsurance. It traditionally formed the majority of business underwritten at Lloyd's. Nowadays,
Marine insurance is often grouped with Aviation and Transit (cargo) risks, and in this form is
known by the acronym "MAT".
Practice
The Marine Insurance Act includes, as a schedule, a standard policy (known as the "SG form"),
which parties were at liberty to use if they wished. Because each term in the policy had been
tested through at least two centuries of judicial precedent, the policy was extremely thorough.
However, it was also expressed in rather archaic terms. In 1991, the London market produced a
new standard policy wording known as the MAR 91 form and using the Institute Clauses. The
MAR form is simply a general statement of insurance; the Institute Clauses are used to set out
the detail of the insurance cover. In practice, the policy document usually consists of the MAR
form used as a cover, with the Clauses stapled to the inside. Typically each clause will be
stamped, with the stamp overlapping both onto the inside cover and to other clauses; this practice
is used to avoid the substitution or removal of clauses.
Because marine insurance is typically underwritten on a subscription basis, the MAR form
begins: We, the Underwriters, agree to bind ourselves each for his own part and not one for
another [...]. In legal terms, liability under the policy is several and not joint, i.e., the
underwriters are all liable together, but only for their share or proportion of the risk. If one
underwriter should default, the remainder are not liable to pick his share of the claim.
Typically, marine insurance is split between the vessels and the cargo. Insurance of the vessels is
generally known as "Hull and Machinery" (H&M). A more restricted form of cover is "Total
Loss Only" (TLO), generally used as a reinsurance, which only covers the total loss of the vessel
and not any partial loss.
Cover may be on either a "voyage" or "time" basis. The "voyage" basis covers transit between
the ports set out in the policy; the "time" basis covers a period of time, typically one year, and is
more common.
A marine policy typically covered only three-quarter of the insured's liabilities towards third
parties. The typical liabilities arise in respect of collision with another ship, known as "running
down" (collision with a fixed object is an "harbour"), and wreck removal (a wreck may serve to
block a harbour, for example).
In the 19th century, shipowners banded together in mutual underwriting clubs known as
Protection and Indemnity Clubs (P&I), to insure the remaining one-quarter liability amongst
themselves. These Clubs are still in existence today and have become the model for other
specialized and noncommercial marine and non-marine mutuals, for example in relation to oil
pollution and nuclear risks.
Clubs work on the basis of agreeing to accept a shipowner as a member and levying an initial
"call" (premium). With the fund accumulated, reinsurance will be purchased; however, if the loss
experience is unfavourable one or more "supplementary calls" may be made. Clubs also typically
try to build up reserves, but this puts them at odds with their mutual status.
Because liability regimes vary throughout the world, insurers are usually careful to limit or
exclude American Jones Act liability.
The use of these terms is contingent on there being property remaining to assess damages, which
is not always possible in losses to ships at sea or in total theft situations. In this respect, marine
insurance differs from non-marine insurance, where the insured is required to prove his loss.
Traditionally, in law, marine insurance was seen as an insurance of "the adventure", with insurers
having a stake and an interest in the vessel and/or the cargo rather than simply an interest in the
financial consequences of the subject-matter's survival.
Average
The term "Average" has one meaning:
Average in Marine Insurance Terms is "an equitable apportionment among all the interested
parties of such an expense or loss."
1. General Average stands apart for Marine Insurance. In order for General Average to be properly
declared, 1) there must be an event which is beyond the shipowners control, which imperils the
entire adventure; 2) there must be a voluntary sacrifice, 3) there must be something saved.
The voluntary sacrifice might be the jettison of certain cargo, the use of tugs, or salvors, or
damage to the ship, be it, voluntary grounding, knowingly working the engines that will result in
damages.
"General Average" requires all parties concerned in the maritime venture
(Hull/Cargo/Freight/Bunkers) to contribute to make good the voluntary sacrifice. They share the
expense in proportion to the 'value at risk" in the adventure.
1. Co-insurance is the situation where an insured has under-insured, i.e., insured an item for less
than it is worth, average will apply to reduce the amount payable.
An average adjuster is a marine claims specialist responsible for adjusting and providing the
general average statement. An Average Adjuster in North America is a 'member of the
association of Average Adhjusters' http://www.usaverageadjusters.org
To insure the fairness of the adjustment an General Average adjuster is appointed by the
shipowner and paid by the insurer.
Coinsurance is a penalty imposed on the insured by the insurance carrier for under
reporting/declaring/insuring the value of tangible property or business income. The penalty is
based on a percentage stated within the policy and the amount under reported. As an example:
A vessel actually valued at $1,000,000 has an 80% coinsurance clause but is insured for only
$750,000. Since its insured value is less than 80% of its actual value, when it suffers a loss, the
insurance payout will be subject to the underreporting penalty. the insured will receive
750000/1000000th (75%) of the claim made less the deductible.
Specialist policies
Various specialist policies exist, including:
Newbuilding risks: This covers the risk of damage to the hull while it is under construction.
Yacht Insurance: Insurance of pleasure craft is generally known as "yacht insurance" and
includes liability coverage. Smaller vessels such as yachts and fishing vessels are typically
underwritten on a "binding authority" or "lineslip" basis.
War risks: General hull insurance does not cover the risks of a vessel sailing into a war zone. A
typical example is the risk to a tanker sailing in the Persian Gulf during the Gulf War. The war
risks areas are established by the London-based Joint War Committee, which has recently
moved to include the Malacca Straits as a war risks area due to piracy. If an attack is classified as
a "riot" then it would be covered by war-risk insurers.
Increased Value (IV): Increased Value cover protects the shipowner against any difference
between the insured value of the vessel and the market value of the vessel.
Overdue insurance: This is a form of insurance now largely obsolete due to advances in
communications. It was an early form of reinsurance and was bought by an insurer when a ship
was late at arriving at her destination port and there was a risk that she might have been lost
(but, equally, might simply have been delayed). The overdue insurance of the Titanic was
famously underwritten on the doorstep of Lloyd's.
Cargo insurance: Cargo insurance is underwritten on the Institute Cargo Clauses, with coverage
on an A, B, or C basis, A having the widest cover and C the most restricted. Valuable cargo is
known as specie. Institute Clauses also exist for the insurance of specific types of cargo, such as
frozen food, frozen meat, and particular commodities such as bulk oil, coal, and jute. Often
these insurance conditions are developed for a specific group as is the case with the Institute
Federation of Oils, Seeds and Fats Associations (FOFSA) Trades Clauses which have been agreed
with the Federation of Oils, Seeds and Fats Associations and Institute Commodity Trades Clauses
which are used for the insurance of shipments of cocoa, coffee, cotton, fats and oils, hides and
skins, metals, oil seeds, refined sugar, and tea and have been agreed with the Federation of
Commodity Associations.
A peculiarity of marine insurance, and insurance law generally, is the use of the terms condition
and warranty. In English law, a condition typically describes a part of the contract that is
fundamental to the performance of that contract, and, if breached, the non-breaching party is
entitled not only to claim damages but to terminate the contract on the basis that it has been
repudiated by the party in breach. By contrast, a warranty is not fundamental to the performance
of the contract and breach of a warranty, while giving rise to a claim for damages, does not
entitle the non-breaching party to terminate the contract. The meaning of these terms is reversed
in insurance law. Indeed, a warranty if not strictly complied with will automatically discharge the
insurer from further liability under the contract of insurance. The assured has no defense to his
breach, unless he can prove that the insurer,by his conduct has waived his right to invoke the
breach, possibility provided in section 34(3) of the Marine Insurance Act 1906 (MIA).
Furthermore in the absence of express warranties the MIA will imply them, notably a warranty to
provide a seaworthy vessel at the commencement of the voyage in a voyage policy (section
39(1)) and a warranty of legality of the insured voyage (section 41).[2]
At sea, a ship in distress will typically agree to "Lloyd's Open Form" with any potential salvor.
The Lloyd's Open Form is the standard contract, although other forms exist. The Lloyd's Open
Form is headed "No cure no pay"; the intention being that if the attempted salvage is
unsuccessful, no award will be made. However, this principle has been weakened in recent years,
and awards are now permitted in cases where, although the ship might have sunk, pollution has
been avoided or mitigated. In other circumstances the "salvor" may invoke the SCOPIC terms
(most recent and commonly used rendition is SCOPIC 2000) in contrast to the LOF (Lloyd's
Open Form) these terms mean that the salvor will be paid even if the salvage attempt is
unsuccessful. The amount the salvor receives is limited to cover the costs of the salvage attempt
and 15% above it. One of the main negative factors in invoking SCOPIC (on the salvors behalf)
is if the salvage attempt is successful the amount at which the salvor can claim under article 13
of LOF is discounted.
The Lloyd's Open Form, once agreed, allows salvage attempts to begin immediately. The extent
of any award is determined later; although the standard wording refers to the Chairman of
Lloyd's arbitrating any award, in practice the role of arbitrator is passed to specialist admiralty
QCs.
A ship captured in war is referred to as a prize, and the captors entitled to prize money. Again,
this risk is covered by standard policies.
17: imposes a duty on the insured of uberrimae fides (as opposed to caveat emptor), i.e., that
questions must be answered honestly and the risk not misrepresented.
18: the proposer of the insurer has a duty to disclose all material facts relevant to the
acceptance and rating of the risk. Failure to do so is known as non-disclosure or concealment
(there are minor differences in the two terms) and renders the insurance voidable by the
insurer.
33(3): If [a warranty] be not [exactly] complied with, then, subject to any express provision in
the policy, the insurer is discharged from liability as from the date of the breach of warranty, but
without prejudice to any liability incurred by him before that date.
34(2): where a warranty has been broken, it is no defence to the insured that the breach has
been remedied, and the warranty complied with, prior to the loss.
39(1): implied warranty that the vessel must be seaworthy at the start of her voyage and for
the purpose of it (voyage policy only).
39(5): no warranty that a vessel shall be seaworthy during the policy period (time policy).
However if the assured knowingly allows an unseaworthy vessel to set sail the insurer is not
liable for losses caused by unseasworthiness.
50: a policy may be assigned. Typically, a shipowner might assign the benefit of a policy to the
ship-mortgagor.
60-63: deals with the issues of a constructive total loss. The insured can, by notice, claim for a
constructive total loss with the insurer becoming entitled to the ship or cargo if it should later
turn up. (By contrast an actual total loss describes the physical destruction of a vessel or cargo.)
79: deals with subrogation, i.e., the rights of the insurer to stand in the shoes of an indemnified
insured and recover salvage for his own benefit.
Schedule 1 of the Act contains a list of definitions; schedule 2 contains the model policy
wording.
See also
History of insurance
Classification society
Legal definitions of wreckage
Inland marine insurance
References
1. ^ J. Franklin, The Science of Conjecture: Evidence and Probability Before Pascal (Baltimore: Johns
Hopkins University Press, 2001), 273-278.
2. ^ see also: Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd. ("The
Good Luck") [1991] 2 WLR 1279 and at 1294-5
External links
UK case relating to legal definitions (The No. 1 Dae Bu)
Bibliography
Birds, J. Birds' Modern Insurance Law. Sweet & Maxwell, 2004. (ISBN 0-421-87800-2)
Donaldson, Ellis, Wilson (Editor), Cooke (Editor), Lowndes and Rudolf: Law of General Average
and the York-Antwerp Rules. Sweet & Maxwell, 1990. (ISBN 0-420-46930-3)
John, A. H. "The London Assurance Company and the Marine Insurance Market of the
Eighteenth Century," Economica New Series, Vol. 25, No. 98 (May, 1958), pp. 126141 in JSTOR
Roover, Florence Edler de. "Early Examples of Marine Insurance," Journal of Economic History
Vol. 5, No. 2 (Nov., 1945), pp. 172200 in JSTOR
Wilson, DJ, Donaldson (1997). Lowndes and Rudolf: General Average and the York-Antwerp
Rules. British Shipping Law Library: Sweet & Maxwell. ISBN 0-421-56450-4.
[hide]
v
t
e
Insurance
Bond insurance
Directors and officers liability insurance
Fidelity bond
Business Professional liability insurance
Protection and indemnity insurance
Trade credit insurance
Umbrella insurance
Contents insurance
Earthquake insurance
Flood insurance
Home insurance
Residential Landlords insurance
Lenders mortgage insurance
Mortgage insurance
Property insurance
Title insurance
Aviation insurance
Computer insurance
Public auto insurance
Transport/
Marine insurance
Communication Satellite insurance
Travel insurance
Vehicle insurance
Reinsurance
Casualty insurance
Other
Crime insurance
Crop insurance
Group insurance
Liability insurance
No-fault insurance
Pet insurance
Terrorism insurance
Wage insurance
Weather insurance
Workers' compensation
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Insurance policy and
Insurance law
law Health Insurance Portability and Accountability Act
Category
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Transport of document
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Introduction
When items are transported either domestically or internationally the delivery must be
accompanied by the relevant documentation. The amount of documentation varies depending if
the shipment is within the US or to another country. As far as interstate transportation of goods
in the US, there are three documents that are of greatest importance; the bill of lading, freight
bill, and the Free On Board (FOB) terms of sale.
Bill of Lading
The bill of lading is the most important document that is used in transporting goods. The legal
definition of a bill of lading is a contract for the carriage of goods and a document of title to
them. It provides any and all information that the carrier will need to transport the items. It
contains the shipment origin and the contract terms for the transportation and is required by a
carrier before the shipment is taken.
The bill of lading should include the name and address of the consignor and consignee, and often
it will have the routing instructions for the carrier. It will contain a description of the goods to be
transported, the quantity for each of the commodities, and the commodity class and rate.
The bill of lading will contain the terms of contact for the movement of goods by a common
carrier. This is the contract between the shipper and the carrier to transport the goods on the bill
of lading to the consignee, i.e. the buyer. The bill of lading contract has nine terms;
1. Common Carrier Liability the carrier is liable for loss and damage of the goods being
transported, except if the goods were improperly packed by the shipper or if the goods
themselves would be liable to normal loss like through evaporation. The carrier is not liable for
acts of God, public enemy or public authority.
2. Delay in Transit the carrier cannot be held liable if the loss or damage is due to a delay in the
transportation of the goods.
3. Freight Not Accepted if the goods are not accepted within the time allocated, the carrier can
store the goods at a cost to the owner.
4. Extraordinary Value the carrier is not liable and does not have to carry items of extraordinary
value that are not on the rated in the published classifications or tarriffs unless a special
agreement with the shipper has been negotiated.
5. Explosives the carrier has to be given full written disclosure when they are shipping dangerous
material, otherwise they are not liable for any losses.
6. Recourse the carrier cannot make additional charges to the shipper after making a delivery.
7. Substitute Bill of Lading if the bill of lading is a substitute or exchange for another bill of lading
then the current bill of lading has to include all the clauses from previous documents.
8. Alterations the carrier must note any changes or additions to ensure that they can be
enforceable.
9. Claims this clause specifies the details on how to file a claim against the shipper and the time
period after delivery in which the claim will be accepted.
Freight Bill
The freight bill is the carriers invoice to the shipper for all the charges that the carrier has
incurred. The carriers freight bill will include the details of the shipment, the items being
shipped, the consignee, the origin and destination, as well as total weight and total charges.
Some carriers can ask for prepayment from the shipper if the value of the items being shipped is
less than the total expected freight charges. If the charges are not prepaid then the carrier can
present a freight bill on collect. This implies that the carrier will present the freight bill on the
day of delivery.
Free on Board (FOB) terms of sales documents which party will be liable for the transportation
costs, which party is in control of the movement of the goods, and when the title passes to the
buyer.
If the FOB terms of sale indicates that it is FOB Delivered then this implies that the shipper will
be responsible for all of the carriers costs. If the terms of sale shows FOB Origin, then this
means that the buyer will take title for the goods when they are shipped and they will incur all
the transportation costs.
Suggested Reading
Freight Forwarding
International Commercial Terms (INCOTERMS)
Reducing Transportation Costs
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Logistics / Supply Chain Guide
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This article may require cleanup to meet Wikipedia's quality standards. No cleanup reason has
been specified. Please help improve this article if you can. (November 2009)
The origin does not refer to the country where the goods were shipped from but to the country
where they were made. In the event the products were manufactured in two or more countries,
origin is obtained in the country where the last substantial economically justified working or
processing is carried out. An often used practice is that if more than 50% of the cost of producing
the goods originates from one country, the "national content" is more than 50%, then, that
country is acceptable as the country of origin.[1]
When countries unite in trading agreements, they may allow Certificate of Origin[2] to state the
trading bloc, for example, the European Union (EU) as origin, rather than the specific country.
Determining the origin of a product is important because it is a key basis for applying tariff and
other important criteria. However, not all exporters need a certificate of origin, this will depend
on the destination of the goods, their nature, and it can also depend on the financial institution
involved in the export operation.
Contents
1 Historical background
2 Types of certificates of origin
3 Certificates of origin around the world
4 See also
5 References
6 External links
Historical background
The background and history of CO dating back to 1898
The first certificate of origin was issued by the Marseille Province Chamber of Commerce at the
end of the 19th century. The formalization in the role of chambers of commerce as issuing
agencies for certificates of origin (CO) can be traced back to the 1923 Geneva Convention
relating to the Simplification of Customs Formalities (Article 11),[3] and has been reinforced with
the updated Kyoto Convention. Under these Conventions, signatory governments were able to
allow organizations which possess the necessary authority and offer the necessary guarantees
to the State to issue certificates of origin. Thus due to the widespread network of the chamber of
commerce community, in most countries, chambers of commerce were seen as these
organizations allowed to issue certificates of origin. As such, seen as competent authorities,
chambers began to more widespreadly issue non-preferential certificates of origin. In 1968, at the
Uruguay Round, an agreement was reached on Rules of Origin which led to more transparent
regulations and practices regarding rules of origin (RoO). Later on, in 1999, the Revised Kyoto
Convention added an Annex on the Simplification and Harmonization of Customs Procedures to
further facilitate the transfer of legal documents in international trade. By 2008, 350 Free Trade
Agreements had been reached with provisions on preferential treatment; 400 Free Trade
Agreements are expected by 2012, seeing an expansion on the issuance of preferential
certificates of origin.
Non-preferential certificates of origin[4] are the most common type of certificate. These
certificates of origin see that goods do not benefit from any preferential treatment and do not
emanate from a particular bilateral or multilateral free trade agreement. Chambers that are
authorized to issue certificates of origin are most frequently authorized to issue non-preferential
certificates of origin. The fees charged for the issuing will vary depending on several factors,
such as the nature of the merchandise, and may also vary if the exporters a member. Indeed,
exporters whose companies are member of the chamber often benefit from a preferential price,
which is lower than that of non-member firms.
Preferential
In several countries, customs authorities are delegating the right to issue preferential certificates
of origin on their behalf to chambers of commerce. These countries include New Zealand,
Australia, Sweden and the United Kingdom.
Chambers of commerce issue millions of Certificates of Origin (CO) per year. To keep pace with
the rapid shift to e-business and improve their efficiency in serving their business community,
the implementation of total eCO is a top priority for Chambers. Increasing concerns on fraud and
the need to improve the supply chain security, eCOs are seen as a means not only to facilitate
and provide a secure trading environment but also save time, costs and increase transparency. A
range of eCO platforms have been developed by chambers and other organizations. Some of the
solutions available in the marketplace can be found at the ICC World Chambers Federation CO
website.
The certificate of origin must be signed by the exporter, and, for many countries, also validated
by a Chamber of Commerce, and in the case of certain destination countries, also by a consulate.
Chambers of Commerce offer certificate of origin services, amongst other organizations.
Companies may consult the Chamber Directory on the World Chambers Network, the official
global portal of Chambers of Commerce dedicated to electronic international trade, to find their
nearest chamber who may offer this service.
Chambers of commerce
Despite the vast chain of chambers present around the world, not all certificates of origin issuing
practices are harmonized or even alike. Actually, laws and requirements relating to this practice
may vary within the country, depending on the authority the chamber derives from. In this
perspective, ICC World Chambers Federation has established an international certificate of
origin Guidelines to standardize procedures by chambers around the world. This publication is
available in six languages Arabic, Chinese, English, French, Russian and Spanish. Based upon
these guidelines, chambers are collaborating in creating a global CO Chain to reinforce their
integrity and credibility as competent the trusted competent third parties in the issuance of
certificates of origin. Chambers who have signed up for this chain have recognized that they are
mutually responsible and globally interconnected with their peers, bringing reassurance to
business, traders, banks and Customs Administrations that all COs are issued according to
internationally accepted best practices. Self Certification In some countries, Self Certification
by exporter is also accepted.
See also
ATA Carnet
Trade facilitation
Customs
Chamber of Commerce
International Trade
References
General
Specific ^ http://www.cbsa-asfc.gc.ca/publications/forms-formulaires/b232-eng.pdf
External links
World Chambers Federation
ICC WCF International Certificate of Origin Guidelines
International Chamber of Commerce
World Customs Organization
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