Export Trade and Documentation

MBA (Logistics and Supply Chain Management)
Second Year
Paper No. 2.6
Export Trade and Documentation
School of Distance Education

Bharathiar University, Coimbatore - 641 046
Author: Aseem Kumar
Copyright © 2013, Bharathiar University

All Rights Reserved
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CONTENTS
Page No.
UNIT I
Lesson 1 Introduction to International Trade 7
Lesson 2 Processing of an Export Order 20
Lesson 3 Terms of Payment 25
UNIT II
Lesson 4 Export Finance 41
Lesson 5 Foreign Currency Exchange Control Regulations 51
Lesson 6 Export Pricing and Costing 61
UNIT III
Lesson 7 Pre-shipment Documentation 71
Lesson 8 Inspection of Export Consignment 75
Lesson 9 Claiming for Export Benefits 91
UNIT IV
Lesson 10 Terms of Shipments 101
Lesson 11 EXIM Bank and Document Negotiation 113
Lesson 12 Corporate Marketing Strategies 118
UNIT V
Lesson 13 Export–Import Policy 127
Lesson 14 Formalities for Commencing Export–Import 165
Lesson 15 Custom Clearance of Import Goods 191
Lesson 16 Export–Import Documentation 202
Model Question Paper 247
EXPORT TRADE AND DOCUMENTATION
SYLLABUS
UNIT I
Generation of Foreign enquiries, obtaining local quotation and offering to overseas buyers scrutinizing export order,
opening L/C by buyers
UNIT II
Export Finance – Forex – Major currencies, Exchange rates, relations and impact – Export costing and pricing and
incoterms
UNIT III
Export Packaging – Preparation of pre shipment documentation – Inspection of Export consignment – Export by
Post, Road, Air and Sea – Claiming for Export benefits and Duty drawbacks
UNIT IV
Shipment and Shipping documents – Complicated problems in shipments and negotiation of shipping documentations
– Corporate marketing strategies – 100% EOU and Free trade zone - Deemed Export, Export Marketing
UNIT V
Introduction – Exim policy – customs act – order acts relating to export/import – formalities for commencing –
customs formalities – export documentation – project exports – export of services – export of excisable goods –
import documentation – clearance of import goods – 100% export oriented units – export processing zones – special
economic zones – duty drawback procedure – export/import by post customs house agents – import of different
products – import/export incentives – import licences etc.
5
Introduction to International Trade
UNIT I
6
LESSON 7
1
INTRODUCTION TO INTERNATIONAL TRADE
CONTENTS
1.0 Aims and Objectives
1.1 Introduction
1.2 Evolution of International Trade
1.3 Reasons for International Trade
1.3.1 Domestic Non-availability
1.3.2 Principle of Comparative Advantage
1.3.3 Differences in Technology
1.3.4 Differences in Resource Endowments
1.3.5 Differences in Demand
1.3.6 Existence of Economies of Scale in Production
1.3.7 Existence of Government Policies
1.4 Trends in India's Foreign Trade
1.5 Generation of Foreign Enquiries
1.6 Obtaining Local Quotation and Offering to Overseas Buyers
1.7 Let us Sum up
1.8 Lesson End Activity
1.9 Keywords
1.10 Questions for Discussion
1.11 Suggested Readings
1.0 AIMS AND OBJECTIVES

After studying this lesson, you should be able to:
z Identify evolution of international trade
z Explain international trade reasons
z Describe various trends of foreign trade
z Discuss generations of foreign enquiry
z Explain how to obtain local quotations and offer to overseas buyers
1.1 INTRODUCTION
Government of India took bold initiatives in July 1991 by way of introduction of
reforms notably in the sphere of industrial, trade and fiscal policy. The trade policy
8 reforms aimed to create an environment to enable increase in exports at a rapid pace
raise India's share in world exports and find a lasting solution to the balance of
payments crisis. For this purpose, significant changes in the Export-Import (EXIM)
Policy were made and country specific and commodity specific measures were taken
to promote exports. In this lesson, you will learn the role of foreign trade in the
economic development, trends in India's foreign trade and composition and direction
of exports and imports. You will be also acquainted with the problems of India's
foreign trade.
1.2 EVOLUTION OF INTERNATIONAL TRADE

Trade originated centuries ago because different sets of people each had something the
other wanted, whether finished products, natural resources, or food. The Industrial
Revolution, which began in the mid-18th century, enabled a few economies to develop
and compete in similar goods. Today's globalised economies are spreading the
manufacturing processes themselves.
Historically, trade has consisted largely of the sale and shipment of goods among
countries. Business leaders and policy analysts have been educated on trade theories
and case studies that use the physical exchange of goods to demonstrate what
economists call “comparative advantage” and the social welfare gains from
international trade. Yet, trade now includes other significant facets – such as services
and investment – that are growing in importance with each passing year and have
added another dimension to our understanding of what trade is. With these changes in
mind, how has trade evolved?
The economic theory behind traditional international trade describes it in terms of
“absolute” and “comparative” advantage. Under conditions of absolute advantage,
trade occurs because a certain product is only available in certain places (like
bananas), or because a product can always be produced more cheaply in one country
than another (like wood exports from Sweden to Germany).
But traditional trade is also driven by a more sophisticated concept – comparative
advantage – which is about countries specialising in what they do best. Even if one
country can produce anything more cheaply than any other, greater overall wealth will
be created if that country specialises in what it does the very best and then trades to
obtain the rest.
In practice, traditional trade has been viewed as the sale and shipment of goods
between buyers and sellers in different countries. Goods trade is easy to see, easy to
measure and therefore easy to understand. Trade in services has existed since the
earliest days of goods trading – such as revenues earned from transporting foreign
goods – but was often not recognised or measured.
Even today, services trade is under-appreciated, and services trade statistics lag
significantly the availability of data on goods trade. While exports and imports of
goods are physical and can be counted as they cross borders, services trade is
essentially based on the cross-border buying and selling of human behaviour and
ideas and is measured via surveys and data collection that often takes place well
after-the-fact.
The traditional trade paradigm views foreign markets principally as end-users. Some
goods that are sold abroad under traditional trade become an input in a production
process and are subsequently re-exported. For the most part, however, traditional trade
sees goods being sold internationally to be consumed, or invested to produce things
for subsequent domestic consumption. The foreign content of traditional exports is not
very high (often 10%-20%), and usually consists of key foreign capital goods or raw
material inputs used in production.
One key reason why traditional trade has been predominantly in goods for end-use is 9
the existence of tariff and non-tariff barriers. Trade barriers raise the cost of imports,
discourage the general expansion of trade and result in lower trade/GDP ratios.
If exporting to a particular market is not profitable due to tariff barriers, another option
under traditional trade has been to use FDI in order to jump over the trade barriers and
build the productive capacity necessary to sell in that domestic market. Such was the
historical experience for Canada throughout much of the 20th century. FDI in Canada,
usually by American companies, was a substitute for exporting of manufactured goods
from the US into Canada. FDI is also used to secure access to natural resources, either
as a core business for resource companies or as a key industrial input for more
vertically integrated sectors such as aluminium.
Since the traditional view of trade focuses heavily on exports of goods to foreign end-
users, limited attention is paid in public policy formation or public discussion to the
role of imports in production and consumption. For the public, trade issues largely
consist of exports that are being threatened by the protectionist behaviour of another
nation, or dumping of imports into the country that hurt a domestic industry. The
public seldom takes an interest in a business or consumer being hurt by import
controls that make imports more expensive.
As another example of the pro-export bias, most industrial countries established
an export credit agency in the first half of the 20th century, but only a few gave
that agency the power to facilitate imports – and then only under very narrow and
rare conditions.
Due to this pro-export bias, traditional trade risks being manipulated into a belief that
exports are good for the economy but imports are not so good because they compete
with domestic suppliers and jobs. Economists call this idea “mercantilism”. This idea
is fundamentally flawed since it is impossible for every country to have a trade
surplus – every export constitutes an import for someone else. A mercantilist mindset
opens countries to protectionist tendencies, particularly when economic growth slows
or when underlying economic structures change and specific industries begin to see
their market contract. And as history has taught us, protectionism is a recipe for
economic under-achievement and conflict between nations.
Traditional trade – the buying and selling of goods to end-users – has generally
expected a close relationship between changes in a country’s trade balance and
balance of payments current account position and the country’s exchange rate. It
should be acknowledged that the past century has seen the international financial
system shift from periods of fixed exchange rates (such as the Bretton Woods period
from 1945 to 1971) to other periods when exchange rates for most countries have been
flexible – like the period between WWI and WWII, or since 1971.
Under traditional trade, if exchange rates are flexible or allowed to float, a country
with a trade and/or current account surplus would normally expect to face upward
pressure on its currency. Conversely, a country in trade and/or current account deficit
would generally expect downward pressure on its currency.
A new generation of international trade has emerged on the scene – what we will call
integrative trade. Integrative trade captures all the elements of international business
today – exporting and importing, foreign investment, and the international sale of
services. The emergence of integrative trade does not mean that traditional trade is
being replaced; on the contrary, it is being enhanced. Traditional trade, as already
described, remains important in many sectors and for many countries, and it creates a
strong foundation upon which the next generation of new and more dynamic trade
opportunities is being built, through enhanced economic integration.
10 The dramatic reduction in communications and transportation costs, combined with
successive rounds of trade and investment liberalisation in the latter part of the 20th
century, has encouraged greater international competition for capital, technology and
markets. As a consequence of lower international trade and investment barriers,
products are increasingly being broken down into components – services as well as
goods – and each component is then being produced or delivered in the most
advantageous locations. The result is a global product, made in many countries, with
production distributed along a global supply chain.
In order to build global supply chains and get closer to foreign customers in order to
provide better service, companies are increasingly relying on FDI. The growth in
international flows of FDI has significantly outpaced the growth of trade and GDP
over the past two decades (see graph). The accumulated global stock of FDI nearly
tripled during the 1980s. It more than tripled again during the 1990s, reaching
$7,120bn by 2002. Since FDI builds global supply chains, helps to serve foreign
customers and thus makes businesses more competitive, FDI in both directions is
critical to growing export capacity – which in turn creates the potential for even more
trade.
Trade and investment therefore should be seen increasingly as parts of an integrated
whole. Businesses are generating revenues and profits not only by exporting and
importing goods and services, but also by investing abroad and/or attracting inward
FDI to make their business model more competitive. Profits and dividends from
foreign investment are transferred between countries and then are reinvested in even
more trade and stronger economic growth.
One consequence of this new integrative approach to trade is that the foreign or import
content of production, and exports, is steadily rising. Put another way, the domestic
content of exports is falling as companies seek the best quality and price for all parts
of their supply chain, regardless of the source. Therefore, increased importance should
be attached to the efficient flow of imports under integrative trade. It is no longer
sufficient or appropriate to treat exports and imports as separate items, since in
manufacturing, in particular, exporting and importing are part of the same global
supply chain process.
This trend is most obvious in advanced manufactured goods like autos, aircraft or
telecom technology, where raw materials, machine tools, capital goods and production
technology, parts, partly-finished goods and final products are traded back and forth
across borders multiple times before the final output is delivered to a buyer. In these
sectors, the domestic content of a finished product is seldom above 40% and may be
well below 25% as businesses optimise their global supply chain to improve
productivity and stay internationally competitive.
A third element of integrative trade has a much more prominent role for the
international sale of services. The Economist defines services by saying, “If you can
drop it on your toe, you know it’s not a service”.
Trade in services is most easily understood by thinking about businesses earning
revenue from foreign sources that then flows into a company’s income statement.
Services exports and imports of all types have been part of traditional trade. Sectors as
varied as transport, tourism and management consulting earn revenue from foreigners
(i.e., export a service) and thus contribute to the generation of national wealth and
jobs. Services have grown to 75% of GDP or more in advanced industrial countries
and constitute up to 30% of total exports for many mature economies.
Moreover, under integrative trade, the international sale of services is increasingly
being driven by FDI. Services now represent 60% of total global FDI flows, up from
less than 50% a decade ago. Businesses have determined that delivery of services
from foreign affiliates, created via FDI, is often the most effective way to get closer to 11
foreign customers and meet their needs and expectations.
Financial services have traditionally been the largest sector in terms of services-related
FDI and sales from foreign affiliates, but the financial services share is slipping as
many other forms of services – from technology installation to management advice to
entertainment – are being delivered internationally via investment in foreign affiliates.
The evolution to integrative trade means that countries and businesses will earn
foreign income and generate foreign exchange in different and expanding ways. Many
companies’ income statements will rely increasingly on the reflow of profits and
dividends from their foreign affiliates. Remittances from individuals working abroad
for their company’s foreign affiliates should grow and become more visible as
workers send home a portion of their earnings and savings.
Thus, the so-called invisibles portion of a country’s balance of payments will take on
greater importance; and as a quid pro quo, we will have to learn not to be quite so
obsessed with monthly or quarterly trade data for goods.
Finally, the evolution to integrative trade requires us to have a more complex view of
the factors driving a country’s exchange rate and balance of payments. In a world of
integrative trade, exchange rate movements are guided by different forces in the short
term and over the longer-term.
In the short-term, a country’s exchange rate is heavily influenced by portfolio capital
movements. Daily capital movements via currency markets, or what has been called
“hot money”, can be many times the amount of underlying trade in goods and
services. Developing countries with more narrow economic bases and thin local
capital markets are particularly susceptible to fluctuations in the short-term exchange
rate due to changes in capital market sentiment, but greater currency market variability
is not limited to developing markets.
But over the longer term, a country’s exchange rate and balance of payments trends
will still be guided by fundamentals – its changing trade balance and international
investment position.
Trade has evolved beyond the traditional exporting and importing of goods, and has
entered the next generation – integrative trade. This is driven by foreign investment
and places greater weight on elements such as the integration of imports into exports,
trade in services and sales from foreign affiliates established though foreign
investment. Like most subtle changes in paradigm, the public has been slow to
perceive and grasp the emergence of the integrative trade concept. But rest assured,
integrative trade is already here; and we are only beginning to appreciate the
implications for how the global economy will operate in a different way.
Check Your Progress 1

Fill in the blanks:
1. FDI stands for …………….
2. The Economist defines ……………. by saying, “If you can drop it on
your toe, you know it’s not a service”.
3. Services have grown to ……………. of GDP or more in advanced
industrial countries and constitute up to 30% of total exports for many
mature economies.
12
Export Trade and Documentation 1.3 REASONS FOR INTERNATIONAL TRADE
There are numerous reasons for international trade which are discussed below.
1.3.1 Domestic Non-availability

International trade is the exchange of goods and services between countries. An
import is the UK purchase of a good or service made overseas. An export is the sale of
a UK-made good or service overseas.
A nation trades because it lacks the raw materials, climate, specialist labour, capital or
technology needed to manufacture a particular good. Trade allows a greater variety of
goods and services.
1.3.2 Principle of Comparative Advantage

The principle of comparative advantage states that countries will benefit by
concentrating on the production of those goods in which they have a relative
advantage.
1.3.3 Differences in Technology

Advantageous trade can occur between countries if the countries differ in their
technological abilities to produce goods and services. Technology refers to the
techniques used to turn resources (labour, capital, land) into outputs. The basis for
trade in the Ricardian Model of Comparative Advantage is differences in technology.
1.3.4 Differences in Resource Endowments

Advantageous trade can occur between countries if the countries differ in their
endowments of resources. Resource endowments refers to the skills and abilities of a
country's workforce, the natural resources available within its borders (minerals,
farmland etc.), and the sophistication of its capital stock (machinery, infrastructure,
communications systems). The basis for trade in the Pure Exchange model and the
Heckscher-Ohlin Model is differences in resource endowments.
1.3.5 Differences in Demand

Advantageous trade can occur between countries if demands or preferences differ
between countries. Individuals in different countries may have different preferences or
demands for various products. The Chinese are likely to demand more rice than
Americans, even if facing the same price. Canadians may demand more beer, the
Dutch more wooden shoes, and the Japanese more fish than Americans would, even if
they all faced the same prices.
1.3.6 Existence of Economies of Scale in Production

The existence of economies of scale in production is sufficient to generate
advantageous trade between two countries. Economies of scale refer to a production
process in which production costs fall as the scale of production rises. This feature of
production is also known as "increasing returns to scale."
1.3.7 Existence of Government Policies

Government tax and subsidy programs can be sufficient to generate advantages in
production of certain products. In these circumstances, advantageous trade may arise
solely due to differences in government policies across countries.
13
1.4 TRENDS IN INDIA'S FOREIGN TRADE Introduction to International Trade
Look at Table 1.1 for a clear understanding of India's Exports Imports and Trade
Balances. The export has been gradually increasing but the import has increased at a
faster rate. As a result, the trade balance has been negative over the years. The table
shows that India's Trade balance has ` –2 crore during 1950-51 and it has gone up to
` –20,103 crore during 1996-97. It has further gone up to ` –34,495 in the year
1998-99.
Table 1.1: Trends in India's Foreign Trade
(` in crores)
Year Exports (including Re-exports) Imports Trade Balance
1950-51 606 608 -2
1960-61 642 1112 -480
1970-71 1535 1634 -99
1980-81 6711 12549 -5838
1990-91 32553 43198 -10645
1991-92 44041 47851 -3810
1992-93 54688 63375 -9687
1993-94 69751 73101 -3350
1994-95 82674 89971 -7297
1995-96 106353 122678 -16325
1996-97 118817 138920 -20103
1997-98 130101 154176 -24075
1998-99 141604 176099 -34495
1999-00 159561 215236 -55675
2000-01 203571 230873 -27302
2001-02 209018 245200 -36182
2002-03 255137 297206 -42069
2003-04 293367 359108 -65741
2004-05 375340 501065 -125725
2005-06 456418 660409 -203991
2006-07 571779 840506 -268727
2007-08 655864 1012312 -356448
2008-09 766935 1305503 -538568
Source: Economic Survey (2008-2009), Ministry of Finance, Government of India.
A reduction in trade deficit is possible either by a deduction in imports or by an

increase in exports. A reduction is not only necessary to curtail the trade deficit but
also because, quite often, imported supplies are costlier than domestic supplies. Some
of our imports consist of essential consumer goods which are necessary to maintain
the domestic price stability. Any cut in these imports would adversely affect
production leading to unutilized capacities and a cut in exportable surplus. Capital
goods which have shown a significant increase in the last few years because of the
need for technology up gradation now account for 22% of the total imports for the
year 1996-97. Fuel accounts for 26% of the total imports for the year 1996-97. For the
year 1998-99 the share of capital goods has been reduced to 16.16%. A similar
reduction has been witnessed in petroleum & lubricants which has come down to
15.4%. It may be very difficult to curtail these imports because they contribute to the
economic development of the nation.
14 In the past, we depended on foreign aid, largely consisting of loans, to finance our
import surplus India's total debt was US $ 98.87 billion at the end of September 1999.
The debt service ratio was about 18% in the year 1998-99. Of late, India's external
indebtedness position has also improved in the global context. India ranks eighth
among developing countries in terms of total indebtedness. India's external debt is
very high. Thus, there is no alternative but to intensify export effort. The expansion in
export sector will be able to generate the revenue for meeting the import requirement.
Realising the importance of exports in the development of the economy, Government
of India has been making continuous effort to promote exports. The Government took
major steps in July 1991 by introducing reforms in industrial, trade and fiscal policy.
The trade reforms aimed at creating environment to enable increase in exports at a
rapid pace. Country specific and commodity specific measures were taken to promote
exports. The Board of trade identified 34 extreme focus products aimed at achieving
30% annual growth in exports. The Ministry of Commerce has undertaken in depth
analysis for identifying countries and products for boosting exports. 15 products and
15 countries have been identified covering 75% of India's foreign trade. The identified
products include: gems and jewellery, cotton yarn, fabrics and made ups, man made
yarn, marine products, transport equipment, metal manufactures, machinery and
instruments, leather, organic and inorganic chemicals, dyes, intermediaries, etc.,
plastic and linoleum products, agro-chemical and oil, etc. The identified countries are
US, Japan, Germany, Belgium, UAE, Saudi Arabia, UK, Singapore, Russia, Italy,
Bangladesh, France, Netherlands, Hong Kong and Thailand. In order to boost exports,
the country should make all out efforts to streamline the external sector.
1.5 GENERATION OF FOREIGN ENQUIRIES

The common confusion within the business community is the view that marketing and
selling are the same. That is not quite right. While selling is part of marketing, your
export plan has different objectives and focuses on different tasks.
The export plan should include:
z Export readiness analysis
z Market Research
z Product Development
z Trade Regulations and Barriers Assessment
z Export Strategy
z Pricing
z Terms of trade and payments
z Logistics and distribution
z Financing
z After-sale strategy
z Export sales forecast
z Implementation plan
You'll be surprised by your potential buyers’ expectations in regards to receiving
replies to their inquiries especially when you are dealing with Asian or Middle Eastern
customers. They send you an e-mail and then call you in a couple of hours later
demanding a reply.
Learn to recognise "genuine" inquiries and beware of the "dream" orders
As a rule, a "genuine" inquiry has a brief introduction, is fairly specific and must have 15
company name, contact name and contact details.
If you clearly understand that an inquiry you received isn't worth an answer, just
ignore it. For example, if you sell oranges and somebody ask you to provide an export
quotation for bearings or if a foreign company is looking for a wide range of
Australian food products without any further details, most likely these inquiries will
take you nowhere.
There are quite a few companies and individuals out there, who are just playing in
International Trade. So if you received an inquiry for the supply of 50,000 tons of
table grapes, you can simply throw it out and never reply.
1.6 OBTAINING LOCAL QUOTATION AND OFFERING

TO OVERSEAS BUYERS
Many export transactions, particularly initial export transactions, begin with the
receipt of an inquiry from abroad that is followed by a request for a quotation. The
preferred method for export is a pro forma invoice, which is a quotation prepared in
invoice format.
A quotation describes the product, states a price for it, sets the time of shipment, and
specifies the terms of the sale and terms of the payment. Since the foreign buyer may
not be familiar with the product, the description of it in an overseas quotation usually
must be more detailed than in a domestic quotation. The main steps involved in price
quotations are:
z Seller and buyer names and addresses.
z Buyer's reference number and date of inquiry.
z Listing of requested products and brief description.
z Price of each item (it is advisable to indicate whether items are new or used and to
quote in U.S. dollars to reduce foreign-exchange risk).
z Appropriate gross and net shipping weight (in metric units where appropriate).
z Appropriate total cubic volume and dimensions packed for export (in metric units
where appropriate).
z Trade discount (if applicable).
z Delivery point.
z Terms of sale.
z Terms of payment.
z Insurance and shipping costs.
z Validity period for quotation.
z Total charges to be paid by customer.
z Estimated shipping date from U.S. port or airport.
z Currency of sale.
Pro forma invoices are not used for payment purposes. In addition to the 15 items
previously mentioned, a pro forma invoice should include two statements. One that
certifies the pro forma invoice is true and correct and another that gives the country of
origin of the goods. The invoice should also be clearly marked "pro forma invoice."
16 Pro forma invoices are models that the buyer uses when applying for an import
license, opening a letter of credit or arranging for funds. In fact, it is a good practice to
include a pro forma invoice with any international quotation, regardless of whether it
has been requested or not. When final commercial invoices are being prepared prior to
shipment, it is advisable to check with the U.S. Department of Commerce or another
reliable source for any special invoicing requirements that may be required by the
importing country.
If a specific price is agreed upon or guaranteed by the exporter, the precise period
during which the offer remains valid should be specified. Additionally, it is very
important that price quotations state explicitly that they are subject to change without
notice.
Sample Export Quotation Sheet:
An important aspect of your company’s pricing analysis is the determination of

market objectives. For example, you may ask whether your company is attempting to
penetrate a new market, seeking long-term market growth, or looking for an outlet for
surplus production or outmoded products.
Marketing and pricing objectives may be generalized or tailored to particular foreign
markets. For example, marketing objectives for sales to a developing nation, where
per capita income may be one-tenth of that in the United States, are necessarily 17
different than marketing objectives for sales to Europe or Japan.
The computation of the actual cost of producing a product and bringing it to market is
the core element in determining if exporting is financially viable. Many new exporters
calculate their export price by the cost-plus method. In that calculation, the exporter
starts with the domestic manufacturing cost and adds administration, research and
development, overhead, freight forwarding, distributor margins, customs charges, and
profit.
The effect of this pricing approach may be that the export price escalates into an
uncompetitive range. Table 1.2 provides a sample calculation. It clearly shows that if
an export product has the same ex-factory price as the domestic product has, its final
consumer price is considerably higher once exporting costs are included.
Table 1.2: Sample Cost-plus Calculation of Product Cost
Factory price
Domestic freight
Subtotal
Export documentation
Subtotal
Ocean freight and Insurance
Subtotal
Import duty (12% of landed cost)
Subtotal
Wholesaler mark-up (15%)
Subtotal
Importer or distributor mark-up (22%)
Subtotal
Retail mark-up (50%)
Final consumer price total
Marginal cost pricing is a more competitive method of pricing a product for market
entry. This method considers the direct out-of-pocket expenses of producing and
selling products for export as a floor beneath which prices cannot be set without
incurring a loss. For example, additional costs may occur because of product
modification for the export market to accommodate different sizes, electrical systems,
or labels. Costs may decrease, however, if the export products are stripped-down
versions or made without increasing the fixed costs of domestic production. Thus,
many costs that apply only to domestic production, such as domestic labelling,
packaging, and advertising costs, are subtracted, as are costs such as research and
development expenses if they would have been spent anyway for domestic production.
Other costs should be assessed for domestic and export products according to how
much benefit each product receives from such expenditures. Additional costs often
associated with export sales include the following:
z Fees for market research and credit checks
z Business travel expenses
z International postage and telephone rates
z Translation costs
z Commissions, training charges, and other costs involving foreign representatives
18 z Consultant and freight forwarder fees
z Product modification and special packaging costs
After the actual cost of the export product has been calculated, you should formulate
an approximate consumer price for the foreign market.
Fill in the blanks:
1. ………….. refer to a production process in which production costs fall as
the scale of production rises.
2. A ………….. describes the product, states a price for it, sets the time of
shipment, and specifies the terms of the sale and terms of the payment.
1.7 LET US SUM UP

Trade facilitates the flow of capital and speed up the acquisition of new technology.
Exports not only contribute directly to economic growth but more important, also
permit more imports, and a rapid modernization of production. The result is an
efficient domestic industry fully geared to international competition.
1.8 LESSON END ACTIVITY

If you are an export manager how will you quote the price for export purpose?
1.9 KEYWORDS
Export: A good or service that is produced in one country and then sold to and
consumed in another country.
FDI: Foreign Direct Investment (FDI) is direct investment into production in a
country by a company in another country, either by buying a company in the target
country or by expanding operations of an existing business in that country.
GDP: Gross Domestic Product (GDP) is the market value of all officially recognised
final goods and services produced within a country in a given period of time.
International Trade: International trade is the exchange of capital, goods, and
services across international borders or territories.
1.10 QUESTIONS FOR DISCUSSION

1. Explain various issues in foreign currency during import and export.
2. Describe various reasons of international trade.
3. What do you mean by price quotation?
4. Explain various trends in India’s foreign trade.
Check Your Progress: Model Answers

CYP 1
1. Foreign Direct Investment
2. services
3. 75%.
Contd…
CYP 2 19
1. Economies of scale
2. quotation
1.11 SUGGESTED READINGS

Export and Import Policy 1997-2002. Director General of Foreign Trade, Ministry of
Commerce, Government of India.
Goh, Tianwah (2000) Export Import Procedures & Documentation. Singapore: Rank Books.
Gopal, C. Rama (2007) Export Import Procedure and Documentation and Logistics. New Age.
Hicks, T.G. (2000) How to Prepare and Process Export-Import Documents: A Fully Illustrated
Guide. International Wealth Success, Incorporated.
Johnson, Thomas E. (2002) Export/import Procedures and Documentation
AMACOM/American Management Association.
Khurana, P.K. (2002) Export Management. New Delhi: Galgotia Publishing Company.
Nabhi`s Board of Editors (2012) How to Export New Delhi: Nabhi Publication.
Paul, Justin & Aserkar, Rajiv (2008) Export Import Management. Oxford University Press
India.
Seyoum, Belay (2008) Export Import Theory, Practices, and Procedures. Routledge.
20
LESSON
2
PROCESSING OF AN EXPORT ORDER
CONTENTS
2.1 Introduction
2.2 Nature and Format of Export Order
2.3 Scrutinizing Export Order
2.4 Nature of Export Sales Contract
2.4.1 Form of Contract
2.4.2 Distinction between Domestic Sales Contract and Export Sales Contract
2.5 Let us Sum up
2.7 Keywords

z Discuss the nature and format of export order
z Describe scrutinizing export order
z Explain nature of export sales contract.
2.1 INTRODUCTION
An export exercise is concluded successfully after the exporter has been able to
deliver the consignment in accordance with the export contract and receive payment
for the goods. In this lesson, you will learn various steps involved in the processing of
an export order at per-shipment, shipment and post-shipment stages. You will also
learn various formalities of claiming export incentive.
2.2 NATURE AND FORMAT OF EXPORT ORDER

Processing of an export order starts with the receipt of an export order. An export
order may, be either in the form of export sales contract, which is concluded and
incorporated in the form of a document or in the form of evidence or an instrument
evidencing the conclusion of a contract.
Simply stated, it means that there should be an agreement, which is mostly reduced in 21
Processing of an Export Order
a documentary form, between the exporter and the importer before the exporter can
start making arrangements for production or procurement of goods and their shipment.
Generally an export order may take the following forms:
z Proforma Invoice accepted and signed by the importer
z Purchase Order accepted and signed by the exporter
z Letter of Credit opened by the importer in favour of the exporter.
A proforma Invoice is prepared and sent by the exporter to the importer. After
accepting the terms and conditions given in it as given in a documented contract, if
any, the importer returns a copy of this invoice to the exporter. Such a process helps in
accepting the offer of the exporter by the importer and, thus the conclusion of an
export contract. In the case of long-term contract, the exporter may be required to send
proforma invoice for any intended shipment. Alternatively, the export contract may
require a purchase order to be sent by the importer to the exporter. If the purchase
order is in accordance with the terms and conditions of the contract, the exporter will
duly accept it. Opening of a letter of credit is also a common method of receiving the
export order. Although an instrument of payment, the letter of credit states major
terms and conditions of shipment and enables the exporter to start processing of the
export order.
2.3 SCRUTINIZING EXPORT ORDER

As soon as an export order has been received, the exporter must first acknowledge its
receipt by intimating the importer through telephone, telex, fax, etc. Though not
legally necessary this step is helpful in creating business goodwill for the exporter.
The exporter must carefully examine the contents of the order to see that there is no
discrepancy between the export order and export contract (verbal or written). Thus,
the accepted proforma invoice, buyers purchase order or the letter of credit opened in
favour of the exporter must be examined. Items to be examined particularly are:
z Product description, including specification, style, colour, packing conditions, etc.
z Marking and labelling requirements, if any.
z Terms of payment, including currency, nature of letter of credit (revocable.
irrevocable, confirmed, unconfirmed, restricted, unrestricted, etc.) credit period, if
any.
z Terms of shipment including choice of carrier, mode of carriage, place of
delivery, date of shipment, delivery, port of shipment, Transhipment, etc.
z Inspection requirement including type of inspection and inspecting agency.
z Insurance requirements including risk being covered and insurable value.
z Documents for realising payment including the nature and number of invoices.
Certificate of origin, certificate of inspection, certificate of value, bill of exchange,
insurance policy, transport document and document of title, etc.
z Last date of negotiation of document with the bank.
A new exporter who is very keen to get into the business may tend to ignore certain
aspects of the export order. It is not uncommon that lie encounters difficulties while
complying with the contracted obligations. In the process, he may suffer a loss. For
example, the importer may specify inspection to be undertaken by an agency, which
does not operate from India. Such a problem will be discovered only after the goods
22 have been manufactured. At this stage it may be difficult to persuade the importer to
change this condition. Consequently the exporter may suffer a loss.
If there are any discrepancies in the export order, the importer must be immediately
informed for its amendment. It is only after the amended order has been received and
confirmed by the exporter that he becomes liable to fulfil his contractual obligations.
It is commercially prudent to confirm the order by sending a documentary
confirmation. In certain contracts it may also be the legal requirement.
There is no specific format of this confirmatory letter and an ordinary letter would
serve the purpose, although some exporters have printed the letter with suitable blank
spaces.
2.4 NATURE OF EXPORT SALES CONTRACT

Contract is a legal concept. It has been defined in the Section 2(h) of the Indian
Contract Act, 1872. In simple terms, a contract is an agreement which can be enforced
by law. An agreement, on the other hand, takes place when a valid offer has been
made and accepted by the other party without any qualification. This process of
contract formation is valid al over the world.
Though the offer-acceptance sequence appears logical and simple, sometimes
complexities can arise. Let us consider a common situation in export business. An
exporter sends his offer in a proforma Commercial Invoice along with his standard
conditions of sales. The importer accepts the offer but refers to his own standard
conditions of purchase. Since these two sets of conditions are different no contract is
formed. Importer's acceptance will not be considered legally as acceptance but only as
a counter-offer. If the exporter in turn confirms his acceptance without referring again
to his standard conditions, a contract is formed.
2.4.1 Form of Contract

There are no universally acceptable norms as to the form of export contract. It need
not be a formal document signed by both the parties and it need to be stamped. What
is necessary is to have some documentary evidence to show that there had been an
agreement. These evidences call be letter, telex messages, electronics data
interchange, purchase orders or letters of credits. Oral contracts are also legally
binding but in the Indian context, the exporter must have some written evidence
because of the need to produce evidence of contract to a number of export-service
organizations and regulatory agencies.
2.4.2 Distinction between Domestic Sales Contract and Export Sales

Contract
A major point of distinction between a domestic and export contract lies in identifying
the proper law governing the export contract. This is not a problem for domestic sales
contracts because the proper law will always be the Indian law in India. It will be the
respective national laws in each country so far as their domestic transactions are
concerned. But in export transactions there are two nations, that of the exporter and
importer. Therefore, the question arises, which country's law will apply to an export
contract.
This is a very complex problem but the principle generally followed is that the parties
to the contract may agree naturally about the applicability of particular country's law.
The country chosen must be either that of the exporter or the importer. In special
circumstances, a third country's law may be chosen, provided that the country has
something to do with the contract. For example, that may be the country where the
goods will be re-exported by the importer subsequently. Only when the parties fail to
mention the applicable law and a dispute arises later on, the court will decide which 23
Processing of an Export Order
law should apply.
Each country’s law has developed a set of rules which the courts consider while
deciding on this issue. This is commonly known as 'conflict of laws' situation. Some
of the factors considered by the courts are: the place where the contract is signed, the
language the contract is written, the place of business of the parties, etc, However,
these days, the courts, normally identify as 'proper law' i.e. the law applicable to the
contract (as the one where the contract is to be carried out, i.e., the where the delivery
is to take place). Since in most export transactions, delivery is made in the exporter's
country (normally when the goods are placed on the carrier in the exporter's country),
the applicable law becomes the exporting countries law.
Check Your Progress
Fill in the blanks:
1. …………. of an export order starts with the receipt of an export order.
2. …………. is a legal concept. It has been defined in the Section 2(h) of the
Indian Contract Act, 1872.
3. Each …………. has developed a set of rules which the courts consider
while deciding on the issue.
2.5 LET US SUM UP

Processing of an export order starts with the receipt of an export order, generally in
the form of either the proforma Invoice, Purchase Order or Letter of Credit. On its
receipt, the exporter must first acknowledge its receipt and then process to examine it.
The examination should be done with reference to terms and conditions of the
contract, particularly product specifications terms of shipment and payment and
submission of documents to the bank. If any discrepancy is found, the importer must
be immediately informed for amendment of the order. The exporter should then
confirm the order with the importer.

If you are a CHA agent, how will you process export order. Discuss.
2.7 KEYWORDS
Confirmation of Order: An action of informing the importer about formal acceptance
of terns and conditions of the export order, which also indicates that these terms and
conditions are in conformity with the export contract.
Export Order: A documentary evidence of the export contract, which is generally in
the form of programme Invoice, Purchase Order or Letter of Credit.
Packing Credit: It is the credit facility on confessional terms provided by commercial
banks to the exporting units for procuring, manufacturing and packing of export
goods. This is a pre-shipment credit facility.
Pro-forma Invoice: An abridged or estimated invoice sent by a seller to a buyer in
advance of a shipment or delivery of goods. It notes the kind and quantity of goods,
their value, and other important information such as weight and transportation
charges.
24
Export Trade and Documentation 2.8 QUESTIONS FOR DISCUSSION
1. What do you mean by export order?
2. Describe the nature of export order.
3. How will you scrutinize export order?
4. Describe the nature of export sales contract.

1. Processing
2. Contract
3. country’s law

India.
25
LESSON Terms of Payment
3
TERMS OF PAYMENT
CONTENTS
3.1 Introduction
3.2 Terms of Payment
3.3 Advance Payment
3.4 Documentary Credit
3.4.1 Parties in Documentary Credits
3.4.2 Details Included in Letters of Credit
3.4.3 Practical Mechanism
3.4.4 Different Kinds of Letter of Credit
3.4.5 Documents required under Letter of Credit
3.4.6 Guidelines for the Exporters
3.5 Forms of Documentary Credit
3.5.1 Documents against Payment
3.5.2 Documents against Acceptance
3.6 Open Account with Provisions for Periodic Settlement
3.7 Shipment on Consignment Basis
3.8 Let us Sum up
3.10 Keywords

z Explain payment terms
z Discuss advance payment
z List forms of documentary credit
z Identify Letter of Credit
z Explain open account with provision for periodic settlement
z Discuss shipment on consignment basis
26
Export Trade and Documentation 3.1 INTRODUCTION
In international trade today, the competition is no longer confined to price, quality or
delivery schedule but extends to terms of payments. The terms of payment are often
decisive in obtaining an order. In this lesson, you will learn various methods of
payment in export business. You will also be acquainted with the documentation and
related procedures regarding realization of export proceeds.
3.2 TERMS OF PAYMENT

The terms of payment play a very important role in export business. The terms are
instrumental ill attracting foreign buyers and thus expanding the export business.
Many exporters are able to clinch an order on the basis of attractive payment terms,
even though they may not be competitive from the viewpoint of price or quality.
Payment terms are determined by a host of factors, such as exchange control
regulations, trade practices, financial position of buyers and above all bargaining
strength of the trading partners, in India, exchange control regulations play an
important role in this regard. According to these regulations, the amount representing
the full export value of the goods exported to all countries, other than Bhutan and
Nepal, must be realised within six months from the date of shipment. Any deviation
from the rule will require the Reserve Bank's prior approval. There are four methods
of receiving payments from the overseas buyers. These methods carry risks of varying
nature. Hence, the choice depends largely on the bargaining strength of the trading
partners. Let us discuss various methods of receiving payments in detail.
3.3 ADVANCE PAYMENT

In this method, the payment is made either at the time of acceptance of the order, or at
the same time before the shipment. This is the safest and ideal method from the
exporter's side. In most cases, however, this method is not likely to be favoured by the
buyer, the buyer may favour this method when he is an overseas affiliate of the
exporter, or urgently requires the goods and the exporter is in a position to dictate his
terms. The buyer may make remittance by: (a) purchasing a draft from the bank
payable at a bank in India and dispatching it to the exporter, or (b) arranging through
his bank for a bank in India to be instructed by mail or capable to pay the exporter
(i.e., by mail transfer or telegraphic transfer). The draft, mail or telegraphic transfer
will be in the currency specified in the contract of sale.
From the exporter's point of view, it is not only the simplest method but also free from
any kind of credit or transfer risks. Payment is received before the shipment, and
hence there is no need for prior post-shipment finance of any kind. And as no interest
or commission is charged by Indian banks for payment of clean remittances, it works
out to be the cheapest method as well. However, in case the exporter has quoted in a
foreign currency, an exchange risk exists from the date of contract until payment is
received from the buyer.
3.4 DOCUMENTARY CREDIT

Where an exporter is unable to procure order with advance payment, the next best
alternative is the documentary credit method. In this method, at the instance of
importer, the bank usually in the importing country sends a letter to the exporter
giving an assurance or an undertaking that the payment will be made soon after
shipment. In order to ensure that the exporter complies with the agreed terms and
conditions of sales contract, the latter from the bank stipulates submission of certain
documents. As credit is given to the exporter on the basis of documents, the methods 27
Terms of Payment
is referred to as a system of payments through documentary credits.
According to the Uniform Customs and Practices relating to Documentary Credits
(UCP), documentary credit has been defined as 'any arrangement whereby a bank
acting at the request and in accordance with the instructions of a customer (the
importer) undertakes to make payment to or to the order of a third party (the exporter)
against stipulated documents and compliance with stipulated terms and conditions.
Payment through documentary credits has become popular because the mechanism
therein reconciles the conflicting interest of buyers and sellers. In this method, a bank
gives an undertaking to the importer that he will make payment to the exporter only
after he has ensured compliance with stipulated terms and conditions. At the same
time, he also gives an undertaking to the exporter that payment will be made as soon
as documents evidencing compliance with stipulated terms and conditions are
submitted.
3.4.1 Parties in Documentary Credits

There are several parties involved in the documentary credit arrangement. Let us
discuss them in detail.
Firstly, it is the importer, who is referred to as an applicant in terms of UCP, who
initiates the process. Having agreed to buy under such arrangements, he approaches
his bankers and requests him to issue a documentary letter of credit in the name of the
exporter. While requesting the banker he mentions the documents to be submitted by
the exporter in compliance of the terms and conditions stipulated in the sales contract.
Secondly, the banker who issues the letter of credit to the exporter is referred to as the
opening or issuing banker. It is the issuing banker who at the request of and on the
instructions of a customer (the applicant for the credit) undertakes to pay the exporter.
Thirdly, the banker to whom the letter of credit is sent for authentication and delivery
is referred to as advising banker. According to Article 8 of the UCP, 'advising bank
shall take reasonable care to check authenticity of the credit which advises'. Fourthly,
a banker, who adds his confirmation to the credit is called a confirming banker.
Confirmation of credit implies an undertaking to pay to the beneficiary in the event of
issuing banker's inability or refusal to pay. Confirmation can be added only at the
instance of the issuing bank. Usually, the advising and the confirming bankers are one
and the same.
Fourthly, where a credit provides for bills of exchange, the paying bank is the bank on
which such bills are drawn. This may be the issuing bank or another bank (either in
the country of the beneficiary or in a large financial centre such as London or New
York). If the credit provides for bills to be drawn on the buyer, the issuing bank is the
paying bank.
Fifthly, where the paying bank is not located in the exporter's country, credits usually
permit a bank or bankers in the beneficiary's country to negotiate drawings under the
credit and disburse the amount of the exporter. This banker is called a negotiating
bank. Negotiating bank must present the relative bill of exchange to the paying bank,
and until that bank pays the bill the drawing is not finalised.
Finally, the exporter who concludes the contract with the importer providing for
payment under the documentary credit arrangement is called beneficiary.
Hence, in any documentary credit, there can be at least four parties, viz. the applicant,
the issuing banker, the beneficiary and the advising, confirming and negotiating
banker rolled into one.
28
Export Trade and Documentation 1 1
1. The buyer and seller enter into a
Seller Buyer
sales contract providing for payment
(Beneficiary) (Applicant)
by documentary credit
2
4
2. The Buyer instructs

4. The advising or confirming bank his bank the issuing
informs the seller that the credit has bank to issue a credit
been issued in favour of the seller
4 2
3
3. The issuing bank asks another
Advising/Confirmi bank, usually in the country of 3
ng/Negotiating the seller, to advise or confirm Issuing
Bank the credit. Bank
Figure 3.1: Relationship among the Parties to the Letter of Credit
3.4.2 Details Included in Letters of Credit

The documentary credit gives the following particulars, though the form and order
vary among banks:
z Name of the issuing bank and type of credit with number and date
z On whose behalf the credit is issued (the applicant/buyer)
z The amount (including the currency)
z The date up to which the credit is valid (expiry date). The last date for shipment
may also be specified.
z Since the beneficiary is usually required to draw a bill of exchange (normally
referred to as a ‘draft’ in documentary credits)
The terms of the draft (i.e. sight or usance)
Whether the draft is to be drawn on a named bank or the buyer
z Brief details of the goods
z Documents required usually the documents are:
Commercial Invoice
Packing List
Insurance Policy Certificate
Inspection Certificate
Transport document – Bill of Lading
Airway Bill or Combined Transport Document
z Port of shipment and destination of shipment (only country’s name may be
written)
z Price and terms of shipment (whether FOB, C&F or CIF)
z Whether the part shipment and/or transshipment permitted 29
Terms of Payment
z Any other conditions applicable to the credit
z Certificate as the issuing bank’s responsibility in the credit. If the certificate is
omitted it may be implied from type of credit.
z Statement that the credit is subject to the provisions of the Uniform Customs and
practices for Documentary Credits.
3.4.3 Practical Mechanism

The general procedure in a letter of credit usually follows the sequence given below:
z The buyer and seller agree terms of sale, including payment by letter of credit.
z The buyer issues an instruction to the issuing bank to issue the credit.
z The issuing bank instructs the advising or confirming bank, including
specification of documents.
z The advising bank informs the beneficiary.
z The beneficiary, if he accepts the advice is happy with it, arranges shipment.
z The seller obtains the bill of lading the other required documents. He delivers
them to the issuing. Paying accepting or negotiating bank, whichever is the
appropriate one for the settlement.
z The bank checks the documents. If they are in accordance with the instructions
from the issuing bank (or the applicant) if the issuing bank is the paying bank,
effects payment as appropriate.
z If the paying bank is not the issuing bank, it sends the documents to the issuing
bank. The issuing bank checks them and if they are correct releases them to the
buyer upon payment of the amount of credit.
z The buyer uses the documents to get possession of the goods.
3.4.4 Different Kinds of Letter of Credit

There are various kinds of letters of credit.
z Revocable and Irrevocable Letter of Credit
z Confirmed Letter of Credit
z Restricted Credit
z Revolving Credit
z Red Clause Letter of Credit
z Transferable Credit
z Back to Back Letter of Credit
z Standby Credit
z Deferred Payment Credit
z Payment Credit
z Acceptance Credit
z Negotiation Credit
z Sigh and Usance Credit
30 z Fixed and Revolving Credit
z Under Revolving Credit
z Transit Credit
Revocable and Irrevocable Letter of Credit

Under the revocable letter of credit, the issuing bank retains the right to cancel or
modify the credit whereas in an irrevocable letter of credit, the issuing bank gives a
binding undertaking to the beneficiary.
Confirmed Letter of Credit

This implies that a banker other than the issuing banker, by adding its confirmation,
assumes the responsibility of payment, in case of the issuing banker's inability or
refusal to pay.
Restricted Credit
This refers that negotiations under a credit may be restricted by the issuing bank to a
named bank.
Revolving Credit
This process is arranged where regular, continuing shipments are made by seller. It
may be available even after the credit has been utilised once.
Red Clause Letter of Credit

This process is in the nature of pre-shipment finance given to the seller by the buyer.
This credit thus enables the beneficiary to draw an advance against shipments. The
advance is liquidated by the amount due on presentation of documents.
Transferable Credit
This enables the beneficiary to make the credit available, in whole or in part, to one or
more third parties (second beneficiaries). This can only be done if the credit clearly
states it is 'transferable' (no other term is acceptable); It is used when the seller is a
'middleman' who transfers part of the credit to the supplier who ships the goods.
Credit can be transferred once only.
Back-to-Back Letter of Credit

The beneficiary of an irrevocable letter of credit may not be the actual supplier of the
goods (he would be a middleman as in the case of the transferable credit). He will
request his banker to open a further letter of credit (the back to back credit) favouring
the supplier, based on original credit.
Standby Credit
This is similar to a performance Bond on Guarantee, but in the form-of an L/C. It thus
assures the beneficiary that in the event of non-performance or non-payment of an
obligation, the beneficiary may request payment from the issuing banker. The claim
would be a draft accompanied by the requisite documentary evidence of non-
performance as stipulated in the credit.
Deferred Payment Credit

These credits are used where supplier wishes to allow the buyer time to pay for the
documents. He provides the beneficiary a specified time for payment after
presentation of the documents which the bank will deliver to the applicant/buyer in the 31
Terms of Payment
meantime.
Payment Credit
This is a sight credit which will be paid at sight basis against presentation of requisite
documents to the designated paying bank. In a payment credit, beneficiary may or
may not be called upon to draw a draft. In many countries, because of stamp duties
even on sight drafts, it has become increasingly customary not to call for drafts under
credit available by sight payment.
Acceptance Credit
This is similar to Deferred Payment Credit except for the fact that in this credit,
drawing of a usance draft is a must. Under this credit, drafts must be drawn on the
specified bank/drawee for specified period.
The designated bank will accept the drafts and honour the same by banking payment
on the due dates.
Negotiation Credit
This can be sight credit or a usance credit. But drawing a draft is must in Negotiation
Credit. Further the draft can be drawn either on the beneficiary or any other drawee as
per credit terms. In a Negotiation Credit, the nomination can be restricted to a specific
bank or it may allow free negotiation in which case it is called as 'Freely Negotiable
Credit'. Under a Negotiation Credit, if the bank nominated as a Negotiated Bank
refuses to negotiate, then the responsibility of Issuing Bank would be to pay as per
terms of that credit.
Sigh and Usance Credit

When a LC states that the payment will be made by the bank at sight, on demand or on
presentation, such credit is called Sight Credit. However, drawing of a draft is not
always needed; payment can be made on presentation of specified documents. Under
Usance Credit, LC calls for drawing drafts at a stated usance period. This type of
credit is also referred as 'Term Credit'.
Fixed and Revolving Credit

When a credit is available for fixed amount and period it is called Fixed Credit. In this
type of credit, the credit gets exhausted once it is utilised for the stipulated amount or
after the stated validity date.
Under Revolving Credit

Under this credit, the amount is revived or reinstated without requiring re-
enhancement in credit.
Transit Credit
This is issued in one foreign currency with beneficiary in another but is advised
through and usually confirmed by a bank in London.
3.4.5 Documents required under Letter of Credit

According to Article 4 of the Uniform Customs and practice for Documentary Credit
in credit operations all parties concerned deal in documents, and not in goods, services
and or other performances to which the documents may relate. Hence, it is necessary
32 that the beneficiary tenders documents in conformity with the requirements of letter of
credit. Usual documents prescribed in letters of credit are discussed below:
Bill of Exchange
It is all instrument drawn by one person (the seller of the goods) on another (the
buyer) directing him to pay to or to the order of drawer (i.e. the seller). The person
whom payment is to be made is called "payee", who can be either the drawer himself
for a third person. Most letters of credit require that the exporter will prepare the bill,
called the draft and submit it to the banker along with other documents. It is document
through which payment is arranged.
Commercial Invoice
It is document of content. It contains details about the goods sold, the price and any
other charges, which may be on account of buyer. It also contains information about
any discounts, if given by the seller. A correctly completed commercial invoice should
conform to the sale contract.
Packing List
This gives details of the individual parcel/packets shipped to the buyer.
Transport Document
As shipment is the most crucial condition for payment, all letters of credit insist on
lodgement of documentary evidence in support of exporter contention of having
shipped the goods. Bill of Lading is issued by the shipping company in case goods are
sent by a sea vessel. Airway bill is issued in case of air consignment, Railway
Receipt/Truck Challan in case the goods are sent by land route. Combined Transport
Document is issued where the exporter chooses a multimodal transport system. These
documents are accepted as proof of shipment.
Inspection Certificate
As the goods must conform to agreed quality standards, all letter of credit require an
Inspection Certificate. The Inspection Certificate has to be submitted as proof of the
goods having been inspected by a qualified government or private agency.
Insurance Policy Certificate

Insurance policy is a legal evidence of contract of insurance, showing full details of
risks covered, insurance certificate, applicable in case of 'Floating' OR 'Open' cover,
contains a declaration regarding value of each shipment and is signed by the exporter
himself. Insurance certificate is not normally acceptable unless specifically provided
in the letter of credit.
Besides, some letters of credit require documents such as Certificate of Origin,
Analysis and Weight Certificate, Health and Sanitary Certificate to be submitted to the
negotiating bank.
3.4.6 Guidelines for the Exporters

As stated earlier, payment under letter of credit is available only if the exporter has
tendered correct documents. These documents are carefully scrutinized first by the
negotiating banker in the exporting country, before he makes payment to exporters.
The issuing banker in the importer's country also scrutinizes it before reimbursing the
negotiating banker. Any discrepancy in document can lead to delays in payment.
Quite often documents are rejected on first presentation because they are either 33
Terms of Payment
incomplete or incorrect. Some of the typical errors are as follows:
z The letter of credit had expired.
z The bill of lading was claused (unclean or dirty).
z A charter party bill of lading was presented when L /C called on on-board
shipment.
z The goods were shipped on dock when it was not permitted.
z Shipment was made between the parts other than those stated in the letter of
credit.
z Insurance cover was inadequate and expressed in a currency other than that
required by the letter of credit.
z The description (or spelling) of goods on invoice(s) differed from that in the letter
of credit.
z The weights, marks and numbers differed between export documents.
z The amounts of value shown on the invoice(s) and bill of exchange (draft)
differed.
z The drawing was for less than the letter of credit amount (when part shipment)
were not permitted.
z The bill of lading did not evidence whether freight was paid or not.
z The shipment was short.
z The bill of exchange (draft) was drawn on wrong party.
z 'The bill of exchange was payable on indeterminable date.
z The bill of lading, insurance document or bill of exchange (draft) were not
endorsed correctly.
z The copy of the freight account was not attached (when called for by the letter of
credit).
z There was an absence of signatures of witnesses, when required, on document
presented.
z The facsimile signatures were used when not allowed.
In view of such common errors, it is necessary to read the letter of credit very
carefully and check the terms against the contract of sale. It is fundamental to check
that the letter of credit:
z is of the type agreed, e.g. irrevocable and confirmed or just irrevocable.
z has an expiry date that is sufficiently far ahead for the goods to be shipped and the
required documents obtained and presented in time.
z has terms and conditions that can be met and that the required documents can be
obtained exactly as called for.
z has correct spelling and misspellings should be taken up immediately with the
buyer.
If any amendment or extension is necessary, the buyer should be asked immediately to
instruct the issuing bank accordingly. A watch should be kept to see that advice of
amendment of the credit is received without delay. It should be remembered that bank
34 is not allowed to overlook or approve errors and inconsistencies, however small in the
documents presented and will not pay in such circumstances.
Fill in the blanks:
1. The …………… play a very important role in export business.
2. UCP stands for ……………
3. …………… the amount is revived or reinstated without requiring re-
enhancement in credit.
3.5 FORMS OF DOCUMENTARY CREDIT

Documentary credit may be issued in the form of Sight Credit and Acceptance Credit.
Let us discuss them in detail.
3.5.1 Documents against Payment

It is a widely used method for receiving payments in respect of exports. The essence
of this type of transaction is that the exporter is willing to ship the goods before
payment. However, he is not prepared to allow the buyer to take possession of them
before the buyer has paid.
The mechanics of the system requires the exporter to draw a bill of exchange on the
buyer, payable at sight. The exporter then hands-over the bill to his banks together
with the documents of title to goods. The documents include commercial invoices,
packing list, marine insurance policy or certificate and a full set of bill of
lading/airway bill/combined transport document. The documents are to be surrendered
to the importer only upon payment of the bill. These bills are presented to the buyer
for payment through a branch or a correspondent in the buyer's country. The amount
realised and remitted back to the exporter's bank for his account.
In case of goods sold on documents against payment basis, the exporter retains control
of goods till payment is received but risks still exist. If the bill is not paid on
presentation and the goods are lying in the foreign port, custom duties, warehouse and
insurance charges and other incidental expenses may be incurred. It may be
impossible to find another buyer, and difficult to reship the goods. In cases where the
bills are in foreign currencies, exchange risks also exist from the time sales contract is
concluded until the bill is realised. If the exporter's bank purchases such bill and the
bill is not paid by drawee, exporter's account will be debited with the amount of the
bill and related charges.
There are transfer risks arising from possible delays in remittances from the buyer
because of shortage of foreign exchange in his country. Incidence of such risks, can
however, be minimized by taking recourse to an export credit insurance policy.
3.5.2 Documents against Acceptance

Under the documents against acceptance method, the exporter draws a usance or time
bill in the importer. He forwards the bill along with the export documents to the bank
for delivery to importer against acceptance of the bill. The essence of this type of
transaction is that the exporter is willing not only to ship the goods before payment but
is prepared to wait even after the buyer has taken delivery of goods. He, therefore,
draws a bill and insists upon its acceptance before the documents are handed over to
the importer. These bills have a usance period, usually of 30, 60, 90, 120 or 180 days.
Accepting the bill (which means writing the word ACCEPTED and putting the
signature) implies an unconditional undertaking to pay on the due date mentioned in
the bill. On the due date, the bill is presented for payment and the amount remitted to 35
Terms of Payment
the exporter.
There are several risks associated with the system. Firstly, there is a credit risk. Failure
or unwillingness to pay on the due date may force the exporter to take recourse to
legal action. Secondly, there are transfer risks arising from possible delays in
remittances from the buyer because of shortage of foreign exchange. Incidence of such
risks, can however, be minimized by taking recourse to an export credit insurance
policy. Lastly, where the bills are drawn in foreign currencies, exchange risks as also
the time contract is concluded and the bill is paid.
3.6 OPEN ACCOUNT WITH PROVISIONS FOR PERIODIC

SETTLEMENT
This method is generally used in cases of inter-company relationship between seller
and buyer. This is also used where the exporter and overseas buyers have had long and
favourable dealings together and there are no exchange restrictions that might
complicate settlement. Sales on open account are settled through periodic remittances
to exporters. In such cases, financing is carried by the exporter. The exporter has
sufficient financial strength or credit worthiness to carry the inventory abroad out of
his own resources. Exporting on open account basis requires special permission of the
Reserve Bank of India. Normally, it is available only to foreign companies operating
in India.
3.7 SHIPMENT ON CONSIGNMENT BASIS

Shipment on consignment basis implies that goods are sent to the importer on the
understanding that the latter will sell the goods and remit the sale proceeds. Importer,
in most cases, is either the exporter's own agent or certain marketing agencies who
undertake to sell the goods on commission basis. A typical example of such sale is
export of tea to UK. Tea is sent to London, where it is sold through periodic auctions,
and the sale proceed is remitted back to exporters.
Under the exchange control regulations in India, Indian exporters are required to
declare the minimum selling price of each consignment. In case the goods cannot be
sold at the price declared at the time of shipment, reduction in price can be effected
only with the permission from Reserve Bank of India.
Fill in the blanks:
1. Documentary credit may be issued in the form of Sight Credit and
…………… .
2. Under the …………… regulations in India, Indian exporters are required
to declare the minimum selling price of each consignment.
3. Exporting on open account basis requires special permission of the
…………… .
3.8 LET US SUM UP

Terms of payment are often decisive in obtaining an export order. Hence, an
understanding of alternative payment terms is important for marketing goods abroad.
There are four method of receiving payments. They are: Advance payment,
Documentary Credit, Open Account and Shipment on Consignment. Advance
36 payment, which is the simplest and safest method, involves remittance (by cable or
mail) in payment for the goods by the time of acceptances of the order or at some time
before the shipment. In most cases, however, it may not be accepted by the buyer,
except perhaps when the buyer is an overseas affiliate of the exporter, or urgently
requires the goods and the exporter is in a position to dictate his terms.

Discuss the safest mode of payment used in export business.
3.10 KEYWORDS
Documentary Credit: An arrangement whereby a bank (the issuing bank) undertakes
to pay on behalf of its client (the importer or applicant) to make payment to the
beneficiary or exporter upon presentation of certain documents specified in the credit.
Issuing Bank: The bank who, at the request of the importer, issues the letter of credit.
Advising Bank: Issuing bank branch or correspondents in the exporter's country to
whom the letter of credit is sent for onward transmission to the beneficiary.
Confirming Banker: The bank who undertakes to pay to the exporter in case the
issuing bank fails to do so is called confirming banker. Most often, the advising and
the confirming banker are one and the same.
Beneficiary: The party to whom the credit is addressed, i.e. the seller or supplier of
goods.

1. What do you mean by advance payment? Also explain the advantage of advance
payment to exporter.
2. Describe various parties involved in documentary credit.
3. Distinguish between transferable L/C and standby L/C.
4. What do you mean by documents against payment?

CYP 1
1. terms of payment
2. Uniform Customs and Practices
3. Under Revolving Credit
CYP 2
1. Acceptance Credit
2. exchange control
3. Reserve Bank of India
37
3.12 SUGGESTED READINGS Terms of Payment
India.
38
39
Export Finance
UNIT II
40
LESSON 41
Export Finance
4
EXPORT FINANCE
CONTENTS
4.1 Introduction
4.2 Institutional Framework
4.3 Pre-shipment Finance
4.3.1 Packing Credit
4.3.2 Advance against Incentives
4.3.3 Pre-shipment Credit in Foreign Currency
4.4 Post-shipment Finance
4.5 Types of Post-shipment Finance
4.5.1 Negotiation of Export Documents Under Letters of Credit
4.5.2 Purchase/Discount of Foreign Bills
4.5.3 Advance against Bills Sent on Collection
4.5.4 Advance against Goods Sent on Consignment
4.5.5 Advance against Export Incentives
4.5.6 Advance against Undrawn Balances
4.5.7 Advance against Retention Money
4.5.8 Post-shipment Export Credit Guarantee and Export Finance Guarantee
4.5.9 Post-shipment Credit in Foreign Currency
4.6 Export Import Bank of India: Pre-shipment Export Credit in Foreign Currency
4.6.1 Features of EXIM Bank
4.7 Documents Required for Export Finance
4.8 Let us Sum up
4.10 Keywords

z Explain institutional framework
z Describe pre-shipment finance and credit
42 z List the various types of post-shipment finance
z Discuss the export-import bank of India
z Identify the documents required for bank submission.
4.1 INTRODUCTION
Export financing is an important area of export business. Export finance refers to the
credit facilities extended to the exporters at pre-shipment and post-shipment stages. It
includes any loan to an exporter for financing the purchase, processing, manufacturing
or packing of goods meant for overseas markets. Credit is also extended after the
shipment of goods to the date of realization of export proceeds. In this lesson, you will
learn various schemes of finance available to exporters at pre-shipment and post-
shipment stages. You will also be acquainted with the role of EXIM Bank in export
finance.
4.2 INSTITUTIONAL FRAMEWORK

Institutional framework for providing finance comprises Reserve Bank of India,
Commercial Banks, Export Import Bank of India and Export Credit and Guarantee
Corporation. Reserve Bank of India, being the central bank of country, lays down the
policy framework and provides guidelines for implementation.
Finance short or medium term, is provided exclusively by the Indian and foreign
commercial banks which are members of the Foreign Exchange Dealer's Association.
The Reserve Bank of India function as refinancing institutions for short and medium
term loans respectively, Provided by commercial banks. Export Import Bank of India,
in certain cases, participates with commercial bank in extending medium term loans to
exporters. Commercial banks provide finance at a concessional rate of interest and in
turn are refinanced by the Reserve Bank. In case they do not wish to avail refinance,
they are entitled for an interest rate subsidy. Export Credit & Guarantee Corporation
(ECGC) also plays an important role through its various policies and guarantees
providing cover for commercial and political risks involved in export trade.
4.3 PRE-SHIPMENT FINANCE

Pre-shipment finance is provided to the exporters for the purchase of raw materials,
processing them and converting them into finished goods for the purpose of export.
Let us discuss various pre-shipment advances available to the exporters.
4.3.1 Packing Credit

The basic purpose of packing credit is to enable the eligible exporters to procure,
process, manufacture or store the goods meant for export. Packing credit refers to any
loan to an exporter for financing the purchase, processing, manufacturing or packing
of goods as defamed by the Reserve Bank of India. It is a short-term credit against
exportable goods.
Packing credit is normally granted on secured basis. Sometimes clear advance may
also be granted. Many advances are clean at their initial stage when goods are not yet
acquired. Once the goods are acquired and are in the custody of the exporter banks
usually convert the clean advance into hypothecation pledge.
Eligibility 43
Export Finance
Packing credit is available to all exporters whether merchant exporter, Export/
Trading/Star Trading/Super Star Trading Houses and manufacturer exporter.
Manufacturers of goods supplying to Export/Trading/ST/SST Houses and Merchant
exporters are eligible for packing credit. The-foreign buyer through the medium of a
reputed bank gives the credit to eligible exporters, for specified purposes against
irrevocable letter of credit. It is also available against a confirmed or firm export
order/contract placed by the buyer for export of goods from India.
Running Account Facility

The RBI has permitted banks to grant packing credit advances even without
lodgement of-L/C or firm-order/ contract under the scheme of Running Account
Facility subject to the following conditions:
z The facility may be extended, provided the need for Running Account facility has
been established by the exporters to the' satisfaction of the bank.
z The bank may extend this facility only to those exporters whose track record has
been good.
z L/C or firm order is produced within a reasonable period of time. For
Commodities under selective credit control, banks should insist on production of
L/Cs or firm orders within one month from the date of sanction.
z The concessive credit available in respect of individual pre-shipment credit should
not go beyond 180 days.
Packing credit may also be given under the Red Clause letter of credit. In this method,
credit is given at the instance and responsibility of the foreign bank establishing the
L/C. Here, the packing credit advance is made against a simple receipt and is
unsecured.
Amount
The loan amount is decided on the basis of export order and the credit rating of the
exporter by the bank. Generally the amount of packing credit will not exceed FOB
value of the export goods or their domestic value whichever is less. It can be to the
extent of domestic value of the goods even though such value is higher than their FOB
value provided the goods are entitled to duty draw back and also covered by the
Export Production Finance Guarantee of the ECGC.
Period
The packing credit can be granted for a maximum period of 180 days from the date of
disbursement. The banks are authorised by RBI to extend this period. This period can
be extended for a further period of 90 days, in case of non-shipment of goods within
180 days. The extension can be done provided the banks are satisfied that the reasons
for extension are due to circumstances beyond the control of the exporters.
Pre-shipment credit may be given for a longer period up to a maximum of 270 days, if
the banks are satisfied about the need for longer duration of credit.
Rate of Interest
The interest payable on pre-shipment finance is usually lower than the normal rate,
provided the credit is extinguished by lodging the export bills on remittances from
abroad. If the exporter fails to do so they would not be able to avail concessional rate
of interest.
44 In order to avail the packing credit; exporters are expected to make a formal
application to the bank giving details of credit requirements along with the required
documents.
4.3.2 Advance against Incentives

When the value of the materials to be procured for export is more than FOB value of
the contract, the exporters may get packing credit advance more than the FOB value of
the goods. The excess of cost of production over the FOB value of the contract
represents incentives receivables. For example, when the domestic price of goods
exceeds the value of export orders, the difference represents duty drawback
entitlement. Banks can grant advances against duty drawback at pre-shipment stage
subject to the condition that the loan is covered by Export Production Finance
Guarantee of Export Credit Guarantee Corporation (ECGC). This guarantee enables
banks to sanction advances at the pre-shipment stage to the full extent of cost of
production. The extent of cover and the premium are the, same as for packing credit
guarantee.
4.3.3 Pre-shipment Credit in Foreign Currency

This is an additional window to rupee packing credit scheme. This credit is available
to cover both the domestic and imported inputs of the goods exported from India. The
facility is available in any of the convertible currencies. The credit will be self-
liquidating in nature and accordingly after the shipment of goods the bills will be
eligible for discounting/ rediscounting or for post-shipment credit in foreign currency.
The exporters can avail this finance under the following two options.
z The exporters may avail pre-shipment credit in rupees and, then, the post-
shipment credit either in rupees or in foreign currency denominated credit or
discounting/ rediscounting of export bills.
z The exporters may avail pre-shipment credit in foreign currency and discounting/
rediscounting of the export bills in foreign currency.
PCFC credit will also be available both to the supplier units of EPZ/EOU and the
receiver units of EPZ/EOU. The credit in foreign currency shall also be available on
exports to Asian Clearing Union (ACU) Countries. This will be extended only on the
basis of confirmed firm export orders or confirmed L/Cs. The Running Account
facility will not be available under the scheme.
Fill in the blanks:
1. ……………. plays an important role through its various policies and
guarantees providing cover for commercial and political risks involved in
export trade.
2. FOB stands for …………….
3. EOU stands for ……………. .
4.4 POST-SHIPMENT FINANCE

It may be defined as "any loan or advance granted or any other credit provided by a
bank to an exporter of goods from India from the date of extending the credit after
shipment of goods to the date of realisation of export proceeds. It includes any loan or
advance granted to an exporter on consideration of or on the security of, any duty
drawback or any cash receivables by way of incentive from the government.
While granting post-shipment finance, banks are governed by the guidelines issued by 45
Export Finance
the RBI, the rules of the Foreign Exchange Dealers Association of India (FEDAI), the
Trade Control and Exchange Control Regulations and the International Conventions
and Codes of the International Chambers of Commerce. The exporters are required to
obtain credit limits suitable to their needs. The quantum of credit depends on export
sales and receivables.
Post shipment finance is granted under various methods. The exporter may choose the
type of facility as per his requirement. The Banks scrutinize the documents submitted
for compliance of exchange control provisions like:
z The documents are drawn in permitted currencies and payment receivable as
permitted method of payment;
z The relevant GR/PP form duly certified by the customs is submitted and
particulars as stated in the GR/PP form are consistent with the documents tendered
as well as the sale contract firm order etc. / letter of credit.
z The documents are submitted within the time limit stipulated and in case of delay
suitable explanation is made
z The period of usance is in consonance with the time limit prescribed for
realisation of export proceeds.
4.5 TYPES OF POST-SHIPMENT FINANCE

4.5.1 Negotiation of Export Documents Under Letters of Credit
Where the exports are under letter of credit arrangements, the banks will negotiate the
export bills provided it is drawn in conformity with the letter of credit. When
documents are presented to the bank for negotiation under L/C, they should be
scrutinized carefully taking into account all the terms and conditions of the credit. All
the documents tendered should be strictly in accordance with the L/C terms. It is to be
noted that the L/C issuing bank undertakes to honour its commitment only if the
beneficiary submits the stipulated documents. Even the slightest deviation from those
specified in the L/C can give an excuse to the issuing bank of refusing the
reimbursement of the payment that might have been already made by the negotiating
bank.
4.5.2 Purchase/Discount of Foreign Bills

Purchase or discount facilities in respect of export bills drawn under confirmed export
contracts are generally granted to exporters who enjoy bill purchase/discounting limits
sanctioned by the bank. As the security offered by the issuing bank under letter of
credit arrangement is not available, the financing bank is totally dependent upon the
credit worthiness of the foreign buyer. The documents, under the Documents against
Payment (DIP) arrangements, are released through foreign correspondent only when
payment is received. Whereas in the case of Documents against Acceptance (D/A)
bills, documents are delivered to the overseas importers against acceptance of the draft
to make payment on maturity. Since the financing banks are open to the risk of non-
payment, ECGC policies issued in favour of exporters and assigned to banks are
insisted upon.
Under the policy, ECGC fixes limits and payment terms for individual buyers and the
financing bank has to ensure that the limit is not exceeded so that the benefits of
policy are available. Banks also secure a guarantee from ECGC on the post-shipment
finance extended by them either on a selective or whole turnover basis. Banks
46 sometimes do obtain credit reports on foreign buyers before they purchase the export
bills drawn on the foreign buyer.
4.5.3 Advance against Bills Sent on Collection

Post-shipment finance is granted against bills sent on collection basis in the following
situations:
z When the accommodation available under the foreign bills purchase limit is
exhausted
z When some export bills drawn under L/C have discrepancies.
z Where it is customary practice in the particular line of trade and in the case of
exports to countries where there are problems of externalisation.
Under the above situation, the bank may send the bill on collection basis and finance
the exporter to some extent out of the total bill amount. The amount advanced will be
liquidated out of the export proceeds of the export bill and the balance paid to the
exporter.
Exporters may avail themselves on the forward exchange facility where they do not
wish to be subjected to exchange risk on account of the new procedures for overdue
export bills.
4.5.4 Advance against Goods Sent on Consignment

Sometimes exports are effected on consignment basis. In such condition payment is
receivable to sale of goods. Goods are exported at the risk of exporter for sale. The
banks may finance against such transaction subject to the exporter enjoying specific
limit for such purpose. The overseas branch/ correspondent of the bank is instructed to
deliver documents against Trust Receipt.
4.5.5 Advance against Export Incentives

Advances against the export incentives are given at the pre-shipment stage as well as
the post-shipment stage. However, the major part of the advance is given at the post-
shipment stage. The advance is granted to an exporter in consideration of or on the
security of any duty drawback incentives receivable from the Government. The banks
follow their own procedure in granting the advance. The most common practice is to
obtain a power of attorney from the exporter executed in their favour by the banks. It
is sent to the concerned government department like the Director General of Foreign
Trade, Commissioner of Customs, etc. These advances are not granted in isolation. It
is granted only if all other types of export finance are extended to the exporter by the
same bank.
4.5.6 Advance against Undrawn Balances

In some of the export business, it is the trade practice that the bills are not drawn for
the full invoice value of the goods. A small part of the bills is left undrawn for
payment after adjustments due to difference in weight quality, etc. Advances are
granted against such undrawn balances. In this case the export proceeds must be
realised within 90 days.
The advances are granted provided the undrawn balance is in conformity with the
normal level of balances left undrawn subject to a maximum of 5% of the full export
value. The exporters are supposed to give an undertaking that they will surrender the
balance proceeds within 6 months from the date of shipment.
4.5.7 Advance against Retention Money 47
Export Finance
Banks grant advances against retention money, which is payable within one year from
the date of shipment. The advances are granted up to 90 days. If such advances extend
beyond one year, they are treated as deferred payment advance which are also eligible
for concessional rate of interest.
4.5.8 Post-shipment Export Credit Guarantee and Export Finance

Guarantee
Post-shipment finance given to exporters by banks through purchase, negotiation or
discount of export bills or advances against such bills qualifies for this guarantee.
Exporters are expected to hold appropriate shipments or contracts policy of ECGC to
cover the overseas credit risks.
Export Finance Guarantee cover post-shipment advances granted by banks to
exporters against export incentives receivable in the form of duty drawback, etc.
4.5.9 Post-shipment Credit in Foreign Currency

The exporters have the option of availing of exports credit at the post-shipment stage
either in rupee or in foreign currency. The credit is granted under the Rediscounting of
Export Bills Abroad Scheme (EBR) at LIBOR linked interest rates. The scheme
covers export bills with usance period up to 180 days from the date of shipment.
Discounting of bills beyond 180 days requires prior approval from RBI. The exporters
have the option to avail of pre-shipment credit and post-shipment credit either in rupee
or in foreign currency. If pre-shipment credit has been availed of in foreign currency,
the post-shipment credit has to be necessarily under the EBR scheme. This is done
because the foreign currency pre-shipment credit has to be liquidated in foreign
currency.
4.6 EXPORT IMPORT BANK OF INDIA: PRE-SHIPMENT

EXPORT CREDIT IN FOREIGN CURRENCY
In addition to the pre-shipment credit in foreign currency granted by the commercial
banks, the Export – Import Bank of India (EXIM Bank) also offers the facility of
pre-shipment export credit in foreign currency to only specified categories of the
exporters unlike the PCFC offered by commercial banks to all categories of the
exporters. The specified categories of exporters are as follows:
z Export House/Trading House with annual export turnover exceeding
` 10.00 crore.
z Manufacturing units with minimum export orientation of 25% of production or
export turnover exceeding ` 5 crore, whichever is lower. For this purpose only
physical exports of commodities are taken into account. Such exports could be
made either directly or through Trading Houses.
The Export Import Bank of India provides these facilities to the exporters through
commercial banks. Such credit is granted to pay for the import of inputs required for
export production. This credit is granted on the basis of the firm export order or the
letter of credit.
48 4.6.1 Features of EXIM Bank
The features of EXIM bank are:
z EXIM Bank raises short-term foreign currency funds on a revolving basis from
one or more Syndicates of overseas lenders. Such funds are then made available
by the EXIM Bank to the commercial banks in India who opt to avail of PCFC for
on-lending to eligible exporter customers for import of eligible items. The
commercial banks will, in turn, allocate PCFC limits to their customers on the
basis of their assessment of import requirement for export production. The
advances granted under PCFC to the exporters are fully liquidated from the export
proceeds of the relative export bill.
z The maximum period of an advance under PCFC will not generally exceed 180
days.
z The applicable rate of interest on credit available to the exporter will be two per
cent over and above the interest rate at which the funds are raised by the EXIM
Bank. Exporters may also have to pay management fee, commitment, fee, etc. if
applicable.
z The repayment of the pre-shipment credit will be made out of sale proceeds of
export shipment in respect of which the exporter availed of the facility.
4.7 DOCUMENTS REQUIRED FOR EXPORT FINANCE

Where the documents are drawn under a letter the letter to the bank should be
enclosed with the documents as prescribed in the letter of credit, if any or stipulated in
the export order or such document which enable the buyer to take delivery of goods
and the documents required by the exporter to claim assistance. Following documents
are generally required by any bank to negotiate or collect necessary payment from
abroad and by the exporter.
z Bill of exchange
z Full set of Bill of Lading/Airway Bill/Post parcel Slip/Combined Transport
Documents, etc.
z Commercial invoice including one copy duly certified by the customs. The
number of copies should be the same as specified by the customs may also be
acceptable in cases where the particulars furnished in the GR form agree with
those indicated in the copy of invoice produced by the exporter and the value of
the invoice agrees with the value of goods passed for shipment by customs.
However, Customs Certified invoice is necessary where the RBI has specifically
stipulated such a requirement, viz. for countersigning GR form for export of
precious stones and jewellery by air.
z Original letter of credit.
z Customs invoice/consular invoice
z Certificate of origin, GSP/APR Certificate
z Insurance policy/certificate with complete set
z Packing list
z Foreign exchange declaration form
z Bank certificate of export realization in the prescribed form (in triplicate)
z Other documents, if required
Check Your Progress 2 49
Export Finance
Fill in the blanks:
1. FEDAI Stands for …………….
2. Advances against the export incentives are given at the ……………. as
well as the post-shipment stage.
3. EBR stands for ……………. .
4.8 LET US SUM UP

Export finance is provided at the pre-shipment and post-shipment stages. In India, the
export credit facilities are provided largely by commercial banks, RBI and EXIM
banks offer refinance. EXIM bank, in certain cases, participates with commercial
banks in extending medium and long-term credit to exporters. In India, pre-shipment
finance is offered in the form of (i) Packing credit (ii) Advance against incentives and
(iii) Pre-Shipment Credit in Foreign Currency (PCFC). Packing credit facilities are
provided to the exporters for making necessary arrangements for executing export
contracts. The basic purpose of packing credit is to enable the eligible exporters to
procure, process, manufacture or store the goods meant for export. It is extended on
the strength of either the letter of credit or confirmed export contracts. Generally the
amount of packing credit does not exceed FOB value of the export goods or their
domestic value whichever is less. When the value of the materials to be procured for
export is more than FOB value of the contract, the exporters may get the credit against
the receivables export incentives. The pre-shipment finance is also made available in
foreign currency.

Discuss the role of EXIM bank in India according to the requirement of exporter.
4.10 KEYWORDS
Bill of Exchange: The drawing of a bill of exchange (frequently referred to as a draft)
is the method most commonly used by exporters as a means of obtaining payment
from buyers for goods shipped.
Consignment Exports: Where the exporter ships the goods abroad, usually to his
agent, on an understanding that goods will be sold and sale proceeds after deducting
agent's commission and other selling expenses will be remitted to him.
Deferred pay heat Exports: A, situation, where the exporter agrees to receive the
proceeds after a period extending beyond six months.
Usance Bill: The bill which has a usance period, usually of 30,60,90,120 or 180 days,
required the drawee to pay the bill after the expire of usance period.

1. What do you mean by export finance?
2. Describe pre-shipment credit in foreign currency.
3. Explain various types of post-shipment finance.
4. Explain the role of Export Import Bank of India.
50 Check Your Progress: Model Answers
CYP 1
1. Export Credit & Guarantee Corporation (ECGC)
2. Free on Board
3. Export Oriented Units.
CYP 2
1. Foreign Exchange Dealers Association of India
2. pre-shipment stage
3. Export Bills Abroad Scheme

India.
51
LESSON Foreign Currency Exchange
Control Regulations
5
FOREIGN CURRENCY EXCHANGE CONTROL
REGULATIONS
CONTENTS
5.1 Introduction
5.2 Foreign Exchange
5.2.1 Foreign Exchange Transactions
5.2.2 Exchange Control
5.3 Foreign Exchange Management Act, 1999
5.4 Regulation and Management of Foreign Exchange
5.4.1 Dealing in Foreign Exchange
5.4.2 Holding of Foreign Exchange
5.4.3 Current Account Transactions
5.4.4 Capital Account Transactions
5.4.5 A Person Resident in India May Hold
5.4.6 A Person Resident outside India May Hold
5.4.7 Without Prejudice to the Provisions of this Section
5.4.8 Export of Goods and Services
5.4.9 Realization and Repatriation of Foreign Exchange
5.4.10 Exemption from Realisation and Repatriation in Certain Cases
5.5 Other Provisions
5.5.1 Foreign Currency Accounts
5.5.2 Agency Commission
5.5.3 Export Claims
5.5.4 Other Remittance
5.6 Forex Major Currencies and Exchange Rates
5.6.1 Types of Exchange Rate
5.6.2 Determining Currency Exchange Rates
5.7 Let us Sum up
5.9 Keywords
52
Export Trade and Documentation 5.0 AIMS AND OBJECTIVES
z Explain foreign exchange
z Discuss the Foreign Exchange Management Act, 1999
z Explain the regulation and management of foreign exchange
z Describe other provisions of foreign exchange
z List the FOREX major currencies and exchange rates
5.1 INTRODUCTION
The term exchange control applies to the rules and regulations designed to regulate
transactions involving foreign exchange. The objective of the exchange control is
primarily to regulate the demand for foreign exchange for various purposes within the
limits set by available supply. Exchange control becomes necessary when the
country's external reserves are not adequate for meeting its current and potential
requirements. In this lesson, you will learn the objectives of exchange control and
various provisions of Foreign Exchange Management Act, 1999 related to regulation
and management of foreign exchange and procedures of export declaration forms.
5.2 FOREIGN EXCHANGE

Foreign exchange means foreign currency and includes:
z All deposits, credit and balances payable in foreign currency,
z Any drafts, traveller's cheques, letters of credit and bills of exchange expressed or
drawn in Indian currency but payable in any foreign currency.
z Any instrument payable at the option of the drawee or holder thereof or any other
party thereto, either in Indian currency or foreign currency or partly in one and
partly in the other.
Foreign exchange accrues out of foreign exchange transactions. The regulation and
control of foreign exchange implies, therefore, regulation and control of foreign
exchange transactions.
5.2.1 Foreign Exchange Transactions

A foreign exchange transaction is ultimately the purchase or sale of one national
currency against another arising out of import or export of goods and services, foreign
remittances and foreign travel both inward and outward, etc. The goods refer to raw
materials, intermediary or finished products, capital goods, etc. comprising the visible
items of a country's foreign trade. Services refer to shipping, air travel, insurance,
banking, supply of technical know how, consultancy, transfer of capital by way of
lending and/or investment, interest on such capital and dividends on such investment,
tourists income and expenses, cost of Indian students abroad and of foreign students in
India, gifts and donations, remittances, etc. which taken together comprise the
invisible items of a country's foreign trade. A foreign exchange transaction is thus
transfer of purchasing power, i.e. acquisition or parting with the right to wealth in a
foreign country. As you must know that the foreign exchange is precious for a
country. Hence, government regulates and controls the foreign exchange transactions.
5.2.2 Exchange Control 53
Foreign Currency Exchange
Exchange control means official intervention with the foreign exchange of a country. Control Regulations
It is a system of rationing foreign exchange among competing demands for it is

effected by controlling the receipts and payments thereof. The control of receipts aims
at centralising the country's means of external payments in a common pool in the
hands of its monetary authorities. Reserve Bank of India is the monetary authority in
India. It facilitates judicious use of foreign exchange. The control of payments aims at
restraining the demand for foreign exchange broadly in consonance with the national
interests within the limits of available resources.
Objectives of Exchange Control

Most of the developing countries including India found it necessary to continue
exchange control introduced during the Second World War on a systematic and long-
term basis. Exchange control became essential in view of the substantial requirements
of foreign exchange for the planned developmental effort undertaken by them. Over
the years, the scope of exchange control in India has steadily widened. The regulations
have become progressively more elaborate with the increasing foreign exchange
outlays under successive Five Year plans and the relative inadequate earnings of
foreign exchange. During the span of more than 40 years that the control has remained
in force, appraisals and reviews of policies and procedures have been undertaken
periodically and modifications made as and when considered necessary.
The main objectives of the exchange control are:
z To prevent flight of capital
z To ensure the availability of sufficient foreign exchange for specific purposes
Such as meeting the international commitments
z To stabilise the external value of the domestic currency
z To insulate the economy from external economic pressures.
You should note that the basic objective of exchange control in India is conservation
of the foreign exchange resources and proper utilization thereof in the interest of
economic development of the country.
5.3 FOREIGN EXCHANGE MANAGEMENT ACT, 1999

The Foreign Exchange Management Act (FEMA), 1999 has been operationalised. The
basic objective of this act is to consolidate and amend the law relating to foreign
exchange with the objective of facilitating external trade and payments and for
promoting the orderly development and maintenance of foreign exchange market in
India. There are seven chapters in this act. The first chapter deals with various
definitions and scope of this act. Chapter two explains about the dealings, holding,
transactions, realization and repatriation of foreign exchange. The third chapter
discusses about the authorized persons and Reserve Bank's power related to the
authorized person. Fourth chapter deals with the procedures of penalties and
enforcement. Fifth chapter explains the procedures of adjudication and appeal.
Chapter six deals with the directorate of enforcement, power of search and seizure.
54 Check Your Progress 1
Fill in the blanks:
1. FEMA stands for …………… .
2. A …………… transaction is ultimately the purchase or sale of one
national currency against another arising out of import or export of goods
and services.
3. …………… became essential in view of the substantial requirements of
foreign exchange for the planned developmental effort undertaken by
them.
5.4 REGULATION AND MANAGEMENT OF FOREIGN

EXCHANGE
Various provisions of regulation and management of foreign exchange are:
5.4.1 Dealing in Foreign Exchange

Save as otherwise provided in this Act, rules or regulations made there under, or with
the general or special permission of the Reserve Bank, no person shall:
z Deal in or transfer any foreign exchange or foreign security to any person not
being an authorized person.
z Make any payment to or for the credit of any person resident outside India in any
manner.
z Receive otherwise through an authorized person, any payment by order or on
behalf of any person resident outside India ill any manner.
z Enter into any financial transaction in India as consideration for or in 'association
with acquisition or creation or transfer of a right to acquire, any asset outside India
by any person.
5.4.2 Holding of Foreign Exchange

Save as otherwise provided in this Act, no person resident in India shall acquire, hold,
own, possess or transfer any foreign exchange, foreign security or any immovable
property situated outside India.
5.4.3 Current Account Transactions

Any person may sell or draw foreign exchange to or from an authorized person if such
sale or drawal is a current account transaction; provided that the Central Government
may, in public interest and in consultation with, the Reserve Bank, impose such
reasonable restrictions for current account transactions as may be prescribed.
5.4.4 Capital Account Transactions

The provisions for capital account transactions include:
z Subject to the provisions of sub-section (2), any person may sell or draw foreign
exchange to or from an authorized person for a capital account transaction.
z The Reserve Bank may, in consultation with the Central Government, specify:
Any class or classes of capital account transactions which are permissible;
The limit up to which foreign exchange shall be admissible for such
transactions:
Provided that the Reserve Bank shall not impose any restriction on the drawal of 55
foreign exchange for payments due on account of amortization of loans or for Control Regulations
depreciation on direct investments in the ordinary course of business.
z Without prejudice to the generality of the provisions of sub-section (2), the
Reserve Bank may, by regulations, prohibit, restrict or regulate the following:
Transfer or issue of any foreign security by a person resident in India;
Transfer or issue of any security by a person resident outside India;
Transfer or issue of any security or foreign security by any branch, office or
agency in India of a person resident outside India;
Any borrowing or lending in foreign exchange in whatever form or by
whatever name called;
Any borrowing or lending in rupees in whatever form or by whatever name
called between a person resident in India and a person resident outside India;
Deposits between persons resident in India and persons resident outside India;
Export, import or holding of currency or currency notes;
Transfer of immovable property outside India, other than a lease not
exceeding five years, by a person resident in India;
Acquisition or transfer of immovable property in India, other than a lease not
exceeding five years, by a person resident outside India;
Giving of a guarantee or surety in respect of any debt, obligation or other
liability incurred: by a person resident in India and owed to a person resident
outside India; or by a person resident outside India.
5.4.5 A Person Resident in India May Hold

A person resident in India may hold, own, transfer or invest in foreign currency,
foreign security or property any immovable property situated outside India if such
currency, security or was acquired, held or owned by such person when he was
resident outside India or inherited from a person who was resident outside India.
5.4.6 A Person Resident outside India May Hold

A person resident outside India may hold, own, transfer or invest in Indian currency,
security or any immovable property situated in India if such currency, security or
property was acquired, held or owned by such person when he was resident in India or
inherited from a person who was resident in India.
5.4.7 Without Prejudice to the Provisions of this Section

Without prejudice to the provisions of this section, the Reserve Bank may, by
regulation, prohibit, restrict, or regulate establishment in India of a branch, office or
other place of business by a person resident outside India, for carrying on any activity
relating to such branch, office or other place of business.
5.4.8 Export of Goods and Services

Under the provisions of export of goods and services are as follow:
z Every exporter of goods shall:
Furnish to the Reserve Bank or to such other authority a declaration in such
form and in such manner as may be specified, containing true and correct
material particulars, including the amount representing the full export value.
56 If the full export value of the goods is not ascertainable at the time of export,
the value which the exporter, having regard to the prevailing market
conditions, expects to receive on the sale of the goods in a market outside
India;
Furnish to the Reserve Bank such other information as may be required by the
Reserve Bank for the purpose of ensuring the realisation of the export
proceeds by such exporter.
z The Reserve Bank may, for the purpose of ensuring that the full export value of
the goods or such reduced value of the goods as the Reserve Bank determines,
having regard to the prevailing market conditions, is received without any delay,
direct any exporter to comply with such requirements as it deems fit.
z Every exporter of services shall furnish to the Reserve Bank or to such other
authorities a declaration in such form and in such manner as may be specified,
containing the true slid correct material particulars in-relation to payment for such
services.
5.4.9 Realisation and Repatriation of Foreign Exchange

Save as otherwise provided in this Act, where any amount of foreign exchange is due
or has accrued to any person resident in India, such person Shall take all reasonable
steps to realize and repatriate to India such foreign exchange within such period and in
such manner as may be specified by the Reserve Bank.
5.5.10 Exemption from Realisation and Repatriation in Certain Cases

The exemption may be granted in the following cases:
z Possession of foreign currency or foreign coins by any person up to such limit as
the Reserve Bank may specify.
z Foreign currency account held or opted by such person or class of persons and the
limit up to which the Reserve Bank may specify.
z Foreign exchange acquired or received before the 8th day of July, 1947 or any
income arising or accruing thereon which is held outside India by any person in
pursuance of a general or special permission granted by the Reserve Bank.
z Foreign exchange held by a person resident in India up to such limit as the
Reserve Bank may specify if such foreign exchange was acquired by way of gift
or inheritance from a person referred to in clause (c) including any income arising
there from.
z Foreign exchange acquired from employment, business, trade, vocation, services,
honorarium, gifts, inheritance or any other legitimate means up to such limits as
the Reserve Bank may specify.
z Such other receipts in foreign exchange as the Reserve Bank may specify.
5.5 OTHER PROVISIONS

The other provisions related to export are:
5.5.1 Foreign Currency Accounts

Persons resident in India, including exporters, are allowed to open and maintain
foreign currency Accounts in or outside India. Exporters are permitted to maintain
Exchange Earners Foreign Currency (EEFC) Accounts in India. An exporter who is
exporting goods on deferred payment term also allows foreign Currency Account
outside India. This facility is also extended to the turnkey project or civil construction 57
contract abroad. Control Regulations
The account may be held or maintained in any currency other than the currency of
India, Nepal or Bhutan. This account may be maintained in the form of:
z Resident Foreign Currency Account
z Exchange Earners Foreign Currency Account
z Foreign Currency Account outside India
z Other Accounts.
5.5.2 Agency Commission

There is no limit for payment of agency commission on exports. The payment may be
either by remittance or by deduction from invoice value. The application is to be sent
by letter to an authorized dealer. The amount of commission need not even be
declared on Forms if there is a valid agreement between exporter and overseas
beneficiary.
5.5.3 Export Claims

The limit on remittances in settlement of claims made by overseas buyers on account
of compensation for non-fulfilment of contracts, shortage in weight/ length, inferior
quality of goods supplied penalty for late shipments, etc. has been raised to 15% of
invoice value. There is no limit for this amount. Application along with the details of
shipment may be made to the authorized dealer. The application should be
accompanied with the documentary evidence.
5.5.4 Other Remittance

Authorized dealers may affect, on behalf of their exporter constituents remittances
connected with exports like controlling charges, expenses incurred on
dishonoured/unaccepted bills, legal expenses related to trade disputes, testing charges,
etc. Exporters are expected to submit supporting documents for these remittances.
5.6 FOREX MAJOR CURRENCIES AND EXCHANGE

RATES
A foreign exchange rate, which is also called a forex rate or currency rate, represents
the value of a specific currency compared to that of another country. Currency rates
are applicable only on currency pairs. The currency listed on the left is called the
reference (or base) currency while the one listed to the right is the quote (or term)
currency.
Exchange rates are always written in the form of quotations. A quotation reflects the
number of quote currencies that can be bought by using a single unit of reference
currency.
When an exchange rate is quoted for a currency pair, the currencies are usually quoted
in order of their importance, which is as follows:
z Euro (EUR)
z Great Britain pound (GBP)
z Australian dollar (A$)
58 z United States dollar (US$)
z Other currencies
In case the conversion is from a Great Britain pound to an Australian dollar, the Great
Britain pound would be placed on the left. It will be the base currency.
In certain markets in the United Kingdom and Europe, the order is determined
differently. The position of the Great Britain pound and Euro is switched. The pound
is treated as the base currency and the Euro is considered as the term currency.
If the currency pair does not comprise any of the currencies listed above, the Forex
market considers that currency as the base, whose exchange rate is more than 1.000.
In other countries like Japan, they use the home currency as the base. This method of
quoting exchange rates is called direct quotation or price quotation.
5.6.1 Types of Exchange Rate

There are two types of exchange rate and these are:
z Spot Exchange Rate: This is the exchange rate that is currently applicable.
z Term Forward Rate: This is an exchange rate that is currently quoted and used
for trading.
5.6.2 Determining Currency Exchange Rates

There are two ways to determine the currency exchange rates:
z Fixed Rate: This currency exchange rate is determined by a government agency
or the central bank. This official exchange rate is regularly monitored by the bank
and maintained by using the country’s own foreign exchange reserves.
z Floating Rate: In this flexible exchange rate regime, the private market
determines a currency’s value. However, the value fluctuates according to the
demand/supply trends in the foreign exchange rate market.
Table 5.1: Exchange Rates on Nov-06 2012
Currency 1.00 INR Inv. 1.00 INR
Euro 0.014307 69.895999
US Dollar 0.018297 54.655016
British Pound 0.011454 87.306218
Australian Dollar 0.017680 56.559601
Canadian Dollar 0.018243 54.815386
Emirati Dirham 0.067205 14.879806
Swiss Franc 0.017263 57.926445
Chinese Yuan Renminbi 0.114318 8.747547
Malaysian Ringgit 0.056096 17.826724
New Zealand Dollar 0.022208 45.029025

Fill in the blanks:
1. EEFC stands for ……………
2. A ……………, which is also called a forex rate
3. …………… held by a person resident in India up to such limit as the
Reserve Bank may specify.
59
5.7 LET US SUM UP Foreign Currency Exchange
Control Regulations
Exchange control applies to all the rules and regulations designed to regulate
transactions involving foreign exchange. The basic objective of exchange control is
conservation of the foreign exchange resources and their proper utilization in the
interest of economic development of the country. The Foreign Exchange Management
Act, 1999, governs Exchange control.

Reserve Bank of India is the monetary authority in India. It facilitates judicious use of
foreign exchange. Discuss.
5.9 KEYWORDS
Authorized Dealers: Commercial Banks licensed to deal in foreign currencies.
Exchange Control: The rules and regulations applicable to all transactions involved.
FEMA: The Foreign Exchange Management Act (FEMA) was an act passed in the
winter session of Parliament in 1999 which replaced Foreign Exchange Regulation
Act. This act seeks to make offences related to foreign exchange civil offences. It
extends to the whole of India.
Spot Exchange Rate: The rate of a foreign-exchange contract for immediate delivery.

1. What do you mean by exchange control? Describe the main objectives of
exchange control.
2. Explain various provisions related to regulation and management of foreign
exchange.
3. All exports to which the requirement of declaration applies must be declared or
appropriate forms. Discuss. Explain the procedure for furnishing the forms.

CYP 1
1. The Foreign Exchange Management Act
2. foreign exchange
3. Exchange control
CYP 2
1. Exchange Earners Foreign Currency
2. foreign exchange rate
3. Foreign exchange

60 Gopal, C. Rama (2007) Export Import Procedure and Documentation and Logistics. New Age.
India.
61
LESSON Export Pricing and Costing
6
EXPORT PRICING AND COSTING
CONTENTS
6.1 Introduction
6.2 Export Pricing and Costing
6.3 International Contract Terms
6.4 Rights and Duties under Principal Incoterms
6.4.1 FOB (named Port of Shipment) Contract
6.4.2 CIF (named Port of Destination) Contract
6.5 Let us Sum up
6.7 Keywords

z Define export pricing and costing
z Describe various international contract terms
z Discuss rights and duties under principle intercoms
6.1 INTRODUCTION
Export pricing is most important tool for promoting sales and contesting international
competition. Exporter has to face domestic producers in the export market, producers
in other competing supplying countries and domestic producer’s in one owns country.
Costs, Demand and Competition are the three important factors that determine price.
The price for export should be as realistic as possible. The exporter has to exclude cost
for domestic production which are not applicable for export and add those elements of
costs which are relevant to export product.
6.2 EXPORT PRICING AND COSTING

Export pricing should be differentiated from export costing. Price is what we offer to
the consumer. Cost is the price that we/incur for the product. Price includes out profit
margin, cost include only expenses we have incurred.
Export pricing is the most important tool for promoting sales and facing international
competition. The price has to be realistically worked out taking into consideration all
62 export benefits and expenses. However, there is no fixed formula for successful export
pricing. It will differ from exporter to exporter depending upon whether the exporter is
a merchant exporter or a manufacturer exporter or exporting through a canalizing
agency.
You should also assess the strength of your competitor and anticipate the move of the
competitor in the market. Pricing strategies will depend on various circumstantial
situations. You can still be competitive with higher price but with better delivery
package or other advantages. Your prices will be determined by the following factors:
z Range of products offered.
z Prompt deliveries and continuity in supply.
z After-sales service in products like machine tools, consumer durables.
z Product differentiation and brand image
z Frequency of purchase
z Presumed relationship between quality and price
z Specialty value goods and gift items
z Credit offered
z Preference or prejudice for products originating from a particular source.
z Aggressive marketing and sales promotions
z Prompt acceptance and settlement of claims
z Unique value goods and gift items.
Export costing is basically Cost Accountant’s job. It consists of fixed cost and variable
cost comprising various elements. It is advisable to prepare an export costing sheet for
every export product.
As regards quoting the prices to the overseas buyer, the same are quoted in the
following internationally accepted terms:
z Ex-Works: Ex-works means that your responsibility is to make the goods
available to the buyer at works or factory. The full cost and risk involved in
bringing the goods from this place to the desired destination will be borne by the
buyer. This term thus represents the minimum obligation for you. It is mostly used
for sale of platinum commodities such as tea, coffee and cocoa.
z Free on Rail (FOR): Free on Truck (FOT): These terms are used when the goods
are to be carried by rail but they are also used for road transport. Your obligations
are fulfilled when the goods are delivered to the carrier.
z Free Alongside Ship (FAS): Once the goods have placed alongside the ship, your
obligations are fulfilled and the buyer notified. The buyer has to contract with the
sea carrier for the carriage of the goods to the destination and pay the freight. The
buyer has to bear all costs and risks of loss or damage to the hereafter.
z Free on Board (FOB): Your responsibility ends the moment the contracted goods
are placed on the board the ship, free of cost to the buyer at a port of shipment
named in the sales contract. ‘On board’ means that a ‘Received for Shipment’ B/L
(Bill of Lading) is not sufficient. Such B/L if issued must be converted into
‘Shipped in Board B/L’ by using the stamp ‘Shipped on Board’ and must bear
signature of the carrier or his authorized representative together with date on
which the goods were ‘boarded’.
z Cost and Freight (COF): You must on your own risk and not as an agent of the 63
Export Pricing and Costing
buyer, contract for the carriage of the goods to the port of destination named in the
sale contract and pay the freight. This being a shipment contract, the point of
delivery is fixed to the ship’s rail and the risk of loss or of damage to the goods is
transferred from the seller to the buyer at that point.
z Cost Insurance Freight (CIF): The term basically the same as C&F, but with the
addition that you have to obtain insurance at your cost against the risk of loss
damage to the goods during the carriage.
z Freight or Carriage Paid (DCP): While C&F is used for goods which are to be
carried by sea, the term “DCP” is used for land transport only, including national
and international transport by road, rail and inland waterways. You have to
contract for the carriage of the goods to the agreed destination named in the
contract of the sale and pay freight. Your obligations are fulfilled when the goods
are delivered to the first carrier and not beyond.
z Freight Carriage Insurance paid (CIP): The term is similar to ‘Freight or
Carriage Paid’. However, in case of CIP you have additionally to procure
transport insurance the risk of loss or damage to the goods during the carriage.
You contract with the insurer and pay the insurance premium.
Fill in the blanks:
1. ………….. is most important tool for promoting sales and contesting
international competition.
Expand the following abbreviations:
2. FOT stands for …………..
3. COF Stands for …………..
4. CIF stands for ………….. .
6.3 INTERNATIONAL CONTRACT TERMS

Since in international transactions, traders are from diverse nations, specific term
should be interpreted in a similar way by all the parties concerned. Otherwise, disputes
are bound to arise. To solve this problem the International Chamber of Commerce
(ICC) Paris has developed ‘Incoterms’. These terms are commonly used in export-
import transactions. These terms have been revised several times since they have been
introduced to incorporate new commercial practices. The current version of Incoterms
has been issued in 1990. Incoterms have been almost universally adopted.
Ex-Works (Ex-W)
Ex-works means that the seller fulfils his obligation to deliver when he has made the
goods available at his premises (i.e. works, factory, warehouse, etc.) to the buyer. The
buyer bears all costs and risks involved in taking the goods from the seller's premises
to the desired destination. This term thus represents the minimum obligation for the
seller.
Free Carrier (FCA)

Free carrier means that the seller's obligations are fulfilled when the goods are
delivered to the carrier named by the buyer at the named place or point. If no precise
point is indicated by the buyer, the seller may choose within the place or range
64 stipulated where the carrier shall take the goods into his charge. This term may be
used for any transport.
Free Alongside Ship (FAS)

This means that the seller fulfils his obligation to deliver when the goods have been
placed alongside the vessel on the quay or in lighters at the named port of shipment.
The buyer has to bear all costs and risks of loss or damage to the goods from that
point. This term can only be used for sea or inland waterway transport.
Free On Board (FOB)

This means that the seller fulfils his obligation to deliver when the goods have passed
over the ships rail at the named port of shipment. The buyer has to bear all costs and
risks of loss or damage to the goods from that point. This term can only be used for
sea or inland waterway transport.
Cost and Fright (CF)

This means that the seller must pay the costs and freight necessary to bring the goods
to the named port of destination. The risk of loss of or damage to the goods after the
goods have been delivered on board the vessel is transferred to the buyer. This term
can only be used for sea and inland waterway transport.
Cost Insurance and Fright (CIF)

This means that the seller has the same obligations as under CFR, but with the
addition that he has to procure marine insurance against the buyer's risk of loss of or
damage to the goods during the carriage. The term can only be used for sea and inland
waterway transport.
Carriage Paid To (CPT)

This means that the seller pays the freight for the carriage of the goods to the named
destination. The risk of loss or damage to the goods is transferred to the buyers when
the goods have been delivered into the custody of the carrier.
Carriage and Insurance Paid To (CIP)

This means that the seller has the same obligation as under CPT but with the addition
that the seller has to procure cargo insurance against the buyer's risk of loss of or
damage to the goods during the carriage. This term may be used for any mode of
transport.
Delivered at Frontier (DAF)

made available, cleared for export, at the named point and place at the frontier, but
before the customs border of the adjoining country. This term is primarily intended to
be used when goods are to be carried by rail or road, but it may be used for any mode
of transport.
Delivered Ex-Ship (DES)

made available to the buyer on board the ship uncleared for import at the named port
of destination. The seller has to bear all the costs and risks involved in bringing the
goods to the named port of destination. The term can only be used for sea or inland
waterway transport.
Delivered Ex-Quay (Duty-Paid) (DEQ) 65
This means that the seller fulfils his obligation to deliver when he has made the goods
available to the buyer on the quay at the named port of destination. The seller has to
bear all risks and costs of delivering the goods thereto. This term can only be used for
sea or inland waterway transport.
Delivered Duty Unpaid (DDU)

made available at the named place in the country of importation. The seller has to bear
the costs and risks involved in bringing the goods thereto (excluding duties, taxes and
other official charges payable upon importation). The seller also bears the costs and
risks of carrying out customs formalities. This term can be used in all modes of
transport.
Delivered Duty Paid (DDP)

made available at the named place in the country of importation. The seller has to bear
the risks and costs including duties, taxes and other charges of delivering the goods
thereto. The seller represents maximum obligation. This term can be used in all modes
of transports.
Incoterms set out the rights and the obligations of the buyer and the seller for each of
the terms. Therefore, each party knows precisely what he is supposed to do and in turn
what he can expect from the other party. Consequently, the scope of misunderstanding
and dispute becomes less. There is, however, one point that you must note. Incoterms
is not a treaty or a convention which has been adopted by the trading nations. This is
only a document prepared by a business organisation. Therefore, to make Incoterms
applicable to an export contract, the parties must specifically mention that they would
like their contract to be interpreted as per Incoterms.
6.4 RIGHTS AND DUTIES UNDER PRINCIPAL

INCOTERMS
You have learnt various Incoterms. Let us now discuss in brief the provisions for the
two major terms viz., FOB and CIF.
6.4.1 FOB (named Port of Shipment) Contract

Following are the duties of exporter under FOB contract:
z Supply the contracted goods in conformity with the contract of sale and deliver
the goods on board the vessel named by the buyer at the named port of shipment.
z Bear all costs and risks of the goods until such time as they shall have effectively
passed the ship's rail.
z Provide at his own expense the customary clean documents in proof of the
delivery of the goods.
Duties of the importer include:
z Reserve the necessary shipping space and give due notice of the same to the
exporter.
z Bear all costs and risks of the goods from the time they have effectively passed
the ship's rail and pay the price as provided for in the contract.
66 6.4.2 CIF (named Port of Destination) Contract
Following are the duties of the exporter under CIF contract:
z Supply the goods in conformity with the contract of sale, arrange at his own
expense for the shipping space by the usual route and pay freight charges for the
carriage of goods.
z Obtain at his own risk and expense all documentation regarding governmental
authorization necessary for the export of goods,
z Load the goods at his own expense on board the vessel at the port of shipment. He
should procure at his own cost in a transferable form a policy of marine insurance
for a value equivalent of C.I.F plus 10 per cent.
z Bear all risks until the goods have effectively crossed the ship's rail and furnish to
the buyer a clean negotiable bill of lading.
Duties of the importer include:
z Accept the documents when tendered by the exporter, if these are in conformity
with the contract of sale and pay the price.
z Receive the goods at the port of destination and bear all costs except freight and
marine insurance incurred in respect of the carriage of the goods.
z Bear all risks of the goods, from the time they have effectively passed the ship's
rail at the port of shipment.
Expand the following abbreviations:
1. FAS stands for ………….. .
2. DEQ stands for ………….. .
3. DAF stands for ………….. .
4. FCA stands for ………….. .
6.5 LET US SUM UP

Export price differs from exporter to exporter depending upon whether the exporter is
a merchant exporter or manufacturer exporter or exporting through canalizing agency.
Exporter has to assess the strength of his competitor and anticipate the move of
competitor in the market of operation. Exporter can still be competitive with higher
prices with better delivery package or added advantage.

Discuss some important INCOTERMS.
6.7 KEYWORDS
CIF: The term Cost Insurance Freight basically the same as C&F, but with the
addition that you have to obtain insurance at your cost against the risk of loss damage
to the goods during the carriage.
DDU: Deliver Duty Unpaid means that the seller fulfils his obligation to deliver when
the goods have been made available at the named place in the country of importation.
Ex-Works: Ex-works means that your responsibility is to make the goods available to 67
the buyer at works or factory.
FCA: Free carrier means that the seller's obligations are fulfilled when the goods are
delivered to the carrier named by the buyer at the named place or point.

1. What do you mean by delivered duty paid?
2. Define DES.
3. Explain the important role of ICC in export business.
4. Define FOR.

CYP 1
1. Export pricing
2. Free on Truck
3. Cost and Freight
4. Cost Insurance Freight.
CYP 2
1. Free Alongside Ship
2. Delivered Ex-Quay
3. Delivered at Frontier
4. Free Carrier

India.
68
69
Pre-shipment Documentation
UNIT III
70
LESSON 71
Pre-shipment Documentation
7
PRE-SHIPMENT DOCUMENTATION
CONTENTS
7.1 Introduction
7.2 Packaging of Goods
7.2.1 Marking and Labelling of Goods
7.3 Documents required for Pre-shipment Inspection
7.4 Let us Sum up
7.6 Keywords

z Explain packaging of goods
z List documents of pre-shipment inspection.
7.1 INTRODUCTION
The key to the success of any export lead company depends on the accuracy and speed
of documentation. Risks are inherent in both domestic trade and international trade,
but the degree of risk is higher in international trade.
7.2 PACKAGING OF GOODS

Goods in transit are subject to many hazards. If these are not properly packed, they
may be damaged or lost due to rough handling, crushing weight, corrosion, pilferage,
etc. Transport usually subjects the cargo to mechanical forces such as shocks,
vibrations, pressures, and climatical forces including temperature and moisture. The
packaging needs to be strong enough to withstand the rigours of stowage and multiple
handling. Goods, which are not packed properly, may damage other goods in the same
transit. Thus, it is essential that the goods are properly packed to protect them, to keep
a consignment together, to protect the goods from damaging the environment and be
affected by it.
Containers have become the order of the day. Intermodal transportation is the
movement of cargo from one location to another location via more than one mode of
transportation (i.e. rail, road, river/ocean). Unitisation, in general terms, may be
defined as consolidation of a number of bags, boxes, packs, etc. in a single cargo unit,
72 most important of which is the container. The purpose of unitisation is to assist the
process of cargo handling through reducing the handling frequency of each cargo unit.
Unitisation has particular relevance to the making up of a number of 'small sized'
items into one unit of standard size.
In international trade, containerization has become a predominant form of unitised
transport. It enables the transportation of cargo from the warehouse of the exporter to
that of the importers directly.
Containerization offers many advantages including the following:
z Speed and economy of handling
z Safety both with regard to breakage and pilferage
z Greater efficiency due to less re-handling of individual packages
z Less packaging cost
z Less cost of insurance and handling
z Door-to-door transport service
For preparing break-bulk packages, the most important commercial requirement is to
pack the consignment according to stipulation in the export contract. Generally, the
contract will specify the manner of packing, including the use of packaging and
stuffing/cushioning materials. However, if the contract does not specify the type of
packaging, one should follow two main principles.
z Export packs should be strong enough to withstand hazards of the journey and
thus should be designed by taking into consideration nature of the product, type of
carrier, port conditions, transit time, etc.
z The export packs should be light enough to attract the minimum freight cost since
freight charges are generally calculated on the volumetric basis, i.e. weight or
volume whichever is higher.
But the choice of packing and cushioning materials take into account the specific
regulations in the importing country, if any.
Many products are hazardous in handling, transportation and storage because, for
instance, they are explosive, flammable, poisonous or corrosive. They are therefore,
subject to certain regulations. These regulations have been designed to ensure safety
and facilitate safe transit. The Merchant Shipping (Carriage of Dangerous Goods)
Rules, 1978 specify that the packaging of dangerous goods and their marking and
labelling should be in accordance with the International Maritime Dangerous Goods
(IMDG) Code of International Maritime Organisation (IMO). According to the rule,
all such packages should be tested and marked by the competent authority in the
country. In India, the Indian Institute of Packaging has been authorised to carry out all
necessary, tests and issue the appropriate certificate.
7.2.1 Marking and Labelling of Goods

Every export package must be properly marked and labelled. Marking, including
handling instructions, help quick and safe transportation of goods. Marking is of two
types marking of origin and shipping marks. In addition to marking, handling
instructions on export packs must be clearly stated. Where these are given in the form
of written language, these must be in the language of exporting and importing
countries. In case of goods requiring careful handling and storage, the international
practice is to give these instructions in the form of symbols.
73
7.3 DOCUMENTS REQUIRED FOR PRE-SHIPMENT Pre-shipment Documentation
INSPECTION
Government of India notifies, from time to time, a number of goods whose export is
subject to compulsory quality control or pre-shipment inspection. Consequently, the
Indian customs authorities will require the submission of an inspection certificate
issued by the designated agency before permitting the shipment to take place. The
basis of inspection is usually the importer's specification, except in the case of export
of goods involving safety or health hazards, where notified minimum standards are
enforced.
Inspection of export goods may be conducted under:
z Consignment-wise Inspection
z In-process Quality Control and
z Self-certification
Let us discuss consignment-wise inspection. Before the excise authorities seal the
packs, the process of pre-shipment inspection must be completed. The production
department is to apply to the Export Inspection Agency for nominating an inspector
for conducting examination of the export goods. The application is to be made on a
prescribed form known as Notice of Inspection and submitted to the Agency with the
following documents:
z A copy of the commercial invoice
z Crossed cheque of demand draft as inspection fee
z A copy of export contract
z Importer's technical specifications and/or approved sample.
After the inspector has completed inspection, the Export Inspection Agency will issue
the inspection Certificate in triplicate. The original certificate is for the customs
verification. It is submitted to the customs authorities, along with other documents,
before permission to ship goods is granted. The second copy may be sent to the buyer,
if needed. The third copy is for the exporter': record.
Check Your Progress
Fill in the blanks:
1. ………… transportation is the movement of cargo from one location to
another location via more than one mode of transportation.
2. In …………, containerization has become a predominant form of unitised
transport.
3. After the inspector has completed inspection, the Export Inspection
Agency will issue the inspection Certificate in ………… .
7.4 LET US SUM UP

Proper documentation mitigates the risk in international trade. Documentation must be
precise. Slight discrepancies or omissions may prevent merchandise from being
exported, result in exporting firms not getting paid, or even result in the seizure of the
exporter's goods by local or foreign government customs.
74
Export Trade and Documentation 7.5 LESSON END ACTIVITY
Discuss the concept of containerization. Also discuss the important role of
containerization in export business.
7.6 KEYWORDS
IMDG: International Maritime Dangerous Goods
IMO: International Maritime Organization.
Pre-shipment Inspection: Pre-shipment inspection is a part of supply chain
management and an important and reliable quality control method for checking goods'
quality while clients buy from the suppliers.

1. Describe packaging of goods.
2. What do you mean by labelling of goods?
3. Define self-certification.

1. Inter-modal
2. international trade
3. triplicate.

India.
75
LESSON Inspection of Export Consignment
8
INSPECTION OF EXPORT CONSIGNMENT
CONTENTS
8.1 Introduction
8.2 Need for Pre-shipment Inspection
8.3 Types of Pre-shipment Inspection
8.3.1 Voluntary Inspection
8.3.2 Compulsory Inspection
8.4 Procedure for Pre-shipment Inspection
8.4.1 Application to EIA
8.4.2 Deputation of Inspector
8.4.3 Inspection and Testing
8.4.4 Packing and Sealing of Goods
8.4.5 Submission of the Report to EIA and Issue of Inspection Certificate
8.4.6 Issue of Rejection Note
8.5 Units Exempted from the Inspection Procedure
8.6 Concept of Quality
8.7 Methods of Quality Control and Pre-shipment
8.7.1 Consignment-wise Inspection
8.7.2 In-process Quality Control
8.7.3 Self-certification
8.8 Advantages of the Pre-shipment Inspection Services
8.8.1 Physical Inspection of Goods
8.8.2 Price Analysis
8.8.3 Customs Classification of Goods
8.8.4 Price Data for a Customs Valuation Database
8.8.5 The marking of Inspected Goods and the Sealing of Full Container Loads
8.8.6 Control of Compliance with National and International Regulations
8.8.7 Status of the Importer
8.8.8 Legality Checks
8.8.9 Customs Duty and Tax Assessment
8.8.10 Control of Exemptions from Import Duties and Taxes
8.8.11 Reconciliation of Duties and Taxes with Customs
Contd…
76 8.9 Export Consignment Inspection
8.9.1 By Post
8.9.2 By Road
8.9.3 By Sea
8.9.4 By Air
8.10 Let us Sum up
8.12 Keywords

z Explain the need of pre-shipment inspection
z Discuss the types of pre-shipment inspection
z Differentiate between voluntary inspection and compulsory inspection
z Describe procedure and advantages of pre-shipment inspection.
z List the units exempted from the inspection procedure
z Explain the concept of quality
z Identify the method of quality control and pre-shipment
z Describe export consignment inspection
8.1 INTRODUCTION
The nature and scope of the inspection performed varies depending upon the
requirement of the user government. Initially the primary objective of pre-shipment
inspection was to protect the foreign exchange resources of the user government
(which were being illegally depleted by over-invoicing of exports) and the pre-
shipment inspection consisted of the verification of the quantity, quality and export
market price of the goods being exported. However, in recent years inspection
companies have been requested to extend the scope of their activities in order to
enhance customs revenue collection. Essentially this involves the inspection company
verifying the value for customs purposes, the accuracy of the tariff codes classification
and the calculation of the corresponding duties and taxes payable.
8.2 NEED FOR PRE-SHIPMENT INSPECTION

An exporter faces competition not only from the fellow exporters from his own
country but also from other countries. He should formulate a proper quality strategy to
gain a competitive edge over others in the market. The goods should be properly
inspected to ensure that the quality of the export goods is maintained as desired by the
buyer. Goods of poor quality spoil not only their own market but also bring bad name
to the image of the country itself. It is, thus, in the business interest of the exporter to
send shipment of the right quality to the buyer. This would also facilitate effective
penetration and sustenance in the export markets by improving the brand image of the
goods. The Government of India had also recognised the need for effective pre- 77
Inspection of Export Consignment
shipment inspection long back in 1963 itself when the Export (Quality Control and
Inspection) Act, 1963 was enacted to provide for sound development of the export
trade through quality control and pre-shipment inspection.
8.3 TYPES OF PRE-SHIPMENT INSPECTION

There are primarily two different types of pre-shipment inspection namely:
z Voluntary Inspection
z Compulsory Inspection
8.3.1 Voluntary Inspection

Voluntary inspection can be conducted in various ways. These are discussed in detail
below.
Inspection by the Exporter Himself

The primary responsibility for inspection of the goods rests with the exporter himself.
He should conduct the inspection of the goods during the process of manufacturing, at
the stage of finished product and also in regard to the packaging and packing
materials. It is essential that the manufacturer should install proper quality control
system in the factory to check the quality at all stages of manufacture of the goods.
The merchant exporter should enter into an arrangement with the supplier of goods to
provide for inspection during the process of manufacture as well as for the finished
product. If needed, the services of qualified quality control personnel should be taken
for this purpose.
Inspection by Buyer's Representative

Many a time, the foreign buyer may arrange for inspection of goods through his own
representative in the exporter country before the goods are dispatched by the exporter.
The exporter can send the shipment only when the buyer's representative issues a
satisfaction report to the exporter. The advantage to the exporter is that the buyer
cannot raise the question of sub-standard quality or the poor quality of the goods once
his representative clears the shipment of the goods.
Inspection by Buying Agent

In cases where the export order is placed with the exporter through a buying agent in
his country, the goods can be dispatched only after the buying agent has issued the
satisfaction report to the exporter. Buying agents conduct inspection at different stages
to ensure the shipment conforms to the quality requirements of the exporter. The
buying agent conducts inspection of the quality at the time of purchase of the raw
materials, during the manufacturing process; at the finished product stage and finally
before packaging and packing of the goods. The exporter can send the shipment only
after getting this certification of inspection from the buying agent.
Inspection by Private Sector Agencies

Sometimes, the buyer may specify an inspection agency in the exporter's country to
satisfy himself as regards quality of the goods. In such a case, the exporter should
approach that agency in his country and get the pre-shipment inspection completed. In
India, one of the leading agencies in the private sector is the SGS India Ltd. with its
head office in Mumbai. The exporter should ascertain the procedure and
documentation formalities of the agency concerned so that the inspection of goods can
be arranged to ensure timely shipment of goods.
78 8.3.2 Compulsory Inspection
Compulsory pre-shipment inspection is carried out by various agencies of the
Government in accordance with the regulations framed by the Government of India
from time to time. The most significant legislation to provide for sound envelopment
of the export trade through quality control and pre-shipment inspection is the Export
(Quality Control and Inspection) Act 1963. Under this Act, the Central Government is
empowered to:
z Notify commodities which shall be subject to quality control or inspection or both
prior to export;
z Specify the type of quality control or inspection which shall be applied to a
notified commodity;
z Establish, adopt or recognise one or more standard specifications for a notified
commodity; and
z Prohibit the export in the course of International Trade of a notified commodity
unless it is accompanied by a certificate issued under Section 7 that the
commodity satisfied the condition relating to quality control or inspection, or it
has affixed or applied to it a mark or seal recognised by the Central Government
as indicating that it conforms to the standard specifications applicable to it under
clause (c).
Under this Act, the Government of India have established the Export Inspection
Council to advise the Government regarding measures for the enforcement of Quality
Control and Inspection in relation to commodities intended for export. The Council,
established on 1.1.1964, is a statutory body corporate with its own seal.
The Government of India has established five Export Inspection Agencies one each at
Bombay, Calcutta, Cochin, Delhi and Chennai under section 7 of the Export (Quality
Control and Inspection) Act 1963 w.e.f. 1.2.1966. These agencies work under the
administrative and technical control of the Export Inspection Council. Besides, the
Export Inspection Council has also recognized number of private agencies to act as
inspection agencies to issue pre shipment inspection certificate.
In order to promote exports of quality goods as per the international standards, the
Government of India has introduced compulsory Quality Control and Pre-Shipment
Inspection for 90% of the items of export under one or the other system as per the
Export (Quality Control and Pre-shipment Inspection) Act, 1963. Some of these items
are:
z Food and agricultural products;
z Chemicals and allied, products;
z Engineering goods;
z Textiles;
z Coir, jute and leather products such as footwear, etc.
The Government of India has set up Export Inspection Council (EIC) to monitor the,
quality of goods meant for exports. The EIC has set up five Export Inspection
Agencies (EIA) at Mumbai, Kolkata, Cochin, Delhi and Chennai. The EIAs has a
network of nearly 62 offices throughout India. These EIAs have certain specific areas
under their jurisdiction. For example, the EIA of Mumbai has jurisdiction over
Maharashtra, Gujarat and Goa.
79
8.4 PROCEDURE FOR PRE-SHIPMENT INSPECTION Inspection of Export Consignment
Those exporters, who are approved under Self-Certification and IPQC, have to submit
their applications in a prescribed 'Intimation for Inspection' form to the Export
Inspection Agency. The Export Inspection Agency issues the Inspection Certificate on
the basis of their performance reports as submitted by the EIA's officials during the
checks at all levels of production carried out by them. Spot checks may also be carried
out whenever required. However, the units not approved under Self-certification or
IPQC systems are required to undergo the following procedure:
8.4.1 Application to EIA

The exporter has to apply in the prescribed Intimation for Inspection form (in
duplicate) to EIA at least 7 days before the expected date of shipment along with the
following documents:
z Copy of export contract;
z Copy of letter of credit;
z Details of packing specifications;
z Commercial invoice giving evidence of FOB value of export consignment;
z Crossed cheque/D.D. in favour of EIA towards inspection fees;
z Declaration regarding importer's technical specifications.
8.4.2 Deputation of Inspector

After getting the 'Intimation for Inspection', the EIA deputes an inspector to conduct
the pre-shipment inspection at the exporter's factory or warehouse. The exporter
should keep goods ready for inspection on the day and time allotted for inspection.
8.4.3 Inspection and Testing

The inspector conducts inspection randomly and prepares the report to be submitted to
EIA. The exporter is required to arrange for facilities required for the inspection.
Where such facilities are not available, inspection may be carried out at private
independent laboratories.
8.4.4 Packing and Sealing of Goods

If the inspector is satisfied with the quality of goods, he issues order for packing of
goods in his presence. After packing, the consignment is marked and sealed with the
official seal of the Export Inspection Agency (EIA).
8.4.5 Submission of the Report to EIA and Issue of Inspection Certificate

The report prepared by the inspector is submitted to the Deputy Director of EIA. If the
report is favourable, the Deputy Director of EIA issues an inspection certificate in
triplicate.
z The original copy is required to be submitted to the Customs.
z The duplicate copy is dispatched to the importer.
z The triplicate copy to be retained by the exporter for his record.
8.4.6 Issue of Rejection Note

If the report submitted by the inspector is not favourable, the Deputy Director of EIA
issues a rejection note.
80 Appeal against Rejection Note
The exporter can file an appeal against the rejection note within 10 days from the date
of the receipt of such note. On receiving the appeal, the EIA convenes a meeting of
the Appellate Panel. The panel reviews the inspection report and if necessary
examines the consignment again. The decision of the Appellate Panel is final and is
binding on both the parties, the exporter and the Export Inspection Agency.
Fill in the blanks:
1. The goods should be properly …………. to ensure that the quality of the
export goods is maintained as desired by the buyer.
2. The …………. responsibility for inspection of the goods rests with the
exporter himself.
3. Compulsory pre-shipment inspection is carried out by various agencies of
the Government in accordance with the regulations framed by the
…………. from time to time.
8.5 UNITS EXEMPTED FROM THE INSPECTION

PROCEDURE
The following are the exempted from the inspection procedure:
z Export Houses, Trading Houses, Star Trading Houses and Superstar Trading
Houses.
z Approved 100% EOUs and EPZ units.
z Exporters who are registered with the Textile Committee.
z Goods marked with ISI, AGMARK, BIS-14000, ISO-9000.
Items notified under the Export (Quality Control & Inspection) Act 1963 have also
been exempted from compulsory pre-shipment inspection provided the exporter
produce a firm letter from the overseas buyer to the effect that he does not want pre-
shipment inspection from any official Indian inspection agency. However this
exemption would not be available if the item happens to be a potential health hazard
or safety hazard.
8.6 CONCEPT OF QUALITY

Quality of a product is defined as a set of attributes or specifications including
packaging specifications in relation to a given product. It is the manufacturer who first
decides the quality of a product before introducing it in the market. This may be done
keeping in view the national or the international standards of quality as laid down by
the respective national or international standards bodies. The level of quality – high
medium or low – depends upon how rich or poor these specifications are. It the
specifications are of very high order, the level of quality would be high; on the other
hand, if the specifications are poor or weak, then the quality would be termed as low
quality. Between the high and low quality lies the medium range of the quality. These
quality specifications may then be modified during negotiations with the foreign buyer
to suit his/her requirements. Finally, the quality of the export product is determined
with reference to the specifications as laid down by the buyer. Thus, quality should be
understood in its relative sense and not in the absolute sense of the term.
81
8.7 METHODS OF QUALITY CONTROL AND Inspection of Export Consignment
PRE-SHIPMENT
According to the prevailing law in India, a fairly large number of export goods are
subjected to compulsory quality control and/or inspection by the agencies authorized
by the Government of India before being allowed to be exported from the country. In
1965, the Government enacted the Export (Quality Control and Inspection) Act as a
single comprehensive legislation to provide for the sound development of export trade
of India. Accordingly, the Export Inspection Council was set up to formulate and
supervise the inspection schemes with the help of Export Inspection Agencies, which
have a network of offices spread all over the country. These agencies have trained
manpower and are equipped with laboratory facilities to carry out inspection tests and
issue inspection certificates.
The three systems for quality control and inspection and these are:
z Consignment-wise Inspection
z In-process Quality Control
z Self-certification.

Under this system, each arid every export consignment is subjected to a detailed
inspection by the Export Inspection Agencies based on a financial sampling plan. If
the sample is found to conform to the recognised specifications/standard, an
inspection certificate for export is issued to the exporter. The Inspection Certificates
carry a specific validity period within which the export consignment must be shipped.
This system is applicable to all the notified products by the Export Inspection Council
other than those for which the In-process Quality Control system is applicable.
Procedurally, for obtaining the Inspection certificate, the exporter has to apply to the
Export Inspection Agency well in advance to avoid shipment delays. The application
is to be made on prescribed form known as Notice of Intimation along with:
z Crossed cheque or Demand Draft for the inspection fee
z Copy of Commercial Invoice
z Copy of Export Contract
z Importer's Technical Specifications
This application will be registered in the office of Agency, which will appoint an
Inspector for carrying out physical examination of the goods.
The Inspector will examine the goods in the exporter's premises with reference to the
agreed specifications, which should not be inferior to the notified specifications.
Samples may be drawn and sent to the laboratory, if required. Thereafter, the
Inspector prepares the Field Inspection Report, which becomes the basis for the
issuance of the Inspection Certificate. The original of the certificate is to be submitted
to the customs authorities for clearance of goods for export.

Under this system, export-oriented manufacturing/processing units are approved as
"export-worthy" units because they possess the requisite infrastructure for
manufacturing/processing products of standard quality. Such a unit is allowed to
inspect and clear goods for export without an inspection by the Export Inspection
Agency. The Agency will issue certificate of inspection on the declaration by the unit.
82 'For the approval of a unit, it is to apply to the Export Inspection Agency on the
prescribed Performa. After a preliminary visit by the officer of the agency, a panel of
experts will be appointed. This panel thoroughly, investigates the quality control
facilities of the unit right from the raw material stage to packing. It submits its report
to the, agency with its recommendations. On the basis of these recommendations, the
unit is accorded the status of an export-worthy unit.
For obtaining the inspection certificate under this system, the exporter submits the
following documents to the Export Inspection Agency:
z Application (Notice of Intimation)
z Crossed Cheque/Demand Draft for fee
z A Copy of Commercial Invoice
z Importer's Technical Specifications.
On receipt of these document(s), the Agency will issue inspection certificate in
triplicate. The original certificate is for the customs authorities.
With the experience gained over the years in operating the Compulsory Quality
Control and Pre-shipment Inspection Scheme in India, there has been a qualitative
change in the inspection system also. Recently, self-certification system has been
introduced which is based on the concept that a manufacturing unit having established
reputation for its products with sufficient in-built responsibility for quality assurance,
could be permitted to certify its own products for export. For the purpose of operating
this system, a manufacturing unit found qualifying against the prescribed norms,
which amongst other include the following:
z Product Quality
z Design and Development
z Raw Materials/Bought out Components
z Organisation and personnel for Quality Control
z Process Control
z Laboratory
z Quality Audit
z Packaging
z After-sales-service; and
z House-keeping and Maintenance
The unit approved under this system is recognised by notification under section 7 of
the Act as the Agency for Quality Control and Inspection of specific products
manufactured in the unit. The system removed the need for the manufacturing unit to
seek certificate of inspection from an outside Agency which provides an added
advantage in the mechanism of exportation.
8.8 ADVANTAGES OF THE PRE-SHIPMENT

INSPECTION SERVICES
There are many variants to the modalities of pre-shipment inspection depending on the
contractual requirements of the client country.
8.8.1 Physical Inspection of Goods 83
z The physical inspection of goods is needed to confirm the information given by
the importer (pro-forma invoice or any other evidence) and/or to monitor, if
required compliance with national and international regulations.
z Inspection of goods is also carried out to provide price analysts with sufficient
information for the price analysis of goods.
z To this end, the quantity and quality of goods are inspected.
z Qualified inspectors who may either be full-time employees of work on a free-
lance basis carry out the inspection. The inspection takes place at various sites,
such as the place where the goods are manufactured; or in warehouses where the
goods are stored before shipment.
z Inspection includes the taking of samples of the goods to establish their
conformity with the quality requirements.
z The findings of the inspectors are reported in inspection reports which are then
used by the price analysts as a basis for determining whether or not the goods are
over-invoiced or not valued correctly for Customs purposes.
z The technical aspects of physical inspection (i.e. how it should be carried out by
competent inspectors) are explained in a separate document.
8.8.2 Price Analysis

The technical aspects of the price analysis of goods are described in detail in a
separate document.
There are two aspects in relation to the price analysis of goods. Price analysis consists
of price verification and customs valuation. They both pursue different objectives.
Furthermore, the price verification and customs valuation exercises are carried out
according to their own specific rules.
Price Verification
z Price verification relates to over-invoicing of imports.
z The price verification exercise consists of the verification of the invoiced price.
z When work is of the opinion that the invoiced price of goods is too high, it is in a
position to reduce the invoiced price and the exporter should reduce the price in
conformity with the conclusions of work
z If the exporter does not agree and refuses to reduce the price, he or she has no
alternative than to cancel the transaction. However, more recent contracts focus on
customs revenues and request pre-shipment inspection agencies to report on over-
invoicing to the client country without requiring a reduction of the invoiced price.
Customs Valuation
z Customs valuation involves the giving of an opinion on the value of goods which
is used by the Customs Authorities of the client country for determining the
customs value or dutiable value of goods, for the purpose of collecting import
duties and taxes.
z When work is of the opinion that the invoiced price is lower than the dutiable
value the exporter is not required to modify the invoiced price. Work reports to
the importing country’s Customs authorities the value for customs duty purposes.
84 z The report reflects work’s opinion to the Customs authorities in the importing
country and may or may not be accepted by them in calculating the duties and
taxes, depending on the local laws and regulations. However, countries may
change rules and require that Customs authorities take the reported dutiable value
as the final dutiable value.
8.8.3 Customs Classification of Goods

Another method used by importers to avoid payment of taxes is the misclassification
of goods in the national customs tariff code under a tariff heading carrying a lower tax
rate. The customs classification of goods consist of checking whether the tariff code
assigned to goods corresponds to the description given in the tariff code on the basis
of documentary evidence and physical inspection of goods. The purpose of this
exercise is to calculate the correct import duty for given merchandise.
The classification of goods in Custom Codes is generally based on the Harmonised
Commodity Description and Coding System (commonly known as the Harmonised
System (HS) Code) prepared by the World Customs Organisation (WCO) in Brussels.
The purpose of this Code is to facilitate trade through an internationally accepted and
uniform classification of all traded goods.
The goods are grouped in 21 Sections, each of which covers a particular type of
product. The sections are further sub-divided into 96 numbered headings. However, it
should be stressed that in many cases, the variety and number of goods is such that it
is difficult to classify them in the sections and headings. The "General Rules for the
Interpretation of the Harmonised System" provide the tools for classifying the goods
in greater detail.
The CCC has published seven manuals to explain the system. The first two books are
alphabetical listings of goods indicating the codes that could be applied. Four other
manuals cover the details of each heading. The seventh manual, called "Classification
of Opinions" allocates codes to goods that do not fall into one of the 96 headings.
An important rule which should be kept in mind by the person responsible for the
customs classification is that goods which cannot be classified should be put under the
heading appropriate to the goods to which they are most akin (Rule 4 of the General
Rules for the Interpretation of the Harmonised System).
8.8.4 Price Data for a Customs Valuation Database

PSI contracts could require that the data on prices generated through PSI should be
supplied to the customs authorities. Price data generated through PSI interventions
could be useful for Governments, especially when customs services develop their own
valuation capacity. These data are usually provided in the form of manuals and/or of
computer diskettes, both regularly updated.
8.8.5 The Marking of Inspected Goods and the Sealing of Full Container
Loads
All goods which have been inspected should be marked by work. However, more and
more goods are being stored in containers for export. Some country-instructions
require that in addition to the physical inspection, inspectors should seal Full
Container Loads (FCL) of goods consigned to that country.
8.8.6 Control of Compliance with National and International Regulations

Pre-shipment inspection agencies may be mandated by the authorities to control
compliance of imported goods with national and international regulations.
Import Restrictions 85
All Principals have lists of goods which are prohibited from import or are permitted to
be imported if they fulfil certain conditions.
8.8.7 Status of the Importer

Principals may also require that work check the status of the importer before accepting
to carry out the pre-shipment inspection service.
8.8.8 Legality Checks

Principals may require that works verifies whether the transaction is in compliance
with the laws of the importing country.
Imported goods should conform to national regulations, particularly as regards
labelling and packaging. In general, consumer goods should indicate in English, the
name of the product, the date of manufacture and date of expiry as well as the name
and address of the manufacturer. In the case of other goods, they should bear a
description of their nature, handling precautions, directions for use, names of the
manufacturer, etc.
Goods should also conform to the legislation of the exporting country or the rules
elaborated by international organisations.
Some countries might go a step further and require that works verifies expiry dates
and remaining "shelf-life" of consumer goods in conformity with the regulations of the
importing country. By shelf-life it is understood the period of time during which
goods are fit for human consumption, the reference periods being the date of
manufacturing and the date of expiry.
The required remaining shelf-life of goods is normally expressed in a percentage of
the time that the goods should be fit for human consumption after the date of import of
the goods or the date of inspection, depending on the PSI contract. For example, a
shelf-life of 75% means that the goods should only be imported if they can be used for
a period of time which is equal to or higher than 75% of the time calculated between
the date of production and the expiry date.
It is also important to note that there are differences in respect of the official
regulations of exporting countries with regard to the acceptable shelf-life of consumer
goods. The shelf-life dates to be respected by manufacturers in industrialised countries
are determined in conformity with the national public health regulations. Other
countries have less strict regulations and apply a system of recommended dates. In
these countries, the shelf-life periods are usually determined by the manufacturers
themselves. In addition, countries may impose specific regulations as to the indication
of the date of manufacture of the goods and the date of expiry on the packaging. In
countries where such information is not required, it should be mentioned in other
relevant documents.
It may also be necessary to specify the usable life of second-hand material.
8.8.9 Customs Duty and Tax Assessment

Work may be requested to calculate the customs duties and taxes payable in
accordance with the tariff rates applicable under the customs tariff code of the client
country. The calculation is based on the assessed dutiable value and appropriate
customs classification.
86 8.8.10 Control of Exemptions from Import Duties and Taxes
Work may also be mandated to monitor temporary exemptions on customs duties and
taxes granted by the authorities. This is a very complex exercise (follow-up of the
legislation, identification of the goods which benefit from these exemptions).
8.8.11 Reconciliation of Duties and Taxes with Customs

The reconciliation exercise consists in verifying whether the amount of customs duties
and taxes to be paid by importers pursuant to the intervention of work have been
declared "collectable" and have been duly collected by the Customs authorities. Work
reports to the Customs authorities the amount of the "collectable" customs taxes and
import duties due for each transaction. Once the goods have been imported and the
import formalities completed, the information provided by work is compared to the
documentation of the Customs authorities on import duties and taxes collected.
8.9 EXPORT CONSIGNMENT INSPECTION

Export consignment can be carried out in various ways. These are discussed in detail
below.
8.9.1 By Post
In case of Post Parcel, no Shipping Bill is required. The relevant documents are
mentioned below:
z Customs Declaration Form: It is prescribed by the Universal Postal Union (UPU)
and international apex body coordinating activities of national postal
administration. It is known by the code number CP2/ CP3 and to be prepared in
quadruplicate, signed by the sender.
z Dispatch Note: It is filled by the exporter to specify the action to be taken by the
postal department at the destination in case the address is non-traceable or the
parcel is refused to be accepted.
z Commercial invoice: Issued by the exporter for the full realizable amount of
goods as per trade term.
z Consular Invoice: Mainly needed for the countries like Kenya, Uganda,
Tanzania, Mauritius, New Zealand, Burma, Iraq, Australia, Fiji, Cyprus, Nigeria,
Ghana, Zanzibar, etc. It is prepared in the prescribed format and is signed/certified
by the counsel of the importing country located in the country of export.
z Customs Invoice: Mainly needed for the countries like USA, Canada, etc. It is
prepared on a special form being presented by the Customs authorities of the
importing country. It facilitates entry of goods in the importing country at
preferential tariff rate.
z Legalised/Visaed Invoice: This shows the seller's genuineness before the
appropriate consulate or chamber or commerce/embassy.
z Certified Invoice: It is required when the exporter needs to certify on the invoice
that the goods are of a particular origin or manufactured/packed at a particular
place and in accordance with specific contract. Sight Draft and Usance Draft are
available for this. Sight Draft is required when the exporter expects immediate
payment and Usance Draft is required for credit delivery.
z Packing List: It shows the details of goods contained in each parcel/shipment.
z Certificate of Inspection: It is a type of document describing the condition of
goods and confirming that they have been inspected.
z Black List Certificate: It is required for countries which have strained political 87
relation. It certifies that the ship or the aircraft carrying the goods has not touched
those country(s).
z Manufacturer's Certificate: It is required in addition to the Certificate of Origin
for few countries to show that the goods shipped have actually been manufactured
and is available.
z Certificate of Chemical Analysis: It is required to ensure the quality and grade of
certain items such as metallic ores, pigments, etc.
z Certificate of Shipment: It signifies that a certain lot of goods have been shipped.
z Health/Veterinary/Sanitary Certification: Required for export of foodstuffs,
marine products, hides, livestock, etc.
z Certificate of Conditioning: It is issued by the competent office to certify
compliance of humidity factor, dry weight, etc.
z Antiquity Measurement: It is issued by Archaeological Survey of India in case of
antiques.
z Shipping Order: Issued by the Shipping (Conference) Line which intimates the
exporter about the reservation of space of shipment of cargo through the specific
vessel from a specified port and on a specified date.
z Cart/ Lorry Ticket: It is prepared for admittance of the cargo through the port gate
and includes the shipper's name, cart/ lorry No., marks on packages, quantity, etc.
z Shut Out Advice: It is a statement of packages which are shut out by a ship and is
prepared by the concerned shed and is sent to the exporter.
z Short Shipment Form: It is an application to the customs authorities at port which
advises short shipment of goods and required for claiming the return.
8.9.2 By Road
A road consignment note (also referred to as a road transport document, a road waybill
or a road manifest) is a form of inland BOL used in South Africa, although, as road
consignment notes can cover cargo moving across borders, it is also a form of through
BOL. As road haulage is driven by a large number of private road haulers, you may
come across many different types of road consignment notes, although there is a
tendency to follow the typical BOL used in the case of ocean shipping (i.e. there is
still a consignee, a shipper, a description of the goods, etc.). The road consignment
note is also:
z Proof of receipt of the goods for transportation by road
z Evidence of the contract of carriage
z An invoice for the freight, reflecting the shipper, the consignee and the goods
being shipped, as well as the full freight amount
z A guide to the road hauler for the handling, dispatch and delivery of the
consignment
z A means of clearing the goods through customs
To clear the goods through customs, the road consignment note will need to be
accompanied by a commercial invoice, a packing list and any other documentation
relevant for clearing purposes (such as phytosanitary documents, etc.).
88 8.9.3 By Sea
The following documents are commonly used in exporting; which of them are actually
used in each case depends on the requirements of both our government and the
government of the importing country.
z Commercial invoice
z Bill of lading
z Consular invoice
z Certificate of origin
z Inspection certification
z Dock receipt and warehouse receipt
z Destination control statement
z Insurance certificate (Marine Insurance)
z Export license
z Export packing list
8.9.4 By Air
The following documents are commonly used in exporting; which of them are actually
used in each case depends on the requirements of both our government and the
government of the importing country.
z Commercial invoice
z Bill of lading
z Consular invoice
z Inspection certification
z Dock receipt and warehouse receipt
z Destination control statement
z Insurance certificate
z Airway Bill
z Export license
z Export packing list
Fill in the blanks:
1. EIA stands for ………… .
2. Items notified under the ………… have also been exempted from
compulsory pre-shipment inspection.
3. WCO stands for ………… .
4. FCL stands for ………… .
89
8.10 LET US SUM UP Inspection of Export Consignment
Pre-shipment inspection of goods to ensure that the quality of goods is up to the

contract between exporters and importers in this lesson you studied various methods
of pre-shipment inspection.

Discuss the concept of physical inspection of goods.
8.12 KEYWORDS
Export Inspection Council: The Export Inspection Council (EIC) was set up by the
Government of India under Section 3 of the Export (Quality Control and Inspection)
Act, 1963 (22 of 1963), in order to ensure sound development of export trade of India
through Quality Control and Inspection and for matters connected thereof.
Free on Board (FOB): A trade term requiring the seller to deliver goods on board a
vessel designated by the buyer. The seller fulfils its obligations to deliver when the
goods have passed over the ship's rail.
Pre-shipment Inspection: Pre-shipment Inspection (PSI) is the inspection of industrial
goods being exported by an independent inspection company.
Quality Control: Quality Control (QC) is a procedure or set of procedures intended to
ensure that a manufactured product or performed service adheres to a defined set of
quality criteria or meets the requirements of the client or customer.

1. What do you mean by voluntary inspection?
2. Describe pre-shipment inspection procedure in detail.
3. Explain concept of quality.
4. Describe in-process quality control.

CYP 1
1. inspected
2. primary
3. Government of India.
CYP 2
1. Export Inspection Agency
2. Export (Quality Control & Inspection) Act 1963
3. World Customs Organisation
4. Full Container Loads
90
Export Trade and Documentation 8.14 SUGGESTED READINGS
India.
91
LESSON Claiming for Export Benefits
9
CLAIMING FOR EXPORT BENEFITS
CONTENTS
9.1 Introduction
9.2 Procedure for Making a Claim
9.2.1 Procedural Formalities
9.2.2 Documents in Support of Claims
9.3 Procedure for Taking a Policy
9.3.1 Obligations of the Policy Holders
9.4 Financial Guarantees
9.5 Insurance Claims
9.5.1 Responsibilities of the Insured
9.5.2 Filing Claims
9.5.3 Documents for Claims
9.6 Duty Drawback
9.7 Let us Sum up
9.9 Keywords

z Discuss the procedure for making a claim
z Explain procedure for taking a policy
z Describe financial guarantee and insurance claims
z Explain duty drawback
9.1 INTRODUCTION
Export business has become very complex and highly risky. Insolvency rate is on the
increase. Balance of payment difficulties have severely affected the capacity of many
countries to pay the import price. In such a high risk situation, export credit insurance
is very much helpful for the exporters and the banks who finance the export
transactions.
92
Export Trade and Documentation 9.2 PROCEDURE FOR MAKING A CLAIM
A claim will arise when any of the risks insured under the policy materializes. If an
overseas buyer goes insolvent, the exporter becomes eligible for a claim one month
after his loss is admitted to rank against the insolvent's estate or after four months for
the due date, whichever is earlier. In case of protracted default, claim is payable after
four months from the due date. Claims in respect of additional handling; transport or
insurance charges incurred by the exporter because of interruption or diversion of
voyage outside India are payable after proof of loss is furnished. In all other cases,
claim is payable after four months from the date of the event causing loss.
However, in case of exports to countries where long transfer delays are experienced,
ECGC may extend the waiting period and claims for such shipments are payable after
the expiry of such extended period. Sometimes the buyer does not accept goods or pay
for them because of differences over fulfilment of the terms of contract by the
exporter, counter claims or setoff. In such cases, ECGC considers claims after the
dispute between the parties is resolved and the amount payable is established by
obtaining a decree in a court of law in the country of buyer. This condition is waived
in cases where the Corporation is satisfied that the exporter is not at fault and that no
useful purpose would be served by proceeding against the buyer.
9.2.1 Procedural Formalities

The ECGC has three types of claim forms: (i) Form No. 501 for claims arising due to
non-payment for goods accepted by the buyer, (ii) Form No. 502 for claims arising
because of the non-acceptance of goods/documents by the buyer, and (iii) Form No.
503 for claims on account of delay in transfer of funds to India. Claims due to the
above cause should be filed in the respective prescribed form. Other types of claims
can be filed by means of a letter, giving full particulars of the cause and extent of loss.
The claims have to be submitted to the ECGC office that issued the policy. Again, the
claim forms should be sent through the bank which handled the export bill concerned.
No claim will be entertained by the ECGC if it is not filed within a period of 24
months from the due date of the concerned bills.
9.2.2 Documents in Support of Claims

Every claim has to be supported by documentary evidence. Important documents that
should accompany the claim forms are the following:
z Certified copy of the export order
z Certified copies of invoices
z Certified copies of bills of lading
z Copies of the correspondence with the buyer
z In case of insolvency of the buyer, copy of the letter from the official receiver
/liquidator admitting the claim.
z In case of protracted default:
Protest note
Original of unpaid bills
Advice of non-payment received from the bank
Copy of the plaintiff if a suit has been filed,
z In case of transfer delays, certified copy of payment advice received from the
collecting banker indicating the date on which payment was made by the buyer in
local currency. This should also certify that all exchange control formalities 93
Claiming for Export Benefits
necessary for transfer of funds to India have been complied with by the buyer.
All claims are paid in Indian rupees through the Bank which handled the bills
concerned.
9.3 PROCEDURE FOR TAKING A POLICY

An intending exporter should fill in a proposal form (no. 121) available with all ECGC
offices and submit it to the nearest office. After examining the proposal, ECGC would
send him an acceptance letter stating the terms of its cover and premium rates. The
policy will be issued after the exporter conveys his consent to the premium rates and
pays a non-refundable policy fee.
The premium rates are closely related to the risks involved and depend upon:
z Length of the credit
z Terms of payment
z Credit worthiness of the buyer and his country
z The past record of the exporter.
ECGC normally fixes a maximum limit of its liability for shipments in each of the
policy years. It is therefore, advisable for exporters to estimate the maximum
outstanding payment due from overseas buyers at any time during the policy period
and to obtain the policy with maximum liability for such value. The maximum
liability fixed under the policy can be enhanced subsequently, if necessary.
9.3.1 Obligations of the Policy Holders

The main obligations for the policy holders are:
Declaration of Shipments
An exporter who has taken a shipments policy has to send, by the fifteenth of each
month, a declaration of shipments made in the previous month, in the prescribed form
(No. 203). An exporter who obtains a contracts policy has to send a declaration of all
outstanding contracts immediately after the policy is issued. Thereafter he shall send a
monthly declaration of contracts concluded and shipments made by him during the
previous month. Premium has to be paid along with the declaration at rates shown in
the schedule attached to the policy.
Fixation of Credit Limit on each Buyer

Commercial risks are covered by ECGC subject to approval of a credit limit on each
buyer. Credit limit is the limit up to which claim can be paid under the policy for
losses on account of commercial risks. As commercial risks are not covered in the
absence of a credit limit, exporters would be well advised to apply to ECGC for
approval of credit limit on buyer in the prescribed form (No. 144) before making
shipment. If complete information regarding the buyer and his banker is given in the
credit limit application, it will facilitate receipt of credit information expeditiously.
ECGC obtains credit information on overseas buyers through banks and credit
information agencies. On the basis of credit information and its own experience,
ECGC fixes suitable credit limits on overseas buyers.
In case an exporter has already obtained a credit report on the buyer or is in possession
of other information that can help ECGC in fixing credit limit the same may be
furnished along with credit limit application to facilitate quick decision. If the exporter
94 needs an enhancement in limit, he may apply in the prescribed form (No. 144A)
giving his past experience with the buyer.
Reporting Defaults
In the event of non-payment of any bill, policy holders are required to take prompt and
effective steps to prevent or minimize loss. A monthly declaration of all bills which
remain unpaid for more than 30 days should be submitted to ECGC in the prescribed
form (No. 205) indicating action taken in each case. Granting extension of time for
payment, converting bills from D.P to D.A. terms or resale of unaccepted goods at a
lower price require prior approval of ECGC.
9.4 FINANCIAL GUARANTEES

Exporters require adequate financial support from banks to carry out their export
contracts. ECGC’s guarantees protect the banks from losses on account of their
lendings to exporters. These guarantees have been designed to encourage banks to
give adequate credit and other facilities for exports, both at pre-shipment and
post-shipment stages on a liberal basis.
Six guarantees have been evolved for the purpose:
z Packing Credit Guarantee
z Export Production Finance Guarantee
z Post-Shipment Export Credit Guarantee
z Export Finance Guarantee
z Export Performance Guarantee
z Export Finance (Overseas Lending) Guarantee.
These guarantees give protection to banks against losses due to non-payment by
exporters on account of their insolvency or default. ECGC pays three-fourths of the
loss in the case of Post-Shipment Export Credit Guarantee, Export Finance Guarantee,
Export Performance Guarantee and Export Finance (Overseas Lending) Guarantee and
two-thirds of the loss in others.
The Corporation agrees to pay higher percentage of loss to banks which offer to cover
all their pre-shipment advances under a whole turnover Packing Credit Guarantee.
Similarly, a higher percentage of cover is offered under post-shipment export credit
guarantee if the bank agrees to cover all its post-shipment advances on whole turnover
basis.
9.5 INSURANCE CLAIMS

When there is a loss, the insured is to proceed to claim the loss recovery from the
insurer. The cardinal principle about insurance claims is that the insured has to fulfil
the clearly defined responsibilities. If he does not fulfil these responsibilities, the
insurer can refuse to Pay.
9.5.1 Responsibilities of the Insured

It is the duty of the insured or his agents, in all cases, to take such measures as may be
reasonable to avert or minimise a loss. Further, it is also his duty to protect rights of
the insurer of recovery from the carriers, port authority and others. In particular, the
duties of the insured or his agent are:
z Lodge claim on the carriers, port authorities and other intermediaries for any
missing packages.
z If the loss or damage is apparent or visible, make an application to the agents of 95
the carriers, port authority, customs authority and the insurer (or agent) to arrange
joint survey within 3 days of discharge of cargo from the vessel (7 days in case of
air consignment).
z If the loss was not apparent at the time of taking delivery of cargo, give notice in
writing to the carriers and other parties within 3 days of delivery of cargo (7 days
in case of air consignment).
z Lodge a proper monetary claim on carriers, port authority and customs authority.
z In case of any missing package, get a log entry made with the port authority and
lodge a claim on carrier and port authority.
z If missing packages are traced subsequently, clearance may be made only after a
joint survey.
z The claims on carriers, customs and port authorities should be filed within the
time, limits prescribed under the relevant laws.
9.5.2 Filing Claims

The insured will file claim with the insurance company after meeting the
aforementioned requirements the insurance company is generally contacted
immediately on discovery of loss to the cargo which will assist the insured in carrying
out the responsibilities.
It is quite natural that there is disagreement between the insured and the insurers
regarding insurance claims. In such a case, the insured can take legal recourse against
the insurers and file a legal suit. However, under the Indian Limitation Act, no suit can
be filed against the insurers in respect of a claim under an insurance policy after a
lapse of three years.
z The date of occurrence causing the losses.
z The date when the claim is repudiated either partly or wholly.
It is clear that if liability is not denied for three years, the claim of the insured would
become time barred under the law. If the claimants want to keep their claim right
open, they will have to file suit against the insurers before the expiry of the period of
three years. The claim would also remain open, if the insurers belatedly repudiate the
claim.
9.5.3 Documents for Claims

The claims on the insurers should be submitted duly supported by the following
documents:
z Original insurance policy or certificate of insurance duly endorsed by the insured.
z Full set of Bill of Lading in respect of total loss claims. Otherwise non-negotiating
copy of the Bill of Lading, Airway Bill, Railway, etc. as applicable.
z Copy of invoice with packing/weight list.
z Insurance survey Report or other documentary evidence to substantiate cause and
extent of lots.
z Joint ship survey Discrepancy Certificate issued by the carriers;
z Port authority Landing Remarks certificate.
z Casualty report when a vessel is missing or lost.
96 z Ship Master's protest or an authenticated copy of extract from ship's Log book in
case vessel encountered heavy weather or other casualty during the voyage.
z In case of short landing claims, a Short Landing Certificate issued by the carrier or
port authority.
z A landed but Missing Certificate from port authority in case where package has
landed but is missing.
z In the event of General Average claim for refund of GA Deposit; the GA Deposit
Receipt and GA Counter-Guarantee.
z Triplicate copy of Bill of Entry (in case of India)
z Copies of Letter lodging claims on the carriers, port authority, etc.
z Copies of correspondence exchanged with carriers to examine whether the
claimant has taken necessary measures.
z Letter of subrogation duly stamped and signed.
z Any other document as may be asked for by the insurers.
9.6 DUTY DRAWBACK

It means the rebate of duty chargeable on imported material or excisable material used
in the manufacturing of goods in and is exported. The exporter may claim drawback or
refund of excise and customs duties being paid by his suppliers. The final exporter can
claim the drawback on material used for the manufacture of export products. In case
of re-import of goods the drawback can be claimed.
The following are Drawbacks:
z Customs paid on imported inputs plus excise duty paid on indigenous imports.
z Duty paid on packing material.
Drawback is not allowed on inputs obtained without payment of customs or excise
duty. In part payment of customs and excise duty, rebate or refund can be claimed
only on the paid part.
In case of re-export of goods, it should be done within 2 years from the date of
payment of duty when they were imported. 98% of the duty is allowable as drawback,
only after inspection. If the goods imported are used before its re-export, the drawback
will be allowed as at reduced per cent.
Check Your Progress
Fill in the blanks:
1. The …………… has three types of claim forms.
2. An …………… who has taken a shipments policy has to send, by the
fifteenth of each month, a declaration of shipments made in the previous
month, in the prescribed form (No. 203).
3. …………… the rebate of duty chargeable on imported material or
excisable material used in the manufacturing of goods in and is exported.
9.7 LET US SUM UP

Export business has become very competitive and risky. Credit risk is greater in
export transactions because reliable information about foreign buyers is difficult to
obtain and hence it is difficult to evaluate their credit worthiness. Adverse balance of 97
payment has severely affected the country's capacity to pay the import price. Civil war
or other external happenings may also delay the payment of the exported goods.
Moreover, there has been a significant increase in insolvency of the buyers. In such a
high risk situation, export credit insurance can be of immense help to exporters and
the banks who provide finance for the export business.

What is the process of making a claim? Elaborate with examples.
9.9 KEYWORDS
Duty Drawback: Duty drawback is governed by a couple of sections in the Customs
Act, 1962 namely sec 74 and sec 75. The common intention is apparently to refund the
import duty borne by the importer on exporting the goods.
ECGC: The Export Credit Guarantee Corporation of India Limited (ECGC) is a
company wholly owned by the Government of India based in Mumbai, Maharashtra.
It provides export credit insurance support to Indian exporters and is controlled by the
Ministry of Commerce. Government of India had initially set up Export Risks
Insurance Corporation (ERIC) in July 1957. It was transformed into Export Credit and
Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit Guarantee of
India in 1983.
Insurance Claim: A formal request to an insurance company asking for a payment
based on the terms of the insurance policy. Insurance claims are reviewed by the
company for their validity and then paid out to the insured or requesting party (on
behalf of the insured) once approved.

1. Describe the role of ECGC in detail.
2. Explain the procedures for making claim.
3. What do you mean by financial guarantee?
4. Describe duty drawback.

1. ECGC
2. exporter
3. Duty drawback.

98 Johnson, Thomas E. (2002) Export/import Procedures and Documentation
Export Trade and Documentation AMACOM/American Management Association.
India.
99
Terms of Shipments
UNIT IV
100
LESSON 101
Terms of Shipments
10
TERMS OF SHIPMENTS
CONTENTS
10.1 Introduction
10.2 Nature of Export Cargo
10.2.1 Rush Cargo
10.2.2 Bulk Cargo
10.2.3 General Cargo
10.3 Liner and Tramp Shipping Services
10.3.1 Liner Shipping Service
10.3.2 Tramp Shipping Service
10.4 Conference Practice
10.5 Chartering Practices
10.5.1 Voyage Charter
10.5.2 Time Charter
10.5.3 Bareboat Charter or Charter by Demise
10.6 Air Freighting
10.6.1 Air Freight Rates
10.6.2 Documentation
10.6.3 Clearing House
10.7 Quality Control and Pre-shipment Inspection
10.8 Role of Clearing and Forwarding Agent
10.9 Movement of Goods to Port
10.10 Shipping Document present to the Bank
10.11 Let us Sum up
10.13 Keywords
102
z Explain the nature of export cargo
z Differentiate between liner and tramp shipping services
z Discuss conference practice and chartering practice
z Define air freighting
z Explain the concept of quality control and pre-shipment inspection
z Describe the role of clearing and forwarding agents
z Explain movement of goods to port
z Discuss the shipping documents to be presented to the bank
10.1 INTRODUCTION
The first stage in the physical movement of goods from the factory/godown of the
exporter to the importer is to pack, mark and label the consignment in accordance with
the requirements of the buyers. The buyer also arranges the proper transport for the
movement of goods to the port of shipment. For this purpose, the exporter must be
aware of different modes of transport, especially for performing the overseas part of
the journey. The choice of carrier, whether an aircraft or a ship, depends on many
factors such as product and marketing characteristics, the cost and non-cost factors,
etc. In addition to commercial aspects of movement of cargo to the port of shipment,
the exporter is required to comply with an important legal requirement. In this lesson,
you will learn about the features of liner and tramp shipping services, various
chartering practices, and methods of quality control and pre-shipment inspection.
10.2 NATURE OF EXPORT CARGO

The demand for transport services is a derived demand and the nature of these services
is determined by the nature of goods traffic in international trade. The internationally
traded goods for which different types of transport services are needed may be
categorized into three broad groups on the basis of their marketing requirements.
These groups are:
z Rush Cargo
z Bulk Cargo
z General or Non-Bulk Cargo.
10.2.1 Rush Cargo

In satisfying the immediate marketing needs of the Rush Cargo, speed is the most
important consideration in the decision-making process and hence, such cargo is
necessarily to be sent by air.
10.2.2 Bulk Cargo

Bulk Cargo by its very nature, can be carried and stored in large quantities mainly
because their market demand does not frequently change since they are free from
attacks of product development, changes in design, obsolescence, deterioration and
depreciation. These cargos have low unit-value and hence, they can be transported and
warehoused at low per unit cost only when transported and warehoused in large
quantity. The cargos, which have these characteristics, are the primary commodities 103
Terms of Shipments
and industrial raw materials such as iron ore, food grains, coal, fertilizers, oils,
petroleum products, chemicals and liquified gas. You may notice that Bulk Cargo has
been divided into two categories, viz., Dry Bulk (e.g. food grains) and Liquid Bulk
(e.g., oil and petroleum products).
10.2.3 General Cargo

General Cargo comprises manufactured, semi-manufactured, processed and semi-
processed goods and materials moving in small quantities in cases, packages, parcels,
bales, etc. Examples of such cargo are engineering goods, leather products, textiles,
drugs and pharmaceuticals, tobacco, spices and marine products. In contrast to Bulk
Cargo, General Cargo cannot be carried and stored in large quantities, mainly because
of their susceptibility to fast changes in their demand due to changes in fashion,
design, season, technology, etc. On the other hand, they need not be carried and stored
in large quantities because of their higher unit-value and thus, their ability to bear a
higher per unit transportation and warehousing cost.
10.3 LINER AND TRAMP SHIPPING SERVICES

It is clear from the discussion so far that Bulk Cargo requires such kind of shipping
services in which large quantity of one type of cargo can be carried at low per unit
cost. These services are provided by carriers known as Tramps. Quite naturally, there
are different types of tramp ships to carry different kinds of bulk cargo. On the other
hand, carriers which provide regular and scheduled shipping services to carry
heterogeneous cargo suiting the marketing requirements of General Cargo are known
as Liners. A liner ship is built and rule to satisfy the transport demand of a variety of
cargos.
10.3.1 Liner Shipping Service

The liner ship has the following features:
z It is designed to carry a variety of cargo, with spaces for bales, bundles, boxes,
barrels, drums, etc. as well as for reefer (refrigerated) cargo. The designs of the
holds and number of decks will be different from those of a tramp. With the
increased share of containerized cargo, specially designed container ships for
carrying different categories of containers operate.
z The cargo handling equipment on a liner will be varied and sophisticated for quick
loading and unloading of cargo to ensure quick turn-round. A quick turn-round
means that the ship spends the least possible time in the port and most of its time
in transit.
z It operates regularly between fixed ports and normally loads in several ports. It
serves a number of discharging ports along a predetermined route.
z In order to ensure speedier carriage, it is fitted with sophisticated and expensive
propelling machinery.
z It provides pre-announced scheduled services on given terms and conditions of
carriage. These terms and conditions mostly relate to the responsibilities and
liabilities of the ship-owners in receipt, carriage and delivery of cargo. Liners.
Thus, provide services on terms and conditions, which are not negotiable.
z It generally offers carriage on fixed and stable freight rates.
104 10.3.2 Tramp Shipping Service
A tramp carrier has the following characteristic features:
z It is primarily designed to carry the more simple and homogeneous cargo in large
quantity. It is, therefore, designed to fully utilise its carrying capacity for carriage
of one type of cargo. For example, a grain-carrying ship will be designed in such a
way that a full cargo of grains in bulk can be accommodated in the lower holds,
feeders and bins.
z Since one kind of homogeneous cargo is to be handled, a tramp will have
comparatively simple equipment. Bulk cargos are normally loaded and discharged
by mechanical equipment, elevators, pumps, etc.
z Because of the comparatively low unit value of commodities carried, a tramp will
be operated at the lowest possible cost. This objective can be achieved by
operating ships having relatively less speed by fitting less expensive propelling
machinery.
z A tramp generally carries cargos of one or two ship users. Hence, loading and
discharging are confined to a few ports.
z It does not have a fixed route and predetermined schedule of departure as it is to
be engaged by one/two users as and when their need arises.
z It offers services at terms and conditions, including freight/hire charges, which are
not fixed and given but are negotiable.
10.4 CONFERENCE PRACTICE

The liner shipping services are offered both by the liners which operate unitedly as
well as those which operate independently. Liners in the first category are said to be
members of conference.
A conference is an association of independent ship-owner’s, which is organized, to
restrict/eliminate competition in the trade, regulating and rationalizing sailing
schedules and ports of call. The conferences operate on the basis of written
agreements, providing for a permanent secretariat and describing rights and
obligations of members. The members are expected to follow the rules set by the
conference under the agreement. In the event of violation of the agreed rules of
discipline by a member, the agreement provides for imposing a penalty which is
generally the forfeiture of an agreed bond amount deposited with the conference.
The first conference was formed in 1875; known as the UK–Calcutta Conference.
Since then almost all trade routes have been covered by the shipping conference
system. The basic aim of a shipping conference is to minimize losses or to maximize
profits by combating competition among ship-owners. At the same time conference
binds shippers (shipping services users) and obtains continuous cargo support from
them through a number of freight concessional arrangements and agreements. Major
methods, which have been evolved to achieve this aim, are designed to eliminate
competition from within and fight competition from outside.
Competition among the conference members is regulated by:
z Rate agreements
z Control of sailing schedules
z Pooling arrangements
z Good faith or performance bonds.
The conferences fight competition from outsiders including shipping lines and 105
Terms of Shipments
shippers in a number of ways. The competition from other shipping lines is
encountered through:
z Extending conference membership to the growing outside lines
z Agreements with other conferences operating on alternative routes in such a way
that one conference operates on one route.
Competition from the skippers is blunted through three main devices for securing
cargo support from the shippers. These devices are:
z Deferred rebate on commissions arrangements
z Immediate cash rebate agreements
z Dual rate agreements.
10.5 CHARTERING PRACTICES

When a tramp carrier is engaged, it is said to be under charter, as one charterer hires
either the whole or the bulk of its space. A tramp may be chartered in a number of
ways. Three most important forms of engagement are:
z Voyage Charter
z Time Charter
z Bareboat Charter or Charter by Demise.
10.5.1 Voyage Charter

A ship may be chartered either for a single voyage (say, from port A to port B) or for
consecutive voyage (say, from port A to port B to port C) or for a round voyage (say,
from port A to port B to port A). The ship-owners provide the vessel to the charterers
for carriage of an agreed quantity of cargo from the named port or ports to be
discharged at named port or ports. Alternatively, the agreement (known as Charter
party) provides for carriage of cargo between ports within a certain range (say from
any port in India to any port in Germany). In the latter case, the charterers will be
required to convey the names of specific ports to the ship-owners (which in effect is
the Master of the vessel) at the time of voyage or voyages are to be made.
For engaging a tramp on voyage basis, the charterers are to pay freight to the
shipowners. Freight may be payable either according to the actual quantity loaded or
may be calculated on the basis of the total capacity of the ship. In the first case, the
charterers may also be required to pay for any capacity, which remained unused.
Alternatively, the shipowners hire out the unused capacity to another charterer.
In voyage charter, the shipowners are not only to meet all expenses of running the ship
such as officers and crew wages, stores and provisions, insurance of ship,
depreciation, etc. but also the operating expenses like fuel cost, port charges, light
dues, etc. The shipowners recoup their expenses and earn profits from the freight paid
by the charterers.
10.5.2 Time Charter

For time charter engagement, a ship is hired for a fixed time period operation within
the defined territories or between agreed ports. Although the ship is operated at the
command of the charterers, it cannot be taken outside the agreed territories or agreed
ports to protect the interests of the shipowners. It may also be noted that time period is
the essence of the agreement but it also provides for the voyage territories.
106 Under the time charter agreement, shipowners have the responsibility to deliver the
vessel at the agreed port within the specified time period in such a condition that it is
in every way fitted and equipped for the contemplated employment. The charterers in
turn are to redeliver the vessel at the agreed port in the same condition, in which it was
taken in charge, excepting normal wear and tear.
The entire capacity of the ship is hired and the shipowners receive charter hire for the
time duration for which it has been hired. The charter hire is generally payable in
advance at certain agreed intervals. The quantity of cargo carried has not bearing upon
the charter hire and even if no voyage is made because of the charterer's fault, the
shipowners are entitled to the hire.
In a time charter engagement, the responsibility of scheduling the ship's employment
and meeting port expenses, canal dues, fuels cost, cargo expenses, etc. remain with the
charterers. However, running expenses of the vessel like officers and crew wages,
stores, provisions, insurance, etc. have to be met by the shipowners. Another feature
of the time charter engagement is that the charterers can either operate themselves or
sublet the vessel on voyage charter depending upon their requirements (provided the
latter action is not specifically prohibited in the agreement between the shipowners
and the charterers). If the market improves after the vessel is taken on time charter and
the charterers sublet it, the charterers may earn more money than what is payable to
the shipowners by way of charter hire. Sometimes ships are time chartered on a long-
term basis to fulfil the contractual obligations like the Contract of Affreightment. Such
long-term charters are entered into so as to protect the charterers from the vagaries of
fluctuation in the freight market.
Expenditure-wise, the charterers have greater responsibility under the time charter
compared to voyage charter. However, under time charter, the shipowners undertake
that the ship is in seaworthy condition at the commencement the period of hire and
that they will exercise due diligence or reasonable care to maintain it in seaworthy
condition. This implies that the shipowners are responsible for keeping the ship in a
thoroughly efficient state as regards full machinery and equipment during the period
of the charter agreement.
10.5.3 Bareboat Charter or Charter by Demise

Under this arrangement, the shipowner let out the bare ship for a period of time. The
difference between the time charter and bareboat charter lies in the fact that in the
latter case the ship in the bare form lies at the disposal of the charterers who have the
full right and responsibility of operating the ship. The shipowners have the minimum
responsibility and act as they are 'dead' and have no concern about the ways the ship
will be used. Also known as "Demise Charter" the charterers in this case become the
disponent owners and are responsible for manning as well as operating the ship as if
they are the owners of the ship.
Since the ship is at the disposal of charterers, they have the right to appoint the Master
and the Chief Engineer, however, subject to the approval of the owners. They bear all
costs and expenses for the operation of the ship. For the time period, the shipowners
are paid a fixed sum calculated at a certain rate per ton dead weight on summer free
board per calendar month payable in advance. The ship is put at the disposal of the
charterers in the seaworthy condition and after the expiry of the time period, it is
redelivered to the shipowners in the same good order and condition as and when
delivered, minus the ordinary wear and tear.
Check Your Progress 1 107
Terms of Shipments
Fill in the blanks:
1. A …………. is built and rule to satisfy the transport demand of a variety
of cargos.
2. A …………. is an association of independent ship-owner’s, which is
organized, to restrict/eliminate competition in the trade, regulating and
rationalizing sailing schedules and ports of call.
3. For …………., a ship is hired for a fixed time period operation within the
defined territories or between agreed ports.
10.6 AIR FREIGHTING

Notwithstanding the fact that the bulk of international cargo traffic moves by sea, the
movement of cargo traffic by air has been increasing. As a result, a variety of cargos,
which hitherto was exclusively moving, by sea, are now also being moved by air.
The real fundamental change in favour of air freighting can be traced to four factors.
These are:
z Technological developments in the area of civil aviation;
z Technological developments in the field of cargo handling and communications
z Change in the composition of world trade
z Establishment of the International Air Transport Association (IATA).
Over the years, there has been a marked change in the composition of world trade. We
find that high unit-valued products including fashion items and sophisticated
machinery which require fast delivery and extra handling and keeping care are able to
bear a high incidence of freight cost. Therefore, air carriage has become more suited
to carry variety of cargo. The establishment of IATA in 1945 has considerably helped
in the development of air freighting. IATA is an organisation of airlines of the world.
It was set up to ensure smooth and fast development of air services. For its role,
particular mention should be made of:
z Standardisation in the rate-making
z Standardisation in documentation
z Clearing House and other facilities.
10.6.1 Air Freight Rates

Airfreight rates are chargeable either on gross weight or gross volume or volumetric
basis (i.e. weight or volume whichever is higher). The rates quoted by the airlines are
from one specified airport to another airport in one direction and include two
elements, viz. basic rates and transhipment charges. An important aspect of the air
rates that there is a minimum rate for a minimum acceptable weight. In other words, if
the cargo offered for carriage is less than the minimum acceptable weight, it will be
charged at the stipulated minimum rate. Further, air rates generally provide for
concessions at certain weights such that higher tonnage will be carried at the
concessional rates. The weights at which these concessions become applicable are
known as "break points". For example, there could be a concession of 10% on the rate
in a schedule if the cargo offered is 100 kg or more.
Under the IATA agreements, airlines offer specific commodity rates from and to agree
ports to the stipulated products or product groups. These are the concessional rates
108 offered to those products, which are available for carriage in large quantities over a
period of time. Thus, the airlines agree to provide concessional services in return of
regular tonnage. Products, which are not included in this group, are charged, with
some exception, either the 'normal rate' or 'quantity rate'. Normal rate is a non-specific
commodity rate between two defined airports in one direction of product less than 45
kgs. If the weight of these cargos become 45 kgs and above, a concessional ‘quantity
rate is charged. Aircraft's can also be chartered; in which case the freight rate is
negotiable which periodically fluctuates depending on the conditions of demand and
supply.
10.6.2 Documentation
Airlines all over the world use a standardized transport document, I known as Airway
Bill (or consignment Note). Besides functioning a carrier receipt and evidence of
contract of affreightment (transport) between airline and shipper, this document also
operates as an instruction sheet for the onward carriers. It is not a document of title but
can be made one by getting an "order" bill.
10.6.3 Clearing House

IATA provides an important facility to the carriers and the users in the form of the
Clearing House. This facility is useful in the inter-line claim settlements, when the
cargo is moving through more than one carrier, as in the case of transhipment.
Therefore, the shipper may book the cargo through one carrier and pay total freight, a
part of which will be paid to the onward carriers.
10.7 QUALITY CONTROL AND PRE-SHIPMENT

INSPECTION
According to the prevailing law in India, a fairly large number of export goods are
subjected to compulsory quality control and/or inspection by the agencies authorized
by the Government of India before being allowed to be exported from the country. In
1965, the Government enacted the Export (Quality Control and Inspection) Act as a
single comprehensive legislation to provide for the sound development of export trade
of India. Accordingly, the Export Inspection Council was set up to formulate and
supervise the inspection schemes with the help of Export Inspection Agencies, which
have a network of offices spread all over the country. These agencies have trained
manpower and are equipped with laboratory facilities to carry out inspection tests and
issue inspection certificates.
There are three systems for quality control and inspection, these are:
z Consignment-wise Inspection;
z In-process Quality Control
z Self-certification.

Under this system, each and every export consignment is subjected to a detailed
inspection by the Export Inspection Agencies based on a statistical sampling plan. If
the sample is found to conform to the recognized specifications/standards, an
inspection certificate for export is issued to the exporter. The Inspection Certificates
carry a specific validity period within which the export consignment must be shipped.
This system is applicable to all the notified products by the Export Inspection Council
other than those for which the In-process Quality Control system is applicable.
Procedurally, for obtaining the Inspection certificate, the exporter has to apply to the
Export Inspection Agency in advance to avoid shipment delays. The application is to 109
Terms of Shipments
be made on prescribed form known as Notice of Intimation along-with:
z Crossed cheque or Demand Draft for the inspection fee
z Copy of Commercial Invoice
z Copy of Export Contract
z Importer's Technical Specifications
This application will be registered in the office of Agency, which will appoint an
Inspector for carrying out physical examination of the goods.
The Inspector will examine the goods in the exporter's premises with reference to the
agreed specifications, which should not be inferior to the notified specifications.
Samples may be drawn and sent to the laboratory, if required. Thereafter, the inspector
prepares the Field Inspection Report, which becomes the basis for the issuance of the
Inspection Certificate. The original of the certificate is to be submitted to the customs
authorities for clearance of goods for export.

Under this system, export-oriented manufacturing/processing units are approved as
export-worthy units because they possess the requisite infrastructure for
manufacturing processing products of standard quality. Such a unit is allowed to
inspect and clear goods for export without an inspection by the Export Inspection
Agency. The Agency will issue certificate of inspection on the declaration by the unit.
For the approval of a unit it is to apply to the Export Inspection Agency on the
prescribed proforma. After a preliminary visit by the officer of the agency, a panel of
experts will be appointed. This panel thoroughly investigates the quality control
facilities of the unit right from the raw material stage to packing. It submits its report
to the agency with its recommendations. On the basis of these recommendations, the
unit is accorded the status of an export-worthy unit.
For obtaining the inspection certificate under this system, the exporter submits the
following documents to the Export Inspection Agency:
z Application (Notice of Intimation)
z Crossed Cheque/Demand Draft for fee
z A Copy of Commercial Invoice
z Importer's Technical Specifications.
On receipt of these documents, the Agency will issue inspection certificate in
triplicate. The original certificate is for the customs authorities.
With the experience gained over the years in operating the Compulsory Quality
Control and Pre-shipment Inspection Scheme in India, there has been a qualitative
change in the inspection system also. Recently, self-certification system has been
introduced which is based on the concept that a manufacturing unit having established
reputation for its products with sufficient in-built responsibility for quality assurance,
could be permitted to certify its own products for export. For the purpose of operating
this system, a manufacturing unit found qualifying against the prescribed norms,
which amongst other include the following:
z Product Quality
z Design and Development
110 z Raw Materials/Boughtout Components
z Organization and personnel for Quality Control
z Process Control
z Laboratory
z Quality Audit
z Packaging
z After-sales-service; and
z House-keeping and Maintenance
The unit approved under this system is recognized by notification under section 7 of
the Act as the Agency for Quality Control and Inspection of specific products
manufactured in the unit. The system removed the need for the manufacturing unit to
seek certificate of inspection from an outside Agency which provides an added
advantage in the mechanism of exportation.
10.8 ROLE OF CLEARING AND FORWARDING AGENT

Clearing and forwarding agents are a link between the owners of goods and owners of
means of transport. They help the cargo owners in efficient movement of goods to the
buyers by completing a number of procedural and documentary formalities. They are
experts and knowledgeable in laws and regulations governing shipment of goods
through the customs authorities as well as in commercial practices, especially the ones
concerning transport. Since they are in constant touch with various government
authorities, they keep themselves abreast with the developments in the field of their
activity. In addition to these functions, the agents can undertake a number of activities
including marking, labelling and packing of goods, arranging internal transport,
advising exporters on trade laws and price quotations as we'll as on developments in
the transport field, file duty-drawback claims on behalf of the exporters, etc. In fact,
the agents can perform all activities except perhaps selling the goods. Above all, the
agents act as trouble-shooters for the exporters in case of movement problems. We
may categories various activities in the following groups:
z Advising exporters on trade laws
z Providing transport and handling cost information
z Packing, marking and labelling
z Arranging transport
z Completing customs and port formalities
z Preparing and procuring documents
z Educating exporters on developments in transport.
10.9 MOVEMENT OF GOODS TO PORT

After the goods have been packed, marked and labelled, they are to be transported to
the port of-shipment. For this purpose, arrangements are to be made by transporting
them either by road or rail. But before this activity is undertaken, the exporter,
generally through his clearing and forwarding agent, procures reservation of space on
a carrier with suitable sailing schedule. For this purpose, the agent approaches the
freight broker who operates as an agent of the shipping company. As soon as space is
allotted, the shipping company issues shipping order, which becomes a proof of space
allotment. If the goods are transported by the rail, export consignments are to be given 111
Terms of Shipments
either B or C priority of the Railway priority schedule as formulated by the Railway
Board. There are five priorities in the schedule, ranging from the highest A to the
lowest E. Thus, priorities B and C accorded to the export consignments are fairly high
priorities.
10.10 SHIPPING DOCUMENT PRESENT TO THE BANK

The exporter presents the following documents to the bank for negotiation/collection:
z Commercial Invoice (Requisite number of copies)
z Certificate of Origin (two copies).
z Customs Invoice (Requisite number of copies)
z GR Form (Duplicate)
z Packing List (requisite number of copies)
z Full set of Clean-on-Board Bill of Lading (Negotiable plus Non-negotiable copies
as required)
z Additional copies of the Commercial Invoice for Certification by the Bank
z Original Letter of Credit/Export Contract
z Bank Certificate in the prescribed form in duplicate
z Marine Insurance Policy/Certificate
z Bill of Exchange
Fill in the blanks:
1. IATA stands for …………..
2. ………….. rates are chargeable either on gross weight or gross volume or
volumetric basis.
3. ………….. are a link between the owners of goods and owners of means
of transport.
10.11 LET US SUM UP

In international trade, goods are properly packed to protect them, to keep a
consignment together, to protect the goods from damaging the environment and be
affected by it. Unitization assists the process of cargo handling through reducing the
handling frequency of each cargo unit. These days containerization has become a
predominant form of unitized transport. It enables the through transportation of cargo
from the warehouse of the exporter to that of the importers.

Discuss self-certification concept in context of quality.
10.13 KEYWORDS
Liner Shipping Service: The shipping services which carry heterogeneous cargo.
Time Charter: Chartering of a ship for a fixed time period for operation within
defined territories.
112 Tramp Shipping Service: The shipping services which carry large of one type of
cargo.
Unitisation: Consolidation of a number of bags, boxes, packs, etc. in a single cargo
unit.
Voyage Charter: A chartering of a ship either for a single voyage or for consecutive
voyages or for a round voyage.

1. Describe the nature of export cargo.
2. What do you mean by tramp shipping services?
3. Describe voyage charter.
4. What do you mean by self-certification?
5. Explain the roles of clearing and forwarding agents.

CYP 1
1. liner ship
2. conference
3. time charter engagement
CYP 2
1. International Air Transport Association
2. Airfreight
3. Clearing and forwarding agents

India.
113
LESSON EXIM Bank and Document
Negotiation
11
EXIM BANK AND DOCUMENT NEGOTIATION
CONTENTS
11.1 Introduction
11.2 Role of Export Import Bank in India
11.3 Negotiation/Collection through Banks
11.4 Documents Required for Negotiation
11.5 Let us Sum up
11.7 Keywords

z Describe the role of EXIM bank in India
z Explain negotiation/collection through bank
z List the documents required for negotiation
11.1 INTRODUCTION
Exim Bank of India has been both a catalyst and a key player in the promotion of
cross border trade and investment. Commencing operations as a purveyor of export
credit, like other Export Credit Agencies in the world Exim Bank of India has, over
the period, evolved into an institution that plays a major role in partnering Indian
industries, particularly the Small and Medium Enterprises, in their globalisation
efforts, through a wide range of products and services offered at all stages of the
business cycle, starting from import of technology and export product development to
export production, export marketing, pre-shipment and post-shipment and overseas
investment.
11.2 ROLE OF EXPORT IMPORT BANK IN INDIA

Export-Import Bank of India was set up in 1982, for the purpose of financing,
facilitating and promoting foreign trade of India. It is the principal financial institution
in the country for coordinating working of institutions engaged in financing exports
and imports. The major functions of EXIM bank are as follows:
114 Finance
The present focus of EXIM Bank is on export finance. The Bank finances export of
Indian machinery, manufactured goods, consultancy and technology services on
deferred payment terms. Exim Bank finance is also available at export production
stages.
Services
EXIM Bank provides information, advisory services to enable exporters to evaluate
the international risks, export opportunities and competitiveness.
Research & Analysis

Research & Analysis carried out on specific industry sub sectors with export potential,
and international trade related subjects are provided to exporters. Look at Table 11.1
where details of various programmes offered by the EXIM Bank have been shown.
Table 11.1: Lending and Service Programmes of EXIM Bank
Programme Use
For Indian Entities Enables Indian exporters to extend term credit to Overseas
Export (Supplier's) Credit importers, of eligible Indian goods
Financing of Rupee
Enables companies to meet cash flow deficits of projects
Expenditure for projects
being executed overseas on cash payment terms
Export Contracts
Finance for Consultancy and Enables Indian exporters of consultancy and technology
Technology Services services to extend term credit to overseas Importers
Enables Indian exporters to buy raw material and other Inputs
Pre-shipment Credit for export contracts involving cycle time exceeding six
months.
Enables Indian Companies to meet cash flow deficits of
Finance for Deemed Exports contracts secured in India and financed by multilateral
funding agencies.
Enables eligible exporters to access finance for import of raw
Foreign Currency Pre-shipment credit
materials and other inputs needed for export Production
Enables Indian companies to acquire indigenous and
Finance for EOU's & Units in EPZs
imported machinery and other assets for export Production
Foreign Currency Lines of Credit for Enables eligible export-oriented units to acquire imported
imports machinery for export production.
Export Vendor Development Finance Enables vendors of export-oriented units to acquire plant &
machinery and other assets for increasing export capability
Enables Indian firms undertake product development, R&D
Export Product Development Finance
for exports.
Enables Indian promoters to finance equity contribution in
Overseas Investment Finance
joint ventures/WOS set up abroad.
Software Training Institutes Enables setting up of institutes for software training.
Enables exporters to implement market development
Marketing Finance programmes and finances productive capabilities through
loan financing.
Production Equipment Finance Enables eligible export-oriented units to acquire equipment.
Enables Indian exporters to raise finance from capital
Services markets through public/rights issues of equity shares/
Underwriting debentures with the backing of EXIM Bank's underwriting
commitment.
Contd…
Forfeiting Enables Indian exporter to convert credit sale to cash sale on 115
without recourse basis. EXIM Bank and Document
Negotiation
Enables Indian companies to provide requisite guarantees to
facilitate execution of export contracts and import
transactions
Enables Indian companies to provide requisite guarantees to
Guarantee Facility facilitates execution of export contracts and import
transactions.
L/C Confirmation Confirmation of L/Cs covering import of capital goods
Enables Indian Consultancy firms undertake project
Project preparatory services overseas preparatory studies in developing countries by grant/loan
financing.
Business advisory & Technical Enables Indian consultancy firms undertake specific
Assistance Services overseas assignments in select countries through grant financing
Cooperation Arrangement with Enables Indian consultants secure assignments in various
African Management services Co. projects that are managed by AMSCO in different parts of
(AMSCO) Amsterdam Sub-saharan Africa through grant financing.
Enables Indian Consultancy firms to undertake specific
Africa Enterprise fund assignments to assist small and medium entrepreneurs in
Sub-saharan Africa.
Enables Indian Consultancy firms undertake specific
Africa project development Facility
assignments in Sub-saharan Africa through grant financing.
Enables setting up of joint ventures in India between Indian
EC Investment partners Facility
companies and enterprises in the European Community
For Commercial banks Enables bank to offer credit to Indian exporters of eligible
goods, who extend term credit over 180 days to importers
Refinance of Export credit overseas.
Small scale industry Export Bills Enables bank to rediscount exports bills of their SSI
Rediscounting customers with usance not exceeding 90 days.
Enables banks overseas to make available term finance to
Re-lending facility
their clients for import of eligible Indian goods.
Enables banks to offer credit to eligible export oriented units
Refinance of Term Loans to EOUs to acquire indigenous and imported machinery and other
assets for export production.
Enables banks to offer finance to importers for bulk import of
Bulk Import Finance
consumable inputs.
Enables banks to protect their own cash flow as also its
Guarantee cum Refinance Supplier’s exporter client’s cash flow on account of default by overseas
Credit buyer. Protects the bank by not treating the advance as a non-
performing asset for provisioning purpose.
For Overseas Entities Enables overseas financial institutions, foreign governments,

their agencies to lend term loans to finance import of eligible
Lines of Credit goods from India.
Enables overseas buyer to import eligible goods from India
Buyer’s Credit
on deferred credit terms.
11.3 NEGOTIATION/COLLECTION THROUGH BANKS

It is pertinent to note that documents are handed over to the bank with a request either
to negotiate the documents if the same are drawn under the letter of credit or to
purchase the documents where the bank has granted pre-shipment facility to the
exporter or has sectioned the post-shipment limit for purchase of export bills or to
collect the bills with or without any advance against the security of these bills.
116
Export Trade and Documentation 11.4 DOCUMENTS REQUIRED FOR NEGOTIATION
Where the documents are drawn under a letter, the letter to the bank should be
enclosed with the documents as prescribed in the letter of credit, if any or stipulated in
the export order or such document which enable the buyer to take delivery of goods
and the documents required by the exporter to claim assistance. Following documents
are generally required by any bank to negotiate or collect necessary payment from
abroad and by the exporter.
z Bill of exchange
z Full set of Bill of Lading/Airway Bill/Post parcel Slip/Combined Transport
Documents, etc.
z Commercial invoice including one copy duly certified by the customs. The
number of copies should be the same as specified by the customs may also be
acceptable in cases where the particulars furnished in the GR form agree with
those indicated in the copy of invoice produced by the exporter and the value of
the invoice agrees with the value of goods passed for shipment by customs.
However, Customs Certified invoice is necessary where the RBI has specifically
stipulated such a requirement, viz. for countersigning GR form for export of
precious stones and jewellery by air.
z Original letter of credit.
z Customs invoice/consular invoice
z Certificate of origin, GSP/APR Certificate
z Insurance policy/certificate with complete set
z Packing list
z Foreign exchange declaration form
z Bank certificate of export realization in the prescribed form (in triplicate)
z Other documents, if required
Check Your Progress
Write the abbreviations:
1. AMSCO stands for ……………
2. SEZ stands for ……………
3. GATT stands for ……………
4. EOU stands for ……………
11.5 LET US SUM UP

Export-Import Bank of India was set up in 1982 by an Act of Parliament for the
purpose of financing, facilitating and promoting India’s foreign trade. It is the
principal financial institution in the country for coordinating the working of
institutions engaged in financing exports and imports. Exim Bank is fully owned by
the Government of India and the Bank’s authorized and paid up capital are 10,000
crore and 2,300 crore respectively.

Discuss the role of bill of exchange in export-import business.
117
11.7 KEYWORDS EXIM Bank and Document
Negotiation
Commercial Invoice: A commercial invoice is a document used in foreign trade. It is
used as a customs declaration provided by the person or corporation that is exporting
an item across international borders.
EXIM Bank: Export-Import Bank of India is the premier export finance institution of
the country, established in 1982 under the Export-Import Bank of India Act 1981.
GSP: The Generalized System of Preferences, or GSP, is a formal system of
exemption from the more general rules of the World Trade Organization (WTO),
(formerly, the General Agreement on Tariffs and Trade or GATT).

1. Describe the roles of export-import bank in India.
2. What do you mean by bill of exchange?
3. Explain the various documents required for negotiation.

1. African Management services Co.
2. Special Economic Zones
3. General Agreement on Tariffs and Trade
4. Export Oriented Units.

India.
Shri C Rama Gopal, Export Import Procedure and Documentation and Logistics. Publisher
New Age.
Export Import Management, Justin Paul, Rajiv Aserkar.
118
LESSON
12
CORPORATE MARKETING STRATEGIES
CONTENTS
12.1 Introduction
12.2 Corporate Marketing Strategies
12.2.1 Market Access Initiative (MAI)
12.2.2 Marketing Development Assistance (MDA)
12.3 Free Trade Zone
12.4 Deemed Export
12.5 Export Marketing
12.5.1 Focus Market Scheme
12.5.2 Focus Product Scheme
12.6 Let us Sum up
12.8 Keywords

z Describe corporate marketing strategies
z Discuss free trade zone
z Explain deemed export
z Describe export marketing
12.1 INTRODUCTION
There are several ways to gauge the overseas market potential of products and
services. (For ease of reading, products are mentioned more than services in this
guide, but much of the discussion applies to both.) One of the most important ways is
to assess the product's success in domestic markets. If a company succeeds at selling
in a domestic market, there is a good chance that it will also be successful in markets
abroad, wherever similar needs and conditions exist.
119
12.2 CORPORATE MARKETING STRATEGIES Corporate Marketing Strategies
In markets that differ significantly from the domestic market, some products may have
limited potential. Those differences may be climate and environmental factors, social
and cultural factors, local availability of raw materials or product alternatives, lower
wage costs, lower purchasing power, the availability of foreign exchange (hard
currencies like the dollar, the British pound, and the Japanese yen), government
import controls, and many other factors.
If a product is successful in a domestic market, one strategy for export success may be
a careful analysis of why it sells here; followed by a selection of similar markets
abroad. In this way, little or no product modification is required.
If a product is not new or unique, low-cost market research may already be available
to help assess its overseas market potential. In addition, international trade statistics
(available in many local libraries) can give a preliminary indication of overseas
markets for a particular product by showing where similar or related products are
already being sold in significant quantities.
If a product is unique or has important features that are hard to duplicate abroad,
chances are good for finding an export market. For a unique product, competition may
be non-existent or very slight, while demand may be quite high.
Finally, even if domestic sales of a product are now declining, sizeable export markets
may exist, especially if the product once did well in the United States but is now
losing market share to more technically advanced products. Countries that are less
developed than the United States may not need state-of-the-art technology and may be
unable to afford the most sophisticated and expensive products. Such markets may
instead have a surprisingly healthy demand for products that are older or that are
considered obsolete by market standards.
12.2.1 Market Access Initiative (MAI)

This scheme is intended to provide financial assistance for medium term export
promotion efforts with a sharp focus on a country and product. The financial
assistance is available for Export Promotion Councils, Industry and Trade
Associations, Agencies of State Governments and Indian Commercial Missions
abroad.
A whole range of activities can be funded under the MAI scheme. These include
market studies, setting up of showroom/warehouse, sales promotion campaigns,
international departmental stores, publicity campaigns, participation in international
trade fairs, brand promotion, registration charges for pharmaceuticals and testing
charges for engineering products, etc. Each of these export promotion activities can
receive financial assistance from the Government ranging from 25% to 100% of the
total cost depending upon the activity and the implementing agency, as indicated in
the detailed guidelines.
The MAI Scheme is a Plan scheme that is intended to act as a catalyst in promoting
India’s exports on a sustained basis. The scheme is based upon ‘focus’ concept, i.e.
‘focus product’ and ‘focus market’.
Under the scheme, assistance is extended to the Departments of Central Government
and Organizations of Central/State Governments, Export Promotion Councils,
Registered Trade Promotion organizations, Commodity Boards, recognized Apex
Trade Bodies, recognized Industrial Clusters and Individual Exporters.
120 12.2.2 Marketing Development Assistance (MDA)
Scheme is intended to provide financial assistance for a range of export promotion
activities implemented by export promotion councils, industry and trade associations
on a regular basis every year. As per the revised MDA guidelines with effect from
1st April, 2004 assistance under MDA is available for exporters with annual export
turnover up to ` 5 crore. These include participation in Trade Fairs and Buyer Seller
meets abroad or in India, export promotion seminars, etc. Further, assistance for
participation in Trade Fairs abroad and travel grant is available to such exporters
if they travel to countries in one of the four Focus Areas, such as Latin America,
Africa, CIS Region, ASEAN countries, Australia and New Zealand.
For participation in trade fairs, etc. in other areas financial assistance without travel
grant is available.
To stimulate and diversify the country’s exports marketing assistance is being given
under the MDA scheme by the Department. The Scheme seeks to give assistance for
specific activities/programmes to the following entities for strengthening their export
efforts:
1. Export Promotion Councils (EPCs) to undertake export promotion activities for
their product(s) and commodities;
2. Individual exporters for export promotion activities abroad;
3. Approved organisations/trade bodies in undertaking limited exclusive
non-recurring innovative activities connected with export promotion efforts of
their members;
4. EPCs for contesting countervailing duty/anti-dumping cases initiated abroad;
5. Focus Area export promotion programmes in specific regions abroad like Focus
Latin American Countries, Focus Africa, Focus CIS and Focus ASEAN+2
programmes.
Exporters having annual export turn over up to ` 5 crore can seek assistance under the
scheme for bonafide overseas marketing promotion activities in the initial phase
through activities like participation in trade fairs/exhibitions/BSMs/trade delegations
lead by EPCs, etc. Further, under the Focus Area programmes with region specific
market promotion activities are promoted through EPCs, ITPO, etc. Such activities
include organising fairs/exhibitions, sponsoring BSMs/trade delegations in these
regions, arranging reverse trade visits of prominent foreign buyers/delegates/
journalists to India, etc.
12.3 FREE TRADE ZONE

A Free Trade Zone (FTZ) is one or more special areas of a country where some
normal trade barriers such as tariffs and quotas are eliminated and bureaucratic
requirements are lowered in hopes of attracting new business and foreign investments.
Free trade zones can be defined as labour intensive manufacturing centres that involve
the import of raw materials or components and the export of factory products.
Several FTZs have been established at various places in India like Kandla, Noida,
Cochin, etc. No excise duties are payable on goods manufactured in these zones
provided they are made for export purpose. Goods being brought in these zones from
different parts of the country are brought without the payment of any excise duty.
Moreover, no customs duties are payable on imported raw material and components
used in the manufacture of such goods being exported. If entire production is not sold
outside the country, the unit has the provision of selling 25% of their production in
India. On such sale, the excise duty is payable at 50% of basic plus additional customs 121
Corporate Marketing Strategies
or normal excise duty payable if the goods were produced elsewhere in India,
whichever is higher.
12.4 DEEMED EXPORT

Includes those transactions in which goods supplied do not leave country and payment
for such supplies is received either in Indian rupees or in free foreign exchange.
The Indian suppliers are entitled for the following benefits in respect of deemed
exports:
z Refund of excise duty paid on final products
z Duty drawback
z Imports under DEEC scheme
z Special import licenses based on value of deemed exports
The following categories are treated as deemed exports for seller if the goods are
manufactured in India:
z Supply of goods against duty free licences under DEEC scheme
z Supply of goods to a 100% EOU or a unit in a free trade zone or a unit in a
software technology park or a unit in a hardware technology park
z Supply of goods to holders of licence under the EPCG scheme
z Supply of goods to projects financed by multilateral or bilateral agencies or funds
notified by the Finance Ministry under international competitive bidding or under
limited tender systems in accordance with the procedures of those agencies or
funds where legal agreements provide for tender evaluation without including
customs duty
z Supply of capital goods and spares up to 10% of the FOR value to fertilizer plants
under international competitive bidding
z Supply of goods to any project or purpose in respect of which the Ministry of
Finance permits by
z Notification the import of goods at zero customs duty along with benefits of
deemed exports to domestic supplies
z Supply of goods to power, oil and gas sectors in respect of which the Ministry of
Finance permits by notification benefits of deemed exports to domestic supplies
12.5 EXPORT MARKETING

Export marketing means exporting goods to other countries of the world. It involves
lengthy procedure and formalities. In export marketing, goods are sent abroad as per
the procedures framed by the exporting country as well as by the importing country.
Export marketing is more complicated to domestic marketing due to international
restrictions, global competition, lengthy procedures and formalities and so on.
Moreover, when a business crossed the borders of a nation, it becomes infinitely more
complex. Along with this, export marketing offers ample opportunities for earning
huge profits and valuable foreign exchange.
“Export marketing includes the management of marketing activities for products
which cross the national boundaries of a country”.
122 “Export marketing means marketing of goods and services beyond the national
boundaries”.
—According to B. S. Rathor
The main important features of export marketing are as follows:
z Systematic Process: Export marketing is a systematic process of developing and
distributing goods and services in overseas markets. The export marketing
manager needs to undertake various marketing activities, such as marketing
research, product design, branding, packaging, pricing, promotion, etc. To
undertake the various marketing activities, the export marketing manager should
collect the right information from the right source; analyze it properly and then
take systematic export marketing decisions.
z Large Scale Operations: Normally, export marketing is undertaken on a large
scale. Emphasis is placed on large orders in order to obtain economies in large
sole production and distribution of goods. The economies of large scale help the
exporter to quote competitive prices in the overseas markets. Exporting goods in
small quantities is costly due to heavy transport cost and other formalities.
z Dominance of Multinational Corporations: Export marketing is dominated by
MNCs, from USA, Europe and Japan. They are in a position to develop world
wide contacts through their network and conduct business operations efficiently
and economically. They produce quality goods at low cost and also on massive
scale.
z Customer Focus: The focus of export marketing is on the customer. The exporter
needs to identify customers needs and wants and accordingly design and develop
products to generate and enhance customer satisfaction. The focus on customer
will not only bring in higher sales in the overseas markets, but it will also improve
and enhance goodwill of the firm.
z Trade barriers: Export marketing is not free like internal marketing. There are
various trade barriers because of the protective policies of different countries.
Tariff and non-tariff barriers are used by countries for restricting import. The
export marketing manager must have a good knowledge of trade barriers imposed
by importing countries.
z Trading Blocs: Export trade is also affected by trading blocs, certain nations form
trading bloc for their mutual benefit and economic development. The non-
members face problems in trading with the members of a trading bloc due to
common external barriers. Indian exporters should have a good knowledge of
important trading blocs such as NAFTA, European Union and ASEAN.
z Three faced competition: In export markets, exporters have to face three-faced
competition, i.e. competition from the three angles – from the other suppliers of
the exporters’ country, from the local producers of importing country and from the
exporters of competing nations.
12.5.1 Focus Market Scheme

The objective is to enhance export competitiveness by offsetting the high freight cost
and other disabilities to select international markets. Exports of all products are
entitled for duty credit scrip equivalent to 2.5% of the FOB value of exports. The scrip
and the items imported against it would be freely transferable.
12.5.2 Focus Product Scheme 123
Corporate Marketing Strategies
This scheme provides incentives to export of products which have high employment
intensity in rural and semi-urban areas so as to offset the inherent infrastructure
inefficiencies and other associated costs involved in marketing of these products.
Exports of these products to all countries are entitled for duty credit scrip equivalent to
2.5% of the FOB value of exports. The scrip and the items imported against it would
be freely transferable.
Objective
To incentivise export where high employment intensity in rural and semi urban areas,
so as to offset infrastructure inefficiencies and other associated costs involved in
marketing of the products.
Exporter of all products through EDI enabled ports shall be Entitled for Duty credit
scrip equivalent to 1.5% of FOB value of exports for each licensing year commencing
from 1st April 2006.
Check Your Progress
Fill in the blanks:
1. The ………… is a plan scheme that is intended to act as a catalyst in
promoting India’s exports on a sustained basis.
2. ………… is intended to provide financial assistance for a range of export
promotion activities implemented by export promotion councils, industry
and trade associations on a regular basis every year.
3. ………… means exporting goods to other countries of the world. It
involves lengthy procedure and formalities.
12.6 LET US SUM UP

Exports are important for all countries whether developed or underdeveloped. The
need/importance/advantages of export marketing can be explained from the viewpoint
of a country and that of business organization.

“Focus product scheme provides incentives to export of products which have high
employment intensity in rural and semi-urban areas so as to offset the inherent
infrastructure inefficiencies and other associated costs involved in marketing of these
products”. Discuss.
12.8 KEYWORDS
Export Oriented Unit: The EOUs basically function under the administrative control
of the concerned Development Commissioner of Export Processing Zones, i.e. under
the Commerce Ministry, Government of India.
Free Trade Zone: A Free Trade Zone (FTZ) or Export Processing Zone (EPZ), also
called foreign-trade zone, formerly free port is an area within which goods may be
landed, handled, manufactured or reconfigured, and re-exported without the
intervention of the customs authorities.
Market Access Initiative: MAI scheme is intended to provide financial assistance for
medium term export promotion efforts with a sharp focus on a country and product.
124
Export Trade and Documentation 12.9 QUESTIONS FOR DISCUSSION
1. What do you mean by free trade zone?
2. Define deemed export.
3. Describe corporate marketing strategies in detail.
4. What do you mean by focus market scheme?

1. MAI Scheme
2. MDA scheme
3. Export marketing.

India.
125
Export–Import Policy
UNIT V
126
LESSON 127
13
EXPORT–IMPORT POLICY
CONTENTS
13.1 Introduction
13.2 Earlier EXIM Policy (Pre-reform Period)
13.3 New Trade Policy, 1991
13.4 EXIM Policy 1992-97
13.4.1 Export Promotion Capital Goods (EPCG)
13.4.2 Duty Exemption Scheme
13.4.3 Scheme for Gems & Jewellery
13.5 EXIM Policy 1997-2002
13.6 Foreign Trade Policy 2004-09
13.6.1 Preamble
13.6.2 Chapter-1a: Legal Framework
13.6.3 Chapter-1b: Special Focus Initiatives
13.6.4 Chapter-1c: Board of Trade
13.6.5 Chapter-2: General Provisions Regarding Exports and Imports
13.6.6 Chapter-3: Promotional Measures
13.6.7 Chapter-4: Duty Exemption and Remission Schemes
13.6.8 Chapter-5: Export Promotion Capital Goods Scheme
13.6.9 Chapter-6: Export Oriented Units (EOUs), Electronics Hardware Technology
Parks (EHTPs), Software Technology Parks (STPs) and Bio-technology
Parks (BTPs)
13.6.10 Chapter-7: Special Economic Zones
13.6.11 Chapter 7a: Free Trade and Warehousing Zones
13.6.12 Chapter-8: Deemed Exports
13.7 Objectives of Export–Import Policy 2009-2014
13.8 Highlights of Foreign Trade Policy 2009-2014
13.9 Let us Sum up
13.11 Keywords
128
z Explain pre-reform period foreign policy
z Discuss new trade policy, 1991
z Explain EXIM policy 1992-1997 and 1997-2002
z Describe foreign trade policy 2004-09
z Explain objectives and highlights of export-import policy 2009-14
13.1 INTRODUCTION
For almost half a century, India maintained one of the restrictive trade regimes in the
world. It imposed a system of high tariffs and stiff non-tariff barriers such as licensing
and quotas, which virtually closed the economy from the international trade arena.
India implemented economic reform since the middle of 1991, and has made drastic
changes in trade policy to reorient itself to integrate with the global economy.
Although India has steadily opened up its economy, its tariffs continue to be high
when compared with other countries, and its investment norms are still restrictive.
This leads some to see India as a ‘rapid globalizer’ while others still see it as a ‘highly
protectionist’ economy.
Till the early 1990s, India was a closed economy: average tariffs exceeded 200
percent, quantitative restrictions on imports were extensive, and there were stringent
restrictions on foreign investment. The country began to cautiously reform in the
1990s, liberalizing only under conditions of extreme necessity.
Since that time, trade reforms have produced remarkable results. India’s trade to GDP
ratio has increased from 15 percent to 35 percent of GDP between 1990 and 2005, and
the economy is now among the fastest growing in the world.
Average non-agricultural tariffs have fallen below 15 percent, quantitative restrictions
on imports have been eliminated, and foreign investments norms have been relaxed
for a number of sectors.
India however retains its right to protect when need arises. Agricultural tariffs average
between 30-40 percent, anti-dumping measures have been liberally used to protect
trade, and the country is among the few in the world that continue to ban foreign
investment in retail trade. Although this policy has been somewhat relaxed recently, it
remains considerably restrictive.
Nonetheless, in recent years, the government’s stand on trade and investment policy
has displayed a marked shift from protecting ‘producers’ to benefiting ‘consumers’.
This is reflected in its Foreign Trade Policy for 2004/09 which states that, "For India
to become a major player in world trade ...we have also to facilitate those imports
which are required to stimulate our economy."
India is now aggressively pushing for a more liberal global trade regime, especially in
services. It has assumed a leadership role among developing nations in global trade
negotiations, and played a critical part in the Doha negotiations.
13.2 EARLIER EXIM POLICY (PRE-REFORM PERIOD)

Up to the First Plan Approach towards imports was liberal. During Second Plan and
aftermath policy of import restriction was adopted. Given the acute shortage of foreign
exchange most of the time government opted for direct allocation of foreign exchange 129
among different users and uses through import licences.
On the side of imports, the principal policy measure taken with devaluation was the
announcement of a liberal import policy for 59 priority industries under which
arrangements were made to meet their requirements for raw materials, components
and spares in full (initially for six months). The import policy for small-scale
industrial units making the same products as the priority industries was also
substantially liberalised. The import policy introduced in 1966-67 was continued in its
basic essentials in the following two years. The policy for 1967-68 was made need-
based and production-oriented and provided for the continuation of the preferential
treatment for the 59 priority industries. The policy for 1968-69 placed 260 items or
groups of items on the banned list since these commodities could be supplied in
sufficient quantity from domestic production. Imports of another 197 items were
allowed to actual users on a restricted basis as the domestic production of these items
had increased substantially.
The policy of import restriction was pursued up to 1977-78. Since 1978 and up to
early 1980s policy of import substitution was followed. From 1985 onwards
liberalization policy was initiated.
According to Rajesh Mehta (“Trade Policy Reforms, 1991-92 to 1995-96”, EPW,
April 12, 1997), “While the objectives of self-reliance and self-sufficiency influenced
the trade policy formulation in the 1950s and 1960s, the factors like export led growth,
improving efficiency and competitiveness of Indian industries prevailed upon the
trade policy-making during the late 1970s and the early 1980s.”
The period of first three Five Year Plans was characterized by an essentially passive
export policy, though some steps to increase exports were undertaken in the Third
Plan. To increase exports, the Government devalued rupee in June 1965. The post
devaluation period was accompanied by a substantial elimination of export subsidies.
During the period of 1973 to early 1980s, export was accorded a high priority. Since
late 1980s export promotion policy was initiated. Incentives for export production
were enhanced.
In order to bring domestic prices in line with external prices, to restore and enhance
the competitive power of exports, and to provide a solution to the country's trade and
payments problems, the per value of the rupee was reduced by 36.5 per cent on
June 6, 1966, involving a rise of 57.5 per cent in the price of foreign exchange in
terms of Indian rupees. Along with devaluation, the existing special export promotion
schemes providing import entitlements against exports and the scheme for tax credit
certificates were abolished. Moreover, in order to protect the unit values of exports in
terms of foreign exchange, export duties were levied on a number of commodities,
mostly agricultural commodities and agriculture-based manufactures. A variety of
additional measures were taken to promote exports. A liberal import policy was
announced for 59 priority industries, including a number of export-oriented industries.
A new import replenishment scheme enabled registered exporters to obtain raw
materials, components and spares against export of specified products. It was decided
to provide cash assistance for exports of selected products with a good export
potential. A scheme for the supply of steel at international prices to exporters of
engineering goods was announced. Imports of some raw materials were placed under
an Open General Licence.
The import policy for 1968-69 was oriented to provide special import facilities for
exporters. Units in the priority industries which had exported at least 10 per cent of
their production in 1967-68 were given facilities to import their requirements from
sources of their choice. Ten priority industries were selected on the basis of their
130 export potential and it was laid down that units engaged in these industries would have
to export 5 to 10 per cent of their production, failing which they would be liable to
cuts in their import entitlements.
In the field of export credit, the Reserve Bank of India introduced a scheme under
which preferential rates of discount were provided for refinancing of pre-shipment
credits granted by the commercial bank to certain categories of exporters at
concessional rates. It also provided a subsidy to banks on export credit granted by
them in the shape of packing and post-shipment advances.
During all these years there was absence of a long-term export strategy. During recent
years, international agencies like the IMF and World Bank have been pressuring the
developing countries to open up them in improving the economic efficiency of their
industrial sector and compete in the international markets.
13.3 NEW TRADE POLICY, 1991

India's import substitution and inward-looking policy regime resulted in high tariffs on
many products and creation of non-tariff barriers (NTBs). Hence, reduction and
rationalization of tariffs and removal of NTBs has been an integral part of India's trade
policy since 1991. India has taken major steps towards trade liberalisation since 1991,
partly on its own initiative and partly from its commitments to WTO.
Within a broader perspective, the reforms implemented in India were not very
different from the reforms undertaken by many developing countries. However, the
difference lies in the speed with which these reforms were implemented. Just like the
Chinese case, India’s reforms were implemented in a gradual manner. Nevertheless,
the reasons for the gradual approach to reforms are different between China and India.
Being the largest democracy with a pluralist society in the world has made it
necessary for India to obtain a reasonable consensus across different interest groups
before policy changes could be implemented and this has been the major cause for the
slow pace of reforms. The main thrust of trade policy reforms have been to open up
India’s trade and hence the policy measures concern with export promotion and
import liberalisation.
In India, the main legislation concerning foreign trade is the Foreign Trade
(Development and Regulation) Act, 1992. The Act provides for the development and
regulation of foreign trade by facilitating imports into, and augmenting exports from,
India and for matters connected therewith or incidental thereto. As per the provisions
of the Act, the Government: (i) may make provisions for facilitating and controlling
foreign trade; (ii) may prohibit, restrict and regulate exports and imports, in all or
specified cases as well as subject them to exemptions; (iii) is authorised to formulate
and announce an export and import policy and also amend the same from time to time,
by notification in the Official Gazette; (iv) is also authorised to appoint a 'Director
General of Foreign Trade' for the purpose of the Act, including formulation and
implementation of the export-import policy.
Accordingly, the Ministry of Commerce and Industry has been set up as the most
important organ concerned with the promotion and regulation of foreign trade in India.
In exercise of the powers conferred by the Act, the Ministry notifies a trade policy on
a regular basis with certain underlined objectives. The earlier trade policies were
based on the objectives of self-reliance and self-sufficiency. While, the later policies
were driven by factors like export led growth, improving efficiency and
competitiveness of the Indian industries, etc.
131
13.4 EXIM POLICY 1992-97 Export–Import Policy
When the Eighth Plan commenced, the three-year Import-Export policy (1990-93),
valid until March 1993 was in operation. With a view to reinforcing the trade policy
reforms and complementing the fiscal, industrial and investment measures, the new
five-year Export-Import Policy (1992-97) was introduced with effect from April 1992.
For the first time, the policy was given an export bias. Earlier this policy was known
as Import-Export policy; the new policy was titled Export-Import policy (EXIM
Policy). Several schemes were introduced or modified to eliminate regulatory
measures and discretionary controls impinging on free trade.
Just before the launching of the EXIM Policy 1992-97, on March 1, 1992, the
Liberalised Exchange Rate Management System (LERMS) was introduced. Under the
LERMS, exporters were required to surrender 40 per cent of the foreign exchange
earning at the official exchange rate. The Government would use the amount to import
essential items such as petroleum, fertilisers and life saving drugs. The exporters were
allowed to sell the remaining 60 per cent of the foreign exchange or use it to finance
their own imports, which facility was not given to exporters in the pre-reform period.
This system acted as a self-correcting mechanism to keep trade deficit under control.
With effect from June 1992, the 15% Foreign Exchange Conservation (Travel) Tax
was abolished. The travel tax had become redundant with the introduction of partial
convertibility of rupee and Liberalised Exchange Rate Management System (LERMS)
under which foreign exchange for travel had to be obtained at the market rate.
Along with this change in the exchange rate regime, the import licensing system
was abolished for capital goods, intermediates and components; these items could
be imported on Open General Licence (OGL) subject to payment of tariffs
(Ministry of Commerce).
To promote investment by Non-Resident Indians, a new deposit scheme was
introduced in June 1992, under which accounts in Indian rupees could be opened with
authorized dealers by remittance of funds in freely convertible foreign exchange from
aboard or by transfer of funds from the existing on-resident (external)/FCNR
accounts. No penalty was to be levied for premature withdrawal of existing non-
resident deposits for the purpose of making investment in the proposed scheme. Full
convertibility of rupee on trade account (current account) was introduced and dual or
partial exchange rate was abolished. In March 1993, the exchange rate was unified and
transactions on trade account were freed from exchange control (CMIE, 2000).
13.4.1 Export Promotion Capital Goods (EPCG)

It is a scheme to liberalise capital goods imports. This was introduced to boost
exports. The EPCG scheme allows exporters to import machinery both new and
second-hand duty free or at concessional duty if the importer agrees to achieve a fixed
export target within a specified period of time. Under the scheme, the duty on import
of capital goods was reduced from 25 per cent to 15 per cent subject to an export
obligation of 3 times the c.i.f. value of imports and the period of achievement was
increased from 4 years to 5 years. The scheme was very popular when customs duty
on capital goods was high. Currently under the EPCG scheme, import of capital goods
carry 10 per cent customs duty though duty free imports are also permitted, subject to
a minimum import volume. Exemptions are available for certain sectors like
agriculture and garments even if the minimum floor limit is not met. If a computer
system is imported under this scheme, supporting manufacturers and service providers
are also eligible to import capital goods. Industry uses this scheme for modernisation
and upgradation purposes (CMIE, 2000).
132 As a consequence, Capital goods imports increased by 23% in 1993-94 over 1992-93.
This facilitated exports to register a growth rate of 30% in 1993-94 over the previous
year. Manufacturing exports increased by 29%, which is five-percentage point more
than the previous year’s growth. Trade deficit drastically declined to US$1billion in
1993-94 from US$3 billion in 1992-93. These data clearly indicate that schemes such
as the EPCG have really paid off. This situation is analogous to the Chinese reform
process.
The other major schemes are as follows: Duty Exemption Scheme (DES), Scheme for
Gems and Jewellery, and policies enlarging the scope of instruments of export
promotion such as Export Oriented Units (EOUs) and Export Processing Zones
(EPZs), joint ventures and different types of trading houses.
13.4.2 Duty Exemption Scheme

Under this scheme, import of raw materials, intermediates, components, consumables,
parts, accessories, packing materials and computer software required for direct use in
the export product is permitted duty free for processing and export by the competent
authority under the categories of advance licences, advanced intermediate licence,
special imprest licence, licences under export production programme, advance
customs clearance permit and advance release orders.
13.4.3 Scheme for Gems & Jewellery

Exporters of gems and jewellery are allowed to import inputs by obtaining
Replenishment Licences and Diamond/DTC Imprest Licences (DTCIL). The
replenishment licences are transferable. Exports effected in fulfilment of export
obligation against DTCILs do not quality for this benefit. The latter licence can be
issued in advance for import of rough diamonds and for export of cut and polished
diamonds. Though DTCILs are not transferable, imported goods may be transferred
but the responsibility to fulfil the export obligation vests in the licencee. These
licences carry an export obligation fixed in the inverse ratio of 65% of replenishment.
That is, if the licence is issued for a CIF value of $65, the FOB value of export
obligation will be $100. The Export Oriented Unit (EOU) and Export Promotion Zone
(EPZ) schemes were liberalised. 100 per cent foreign equity participation in EOU/
EPZ units was allowed (Ministry of Commerce).
The EXIM Policy 1992-97 was modified in March 1993 giving a new thrust to exports
of agricultural and allied sectors, and services in which the country has a comparative
advantage. Ironically, minimum export price was introduced to discourage the export
of non-basmati and low-grade rice, which would affect the domestic market. This was
a step backward from marching towards free trade and also not in the interest of the
farmers because the border price for rice was lower than the international price during
the early nineties. Also, export of high value durum wheat and of non-fair average
quality of jowar was allowed only subject to ceiling. These measures, which were
discouraging rather than encouraging exports of cereals, were introduced to build
buffer stocks with grains for the use of the public distribution system.
The EXIM Policy was modified in 1995 to boost agricultural exports. The highlights
were: (a) in the category of agricultural and food exports only beef and tallow were in
the negative list during 1995-96; (b) horticulture and floriculture exports were
encouraged by providing various supports to farmers such as airfreight subsidy; and
(c) quantitative ceiling and minimum export price in respect of rice was abolished;
exports of wheat up to 2.5 million tonnes in case of non-durum wheat and 0.5 million
tonnes in case of durum wheat was permitted; and in the case of coffee, free sale quota
was raised to 70 per cent for large producers and 100 per cent for small producers.
As a consequence to these policy changes, fruits, vegetables and flowers emerged as
export products. EOUs in floriculture facilitated export of the perishable products. 133
Airfreight subsidy provided a boost to these export items.
In 1990, prior to economic reforms, India’s peak tariff was at 300%. During 1992-93,
the peak rate was reduced to 150% (WTO, 1998). The Government also introduced a
system of value-based advanced licences to export houses, trading houses and star
trading houses which permitted duty free imports of necessary raw materials as
components up to a stipulated ratio of the value of anticipated exports. Special Import
Licences (SIL), which could be traded in the market, were issued to certain categories
of exports like exports to Asian clearing union countries, deemed export, trading
houses and manufacturers who have acquired the ISO 9000 or other international
certificating quality. Before the Uruguay Round Agreement (URA), only 5 per cent of
India's tariff lines were bound. The Government indicated that after the URA came
into force, about 68 per cent of India's tariff lines would be bound. As of December 1,
1995 more than 3000 tariff lines covering raw materials, intermediates and capital
goods were freed from import licensing requirements. Removing these goods from
licence requirements is good news for traders. Also, India had to do in accordance
with the WTO negotiations. However, replacing licences with high tariffs, India
indicates that its promotion of free trade is not without restraint.
In 1995-96, on industrial raw materials, components and capital goods, India had
bound tariffs at 40 per cent (where they were above 40 per cent in 1993-94) and at 25
per cent in other cases. Countervailing duties at the rate of 30% to 40% were imposed
as additional tariff above 25% for goods other than raw materials, components and
capital goods. Nevertheless, QRs were present as the rest of the goods were classified
into either negative list or special licence list during that period. India indicated ceiling
bindings of 100 per cent on primary products, 150 per cent on processed products and
300 per cent on edible oils. With an improvement in India's BOP, the country was
under pressure to eliminate the QRs. India had entered into bilateral agreement with
the EU, New Zealand and Australia, to remove QRs on 1,429 items from April 1,
2003. Such an understanding was not reached with the USA.
13.5 EXIM POLICY 1997-2002

The new 5-year Export and Import for the period 1997-2002 aims at giving a major
thrust to acceleration of India's exports through restructuring and revamping of various
export promotion schemes and wide ranging measures for simplification and
streamlining of procedures with a view to making them more transparent and easy to
administer.
The policy aims at consolidating the achievement made possible during the preceding
5-year Exim Policy for 1992-97, while continuing the process of trade reforms and
trade liberalisation with a view to achieving higher rate of export growth. The new
Exim Policy focused on the need to allow exporters to concentrate on the manufacture
and marketing of their products globally in an environment unhindered by
discretionary controls and procedural bottlenecks. The policy aims at enabling the
industry to enhance its competitiveness in the global markets and to achieve its full
potential in the areas of its strength.
Some of the major policy changes include (a) the threshold limit for EPCG zero duty
scheme was brought down to ` 10 million (for agricultural and allied sectors from
` 50 million and for electricals, textiles, leather, gems and jewellery, sport goods and
food processing from ` 200 million) and to ` 1 million in case of the software sector;
(b) DEPB scheme was modified to neutralise not only the basic customs duty but also
the special customs duty which was introduced as a temporary measure in 1998; and
(c) exports of oilseeds for consumption purpose and vegetables were made free
134 without any quantitative and licensing requirements (Ministry of Commerce). Several
modifications to the earlier schemes were done mainly to boost services trade,
particularly, IT exports. For example, the Export Promotion Capital Goods (EPCG)
scheme for services sector has been introduced. Under this scheme, capital goods are
allowed to be imported for rendering services for which payments are received in a
freely convertible currency. The scheme is applicable to professionals and other
providers of services such as architects, consultants, economists, charted accountants,
engineers and tour operators. Exemption was given to exports under all export
promotion schemes from the applicability of the special additional duty of 4 per cent
introduced in the 1998-99 budget. Promotional measures and procedural changes that
were made in 1998 include facilities such as extension of holiday for EOU/EPZ to 10
years, sub-contracting facility for Domestic Tariff Area and permission to set up
private software technology parks.
In order to promote trade among SAARC countries, India unilaterally removed all
QRs on imports of 2300 items from SAARC countries with effect from August 1,
1998. On December 28, 1998, a free trade agreement was concluded between India
and Sri Lanka which would result in zero import tariff for most commodities on both
sides by 2007. Following the third round of negotiations held under SAARC
Preferential Tariff Agreement (SAPT), the Revenue Department notified on August
11, 1999 concessional customs duties – ranging from 25 per cent to 60 per cent for
least developed countries (Bangladesh, Maldives, Nepal and Bhutan) and 10 per cent
to 50 per cent for the other three countries – covering items in 1800 tariff lines which
account for 60 per cent of imports (Ministry of Finance).
On March 31, 1999, the following new schemes to boost service exports were
introduced. The setting up of Special Economic Zones (SEZs) was announced with a
view to providing internationally competitive and hassle free environment for
exports. Together with the Foreign Direct Investment policy initiatives for SEZs, it is
expected that these zones will have the potential to act as "magnets" for investments
for export production from home and abroad. As a first step, four existing
Export Processing Zones (EPZs) – at Kandla, Santa Cruz, Cochin and Surat –
were converted into SEZs with effect from 1 November, 2000. Setting up of new
SEZs in the areas has been progressing steadily: Positra (Gujarat), Nangunery (Tamil
Nadu), Kakinada-Vizag (Andhra Pradesh), Paradip (Orissa), Kulpi (West Bengal) and
Bhadohi (Uttar Pradesh). It is too early to judge their success. However, their success
will depend on how effectively domestic regulations and infrastructure bottlenecks are
eliminated in these zones. In order to provide an impetus to infrastructure
development, deemed export benefits have been extended to infrastructure projects
with a minimum investment of ` 100 crore.
With a view to making exports a national effort by involving all the State
Governments, a Scheme has been evolved for granting assistance to the States on the
basis of their export performance for development of export related infrastructure. To
facilitate an equitable allocation of resources, this amount will be distributed on the
basis of absolute export performance as well as on the basis of incremental one. To
begin with, an allocation of ` 2.5 billion is proposed for 2001-02, which would be
suitably increased in the subsequent years. There would be subsequent annual
allocation for this Fund. The amount would be utilised by the States for
complementary export related infrastructure, such as roads connecting the production
centres with Ports, research and development of state specific ethnic products,
development of cold chains for agro exports, development of minor ports, creation of
new export promotion industrial parks, human resource development and for the
purpose of developing marketing infrastructure. The units may be allowed to dispose
of obsolete or unusable capital goods, spares and other goods in the Domestic Tariff
Area (DTA) on payment of applicable customs duty. Such disposal shall, however, be 135
subject to the Import Policy in force.
Under the SEZ scheme, the goods cleared from the Zone will be treated as imported
goods. Therefore, in case of DTA clearances, though the duty charged will be central
excise duty, this duty will be equal to the aggregate of all duties of customs (WTO). In
other words, the SEZ units will have to pay full customs duty (applied duty) on their
DTA clearances. The only laws which will operate within the SEZs will be those
related to labour and banking.
A SEZ unit shall maintain proper account financial year-wise, of all foreign exchange
inflow by way of exports and other receipts, all foreign exchange outflows on account
of imports, payment of dividend, royalty, fees, etc. consumption and utilisation of the
materials and ale in the DTA. RBI will permit banks to open branches in the SEZ and
permit transactions to be operated in dollars for all units. Most of the units within SEZ
may be employing less than 1000 workers. With the recent change in the labour laws
announced in the Union Budget 2001-2002 that a firm employing less than 1000
employees is not required to get the approval from the Government to layoff any
employee or to close down the unit, labour laws particularly may not be a constraint.
Further, the new law allows outsourcing and employing contract labour, which
facilitates reducing employer-employee frictions in work places (Ministry of Finance).
With the view that agriculture is the responsibility of state governments, the central
government has insisted through the revised EXIM policy of 1997-2002 that the state
governments should identify and develop product-specific Agricultural Export Zones
(AEZ). It is expected that the states will identify product-specific AEZ for end-to-end
development from a geographically contiguous area. They will also have to evolve a
comprehensive package of services provided by all state government agencies,
agricultural universities, and some Central institutions and agencies for ‘intensive
delivery’ in these zones. The AEZ would have access to the Centre’s proposed market
access initiative, which will provide market research, warehousing and retail
marketing infrastructure in select countries, and direct market promotion activities.
Two AEZ exist, one in Tamil Nadu and another in Gujarat.
Imports Liberalisation: India retained import of items under five categorisations —
the prohibited list, the Special Import Licence (SIL) list, the restricted list, the
canalised list and the free list. The number of items included in these lists keeps on
changing. Of these, the restricted list has been freed and SIL abandoned and freed.
The canalised list is being retained, but under a new nomenclature (the special list)
and a new set of products. Thus, at present, the number of import lists has come down
to three—the prohibited list, the special list and the free list.
The prohibited list contains only a few products prohibited on grounds of religious and
cultural sensitivity and the list includes tallow, fat and oils of animal origin, animal
rennet and wild animals including their parts and products and ivory. Bulk agricultural
commodities that include grains excluding feed grade maize, edible oils, oilseeds,
sugar, and non-agricultural products such as urea, petroleum products are in the
special list that was earlier called canalised list. Imports of these items should be done
by state agencies. Apart from the special list of consumer products, gold will continue
to be imported through designated banks. Import of all primary products of plant and
animal origin will also be subject to import permits to be issued by the ministry of
agriculture after an import risk analysis based on sanitary and phyto-sanitary measures
and provisions. In addition, conditions have been prescribed for the import of new and
second and cars for ensuring road safety. Import of foreign liquor, processed food
products and tea wastes has to be made subject to already existing domestic
regulations concerning health and hygiene. Rest of the commodities are in the free list.
Imports of these freed items attract high tariffs with bound rates.
136 During 1997-98, the peak rate of import duty was reduced to 40 per cent ad valorem
except for passenger luggage, alcoholic beverages, dried grapes and a few other
products. The peak rates for imports of raw materials and capital goods for projects
were reduced to 30 per cent and 20 per cent respectively. However, the special
additional customs duty was raised from 2 per cent to 5 per cent on all imported goods
except petroleum products and certain project imports. A surcharge of 10% on basic
duty was introduced in 1998-99 mainly to control imports of consumer goods.
From 1st April 2001, removal of QRs became necessary in the face of India losing the
case against the USA. By replacing QRs with high tariffs, India indicates that its
promotion of free trade is not without restraint. In fact, high tariffs have been imposed
on goods removed from QRs to protect the domestic industry from overseas
competition. WTO permits tariff setting, so far as the applied rates do not surpass
bound rates. India’s applied rates are mostly lower than the bound tariffs.
Fill in the blanks:
1. GDP stands for …………..
2. The import policy for ………….. was oriented to provide special import
facilities for exporters.
3. OGL stands for …………..
13.6 FOREIGN TRADE POLICY 2004-09

Kamal Nath, Union Minister for Commerce & Industry, announced the India Foreign
Trade Policy for the five years beginning 2004. It is significant now to have a Foreign
Trade Policy in place of the erstwhile Export-Import Policy. In it, Mr. Kamal Nath has
tried to articulate trade policy in terms of the nation's development objectives
particularly employment generation, which finds a prominent place in the Common
Minimum Programme. However, the Government has still a long way to go towards
fully integrating the trade policy with the development policy.
13.6.1 Preamble
Context
For India to become a major player in world trade, an all encompassing, and
comprehensive view needs to be taken for the overall development of the country’s
foreign trade. While increase in exports is of vital importance, we have also to
facilitate those imports which are required to stimulate our economy. Coherence and
consistency among trade and other economic policies is important for maximizing the
contribution of such policies to development. Thus, while incorporating the existing
practice of enunciating an annual Exim Policy, it is necessary to go much beyond and
take an integrated approach to the developmental requirements of India’s foreign
trade. This is the context of the new Foreign Trade Policy.
Objectives
Trade is not an end in itself, but a means to economic growth and national
development. The primary purpose is not the mere earning of foreign exchange, but
the stimulation of greater economic activity. The Foreign Trade Policy is rooted in this
belief and built around two major objectives. These are:
z To double our percentage share of global merchandise trade within the next five
years; and
z To act as an effective instrument of economic growth by giving a thrust to 137
employment generation.
Strategy
These objectives are proposed to be achieved by adopting, among others, the
following strategies:
z Unshackling of controls and creating an atmosphere of trust and transparency to
unleash the innate entrepreneurship of our businessmen, industrialists and traders.
z Simplifying procedures and bringing down transaction costs.
z Neutralizing incidence of all levies and duties on inputs used in export products,
based on the fundamental principle that duties and levies should not be exported.
z Facilitating development of India as a global hub for manufacturing, trading and
services.
z Identifying and nurturing special focus areas which would generate additional
employment opportunities, particularly in semi-urban and rural areas, and
developing a series of ‘Initiatives’ for each of these.
z Facilitating technological and infrastructural upgradation of all the sectors of the
Indian economy, especially through import of capital goods and equipment,
thereby increasing value addition and productivity, while attaining internationally
accepted standards of quality.
z Avoiding inverted duty structures and ensuring that our domestic sectors are not
disadvantaged in the Free Trade Agreements / Regional Trade Agreements /
Preferential Trade Agreements that we enter into in order to enhance our exports.
z Upgrading our infrastructural network, both physical and virtual, related to the
entire Foreign Trade chain, to international standards.
z Revitalising the Board of Trade by redefining its role, giving it due recognition
and inducting experts on Trade Policy.
z Activating our Embassies as key players in our export strategy and linking our
Commercial Wings abroad through an electronic platform for real time trade
intelligence and enquiry dissemination.
Partnership
The new Policy envisages merchant exporters and manufacturer exporters, business
and industry as partners of Government in the achievement of its stated objectives and
goals. Prolonged and unnecessary litigation vitiates the premise of partnership. In
order to obviate the need for litigation and nurture a constructive and conducive
atmosphere, a suitable Grievance Redressal Mechanism will be established which, it is
hoped, would substantially reduce litigation and further a relationship of partnership.
The dynamics of a liberalized trading system sometimes results in injury caused to
domestic industry on account of dumping. When this happens, effective measures to
redress such injury will be taken.
Roadmap
This Policy is essentially a roadmap for the development of India’s foreign trade. It
contains the basic principles and points the direction in which we propose to go. By
virtue of its very dynamics, a trade policy cannot be fully comprehensive in all its
details. It would naturally require modification from time to time. We propose to do
this through continuous updation, based on the inevitable changing dynamics of
138 international trade. It is in partnership with business and industry that we propose to
erect milestones on this roadmap.
13.6.2 Chapter-1a: Legal Framework

The Preamble spells out the broad framework and is an integral part of the Foreign
Trade Policy.
In exercise of the powers conferred under Section 5 of The Foreign Trade
(Development and Regulation Act), 1992 (No. 22 of 1992), the Central Government
hereby notifies the Foreign Trade Policy for the period 2004-2009 incorporating the
Export and Import Policy for the period 2002-2007, as modified. This Policy shall
come into force with effect from 1st September, 2004 and shall remain in force up to
31st March, 2009, unless as otherwise specified.
The Central Government reserves the right in public interest to make any amendments
to this Policy in exercise of the powers conferred by Section-5 of the Act. Such
amendment shall be made by means of a Notification published in the Gazette of
India.
Any Notifications made or Public Notices issued or anything done under the previous
Export/Import policies, and in force immediately before the commencement of this
Policy shall, in so far as they are not inconsistent with the provisions of this Policy,
continue to be in force and shall be deemed to have been made, issued or done under
this Policy.
Licences, certificates and permissions issued before the commencement of this Policy
shall continue to be valid for the purpose and duration for which such licence;
certificate or permission was issued unless otherwise stipulated.
In case an export or import that is permitted freely under this Policy is subsequently
subjected to any restriction or regulation, such export or import will ordinarily be
permitted notwithstanding such restriction or regulation, unless otherwise stipulated,
provided that the shipment of the export or import is made within the original validity
of an irrevocable letter of credit established before the date of imposition of such
restriction.
13.6.3 Chapter-1b: Special Focus Initiatives

Those sectors which have significant export prospects abreast of potential for
employment generation in the semi-urban and rural areas have been identified as the
thrust sectors. For these areas, special sectoral strategies have been prepared. Further,
from time to time, sectoral initiatives in other sectors will be announced. Currently
Special Focus Initiatives have been prepared for the agriculture, handicrafts, gems &
jewellery, handlooms and leather & footwear sectors. The threshold limit of
designated 'Towns of Export Excellence' has been reduced to ` 250 crore from
` 1,000 crore in these thrust sectors.
Agriculture: A new scheme called Vishesh Krishi Upaj Yojna introduced to boost
exports of fruits, vegetables, flowers, minor forest produce and their value-added
products. The capital goods which are imported under EPCG for agriculture are
permitted to be installed anywhere in the agri export zone. The import of seeds, bulbs,
tubers and planting material has been liberalised. The export of plant portions,
derivatives and extracts has been liberalised with a few to promote export of medicinal
plants and herbal products.
Gems & Jewellery: The consumables for metals other than gold and platinum is
allowed to be imported duty free up to 2% of FOB value of exports. Duty free import
of commercial samples of jewellery is increased to ` 1 lakh. The import of gold of 139
18 carat and above shall be allowed under replenishment scheme.
Handlooms & Handicrafts: Duty free import of trimmings and embellishments for
handlooms & handicrafts sectors is increased to 5% of FOB value of exports. The
import of trimmings and embellishments and samples shall be exempt from CVD.
Handicraft Export Promotion Council (HEPC) is authorized to import trimmings,
embellishments and samples for small manufacturers. A new handicraft special
economic zone will be established.
Leather and Footwear: For leather industry, duty free entitlements of import
trimmings, embellishments and footwear components is increased to 3% of FOB value
of exports. For specified items for leather sector, duty free import increased to 5% of
FOB value of exports. The machinery and equipment for effluent treatment plants for
the leather industry shall be exempt from customs duty.
Target Plus Scheme: Target Plus, a new scheme is introduced to accelerate growth of
exports. Exporters having achieved a quantum growth in exports will be entitled to a
duty free credit based on incremental exports, substantially higher than the general
actual export target fixed. Based on the tiered approach, rewards will be granted. For
the incremental growth of more than 20%, 25% and 100%, the duty free credits will
be 5%, 10% and 15% of FOB value of incremental exports.
13.6.4 Chapter-1c: Board of Trade

The Board of Trade shall be revamped and given a clear and dynamic role in advising
government on relevant issues connected with Foreign Trade Policy. There would be a
process of continuous interaction between the Board of Trade and Government in
order to achieve the desired objective of boosting India’s exports.
The Board of Trade would have the following terms of reference:
z To advise the Government on Policy measures for preparation and implementation
of both short and long term plans for increasing exports in the light of emerging
national and international economic scenarios;
z To review export performance of various sectors, identify constraints and suggest
industry specific measures to optimize export earnings;
z To examine the existing institutional framework for imports & exports and
suggest practical measures for further streamlining to achieve the desired
objectives;
z To review the policy instruments and procedures for imports & exports and
suggest steps to rationalize and channelise such schemes for optimum use;
z To examine issues which are considered relevant for promotion of India’s foreign
trade, and to strengthen the international competitiveness of Indian goods and
services.
z To commission studies for furtherance of the above objectives.
13.6.5 Chapter-2: General Provisions Regarding Exports and Imports

Exports and Imports Free unless Regulated
Exports and Imports shall be free, except in cases where they are regulated by the
provisions of this Policy or any other law for the time being in force. The item wise
export and import policy shall be, as specified in ITC (HS) published and notified by
Director General of Foreign Trade, as amended from time to time.
140 Compliance with Laws
Every exporter or importer shall comply with the provisions of the Foreign Trade
(Development and 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
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.
If any question or doubt arises whether a licence/certificate/permission has been
issued in accordance with this Policy or if any question or doubt arises touching upon
the scope and content of such documents, the same shall be referred to the Director
General of Foreign Trade whose decision thereon shall be final and binding.
Procedure
The Director General of Foreign Trade may, in any case or class of cases, specify the
procedure to be followed by an exporter or importer or by any licensing or any other
competent authority for the purpose of implementing the provisions of the Act, the
Rules and the Orders made hereunder and this Policy. Such procedures shall be
included in the Handbook (Vol. 1), Handbook (Vol. 2), Schedule of DEPB Rate and in
ITC (HS) and published by means of a Public Notice. Such procedures may, in like
manner, be amended from time to time.
The Handbook (Vol.1) is a supplement to the Foreign Trade Policy and contains
relevant procedures and other details. The procedure of availing benefits under various
schemes of the Policy is given in the Handbook (Vol. 1).
Exemption from Policy/Procedure

Any request for relaxation of the provisions of this Policy or of any procedure, on the
ground that there is genuine hardship to the applicant or that a strict application of the
Policy or the procedure is likely to have an adverse impact on trade, may be made to
the Director General of Foreign Trade for such relief as may be necessary. The
Director General of Foreign Trade may pass such orders or grant such relaxation or
relief, as he may deem fit and proper.
The Director General of Foreign Trade may, in public interest, exempt any person or
class or category of persons from any provision of this policy or any procedure and
may, while granting such exemption, impose such conditions as he may deem fit.
Such request may be considered only after consulting Advance Licensing Committee
(ALC) if the request is in respect of a provision of Chapter-4 (excluding any provision
relating to Gem & Jewellery sector) of the Policy/ Procedure. However, any such
request in respect of a provision other than Chapter-4 and Gem & Jewellery sector as
given above may be considered only after consulting Policy Relaxation Committee.
Principles of Restriction 141
DGFT may, through a notification, adopt and enforce any measure necessary for:
z Protection of public morals.
z Protection of human, animal or plant life or health.
z Protection of patents, trademarks and copyrights and the prevention of deceptive
practices.
z Prevention of use of prison labour.
z Protection of national treasures of artistic, historic or archaeological value.
z Conservation of exhaustible natural resources.
z Protection of trade of fissionable material or material from which they are derived;
and
z Prevention of traffic in arms, ammunition and implements of war.
Restricted Goods
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.
Terms and Conditions of a Licence/Certificate/Permission

Every licence/certificate/permission shall be valid for the period of validity specified
in the licence/certificate/permission and shall contain such terms and conditions as
may be specified by the licensing authority which may include:
z The quantity, description and value of the goods;
z Actual User condition;
z Export obligation;
z The value addition to be achieved; and
z The minimum export price.
Licence/Certificate/Permission not a Right

No person may claim a licence/certificate/permission as a right and the Director
General of Foreign Trade or the licensing authority shall have the power to refuse to
grant or renew a licence/certificate/permission in accordance with the provisions of
the Act and the Rules made there under.
Penalty
If a licence/certificate/permission holder violates any condition of the licence/
certificate/permission or fails to fulfil the export obligation, he shall be liable for
action in accordance with the Act, the Rules and Orders made there under, the Policy
and any other law for the time being in force.
State Trading
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.
142 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.
Importer Exporter Code Number

No export or import shall be made by any person without an Importer-Exporter Code
(IEC) number unless specifically exempted. An Importer-Exporter Code (IEC)
number shall be granted on application by the competent authority in accordance with
the procedure specified in the Handbook (Vol.1).
Trade with Neighbouring Countries

The Director General of Foreign Trade may issue, from time to time, such instructions
or frame such schemes as may be required to promote trade and strengthen economic
ties with neighbouring countries.
Transit Facility
Transit of goods through India from or to countries adjacent to India shall be regulated
in accordance with the bilateral treaties between India and those countries and will be
subject to such restrictions as may be specified by DGFT in accordance with
International Conventions.
Trade with Russia under Debt-Repayment Agreement

In the case of trade with Russia under the Debt Repayment Agreement, the Director
General of Foreign 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 such instructions or schemes, shall not apply.
Actual User Condition

Capital goods, raw materials, intermediates, components, consumables, spares, parts,
accessories, 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

All second hand goods, excepting second hand capital 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 second hand capital goods, including refurbished/reconditioned spares, shall
be allowed freely.
Import of Samples
Import of samples shall be governed by the provisions given in Handbook (Vol.1).
Import of Gifts 143
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
Bonafide household goods and personal effects may be imported as part of passenger
baggage as per the limits, terms and conditions thereof in the Baggage Rules notified
by the Ministry of Finance.
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

New or second hand capital goods, equipments, components, parts and accessories,
containers meant for packing of goods for exports, jigs, fixtures, dies and moulds may
be imported for export without a licence/certificate/permission on execution of Legal
Undertaking/Bank Guarantee with the Customs Authorities provided that the item is
freely exportable without any conditionality/requirement of licence/permission as may
be required under ITC (HS) Schedule II.
Re-import of Goods Repaired Abroad

Capital goods, equipments, components, parts and accessories, whether imported or
indigenous, except those restricted under ITC (HS) may be sent abroad for repairs,
testing, quality improvement or up gradation or standardization of technology and
re-imported without a licence/certificate/permission.
After completion of the projects abroad, project contractors may import, without a
licence/certificate/permission, used goods including capital goods provided they have
been used for at least one year.
Import of Goods used in Projects Abroad

After completion of the projects abroad, project contractors may import, without a
licence/certificate/permission, used goods including capital goods provided they have
been used for at least one year.
Sale on High Seas

Sale of goods on high seas for import into India may be made subject to this Policy or
any other law for the time being in force.
Import under Lease Financing

Permission of licensing authority is not required for import of new capital goods under
lease financing.
Clearance of Goods from Customs

The goods already imported/shipped/arrived, in advance, but not cleared from
Customs may also be cleared against the licence/certificate/permission issued
subsequently.
144 Execution of BG/ LUT
Wherever any duty free import is allowed or where otherwise specifically stated, the
importer shall execute a Legal Undertaking (LUT)/Bank Guarantee (BG)/Bond with
the Customs Authority before clearance of goods through the Customs, in the manner
as may be prescribed. In case of indigenous sourcing, the licence/certificate/
permission holder shall furnish LUT/BG/Bond to the licensing authority before
sourcing the material from the indigenous supplier/nominated agency.
Exemption from Bank Guarantee

All the exporters who have an export turnover of at least Rupees 5 crore in the current
or preceding licencing year and have a good track record of three years of exports will
be exempted from furnishing a BG for any of the schemes under this Policy and may
furnish a LUT in lieu of BG.
Private/Public Bonded Warehouses for Imports

Private/Public bonded warehouses may be set up in the Domestic Tariff Area as per
the terms and conditions of notification issued by Department of Revenue.
Any person may import goods except prohibited items, arms and ammunition,
hazardous waste and chemicals and warehouse them in such private/public bonded
warehouses.
Such goods may be cleared for home consumption in accordance with the provisions
of this Policy and against Licence/certificate/permission, wherever required. Customs
duty as applicable shall be paid at the time of clearance of such goods.
If such goods are not cleared for home consumption within a period of one year or
such extended period as the custom authorities may permit, the importer of such goods
shall re-export the goods.
Free Exports
All goods may be exported without any restriction except to the extent such exports
are regulated by ITC (HS) or any other provision of this Policy or any other law for
the time being in force.
The Director General of Foreign Trade may, however, specify through a public notice
such terms and conditions according to which any goods, not included in the ITC
(HS), may be exported without a licence/certificate/permission.
Export of Samples
Export of samples and free of charge goods shall be governed by the provisions given
in Handbook (Vol.1).
Export of Passenger Baggage

Bonafide personal baggage may be exported either along with the passenger or, if
unaccompanied, within one year before or after the passenger's departure from India.
However, items mentioned as Restricted in ITC(HS) shall require a licence/certificate/
permission.
Export of Gifts
Goods, including edible items, of value not exceeding ` 5,00,000/- in a licensing year,
may be exported as a gift. However, items mentioned as restricted for exports in ITC
(HS) shall not be exported as a gift, without a licence/certificate/permission.
Export of Spares 145
Warranty spares, whether indigenous or imported, of plant, equipment, machinery,
automobiles or any other goods, except those restricted under ITC (HS), may be
exported along with the main equipment or subsequently but within the contracted
warranty period of such goods subject to approval of RBI.
Third Party Exports

Third party exports, as defined in Chapter 9 of the policy shall be allowed under
the Policy.
Export of Imported Goods

Goods imported, in accordance with this Policy, may be exported in the same or
substantially the same form without a licence/certificate/permission provided that the
item to be imported or exported is not mentioned as restricted for import or export in
the ITC (HS).
Exports of such goods imported against payment in freely convertible currency would
be permitted against payment in freely convertible currency.
Goods, including those mentioned as restricted item for import (except prohibited
items) may be imported under Customs Bond for export in freely convertible currency
without a licence/certificate/permission provided that the item is freely exportable
without any conditionality/ requirement of licence/permission as may be required
under ITC (HS) Schedule II.
Export of Replacement Goods

Goods or parts thereof on being exported and found defective/damaged or otherwise
unfit for use may be replaced free of charge by the exporter and such goods shall be
allowed clearance by the customs authorities provided that the replacement goods are
not mentioned as restricted items for exports in ITC (HS).
Export of Repaired Goods

Goods or parts, except restricted under ITC (HS), thereof on being exported and found
defective, damaged or otherwise unfit for use may be imported for repair and
subsequent re-export.
Such goods shall be allowed clearance without a licence/ certificate/permission and in
accordance with customs notification issued in this behalf.
Private Bonded Warehouses for Exports

Private bonded warehouses exclusively for exports may be set up in DTA as per the
terms and conditions of the notifications issued by Department of Revenue.
Such warehouses shall be entitled to procure the goods from domestic manufacturers
without payment of duty. The supplies made by a domestic supplier to the notified
warehouses shall be treated as physical exports provided the payments for the same
are made in free foreign exchange.
Denomination of Export Contracts

All export contracts and invoices shall be denominated either in freely convertible
currency or Indian rupees but the export proceeds shall be realised in freely
convertible currency.
However export proceeds against specific exports may also be realized in rupees
provided it is through a freely convertible Vostro account of a non-resident bank
146 situated in any country other than a member country of ACU or Nepal or Bhutan.
Additionally, the rupee payment through the Vostro account must be against payment
in free foreign currency by the buyer in his non resident bank account. The free
foreign exchange remitted by the buyer to his non resident bank (after deducting the
bank service charges) on account of this transaction would be taken as the export
realization under the export promotion schemes of this Policy.
Contracts for which payments are received through the Asian Clearing Union (ACU)
shall be denominated in ACU Dollar. The Central Government may relax the
provisions of this paragraph in appropriate cases. Export contracts and Invoices can be
denominated in Indian rupees against EXIM Bank/Government of India line of credit.
Realisation of Export Proceeds

If an exporter fails to realise the export proceeds within the time specified by the
Reserve Bank of India, he shall, without prejudice to any liability or penalty under any
law for the time being in force, be liable to action in accordance with the provisions of
the Act, the Rules and Orders made thereunder and the provisions of this Policy.
Free Movement of Export Goods

Consignments of items meant for exports shall not be withheld/delayed for any reason
by any agency of the Central/State Government. In case of any doubt, the authorities
concerned may ask for an undertaking from the exporter.
No Seizure of Stock
No seizure of stock shall be made by any agency so as to disrupt the manufacturing
activity and delivery schedule of export goods. In exceptional cases, the concerned
agency may seize the stock on the basis of prima facie evidence. However, such
seizure should be lifted within 7 days.
Export Promotion Councils

The basic objective of Export Promotion Councils is to promote and develop the
exports of the country. Each Council is responsible for the promotion of a particular
group of products, projects and services. The list of the councils, and their main
functions are given in Handbook (Vol.1).
Registration-cum-Membership Certificate
Any person, applying for (i) a licence/certificate/permission to import/export, [except
items listed as restricted items in ITC (HS)] or (ii) any other benefit or concession
under this policy shall be required to furnish Registration-cum-Membership
Certificate (RCMC) granted by the competent authority in accordance with the
procedure specified in the Handbook (Vol.1) unless specifically exempted under the
Policy.
Electronic Data Interchange

In an attempt to speed up transactions, reduce physical interface and impart
transparency in activities related to exports, digitally signed electronic applications
with payment through the electronic fund transfer would be encouraged. Such
applications shall be cleared within 24 hours and the applicant shall be required to
furnish only 50% of the fee mentioned in Appendix-29 of Handbook (Vol. 1).
Regularization of EO Default and Settlement of Customs Duty and Interest through 147
Settlement Commission
With a view to providing assistance to firms who have defaulted under the Foreign
Trade Policy for reasons beyond their control as also facilitating the merger,
acquisition and rehabilitation of sick units, it has been decided to empower the
Settlement Commission in the Central Board of Excise and Customs to decide such
cases also with effect from 01.04.2005.
Easing of Documentation Requirements

Pending the finalization of Single Common Document (SCD) for international trade,
the government departments dealing with exports and imports will honour the
permission/licence/certificate issued by the other government departments based on
the verification of the export documents like shipping bill, bank realization certificate,
packing list, bill of lading etc and will not insist upon fresh submission of these
documents
Exemption from Service Tax in DTA

For all goods and services which are exported from units in Domestic Tariff Area
(DTA), remission of service tax levied shall be allowed.
Exemption from Service Tax in EOU/EHTP/STP/SEZ/BTP

Units in EOU/EHTP/STP/BTP/SEZ shall be exempted from service tax.
GRIEVANCE REDRESSAL
DGFT as a facilitator of exports/imports

DGFT has a commitment to function as a facilitator of exports and imports. Our focus
is on good governance, which depends on clean, transparent and accountable delivery
systems.
Citizen’s Charter
DGFT has in place a Citizen’s Charter which lays down its commitment to serve
importers and exporters. It also gives time schedules for providing services to clients,
and details of grievance committees at different levels.
Grievance Redressal Mechanism

In order to facilitate speedy redressal of grievances of trade and industry, a new
grievance redressal mechanism has been put into place by a Government Resolution.
Web Chat
The office of the Director General of Foreign Trade has opened a chat window on its
website for interacting with the trade and industry to reply to queries on the Foreign
Trade Policy. This web based interface would be held from 3.00 pm to 5.00 pm on the
second Wednesday of every month.
13.6.6 Chapter-3: Promotional Measures

Assistance to States for Infrastructure Development of Exports (ASIDE)
The State Governments shall be encouraged to participate in promoting exports from
their respective States. For this purpose, Department of Commerce has formulated a
scheme called ASIDE.
148 Suitable provision has been made in the Annual Plan of the Department of Commerce
for allocation of funds to the states on the twin criteria of gross exports and the rate of
growth of exports.
The States shall utilise this amount for developing infrastructure such as roads
connecting production centres with the ports, setting up of Inland Container Depots
and Container Freight Stations, creation of new State level export promotion industrial
parks/zones, augmenting common facilities in the existing zones, equity participation
in infrastructure projects, development of minor ports and jetties, assistance in setting
up of common effluent treatment facilities, stabilizing power supply and any other
activity as may be notified by Department of Commerce from time to time.
Market Access Initiative (MAI)

The Market Access Initiative (MAI) scheme is intended to provide financial assistance
for medium term export promotion efforts with a sharp focus on a country and
product.
The financial assistance is available for Export Promotion Councils, Industry and
Trade associations, Agencies of State Governments, Indian Commercial Missions
abroad and other eligible entities as may be notified from time to time.
A whole range of activities can be funded under the MAI scheme. These include
market studies, setting up of showroom/warehouse, sales promotion campaigns,
international departmental stores, publicity campaigns, participation in international
trade fairs, brand promotion, registration charges for pharmaceuticals and testing
charges for engineering products, etc. Each of these export promotion activities can
receive financial assistance from the Government ranging from 25% to 100% of the
total cost depending upon the activity and the implementing agency, as indicated in
the detailed guidelines.
Marketing Development Assistance (MDA)

The Marketing Development Assistance (MDA) Scheme is intended to provide
financial assistance for a range of export promotion activities implemented by export
promotion councils, industry and trade associations on a regular basis every year.
As per the revised MDA guidelines with effect from 1st April, 2004 assistance under
MDA is available for exporters with annual export turnover up to ` 5 crore.
These include participation in Trade Fairs and Buyer–Seller meets abroad or in India,
export promotion seminars, etc
Further, assistance for participation in Trade Fairs abroad and travel grant is available
to such exporters if they travel to countries in one of the four Focus Areas, such as,
Latin America, Africa, CIS Region, ASEAN countries, Australia and New Zealand.
For participation in trade fairs, etc, in other areas financial assistance without travel
grant is available.
Meeting Legal Expenses for Trade related matters

Financial assistance would be provided to deserving exporters on the recommendation
of Export Promotion Councils for meeting the cost of legal expenses relating to trade
related matters.
Towns of Export Excellence

A number of towns in specific geographical locations have emerged as dynamic
industrial clusters contributing handsomely to India’s exports. It is necessary to grant
recognition to these industrial clusters with a view to maximizing their potential and 149
enabling them to move higher in the value chain and tap new markets.
Selected towns producing goods of ` 1,000 crore or more will be notified as Towns of
Exports Excellence on the basis of potential for growth in exports. However for the
Towns of Export Excellence in the Handloom, Handicraft, Agriculture and Fisheries
sector, the threshold limit would be ` 250 crores.
Common service providers in these areas shall be entitled for the facility of the EPCG
scheme.
The recognised associations of units will be able to access the funds under the Market
Access Initiative scheme for creating focused technological services.
Further such areas will receive priority for assistance for rectifying identified critical
infrastructure gaps from the ASIDE scheme.
The notified towns of export excellence are listed in Appendix 41.
Brand Promotion and Quality

The Central Government aims to encourage manufacturers and exporters to attain
internationally accepted standards of quality for their products. The Central
Government will extend support and assistance to Trade and Industry to launch a
nationwide programme on quality awareness and to promote the concept of total
quality management.
Test Houses
The Central Government will assist in the modernisation and upgradation of test
houses and laboratories in order to bring them at par with international standards.
Quality Complaints/Disputes
The Regional Sub-Committee on Quality Complaints (RSCQC) set up at the Regional
Offices of the Directorate General of Foreign Trade shall investigate quality
complaints received from foreign buyers. The guidelines for settlement of quality
complaints, in particular, and such other complaints, in general, are given in
Appendix-37 of Handbook (Vol.1).
Trade Disputes affecting Trade Relations

If it comes to the notice of the Director General of Foreign Trade or he has reason to
believe that an export or import has been made in a manner that
z is gravely prejudicial to the trade relations of India with any foreign country; or
z is gravely prejudicial to the interest of other persons engaged in exports or
imports;
z Has brought disrepute to the country.
The Director General Foreign Trade may take action against the exporter or importer
concerned in accordance with the provisions of the Act, the Rules and Orders made
thereunder and this Policy.
Star Export Houses

Merchant as well as Manufacturer Exporters, Service Providers, Export Oriented
Units (EOUs) and Units located in Special Economic Zones (SEZs), Agri Export
Zones (AEZs), Electronic Hardware Technology Parks (EHTPs), Software
Technology Parks (STPs) and Bio Technology Parks (BTPs) shall be eligible for
applying for status as Star Export Houses.
150 Status Category
The applicant shall be categorized depending on his total FOB/FOR export
performance during the current plus the previous three years:
Category Performance (in rupees)

One Star Export House 15 crore
Two Star Export House 100 crore
Three Star Export House 500 crore
Four Star Export House 1,500 crore
Five Star Export House 5,000 crore
Services Exports
Services include all the 161 tradable services covered under the General Agreement
on Trade in Services where payment for such services is received in free foreign
exchange. A list of services is given in Appendix-36 of Handbook (Vol.1). All
provisions of this Policy shall apply mutatis mutandi to export of services as they
apply to goods, unless otherwise specified.
Service exporters are required to register themselves with the Federation of Indian
Exporters Organisation. However, software exporters shall register themselves with
Electronic and Software Export Promotion Council.
In order to give proper direction, guidance and encouragement to the Services Sector,
an exclusive Export Promotion Council for Services shall be set up.
The Services Export Promotion Council shall:
z Map opportunities for key services in key markets and develop strategic market
access programmes for each component of the matrix.
z Co-ordinate with sectoral players in undertaking intensive brand building and
marketing programmes in target markets.
z Make necessary interventions with regard to policies, procedures and bilateral/
multilateral issues, in co-ordination with recognised nodal bodies of the services
industry.
Common Facility Centres

Government shall promote the establishment of Common Facility Centres for use by
home-based service providers, particularly in areas like Engineering & Architectural
design, Multi-media operations, Software developers, etc. in State and District-level
towns, to draw in a vast multitude of home-based professionals into the services
export arena.
Served from India' Scheme

To accelerate growth in export of services in order to create a powerful and unique
Served from India' brand which will be instantly recognised and respected the world
over. Individual service providers earning foreign exchange of at least ` 5 lakh, and
` 10 lakh for other service providers will be eligible for a duty credit entitlement of
10% of total foreign exchange earned by them. For stand-alone restaurants and for
hotels, the entitlement shall be 20% and 5% respectively. Hotels and restaurants may
use their duty credit entitlement for import of food items and alcoholic beverages.
Vishesh Krishi Upaj Yojana 151
Objective: The objective of the scheme is to promote export of fruits, vegetables,
flowers, minor forest produce, and their value added products, by incentivising
exporters of such products.
Entitlement: Exporters of such products shall be entitled for duty credit scrip
equivalent to 5% of the FOB value of exports for each licencing year commencing
from 1st April, 2004. The scrip and the items imported against it would be freely
transferable.
Imports allowed: The Duty Credit may be used for import of inputs or goods
including capital goods, as may be notified, provided the same is freely importable
under ITC (HS).
Imports from a port other than the port of export shall be allowed under TRA facility
as per the terms and conditions of the notification issued by Department of Revenue.
CENVAT/Drawback: Additional customs duty/excise duty paid in cash or through
debit under Vishesh Krishi Upaj Yojana shall be adjusted as CENVAT Credit or Duty
Drawback as per rules framed by the Department of Revenue.
Special Provision: Government reserves the right in public interest, to specify from
time to time the export products which shall not be eligible for calculation of
entitlement.
13.6.7 Chapter-4: Duty Exemption and Remission Schemes

Duty exemption schemes enable duty free import of inputs required for export
production. An Advance Licence is issued as a duty exemption scheme. A Duty
Remission Scheme enables post export replenishment/remission of duty on inputs
used in the export product. Duty remission schemes consist of (a) DFRC (Duty Free
Replenishment Certificate) and (b) DEPB (Duty Entitlement Passbook Scheme).
Advance Licence
An Advance Licence is issued to allow duty free import of inputs, which are
physically incorporated in the export product (making normal allowance for wastage).
In addition, fuel, oil, energy, catalysts, etc. which are consumed in the course of their
use to obtain the export product, may also be allowed under the scheme.
Duty free import of mandatory spares up to 10% of the CIF value of the licence which
are required to be exported/supplied with the resultant product may also be allowed
under Advance Licence.
Advance Licences are issued on the basis of the inputs and export items given under
SION. However, they can also be issued on the basis of Ad hoc norms or self declared
norms as per para 4.7 of Handbook.
Duty free import of mandatory spares up to 10% of the CIF value of the licence which
are required to be exported/supplied with the resultant product may also be allowed
under Advance Licence.
Advance Licence can be issued for:
Physical exports: Advance Licence may be issued for physical exports including
exports to SEZ to a manufacturer exporter or merchant exporter tied to supporting
manufacturer(s) for import of inputs required for the export product.
Intermediate supplies: Advance Licence may be issued for intermediate supply to a
manufacturer-exporter for the import of inputs required in the manufacture of goods to
152 be supplied to the ultimate exporter/deemed exporter holding another Advance
Licence.
Deemed exports: Advance Licence can be issued for deemed export to the main
contractor for import of inputs required in the manufacture of goods to be supplied to
the categories mentioned in paragraph 8.2 (b), (c), (d), (e), (f), (g), (i) and (j) of
the Policy.
In addition, in respect of supply of goods to specified projects mentioned in paragraph
8.2 (d), (e), (f), (g) and (j) of the Policy, an Advance Licence for deemed export can
also be availed by the sub-contractor of the main contractor to such project provided
the name of the sub contractor(s) appears in the main contract.
Such licence for deemed export can also be issued for supplies made to United
Nations Organisations or under the Aid Programme of the United Nations or other
multilateral agencies and paid for in foreign exchange.
Duty Free Replenishment Certificate (DFRC)

z DFRC is issued to a merchant-exporter or manufacturer-exporter for the import of
inputs used in the manufacture of goods without payment of basic customs duty.
However, such inputs shall be subject to the payment of additional customs duty
equal to the excise duty at the time of import.
z DFRC shall be issued on minimum value addition of 25% except for items in
gems and jewellery sector for which value addition as given in paragraph 4.56.1
of the Handbook (Vol.1) shall be applicable.
z DFRC may be issued in respect of exports for which payments are received in
non-convertible currency. Such exports shall, however, be subject to value
addition and conditions as specified in Appendix-32 of Handbook (Vol.1).
z DFRC may also be issued for supplies effected under paragraph 8.2 of the Policy.
z DFRC shall be issued only in respect of products covered under the Standard
Input Output Norms as notified by DGFT. However, in respect of Standard Input
Output Norms which are subject to "actual user" condition or where the export
proceeds have not been realised or for import of fuel under the general norms,
DFRC shall be issued with actual user condition for these inputs.
However, for fuel, the import entitlement may be transferred only to the companies
which have been granted authorization to market fuels by the Ministry of Petroleum &
Natural Gas. In cases where Standard Input Output Norms allow import of Acetic
Anhydride, Ephedrine and Pseudo Ephedrine, DFRC shall be issued provided these
items are specifically deleted from the list of import items.
z DFRC will not be issued against SION which prescribes a prior import condition
for inputs.
z DFRC shall be issued for import of inputs as per SION as indicated in the
shipping bills. The validity of such licences shall be 24 months. DFRC and or the
material(s) imported against it shall be freely transferable. However, DFRC with
actual user condition or the material(s) imported against it shall not be
transferable. The export products, which are eligible for modified VAT, shall be
eligible for CENVAT credit/service tax credit. However, non-excisable, non
dutiable or non-CENVAT products shall be eligible for drawback at the time of
exports in lieu of additional customs duty to be paid at the time of imports under
the scheme.
z The exporter shall be entitled for drawback benefits in respect of any of the duty
paid materials, whether imported or indigenous, used in the export product as per
the drawback rate fixed by Directorate of Drawback (Ministry of Finance). The 153
drawback shall however be restricted to the duty paid materials not covered under
SION.
z Import of goods, including those mentioned as restricted in ITC (HS) but
excluding prohibited items, supplied free of cost, may be permitted for the
purpose of jobbing without a licence/certificate/permission as per the terms of
notification issued by Department of Revenue from time to time. Similarly, import
of goods for carrying out repairs, re-conditioning, re-engineering, testing, etc.
shall be allowed as per the terms and conditions of the Customs notification even
though the goods may be restricted for imports under the Exim Policy/ITC (HS)
Classification of Imports and Exports Book.
Duty Entitlement Passbook (DEPB) Scheme

The objective of DEPB is to neutralise the incidence of Customs duty on the import
content of the export product. The neutralisation shall be provided by way of grant of
duty credit against the export product.
The DEPB scheme will continue to be operative until it is replaced by a new scheme
which will be drawn up in consultation with exporters.
Under the DEPB, an exporter may apply for credit, as a specified percentage of FOB
value of exports, made in freely convertible currency.
The credit shall be available against such export products and at such rates as may be
specified by the Director General of Foreign Trade by way of public notice issued in
this behalf, for import of raw materials, intermediates, components, parts, packaging
material etc.
Gems and Jewellery

Scheme for Gems and Jewellery: Exporters of gems and jewellery are eligible to
import their inputs by obtaining Replenishment (REP) Licences from the licensing
authorities in accordance with the procedure specified in this behalf.
Replenishment Licence: The exporters of gems and jewellery products listed in
Appendix-26 of the Handbook (Vol.1) shall be eligible for grant of Replenishment
Licences at the rate and for the items mentioned in the said Appendix to import and
replenish their inputs.
Replenishment licence may also be issued for import of consumables as per the details
given in paragraph 4.80 of Handbook (Vol.1).
Export of Cut & Polished Diamonds for Certification/ Grading: Gems and Jewellery
exporters with a track record of at least three years and having an annual average
turnover of ` 5 crore and above during the preceding three licensing years or the
authorized offices/agencies in India of Gemological Institute of America (GIA), The
Robert Mouawad Campus, International Gemological Institute (IGI) and European
Gemological Laboratory (EGL) in USA, Hoge Road Voor Diamond, Antwerp,
(HRD), World Diamond Centre of Diamonds High Council, Antwerp, Belgium,
Central Gem Laboratory, Miyagi Building, 5-15-14 Ueno Taito-Ku, Tokyo, Japan
may be permitted to export cut & polished diamonds each weighing 0.25 of a carat
and above to the said laboratories/agencies, for the purpose of certification/grading
reports by them with a condition that the same should be re-imported with
the certificate/grading reports issued by them without any import duty at the time of
re-import.
154 At the time of export of cut and polished diamonds for certification/grading, exporter
should give an undertaking to the customs that the cut and polished diamonds will be
re-imported within three months of exports for certification/grading.
The export invoice should clearly indicate the estimated value, height, circumference,
weight of each diamond to be exported for certification/ grading so that at the time of
their import, the above specification could be compared with the original ones to
establish their identity. Subsequently these cut and polished diamonds would be
exported as per the provisions of the Policy.
Items of Export
The following items, if exported, would be eligible for the facilities under these
schemes:
z Gold jewellery, including partly processed jewellery and any articles including
medallions and coins (excluding the coins of the nature of legal tender), whether
plain or studded, containing gold of 8 carats and above;
z Silver jewellery including partly processed jewellery, silverware, silver strips and
any articles including medallions and coins (excluding the coins of the nature of
legal tender and any engineering goods) containing more than 50% silver by
weight;
z Platinum jewellery including partly processed jewellery and any articles including
medallions and coins (excluding the coins of the nature of legal tender and any
engineering goods) containing more than 50% platinum by weight.
13.6.8 Chapter-5: Export Promotion Capital Goods Scheme

The scheme allows import of capital goods for pre production, production and post
production (including CKD/SKD thereof as well as computer software systems) at 5%
Customs duty subject to an export obligation equivalent to 8 times of duty saved on
capital goods imported under EPCG scheme to be fulfilled over a period of 8 years
reckoned from the date of issuance of licence. Capital goods would be allowed at 0%
duty for exports of agricultural products and their value added variants.
However, in respect of EPCG licences with a duty saved of ` 100 crore or more, the
same export obligation shall be required to be fulfilled over a period of 12 years.
In case CVD is paid in cash on imports under EPCG, the incidence of CVD would not
be taken for computation of net duty saved provided the same is not Cenvated.
The capital goods shall include spares (including refurbished/reconditioned spares),
tools, jigs, fixtures, dies and moulds. EPCG licence may also be issued for import of
components of such capital goods required for assembly or manufacturer of capital
goods by the licenceholder.
Second hand capital goods without any restriction on age may also be imported under
the EPCG scheme.
Spares (including refurbished/reconditioned spares), tools, refractories, catalyst and
consumable for the existing and new plant and machinery may also be imported under
the EPCG scheme.
However, import of motor cars, sports utility vehicles/all purpose vehicles shall
be allowed only to hotels, travel agents, tour operators or tour transport operators
whose total foreign exchange earning in current and preceding three licencing years is
` 1.5 crore. However, the parts of motor cars, sports utility vehicles/all purpose
vehicles such as chassis, etc. cannot be imported under the EPCG Scheme.
13.6.9 Chapter- 6: Export Oriented Units (EOUs), Electronics Hardware 155
Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-
technology Parks (BTPs)
Eligibility
Units undertaking to export their entire production of goods and services (except
permissible sales in the DTA), may be set up under the Export Oriented Unit (EOU)
Scheme, Electronic Hardware Technology Park (EHTP) Scheme, Software
Technology Park (STP) Scheme or Bio-technology Park (BTP) scheme for
manufacture of goods, including repair, re-making, reconditioning, re-engineering,
and rendering of services. Trading units, however, are not covered under these
schemes.
Export and Import of Goods

An EOU/EHTP/STP/BTP unit may export all kinds of goods and services except
items that are prohibited in the ITC (HS). Export of Special Chemicals, Organisms,
Materials, Equipment and Technologies (SCOMET) shall be subject to fulfilment of
the conditions indicated in the ITC (HS).
An EOU/EHTP/STP/BTP unit may import and/or procure from DTA or bonded
warehouses in DTA/international exhibition held in India without payment of duty all
types of goods, including capital goods, required for its activities, provided they are
not prohibited items of import in the ITC (HS). Any permission required for import
under any other law shall be applicable. The units shall also be permitted to import
goods including capital goods required for the approved activity, free of cost or on
loan/lease from clients. The import of capital goods will be on a self certification
basis.
State Trading regime shall not apply to EOU manufacturing units.
EOU/EHTP/STP/BTP units may import/procure from DTA without payment of duty
certain specified goods for creating a central facility which will be used by software
units. These software units can be EOU/DTA units who will use the facility for export
of software.
An EOU engaged in agriculture, animal husbandry, aquaculture, floriculture,
horticulture, pisciculture, viticulture, poultry or sericulture may be permitted to
remove specified goods in connection with its activities for use outside the bonded
area.
Gems and jewellery EOUs may source gold/silver/platinum through the nominated
agencies also. Units obtaining gold/silver/platinum from the nominated agencies shall
export gold/silver/platinum jewellery within 60 days from the date of release. This
shall not, however, apply to outright purchase of precious metal from the nominated
agencies.
EOU/EHTP/STP/BTP units, other than service units, may export to Russian
Federation in Indian Rupees against repayment of State Credit/Escrow Rupee Account
of the buyer subject to RBI clearance, if any.
Procurement and supply of spares and consumables required for the goods
manufactured by the units may be allowed to be exported along with goods up to 1.5%
of FOB value of exports. This shall, however, not count towards NFE calculation, for
concessional rate DTA sales or for Income Tax exemption.
Second hand capital goods without any age limit, may also be imported duty free.
156 Second Hand Capital Goods
Second hand capital goods without any age limit may also be imported duty free.
Leasing of Capital Goods

An EOU/EHTP/STP/BTP unit may, on the basis of a firm contract between the
parties, source the capital goods from a domestic/foreign leasing company without
payment of customs/excise duty. In such a case, the EOU/EHTP/STP/BTP unit and
the domestic/foreign leasing company shall jointly file the documents to enable
import/procurement of the capital goods without payment of duty.
Net Foreign Exchange Earnings

EOU/EHTP/STP/BTP unit shall be a positive net foreign exchange earner. Net
Foreign Exchange Earnings (NFE) shall be calculated cumulatively in blocks of five
years, starting from the commencement of production.
Letter of Permission/Letter of Intent and Legal Undertaking

On approval, a Letter of Permission (LOP)/Letter of Intent (LOI) shall be issued by
the Development Commissioner/designated officer to EOU/EHTP/STP/BTP unit. The
LOP/LOI shall have an initial validity of 3 years by which time the unit should have
commenced production. Its validity may be extended further up to 3 years by the
competent authority. However, proposals for extension beyond six years shall be
considered in exceptional circumstances, on a case-to-case basis by the BOA. Once
the unit commences production, LOP/LOI issued shall be valid for a period of 5 years
for its activities. This period may be extended further by the Development
Commissioner for a period of 5 years at a time.
Investment Criteria
Only projects having a minimum investment of ` 1 crore in plant and machinery
shall be considered for establishment as EOUs under the scheme. This shall, however,
not apply to existing units and units in EHTP/STP/BTP, Handicrafts/Agriculture/
Floriculture/Aquaculture/Animal Husbandry/Information Technology, Services, Brass
hardware, handmade Jewellery and such other sectors as may be decided by the BOA.
Sector-wise investment criteria shall be fixed by BOA.
13.6.10 Chapter-7: Special Economic Zones

Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall
be deemed to be foreign territory for the purposes of trade operations and duties and
tariffs.
Goods and services going into the SEZ area from DTA shall be treated as exports and
goods coming from the SEZ area into DTA shall be treated as if these are being
imported.
SEZ units may be set up for manufacture of goods and rendering of services.
Export and Import of Goods

z SEZ units may export goods and services including agro-products, partly
processed goods, sub-assemblies and components except prohibited items of
exports in ITC (HS). The units may also export by-products, rejects, waste scrap
arising out of the production process. Export of Special Chemicals, Organisms,
Materials, Equipment and Technologies (SCOMET) shall be subject to fulfilment
of the conditions indicated in the ITC (HS) Classification of Export and Import
Items. SEZ units, other than trading/service unit, may also export to Russian
Federation in Indian Rupees against repayment of State Credit/Escrow Rupee 157
Account of the buyer, subject to RBI clearance, if any.
z SEZ unit may import/procure from the DTA without payment of duty all types of
goods and services, including capital goods, whether new or second hand,
required by it for its activities or in connection therewith, provided they are not
prohibited items of imports in the ITC(HS). However, any permission required for
import under any other law shall be applicable. Goods shall include raw material
for making capital goods for use within the unit. The units shall also be permitted
to import goods required for the approved activity, including capital goods, free of
cost or on loan from clients.
z SEZ units may procure goods required by it without payment of duty, from
bonded warehouses in the DTA set up under the Policy and/or under Section 65 of
the Customs Act and from International Exhibitions held in India.
z SEZ units may import/procure from DTA, without payment of duty, all types of
goods for creating a central facility for use by units in SEZ. The Central facility
for software development can also be accessed by units in the DTA for export of
software.
z Gem & Jewellery units may also source gold/silver/platinum through the
nominated agencies.
z SEZ units may import/procure goods and services from DTA without payment of
duty for setting up, operation and maintenance of units in the Zone.
Approvals and Applications

Applications for setting up a unit in SEZ other than proposals for setting up of unit in
the services sector (except software and IT enabled services, trading or any other
service activity as may be delegated by the BOA), shall be approved or rejected by the
Units Approval Committee within 15 days as per procedure indicated in Annexure to
Appendix 14-II of Handbook (Vol. I). In other cases approval may be granted by the
Board of Approval.
Proposals for setting up units in SEZ requiring Industrial Licence may be granted
approval by the Development Commissioner after clearance of the proposal by the
SEZ Board of Approval and Department of Industrial Policy and Promotion within
45 days on merits.
Entitlement for Supplies from the DTA

Supplies from DTA to SEZ shall be entitled for the following:
1. DTA supplier shall be entitled for:
Drawback or DEPB in lieu of Drawback
Discharge of Export performance, if any, on the supplier.
2. SEZ units shall be entitled for:
Exemption from Central Sales Tax;
Exemption from payment of Central Excise Duty on all goods eligible for
procurement by the unit;
Reimbursement of Central Excise Duty, paid on bulk tea procured from the
licensed auction centres by the Development Commissioner of concerned
zone as long as levy on bulk tea in this regard is in force;
158 Reimbursement of Duty paid on fuels or any other goods procured from DTA
as per the rate of drawback notified by the Directorate General of Foreign
Trade from the date of such notification.
3. Supplier of precious and semi-precious stones, synthetic stones and processed
pearls from Domestic Tariff Area to the units situated in SEZ shall be eligible for
grant of Replenishment Licenses at the rates and for the items mentioned in the
Handbook (Vol. I).
4. The entitlements under paragraphs (a) and (b)(ii) above shall be available
provided the goods supplied are manufactured in India.
13.6.11 Chapter 7a: Free Trade and Warehousing Zones

Objective
The objective is to create trade-related infrastructure to facilitate the import and export
of goods and services with freedom to carry out trade transactions in free currency.
The scheme envisages creation of world-class infrastructure for warehousing of
various products, state-of-the-art equipment, transportation and handling facilities,
commercial office-space, water, power, communications and connectivity, with one-
stop clearance of import and export formality, to support the integrated Zones as
‘international trading hubs’. These Zones would be established in areas proximate to
seaports, airports
Status
The Free Trade & Warehousing Zones (FTWZ) shall be a special category of Special
Economic Zones with a focus on trading and warehousing.
Establishment of Zone
z Proposals for setting up of FTWZs may be made by public sector undertakings or
public limited companies or by joint ventures in technical collaboration with
experienced infrastructure developers. The proposals shall be considered by the
Board of Approval in the Department of Commerce. On approval, the developer
will be issued a letter of permission for the development, operation and
maintenance of such FTWZ.
z Foreign Direct Investment would be permitted up to 100% in the development and
establishment of the zones and their infrastructural facilities.
z The proposal must entail a minimum outlay of ` 100 crore for the creation and
development of the infrastructure facilities, with a minimum built up area of five
lakh sq.mts.
z The developer shall be permitted to import duty free such building materials and
equipment as may be required for the development and infrastructure of the zone.
Such equipment and materials as are sourced from the DTA shall be considered as
physical exports for the DTA suppliers.
z Once it has developed the FTWZ, the developer shall also be permitted to
sale/lease/rent out warehouses/workshops/office-space and other facilities in the
FTWZ to traders/exporters.
Entitlement of Units
(i) Income Tax exemption as per 80 IA of the Income Tax Act.
(ii) Exemption from Service Tax.
(iii) Free foreign exchange currency transactions would be permitted. 159
(iv) Other benefits mutatis mutandi as applicable to units in SEZs.
13.6.12 Chapter-8: Deemed Exports

"Deemed Exports" refers to those transactions in which the goods supplied do not
leave the country and the payment for such supplies is received either in Indian rupees
or in free foreign exchange.
The following categories of supply of goods by the main/sub-contractors shall be
regarded as "Deemed Exports" under this Policy, provided the goods are manufactured
in India:
(a) Supply of goods against Advance Licence/Advance Licence for annual
requirement/DFRC under the Duty Exemption /Remission Scheme;
(b) Supply of goods to Export Oriented Units (EOUs) or Software Technology Parks
(STPs) or Electronic Hardware Technology Parks (EHTPs) or Bio Technology
Parks (BTPs);
(c) Supply of capital goods to holders of licences under the Export Promotion Capital
Goods (EPCG) scheme;
(d) Supply of goods to projects financed by multilateral or bilateral agencies/funds as
notified by the Department of Economic Affairs, Ministry of Finance under
International Competitive Bidding in accordance with the procedures of those
agencies/funds, where the legal agreements provide for tender evaluation without
including the customs duty;
(e) Supply of capital goods, including in unassembled/ disassembled condition as
well as plants, machinery, accessories, tools, dies and such goods which are used
for installation purposes till the stage of commercial production and spares to the
extent of 10% of the FOR value to fertiliser plants;
(f) Supply of goods to any project or purpose in respect of which the Ministry of
Finance, by a notification, permits the import of such goods at zero customs duty;
(g) Supply of goods to the power projects and refineries not covered in (f) above;
(h) Supply of marine freight containers by 100% EOU (Domestic freight containers–
manufacturers) provided the said containers are exported out of India within 6
months or such further period as permitted by the Customs;
(i) Supply to projects funded by UN agencies.
Benefits for Deemed Exports

Deemed exports shall be eligible for any/all of the following benefits in respect of
manufacture and supply of goods qualifying as deemed exports subject to the terms
and conditions as given in Handbook (Vol. 1):
z Advance Licence for intermediate supply/deemed export/DFRC/DFRC for
intermediate supplies.
z Deemed Export Drawback.
z Exemption from terminal excise duty where supplies are made against
International Competitive Bidding. In other cases, refund of terminal excise duty
will be given.
Write the abbreviations of the following:
1. AEZ stands for …………..
2. HEPC stands for …………..
3. GJEPC stands for …………..
4. IEC number stands for …………..
13.7 OBJECTIVES OF EXPORT–IMPORT

POLICY 2009-2014
The year 2009 is witnessing one of the most severe global recessions in the post-war
period. Countries across the world have been affected in varying degrees and all major
economic indicators of industrial production, trade, capital flows, unemployment, per
capita investment and consumption have taken a hit. The WTO estimates project a
grim forecast that global trade is likely to decline by 9% in volume terms and the IMF
estimates project a decline of over 11%. The recessionary trend has huge social
implications. The World Bank estimate suggests that 53 million more people would
fall into the poverty net this year and over a billion people would go chronically
hungry.
Though India has not been affected to the same extent as other economies of the
world, yet our exports have suffered a decline in the last 10 months due to a
contraction in demand in the traditional markets of our exports. The protectionist
measures being adopted by some of these countries have aggravated the problem.
After four clear quarters of recession there is some sign of a turnaround and the
emergence of ‘green shoots’, though I would be hesitant to hazard a guess on the
nature and extent of this recovery and the time the major economies will take to return
to their pre-recession growth levels.
Announcing a Foreign Trade Policy in this economic climate is indeed a daunting
task. We cannot remain oblivious to declining demand in the developed world and we
need to set in motion strategies and policy measures which will catalyse the growth of
exports.
Before defining the objectives of the new policy it would be useful to take stock of our
achievements in the foreign trade over the last 5 years. The foreign trade policy
announced by the UPA Government in 2004 had set two objectives:
z To double our percentage share of global merchandize trade within 5 years
z Use trade expansion as an effective instrument of economic growth and
employment generation.
Looking back, we can say with satisfaction that the UPA Government has delivered
on its promise.
Agriculture and industry has shown remarkable resilience and dynamism in
contributing to a healthy growth in exports.
In the last five years our exports witnessed robust growth to reach a level of US$ 168
billion in 2008-09 from US$ 63 billion in 2003-04. Our share of global merchandise
trade was 0.83% in 2003; it rose to 1.45% in 2008 as per WTO estimates. Our share of
global commercial services export was 1.4% in 2003; it rose to 2.8% in 2008. India’s
total share in goods and services trade was 0.92% in 2003; it increased to 1.64% in
2008. On the employment front, studies have suggested that nearly 14 million jobs
were created directly or indirectly as a result of augmented exports in the last five
years.
The short-term objective of our policy is to arrest and reverse the declining trend of 161
exports and to provide additional support especially to those sectors which have been
hit badly by recession in the developed world. We would like to set a policy objective
of achieving an annual export growth of 15% with an annual export target of US$ 200
billion by March 2011. In the remaining three years of this Foreign Trade Policy, i.e.
up to 2014, the country should be able to come back on the high export growth path of
around 25% per annum. By 2014, we expect to double India’s exports of goods and
services. The long term policy objective for the Government is to double India’s share
in global trade by 2020.
In order to meet these objectives, the Government would follow a mix of policy
measures including fiscal incentives, institutional changes, procedural rationalization,
enhanced market access across the world and diversification of export markets.
Improvement in infrastructure related to exports; bringing down transaction costs, and
providing full refund of all indirect taxes and levies, would be the three pillars, which
will support us to achieve this target. Endeavour will be made to see that the Goods
and Services Tax rebates all indirect taxes and levies on exports.
13.8 HIGHLIGHTS OF FOREIGN TRADE POLICY 2009-

2014
Higher Support for Market and Product Diversification:
z Incentive schemes have been expanded by way of addition of new products and
markets.
z 26 new markets have been added under Focus Market Scheme. These include 16
new markets in Latin America and 10 in Asia-Oceania.
z The incentive available under Focus Market Scheme (FMS) has been raised from
2.5% to 3%.
z The incentive available under Focus Product Scheme (FPS) has been raised from
1.25% to 2%.
z A large number of products from various sectors have been included for benefits
under FPS. These include, Engineering products (agricultural machinery, parts of
trailers, sewing machines, hand tools, garden tools, musical instruments, clocks
and watches, railway locomotives, etc.), Plastic (value added products), Jute and
Sisal products, Technical Textiles, Green Technology products (wind mills, wind
turbines, electric operated vehicles, etc.), Project goods, vegetable textiles and
certain Electronic items.
z Market Linked Focus Product Scheme (MLFPS) has been greatly expanded by
inclusion of products classified under as many as 153 ITC (HS) Codes at 4 digit
level. Some major products include; Pharmaceuticals, Synthetic textile fabrics,
value added rubber products, value added plastic goods, textile madeups, knitted
and crocheted fabrics, glass products, certain iron and steel products and certain
articles of aluminium among others. Benefits to these products will be provided, if
exports are made to 13 identified markets (Algeria, Egypt, Kenya, Nigeria, South
Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and
New Zealand).
z MLFPS benefits also extended for export to additional new markets for certain
products. These products include auto components, motor cars, bicycle and its
parts, and apparels among others.
162 z A common simplified application form has been introduced for taking benefits
under FPS, FMS, MLFPS and VKGUY.
z Higher allocation for Market Development Assistance (MDA) and Market Access
Initiative (MAI) schemes is being provided.
Technological Upgradation
z To aid technological upgradation of our export sector, EPCG Scheme at Zero
Duty has been introduced. This Scheme will be available for engineering &
electronic products, basic chemicals & pharmaceuticals, apparels & textiles,
plastics, handicrafts, chemicals & allied products and leather & leather products
(subject to exclusions of current beneficiaries under Technological Upgradation
Fund Schemes (TUFS), administered by Ministry of Textiles and beneficiaries of
Status Holder Incentive Scheme in that particular year). The scheme shall be in
operation till 31.3.2011.
z Jaipur, Srinagar and Anantnag have been recognised as ‘Towns of Export
Excellence’ for handicrafts; Kanpur, Dewas and Ambur have been recognised as
‘Towns of Export Excellence’ for leather products; and Malihabad for
horticultural products.
EPCG Scheme Relaxations

z To increase the life of existing plant and machinery, export obligation on import
of spares, moulds, etc. under EPCG Scheme has been reduced to 50% of the
normal specific export obligation.
z Taking into account the decline in exports, the facility of Re-fixation of Annual
Average Export Obligation for a particular financial year in which there is decline
in exports from the country, has been extended for the 5 year Policy period 2009-
14.
Support for Green products and products from North East

z Focus Product Scheme benefit extended for export of ‘green products’; and for
exports of some products originating from the North East.
Status Holders
z To accelerate exports and encourage technological upgradation, additional Duty
Credit Scrips shall be given to Status Holders @ 1% of the FOB value of past
exports. The duty credit scrips can be used for procurement of capital goods with
Actual User condition. This facility shall be available for sectors of leather
(excluding finished leather), textiles and jute, handicrafts, engineering (excluding
Iron & steel & non-ferrous metals in primary and intermediate form, automobiles
& two wheelers, nuclear reactors & parts, and ships, boats and floating structures),
plastics and basic chemicals (excluding pharma products) [subject to exclusions of
current beneficiaries under Technological Upgradation Fund Schemes (TUFS)].
This facility shall be available up to 31.3.2011.
z Transferability for the Duty Credit scrips being issued to Status Holders under
paragraph 3.8.6 of FTP under VKGUY Scheme has been permitted. This is
subject to the condition that transfer would be only to Status Holders and Scrips
would be utilized for the procurement of Cold Chain equipment(s) only.
Stability/continuity of the Foreign Trade Policy

z To impart stability to the Policy regime, Duty Entitlement Passbook (DEPB)
Scheme is extended beyond 31-12-2009 till 31.12.2010.
z Interest subvention of 2% for pre-shipment credit for 7 specified sectors has been 163
extended till 31.3.2010 in the Budget 2009-10.
z Income Tax exemption to 100% EOUs and to STPI units under Section 10B and
10A of Income Tax Act has been extended for the financial year 2010-11 in the
Budget 2009-10.
z The adjustment assistance scheme initiated in December, 2008 to provide
enhanced ECGC cover at 95%, to the adversely affected sectors, is continued till
March, 2010.
1. DEPB stands for …………..
2. DFRC stands for …………..
3. EPCG stands for …………..
4. EHTP stands for …………..
13.9 LET US SUM UP

India's import substitution and inward-looking policy regime resulted in high tariffs on
many products and creation of non-tariff barriers (NTBs). Hence, reduction and
rationalization of tariffs and removal of NTBs has been an integral part of India's trade
policy since 1991. India has taken major steps towards trade liberalisation since 1991,
partly on its own initiative and partly from its commitments to WTO.
In India, the main legislation concerning foreign trade is the Foreign Trade
(Development and Regulation) Act, 1992. With economic reforms, globalisation of
the Indian economy has been the guiding factor in formulating the trade policies. The
reform measures introduced in the subsequent policies have focused on liberalization,
openness and transparency. They have provided an export friendly environment by
simplifying the procedures for trade facilitation. The announcement of a new Foreign
Trade Policy for a five year period of 2004-09, replacing the hitherto nomenclature of
EXIM Policy by Foreign Trade Policy (FTP) is another step in this direction. It takes
an integrated view of the overall development of India’s foreign trade and provides a
roadmap for the development of this sector. A vigorous export-led growth strategy of
doubling India’s share in global merchandise trade (in the next five years), with a
focus on the sectors having prospects for export expansion and potential for
employment generation, constitute the main plank of the policy. All such measures are
expected to enhance India's international competitiveness and aid in further increasing
the acceptability of Indian exports. The policy sets out the core objectives, identifies
key strategies, spells out focus initiatives, outlines export incentives, and also
addresses issues concerning institutional support including simplification of
procedures relating to export activities.

Identify and discuss the major changes in India’s foreign trade policy that have been
adopted after independence.
13.11 KEYWORDS
Export Promotion: A strategy for economic development that stresses expanding
exports, often through policies to assist them such as export subsidies, etc.
164 FTP: Foreign Trade Policy
Import Barrier: Any regulation or policy that restricts international trade.

1. What do you mean by pre-reform foreign trade policy?
2. Describe important aspects of export-import policy 1992-97.
3. Describe important objectives of foreign trade policy 2009-14.
4. Explain export import trade policy 2004-09.

CYP 1
1. Gross Domestic Product
2. 1968-69
3. Open General Licence.
CYP 2
1. Agricultural Export Zones
2. Handicraft Export Promotion Council
3. Gem & Jewellery Export Promotion Council
4. Importer Exporter Code Number
CYP 3
1. Duty Entitlement Passbook Scheme
2. Duty Free Replenishment Certificate
3. Export Promotion Capital Goods Scheme
4. Electronic Hardware Technology Park

India.
165
LESSON Formalities for Commencing
Export–Import
14
FORMALITIES FOR COMMENCING
EXPORT–IMPORT
CONTENTS
14.1 Introduction
14.2 Why Need to Export?
14.3 An Overview of Legal Framework
14.3.1 Foreign Trade (Development and Regulation) Act, 1992
14.3.2 Foreign Exchange Management Act, 1999
14.3.3 The Customs Act, 1962
14.3.4 Export (Quality Control and Inspection) Act, 1963
14.4 Objectives of Export–Import Policy
14.5 Export Licensing
14.5.1 Procedure to Obtain Export Licence
14.6 General Provisions Regarding Exports and Imports
14.6.1 Exports
14.6.2 Imports
14.7 Setting up an Appropriate Export Firm
14.8 Entering into Export Contract
14.9 Project Export
14.10 Export of Services
14.11 Export of Excisable Goods
14.12 100% Export Oriented Units
14.13 Export Processing Zones
14.13.1 Key Features of SEZ Scheme
14.13.2 Objectives of SEZ Scheme
14.13.3 Benefits of SEZ Scheme
14.14 Special Economic Zones
14.14.1 Export and Import of Goods
14.14.2 Approvals and Applications
14.14.3 Entitlement for Supplies from the DTA
14.15 Duty Drawback Procedure
14.15.1 Procedure to Claim Drawback in Cases where the Rate of Drawback is not
Fixed
Contd…
166 14.16 Export–Import by Post-Customs House Agents
14.17 Import of Different Products
14.17.1 Major Import Items of India
14.18 Import–Export Incentives
14.18.1 Excise Rebate
14.18.2 Duty Drawback
14.19 Import Licenses
14.20 Let us Sum up
14.22 Keywords

z List the objectives of export import policy
z Describe entering into export contract
z Define project export
z Explain special economic zones
14.1 INTRODUCTION
How to Start Export is a fair question that every first time exporter wants to ask.
Export in itself is a very wide concept and an exporter requires lot of preparations
before starting an export business.
A key success factor in starting any export company is clear understanding and detail
knowledge of products to be exported. In order to be a successful in exporting one
must fully research its foreign market rather than try to tackle every market at once.
The exporter should approach a market on a priority basis. Overseas design and
product must be studies properly and considered carefully. Because there are specific
laws dealing with International trade and foreign business, it is imperative that you
familiarize yourself with state, federal, and international laws before starting your
export business.
14.2 WHY NEED TO EXPORT?

There are many good reasons for exporting:
z The primary reason for export is to earn foreign exchange. The foreign exchange
not only brings profit for the exporter but also improves the economic condition of
the country.
z Companies that export their goods are believed to be more reliable than their
counterpart domestic companies assuming that exporting company has survive the
test in meeting international standards.
z Free exchange of ideas and cultural knowledge opens up immense business and
trade opportunities for a company.
z As one starts visiting customers to sell one’s goods, he has an opportunity to start 167
Formalities for Commencing
exploring for newer customers, state-of-the-art machines and vendors in foreign Export–Import
lands.
z By exporting goods, an exporter also becomes safe from offset lack of demand for
seasonal products.
z International trade keeps an exporter more competitive and less vulnerable to the
market as the exporter may have a business boom in one sector while
simultaneously witnessing a bust in a different sector.
No doubt that in the age of globalization and liberalizations, Export has became of the
most lucrative business in India. Government of India is also supporting exporters
through various incentives and schemes to promote Indian export for meeting the
much needed requirements for importing modern technology and adopting new
technology from MNCs through Joint ventures and collaboration.
14.3 AN OVERVIEW OF LEGAL FRAMEWORK

The foreign trade of a country consists of outward and inward movement of goods and
services giving rise to inflow and outflow of foreign exchange. While the foreign trade
of India is governed by the Foreign Trade (Development & Regulation) Act, 1992 and
the-Rules and Order issued thereunder, the payments for export and import trade
transactions in terms of foreign exchange are regulated under the Foreign Exchange
Management Act, 1999. The physical operation of the foreign trade transactions of
export and import both of goods and services through various modes of transportation,
is conducted and, regulated under the customs act, 1962. In order to project the image
of the country as a producer and exporter of quality goods and services, a detailed
programme of quality control and pre-shipment inspection is also in vogue under the
Export (Quality Control and Inspection) Act, 1963. Besides the above four major Acts
governing the foreign trade operation of the country, there are a number of other rules
and regulations relating- to export of commodities modes of transportation, cargo
insurance, international conventions, etc. which need to be strictly observed while
conducting the export and import business. In this lesson, you will learn an overview
of important act related to foreign trade and various process of Export Import Policy
of India.
An overview of the four major Acts governing the foreign trade would help in better
understanding of the Export-Import Policy of the country as also its operation
requirements.
14.3.1 Foreign Trade (Development and Regulation) Act, 1992

The Foreign Trade (Development and Regulation) Act, 1992 and the Foreign Trade
(Regulation) Rules, 1993 and the Foreign Trade (Exemptions from Application of
Rules in Certain Cases) order, 1993 issued thereunder, replaced the earlier legal
regime consisting of the Imports and Exports (Control) Act, 1947 and the Import
(Control) Order, 1955 and the Export (Control) Order, 1988 issued thereunder and
amended from time to time. With the operation of new legal regime, the era of foreign
trade controls witnessed its demise.
The Primary objective of this Act is to provide for the development and regulation of
foreign trade by facilitating imports into and augmenting exports from India and for
matters connected therewith or incidental thereto. The Export and Import Policy of
India is issued under this Act and any amendments to the Policy provisions are also
made thereunder. The permission for export and import is also given under this Act by
granting the Importer-Exporter Code Number (IEC). This IEC number has also
dispensed with the need of the Code Number for Export (CNX). The maximum
168 punishment for the commitment of any offence, contravention of any law, harming
country's trade relations or bringing disrepute to the credit or the goods of the country
while conducting the export-import trade transactions is also operated through the
suspension and/or cancellation of the Importer-Exporter Code Number.
The necessary provisions relating to Appeal and Revision are also provided. This Act
provides the powers under the Code of Criminal Procedure, 1973 relating to searches
and seizures and Code of Civil Procedure, 1908 for making any adjudication or
hearing any appeal or exercising any powers of revision under this act.
14.3.2 Foreign Exchange Management Act, 1999

The exchange control in India was introduced on September 3, 1939 as a war time
measure in the early period of Second World War under the powers conferred by the
Defence of India Rules. The emergency powers were subsequently replaced by the
Foreign Exchange Regulations Act, 1947 which came into operation on March 25,
1947. This Act witnessed comprehensive revision in the wake of the changed needs of
the economy during the post-independence period and was replaced by the Foreign
Exchange Regulations Act, I973 known as FERA. The onset of the era of
liberalization of the external sector of the economy and the industrial licensing
followed by Partial Convertibility of Rupee and full convertibility on current account
necessitated the need for further extensive amendments in the FERA which were
brought about by the Foreign Exchange Regulations (Amendment) Act, 1993. FERA
has been replaced by Foreign Exchange Management Act (FEMA), 1999.
FEMA has been brought to consolidate and amend the law relating to foreign
exchange. The basic objective of this act is to facilitate external trade and payments
and to promote the orderly development and maintenance of foreign exchange market
in India. This act deals with various regulations of foreign exchange like holding and
transactions of foreign exchange, export of goods and services, realization and
repatriation of foreign exchange, etc. The role of authorized person, the provisions of
contravention and penalties and the procedures of adjudication and appeal and the
power of directorate of enforcement dealt at great length in this act.
14.3.3 The Customs Act, 1962

The consolidated and self-contained Customs Act, 1962 came into operation on
December 13, 1962 repealing the earlier three Acts known as Sea Customs Act, 1878.
Land Customs Act, 1924 and the Aircraft Act, 1934, each one of which was related to
a particular mode of transportation. This comprehensive Act provides the legal
framework, guidelines and procedures related to all situations emerging from the
export and import trade transactions.
The primary objectives of this Act are to (a) regulate the genuine export and import
trade transactions in keeping with the national economic policies and objectives,
(b) check smuggling, (c) collect revenue, (d) undertake functions on behalf of other
agencies, and (e) gather trade statistics. Details about the rate and nature of customs
duty leviable on any item, as decided by the Central government, are specified in the
First and Second Schedule of the Customs Tariff Act, 1975 with regard to imports and
exports, respectively.
14.3.4 Export (Quality Control and Inspection) Act, 1963

The Export (Quality Control and Inspection) Act was enacted in the year 1963 with a
view to strengthening the export trade through quality control and pre-shipment
inspection, The Act empowers the Government not only to notify the commodities
which may be subject to compulsory quality control and/or inspection prior to export
but also specify the type of quality control or inspection. The Act prohibits the export
of sub-standard goods as well as the goods which do not fulfil the requirements as laid 169
down under the Act. Export–Import
For smooth operation of the Export (Quality Control and Inspection) Act, 1963, the
Government of India established the Export Inspection Council (EIC) on January 1,
1964, and the Export Inspection Agencies (EIAs). While the EIC acts as an advisory
body to the Government on matters related to quality control and inspection, the EIAs
are the actual agencies which inspect the goods and issue the export-worthiness
certificates.
All out encouragement is given to the trade and industry for the purpose of upgrading
the quality of products under the current Export-Import Policy so as to project the
image of the country as a producer and exporter of world-class quality products. The
various categories of export houses recognized under the Export-Import Policy are
exempt from the requirements of this Act.
14.4 OBJECTIVES OF EXPORT–IMPORT POLICY

Government control import of non-essential item through an import policy. At the
same time, all-out efforts are made to promote exports. Thus, there are two aspects of
trade policy; the import policy which is concerned with regulation and management of
imports and the export policy which is concerned with exports not only promotion but
also regulation. The main objective of the Government policy is to promote exports to
the maximum extent. Exports should be promoted in such a manner that the economy
of the country is not affected by unregulated exports of items specially needed within
the country Export control is, therefore, exercised in respect of a limited number of
items whose supply position demands that their exports should be regulated in the
larger interests of the country. In other words, the policy aims at:
z Promoting exports and augmenting foreign exchange earnings.
z Regulating exports wherever it is necessary for the purposes of either avoiding
competition among the Indian exporters or ensuring domestic availability of
essential items of mass consumption at reasonable prices.
The government of India announced sweeping changes in the trade policy during the
year 1991. As a result, the new Export-Import policy came into force from April 1,
1992. This was an important step towards the economic reforms of India. In order to
bring stability and continuity, the policy was made for the duration of 5 years. In this
policy import was liberalized and export promotion measures were strengthened. The
steps were also taken to boost the domestic industrial production. The major aspects of
the export-import policy (1992-97) include: introduction of the duty-free Export
Promotion Capital Goods (EPCG) scheme, strengthening of the Advance Licensing
System, waiving of the condition on export proceeds realization, rationalization of
schemes related to Export Oriented Units and units in the Export Processing Zones.
The thrust area of this policy was to liberalize imports and boost exports.
The need for further liberalization of imports and promotion of exports was felt and
the Government of India announced the new Export-Import Policy (1 997-2002). This
policy has further simplified the procedures and reduced the interface between
exporters and the Director General of Foreign Trade (DGFT) by reducing the number
of documents required for export by half. Import has been further liberalized and
efforts have been made to promote exports.
The new EXIM Policy 1997-2002 aims at consolidating the gains made so far,
restructuring the schemes to achieve further liberalization and increased transparency
in the changed trading environment. It focuses on the strengthening the domestic
industrial growth and exports and enabling higher level of employment with due
170 recognition of the key role played by the SSI sector. It recognizes the fact that there is
no substitute for growth which creates jobs and generates income. Such trade activities
also help in stimulating expansion and diversification of production in the country.
The policy has focused on the need to let exporters concentrate on the manufacturing
and marketing of their products globally and operate in a hassle free environment. The
effort has been made to simplify and streamline the procedure.
The principal objectives of Export Import Policy 1994-2002 are:
z To accelerate the country's transition to a globally oriented vibrant economy with
view to derive maximum benefits from expanding global market opportunities.
z To enhance the technological strength and efficiency of Indian agriculture,
industry and services, thereby improving their competitive strength while
generating new employment opportunities. It encourages the attainment of
internationally accepted standards of quality.
z To provide consumers with good quality products at reasonable prices.
The objectives will be achieved through the coordinated efforts of all the departments
of the government in general and the Ministry of commerce and the Directorate
General of Foreign Trade and its network of Regional Offices in particular. Further it
will be achieved with a shared vision and commitment and in the best spirit of
facilitation in the interest of export.
14.5 EXPORT LICENSING

As you know that all goods may be exported without any restriction except to the
extent such exports are regulated by the Negative List of exports. The Negative Lists
consist of goods the import or export of which is prohibited, restricted through
licensing or otherwise or canalized The Negative list of exports is divided into three
parts which are as follows:
1. Prohibited Items: These items can not be exported or imported. These items
include: Wild life, exotic birds, wild flora, beef, human skeletons, tallow, fat and
oils of any animal origin excluding fish oil, wood and wood products in the form
of logs, timber, stumps, roots, barks, chips, powder, flakes, dust, pulp and
charcoal.
2. Restricted Items: Any goods, the export or import of which is restricted through
licensing, may be exported or imported only in accordance with a license issued in
this behalf.
3. Canalised Items: Any goods, the import or export of which is canalised, may be
imported or exported by the canalising agency specified in the Negative Lists. The
Director General of Foreign Trade may, however, grant a licence to any other
person to import or export any canalised goods.
Hence, barring a few items which are totally prohibited for exports, other items in the
Negative lists can be exported under a licence or through a designated agency or under
specified conditions.
Fill in the blanks:
1. …………… has been replaced by Foreign Exchange Management Act
(FEMA), 1999.
2. DGFT stands for ……………
3. EIA stands for ……………
14.5.1 Procedure to Obtain Export Licence 171
An application for grant of export licence may be made in the prescribed form to the Export–Import
Director General of Foreign Trade or its Regional Licensing Authority. The

application shall be accompanied by the documents prescribed therein. There is no
application fee on export licenses/permits.
For restricted item an application is to be made in duplicate in the appropriate forms.
There are two different export licence application forms:
z Application for export of restricted items except special chemical and special
materials, equipments and technologies. This form is sent to the Director General
of Foreign Trade, New Delhi.
z Application for grant of export licence for export of special chemicals, etc.
Applications are to be sent to the DGFT. An inter-ministerial group under the
chairmanship of DGFT shall consider applications for the export of these items.
For canalised items, applications are made to the DGFT in the prescribed form. For
samples/exhibits export exceeding ceiling limits an application may be made to the
DGFT. For gifts/spare/replacement goods in excess of ceilings, an application is to be
made to the DGFT in the prescribed form.
14.6 GENERAL PROVISIONS REGARDING EXPORTS

AND IMPORTS
The new policy has further liberalized various provisions of imports and exports. Let
us learn them in detail.
z Exports and imports free unless regulated: Exports and Imparts shall be free
except to the extent they are regulated by the provisions of this policy or any other
law for the time being in force. The item wise export and import policy shall be
specified in ITC (HC) published by Director General of Foreign Trade.
z Compliance with law: Every exporter or importer shall comply with the
provisions of the Foreign Trade (Development and Regulation) Act, 1992 and the
rules and orders made thereunder. They are also required to comply with the
provisions of this policy, terms and conditions of any license granted and
provisions of any other law for the time being in force.
z Interpretation of Policy: If any question or doubt arises in respect of the
interpretation of any provision of the. EXIM policy, it shall be referred to the
Director General of Foreign Trade whose decision shall be final and binding.
z Exemption from Policy/Procedure: Any request for relaxation of the provisions
of this policy or procedure on the ground of hardships or an adverse impact on
trade, may be made to the Director General of Foreign Trade.
z Trade with Neighbouring Countries: The Director General of Foreign Trade may
issue from time to time, such instructions or frame such schemes as may be
required to promote trade and strengthen economic ties with neighbouring
countries.
z Trade with Russia under Debt Repayment Agreement: In the case of trade with
Russia under the debt repayment agreement, the Director General of Foreign
Trade may issue from time to time such instructions.
z Transit Facility: Transit of goods through India from or to countries adjacent to
India shall be regulated in accordance with the treaty between India and those
countries.
172 z Execution of Bank Guarantee/Legal Undertaking: Wherever any duty free
import is allowed or where otherwise specifically stated, the importer shall
execute a legal undertaking or bank guarantee with the Customs Authority before
clearance of goods through the customs.
z Free Movement of Export Goods: Consignments of items allowed for exports
shall not be withheld or delayed for any reason by any agency. In case of any
doubt, the authorities concerned may ask for an undertaking from the exporter.
z Import/Export of Samples: Import and Export of samples shall be governed by
the provisions of EXIM Policy.
z Third Party Exports: A licence holder may export directly or through third
parties.
z Clearance of Goods from Customs: The goods already imported/shipped/arrived
in advance but not cleared from customs may also be cleared against the license
issued subsequently.
z Green Card: All status holders and manufacturer exporter exporting more than
50% of their production subject to a minimum turnover of ` 1 crore in preceding
year, shall be issued a green card by Directorate General of Foreign Trade. This
card will also be issued to the service providers rendering services in free foreign
exchange for more than 50% of their services turnover, subject to a minimum
value of ` 35 lakh in free foreign exchange in the preceding year. This card
provides automatic licensing, automatic custom clearance and other facilities
mentioned in the EXIM policy.
z Electronic Data Interchange: In an attempt to speed up transactions and to bring
about transparency in various activities related to exports, electronic data
interchange would be encouraged. Applications received electronically shall be
cleared within 24 hours.
14.6.1 Exports
You have learnt the general provisions regarding exports and imports. Let us now
learn the provisions of exports in detail.
z Free Exports: All goods may be exported without any restriction except to the
extent such exports are regulated by ITC (HS) or any other provision of this policy
or any other law for the time being in force.
z Denomination of Export Contracts: All export contracts and invoices shall be
denominated in freely convertible currency and export proceeds shall be realized
in freely convertible currency, Contracts for which payments are received through
the Asian Clearing Union (ACU) shall be denominated in ACU dollar.
z Realization of Export Proceeds: If an exporter fails to realize the export proceeds
within the time specified by the Reserve Bank of India, he shall be liable to action
in accordance with the provisions of the Act and the policy.
z Export of Gifts: Goods including edible items of value not exceeding rupees one
lakh in a licensing year may be exported as a gift. Those items mentioned as
restricted for exports in ITC (HS) shall not be exported as gift without a license
except edible items.
z Export of Spares: Warranty spares, whether indigenous or imported, of plant,
equipment, machinery, automobiles or any other goods may be exported up to
7.5% of the FOB value of the exports of such goods along-with the main
equipment or subsequently. This shall be done within the contracted warranty
period of such goods.
z Export of Passenger Baggage: Bonafide personal baggage may be exported 173
either along-with the passenger or if unaccompanied, within one year before or Export–Import
after the passenger's departure from India. Those items mentioned as Restricted in
ITC(HS) shall require a licence except in case of edible items.
z Export of Imported Goods: Goods imported in accordance with this policy, may
be exported in the same or substantially the same forms without a licence. This
can be done provided that the item to be imported or exported is not mentioned as
restricted for import or export in this ITC (FIS), except items imported under
Special Import Licence.
z Export of Replacement Goods: Goods or parts thereof on being exported and
found defective/damaged or otherwise unfit for use may be replaced free of charge
by the exporter. Such goods shall be allowed clearance by the customs authorities
provided that the replacement goods are not mentioned as restricted items for
exports in ITC (HS).
z Export of Repaired Goods: Goods or parts thereof on being exported and found
defective, damaged or otherwise unfit for use may be imported for repair and
subsequent re-export. Such goods shall be allowed clearance without a licence and
in accordance with customs notification issued in this behalf.
z Deemed Export: Deemed Export refer to those transactions in which the goods
supplied do not leave the country. The following categories of supply of goods by
the main/sub-contractors shall be regarded as deemed exports under the policy
provided the goods are manufactured in India.
Supply of goods against advance License/DFRC under the duty
exemption/remission scheme.
Supply of goods to units located in EOU/EPZ/SEZ/STP/EHTP.
Supply of capital goods to holders of licences under EPCG scheme.
Supply of goods to projects financed by multilateral or bilateral
agencies/funds as notified by the Ministry of Finance.
Supply of capital goods which are used for installation purposes till the stage
of commercial production and spares to the extent of 10% of the FOR value to
fertilizer plants.
Supply of goods to any project or purpose in respect of which the Ministry of
Finance permits the import of such goods at zero customs duty coupled with
the extension of benefits under this chapter to domestic supplies.
Supply of goods to the power and refineries and coal hydrocarbons, rail, road,
port, civil aviation, bridges other infrastructure projects provided minimum
specific investment is ` 100 crore or more.
Supply of marine freight containers by 100% EOU (domestic freight
containers manufacturers) provided the said containers are exported out of
India within 6 months or such further period as permitted by the customs,
supply to projects funded by UN agencies.
Deemed exports shall be eligible for the following benefits:
Advance licence for intermediate supply/deemed export
Deemed exports drawback
Refund of terminal excise duty
174 z Export of Services: Services include all the 161 tradable services covered under
the General Agreement on Trade in services where payment for such services
is received in free foreign exchange. The service providers shall be eligible for
the facility of EPCG scheme; they shall be eligible for the facility of
EOUIEPZISEZISTP scheme of the EXIM policy. Service providers shall also be
eligible for recognition as Service Export House, International Service Export
House, International Star Service Export House, International Super Star Service
Export House achieving the performance level as prescribed in the policy.
14.6.2 Imports
The provisions of import are:
z Actual User Condition: Capital goods, raw materials, intermediates, components,
consumables, spares, parts, accessories, instruments and other goods, which are
importable without any restriction, may be imported by any person. If such
imports require a license, the Actual User alone may import such goods unless
exempted.
z Second hand Goods: All second hand goods shall be restricted for imports and
many be imported only in accordance with the provisions of EXIM Policy.
z Import of Gifts: Import of gifts shall be permitted where such goods are otherwise
freely importable under this policy.
z Import on Export Basis: New or second hand jigs, fixture, dies, moulds, patterns,
press tools and lasts, construction machinery, containers/packages meant for
packing of goods for export and other equipments, may be imported for export
without a license on execution of legal undertaking/bank guarantee with the
customs authority.
z Re-import of Goads Abroad: Capital goods aircraft including their components,
spare parts and accessories, whether imported or indigenous may be sent abroad
for repairs, testing, quality improvement or upgradation of technology and
re-imported without a license.
z Import of Machinery and Equipment used in Project Abroad: After completion
of the projects abroad, project contractors may import used construction
equipment, machinery, and related spares up to 20% of the CIF value of such
machinery, tools and accessories without a license.
14.7 SETTING UP AN APPROPRIATE EXPORT FIRM

Establishment of an export firm is completed in two stages.
z Establishing a business firm
z Obtaining IEC (Importer-Exporter Code Number) to start export business
Establishing a Business Firm

You know very well what are the steps involved in the setting or establishment of any
business organization. The main steps are:
z Selection of name of the firm
z Approval of the name of firm
z Selection of ownership of the firm
z Decide the location of the firm
z Developing trade name and logo of the firm
z Creating the necessary infrastructure for the firm 175
z Applying for the grant of permanent account number (PAN) for income tax. Export–Import
z Opening current account with the bank.
14.8 ENTERING INTO EXPORT CONTRACT

In order to avoid dispute, it is necessary to enter into an export contract with the
overseas buyer. For this purpose, export contract should be carefully drafted
incorporating comprehensive but it is precise terms all relevant and important
conditions of the trade deal. There should not be any ambiguity regarding the exact
specifications of goods and terms of sale including export price, mode of payment,
storage and distribution methods, type of packaging, port of shipment, delivery
schedule, etc. the different aspects of an export contract are enumerated as under:
z Product, Standards and Specifications
z Quantity
z Inspection
z Total value of the contract
z Terms of delivery
z Taxes, Duties and Charges
z Period of deliver/shipment
z Packing, Labelling and Marking
z Terms of Payment: Amount/Mode and Currency
z Discount and Commissions
z Licences and Permits
z Insurance
z Documentary Requirements
z Guarantee
z Force Majeure of Excuse for Non-Performance of Contract
z Remedies
z Arbitration
14.9 PROJECT EXPORT

Project exports refer to establishment of a project by a business by a business firm in
another country. The term project has been defined as “non-routine, non-repetitive and
one-off undertaking, normally with discrete time, financial and technical performance
goals.” It is viewed as a scientifically evolved work plan devised to achieve a specific
objective within a specified period of time.
14.10 EXPORT OF SERVICES

Defining export of service has been very tricky due to intangible nature of service
transaction. Due to this nature of services, there has been constant confusion regarding
meaning of export of services refer to the export of goods that do not exist in physical
form, that is professional, technical or general services. Examples of the services
exports would include export of computer software, architectural, entertainment,
176 engineering, telecommunication, management, event management, other professional
or technical consultancy services, etc. The business firms engaged in export of
services are known as Service Providers.
14.11 EXPORT OF EXCISABLE GOODS

Export of excisable good categories under two options:
z Under rebate (Rule 18 of Central excise Rules)
z Without payment of duty (Rule 19)
Under Rule 18, one can claim rebate if excise duty had been levied on final product
while it was being removed from the factory gate after providing all the proof of
export.
Under Rule 19 Finished Goods can be removed without payment of duty. Both the
above options are available at the free will of the exporter.
Cenvat Credit of input/input services use in the process of manufacturing of exported
finished goods can be claimed either against the excise duty payable on the finished
goods removed for home consumption or can be claimed as refund.
Fill in the blanks:
1. ACU Stands for ………….
2. …………. refer to those transactions in which the goods supplied do not
leave the country.
3. ITC (HS) stands for ………….
14.12 100% EXPORT ORIENTED UNITS

In 1980 the government introduced the Export Oriented Units Scheme (EOU). This
scheme facilitates the setting up of EOUs beyond the boundaries of EPZs. The
responsibility of administering these units was also entrusted with the zone
administration. The EOUs basically function under the administrative control of the
concerned Development Commissioner of Export Processing Zones, i.e. under the
Commerce Ministry, Government of India. Powers of the Development Commissioner
are delegated to the Director, STPI under the Ministry of Communication and
Information Technology, Government of India in respect of EHTP & STP units. These
units can be individual STP/EHTP units by themselves or in an area designated so by
the Ministry of Information Technology. EOU scheme is governed under the
provisions of Chapter VI of EXIM policy and Appendix 14-I under para 6.1 of Hand
Book of Procedures, Ministry of Finance, Department of Revenue have, vide their
Customs Notification No. 52/2003-Cus. dated 31.3.2003 as amended and Central
Excise Notification No. 22/2003-CE dated 31.3.2003 as amended, prescribe the
eligibility, limitations and guidelines for the EOUs. In addition, the provisions of
Chapter IX of the Customs Act, 1962 pertaining to warehousing read with
Manufacture and Other Operations in Warehouse Regulations, 1966 are also
applicable to all EOUs.
The Export Oriented Unit (EOU) Scheme, which had been introduced in the early
1980s remains in the forefront of country’s export production schemes. The scheme
has witnessed many changes over the last twenty-four years in the context of ever
changing economic realities. However, the basic premise remains the same. This
premise is that the exporters are treated as a special class and given the required tariff,
non-tariff and policy support to facilitate their export efforts. Thus, today the EOU 177
Scheme has emerged as a dynamic policy initiative facilitating the exporting Export–Import
community in the task of increased exports. The EXIM Policy, 2002-07 reinforces the
importance of Scheme in chapter 6 of the policy. Appendix 14-I of the Handbook of
procedures (Vol.1) as amended up to 28-1-2004 sets out the procedures and benefits
of this scheme.
100% EOUs Fall into Three Categories

1. EOUs established anywhere in India and exporting 100% products except certain
fixed percentage of sales in the Domestic Tariff Area (DTA) as may be
permissible under the Policy.
2. Units in Free Trade Zones in Special Economic Zones (SEZs) and exporting
100% of their products.
3. EOUs set up in Software Technology Parks (STPs) and Electronic Hardware
Technology Parks (EHTPs) of India for development of Software & Electronic
Hardware.
The letter of permission for establishment of such EOUs under categories (1) to (2) is
given by Development Commissioner Seepz SEZ at Andheri (E) in Mumbai for the
units established in western zones, while for the units under category (3), the LOP is
granted by Director, Software Technology Park of India, Vashi, Navi Mumbai after
careful study of the feasibility of unit. After obtaining LOP, the unit has to approach
Customs for obtaining the facilities of duty free import and excise – duty free
procurement of indigenous goods of the raw material and capital goods required for
the manufacture of finished products in Bonded warehouse u/Ss 58 & 65 of Customs
Act, 1962 for the purpose of 100% export out of India.
For this purpose, the unit has to execute a Bond known as B-17 Bond which, inter alia,
covers an undertaking by the unit to pay on demand an amount equal to the duty
leviable on the goods imported duty free that are not proved to the satisfaction of the
Asst. Commissioner of Custom to have been used in the manufacture of articles for
export. The value of Bond should be 25% of the amount of duty leviable on capital
goods intended to be procured and on raw material to the held in stores for 6 months.
The Bond is to the supported either by a surety for 100% of the value of Bond or by a
Bank Guarantee for 5% of the value of Bond. The Bank Guarantee should be a
continuing one.
The unit has to furnish following documents for applying to Deputy/Assistant
Commissioner to grant a license of Customs Bonded warehouse and permission for
manufacturing in Bonded warehouse u/Ss 58 & 65 of Customs Act, 1962.
EOUs can be set up anywhere in the country and may be engaged in the manufacture
and production of software, floriculture, horticulture, agriculture, aquaculture, animal
husbandry, pisciculture, poultry and sericulture or other similar activities.
A 100 per cent export-oriented unit is an industrial unit offering for export its entire
production, excluding the permitted levels of domestic tariff area sales. EOUs may be
set up with a foreign equity participation of up to 100 per cent. For setting up a
100 per cent EOU the following conditions are applicable:
z The entire production and operation of 100 per cent EOUs must be in a customs
bonded factory, unless specifically exempt from physical bonding; Goods will be
imported into the customs bonded factory.
z the unit shall undertake to manufacture in the bonded area and to export its entire
production for a period of 10 years ordinarily and 5 years in case of products
liable to rapid technological change;
178 Regarding the export obligations of 100 per cent EOUs, the following conditions
apply:
EOUs need not export their manufactured goods themselves but may use an
export house/trading house/star trading house or other EOUs subject to certain
conditions;
EOUs may execute export orders also through third parties given that the
goods will be directly transferred from the customs bonded factory to the port
of shipment and all export benefits will be to EOUs only.
z An approved EOU will execute a bond/legal undertaking with the Development
Commissioner concerned; Failure to fulfil the obligations stipulated in the letter of
approval or intent will render the unit liable to penalty.
z EOUs have to adhere to the minimum value addition conditions incorporated in
the letter of permission/letter of intent/industrial license issued to them; In general,
such minimum value addition will be 35 per cent for automatic approvals and 20
per cent for other cases.
z EOUs have to maintain a proper account of the imports, consumption and
utilization of all imported materials and exports made by the unit. These accounts
will be submitted periodically to the Development Commissioner. Wherever an
existing industrial unit is operating both as a domestic unit as well as an approved
100 per cent EOU, it should have two distinct identities with separate accounts.
z EOUs are permitted to sell part of the production in the domestic tariff area
subject to certain limits.
z The f.o.b. value of exports of an EOU can be clubbed with the f.o.b. value of
exports of its parent company in the domestic tariff area to attain export house,
trading house or star trading house status for the parent company.
z Supplies produced in the domestic tariff area under global tender conditions,
against payment in foreign exchange, against advance licenses and other import
licenses, and to other EOUs with the permission of the Development
Commissioner, will be counted towards the fulfilment of export obligations.
On completion of the bonding period, it shall be open to the unit to continue under the
scheme or to opt out of the scheme. Debonding will, however, be subject to the
industrial policy in force at the time the option is exercised.
Where debonding is sought before the stipulated export obligation period of 5 to 10
years, or where EOUs are unable to fulfil their export commitments out of various
reasons, it is considered premature debonding. This is subject to payment of all
leviable duties without the benefit of depreciation, and also subject to penalties and
other conditions as decided by the Board of Approvals for 100 per cent EOUs.
Customs duties on capital goods as well as customs duties on unused raw materials,
components, consumables and spares are leviable on debonding after the export
period.
14.13 EXPORT PROCESSING ZONES

The standard definition applied by international organisations states that an Export
Processing Zone (EPZ) is an industrial area that constitutes an enclave with regard to
customs' tariffs and the commercial code in force in the host country. Traditionally
therefore the concept of EPZs evolved to compensate for anti-export-bias created by
the Import Substitution Industrial (ISI) policy regime. An ISI strategy creates an
incentive structure, which tends to be biased against the export sector. The over valued
exchange rate coupled with high tariffs and Quantitative Restrictions (QRs) makes 179
production for import substitution significantly profitable relative to production for Export–Import
exports.
India initiated the process of industrial growth in 1948 (immediately after the political
independence), when it announced its first Industrial Policy Resolution, IPR 1948.
The strategy adopted was one of import-substitution industrialisation across all
sectors. Within an ISI policy framework, export promotion had also been a concern of
the government. Thus, attempts to promote the EPZ as an export platform on the basis
of economic incentives, such as the provision of better infrastructure and tax holidays
became a feature of Indian development. The first zone was set up in 1965. The
country has had four phases in the evolution of the EPZ policy since then. Following
is a brief overview of the evolution of the EPZ policy in India through these four
phases.
The first zone was set up in Kandla in a highly backward region of Kutch in Gujarat as
early as in 1965. It was followed by the Santacruz export processing zone in Mumbai
which came into operation in 1973. There was however no clarity of objectives that
the government wanted to achieve. Kandla and Santacruz EPZs were set up with
different sets of objectives (Tondon Committee, 1980). Operationally, an overall
inward looking trade policy with umpteen controls and regulations influenced the EPZ
policy also (Kundra 2000). The policies were rigid and the package of incentives and
facilities was not attractive. Zone authorities had limited powers. There was no single
window facility within the zone. Entrepreneurs had to acquire individual clearances
from various state government and central government departments. Day-to-day
operations were subjected to rigorous controls. Custom procedures for bonding, bank
guarantees and movement of goods were rigid. FDI policy was also highly restrictive.
According to the business environment rating index which rated investment climate in
43 countries on the basis of 18 independent factors, Indian, zones were placed at the
bottom for FDI.
Towards the end of the 1970s, India’s failure to step up significantly the volume of her
manufactured exports in the background of the Second Oil Price Shock began to
worry the policy makers. To provide fillip to exports, the government decided to
establish four more zones in 1984. These were at Noida (Uttar Pradesh), Falta (West
Bengal), Cochin (Kerala) and Chennai (Tamil Nadu). Thereafter, Visakhapatnam EPZ
in Andhra Pradesh was established in 1989, though it could not become operational
before 1994. All these zones with the exception of Chennai were set up in industrially
backward regions. The primary objectives of the zones were still not specified and
there were no significant changes in other laws and procedures pertaining to the EPZs.
In 1991 massive dose of liberalization was administered in the Indian economy. In this
context, wide-ranging measures were initiated by the government for revamping and
restructuring EPZs also (See Kundra 2000 for details). This phase was thus marked by
progressive liberalisation of policy provisions and relaxation in the severity of controls
and simplification of procedures. The focus had been on delegating powers to zone
authorities, providing additional fiscal incentives, simplifying policy provisions and
providing greater facilities. The scope and coverage of the EPZ/EOU scheme was
enlarged in 1992 by permitting the agriculture, horticulture and aqua culture sector
unit also. In 1994, trading, re-engineering and re-conditioning units were also
permitted to be set up.
EXIM Policy (1997-2002) has introduced a new scheme from April 1, 2000 for
establishment of the Special Economic Zones (SEZs) in different parts of the country.
SEZ is an almost self contained area with high class infrastructure for commercial as
well as residential inhabitation. SEZs are permitted to be set up in the public, private,
joint sector or by the State Governments with a minimum size of not less than
180 1000 hectares. The number of incentives both fiscal and non fiscal has also been
extended to the units operating in SEZs. Several measures have been adopted to
improve the quality of governance of the zones. These include relaxation in the
conditions for approval process and simplifying custom rules. More recently,
Development Commissioners are given the labour commissioner’s powers.
SEZ policy is thus the most significant thrust towards ensuring the success of export
processing zones.
14.13.1 Key Features of SEZ Scheme

z Special Economic Zone (SEZ) is a specifically delineated duty free enclave and
shall be deemed to be foreign territory for the purposes of trade operations and
duties and tariffs. Goods and services going into the SEZ area from DTA shall be
treated as exports and goods and services coming from the SEZ area into DTA
shall be treated as if these are being imported. SEZ units may be set up for
manufacture of goods and rendering of services.
z SEZ unit may import/procure from the DTA without payment of duty all types of
goods and services, including capital goods, whether new or second hand,
prohibited items of imports in the ITC(HS). The units shall also be permitted to
import goods required for the approved activity, including capital goods, free of
cost or on loan from clients. SEZ unit may, on the basis of a firm contract between
the parties, source the capital goods from a domestic/foreign leasing company.
SEZ unit shall be a positive Net Foreign Exchange earner. Net Foreign Exchange
Earning (NFE) shall be calculated cumulatively for a period of five years from the
commencement of production.
z As per the "Special Economic Zones Rules, 2006", notified by the Department of
Commerce, in case a SEZ is proposed to be set up exclusively for electronics
hardware and software, including information technology enabled services, the
area shall be ten hectares or more with a minimum built up processing area of one
lakh square meters.
z The SEZ Act 2005 envisages key role for the State Governments in Export
Promotion and creation of related infrastructure. A Single Window SEZ approval
mechanism has been provided through a 19 member inter-ministerial SEZ Board
of Approval (BoA). The applications duly recommended by the respective State
Governments/UT Administration are considered by this BoA periodically. All
decisions of the Board of approvals are with consensus.
z The SEZ Rules provide for different minimum land requirement for different class
of SEZs. Every SEZ is divided into a processing area where alone the SEZ units
would come up and the non-processing area where the supporting infrastructure is
to be created.
z Approval mechanism: The developer submits the proposal for establishment of
SEZ to the concerned State Government. The State Government has to forward
the proposal with its recommendation within 45 days from the date of receipt of
such proposal to the Board of Approval. The applicant also has the option to
submit the proposal directly to the Board of Approval.
14.13.2 Objectives of SEZ Scheme

The main objectives of the SEZ Act are:
z Generation of additional economic activity
z Promotion of exports of goods and services
z Promotion of investment from domestic and foreign sources 181
z Creation of employment opportunities Export–Import
z Development of infrastructure facilities
14.13.3 Benefits of SEZ Scheme

It is expected that this will trigger a large flow of foreign and domestic investment in
SEZs, in infrastructure and productive capacity, leading to generation of additional
economic activity and creation of employment opportunities.
The incentives and facilities offered to the units in SEZs for attracting investments
into the SEZs, including foreign investment include:
z Duty free import/domestic procurement of goods for development, operation and
maintenance of SEZ units
z 100% Income Tax exemption on export income for SEZ units under Section
10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and
50% of the ploughed back export profit for next 5 years.
z Exemption from minimum alternate tax under section 115JB of the Income
Tax Act.
z External commercial borrowing by SEZ units up to US $ 500 million in a year
without any maturity restriction through recognized banking channels.
z Exemption from Central Sales Tax.
z Exemption from Service Tax.
z Single window clearance for Central and State level approvals.
z Exemption from State sales tax and other levies as extended by the respective
State Governments.
The major incentives and facilities available to SEZ developers include:
z Exemption from customs/excise duties for development of SEZs for authorized
operations approved by the BOA.
z Income Tax exemption on income derived from the business of development of
the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income
Tax Act.
z Exemption from minimum alternate tax under Section 115 JB of the Income
Tax Act.
z Exemption from dividend distribution tax under Section 115O of the Income
Tax Act.
z Exemption from Central Sales Tax (CST).
z Exemption from Service Tax (Sections 7, 26 and Second Schedule of the
SEZ Act).
14.14 SPECIAL ECONOMIC ZONES

Considering the need to enhance foreign investment ansd promote exports from the
country and realising the need that a level playing field must be made available to the
domestic enterprises and manufacturers to be competitive globally, The Government
of India had in April 2000 announced the introduction of Special Economic Zones
policy in the country, deemed to be foreign territory for the purposes of trade
182 operations, duties and tariffs. As of 2007, more than 500 SEZs have been proposed,
220 of which have been created. This has raised the concern of the World Bank, which
questions the sustainability of such a large number of SEZs. The Special Economic
Zones in India closely follow the PRC model. India passed Special Economic Zone
act in 2005.
SEZ Act, 2006: To instil confidence in investors and signal the Government's
commitment to a stable SEZ policy regime and with a view to impart stability to the
SEZ regime thereby generating greater economic activity and employment through the
establishment of SEZs, a comprehensive draft SEZ Bill prepared after extensive
discussions with the stakeholders. A number of meetings were held in various parts of
the country both by the Minister for Commerce and Industry as well as senior officials
for this purpose. The Special Economic Zones Act, 2005, was passed by Parliament in
May, 2005 which received Presidential assent on the 23rd of June, 2005. The draft
SEZ Rules were widely discussed and put on the website of the Department of
Commerce offering suggestions/comments. Around 800 suggestions were received on
the draft rules. After extensive consultations, the SEZ Act, 2005, supported by SEZ
Rules, came into effect on 10th February, 2006, providing for drastic simplification of
procedures and for single window clearance on matters relating to central as well as
State Governments.
Objectives of the SEZ Act: The main objectives of the SEZ Act are:
(a) Generation of additional economic activity
(b) Promotion of exports of goods and services;
(c) Promotion of investment from domestic and foreign sources;
(d) Creation of employment opportunities;
(e) Development of infrastructure facilities.
Benefits: It is expected that this will trigger a large flow of foreign and domestic
investment in SEZs, in infrastructure and productive capacity, leading to generation of
additional economic activity and creation of employment opportunities.
Features: The SEZ Act 2005 envisages key role for the State Governments in Export
Promotion and creation of related infrastructure. A Single Window SEZ approval
mechanism has been provided through a 19 member inter-ministerial SEZ Board of
Approval (BoA). The applications duly recommended by the respective State
Governments/UT Administration are considered by this BoA periodically.
All decisions of the Board of approvals are with consensus.
The SEZ Rules provide for different minimum land requirement for different class of
SEZs. Every SEZ is divided into a processing area where alone the SEZ units would
come up and the non-processing area where the supporting infrastructure is to be
created.
The SEZ Rules provide for:
z Simplified procedures for development, operation, and maintenance of the Special
Economic Zones and for setting up units and conducting business in SEZs;
z Single window clearance for setting up of an SEZ;
z Single window clearance for setting up a unit in a Special Economic Zone;
z Single Window clearance on matters relating to Central as well as State
Governments;
z Simplified compliance procedures and documentation with an emphasis on self
certification.
Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall 183
be deemed to be foreign territory for the purposes of trade operations and duties and Export–Import
tariffs. Goods and services going into the SEZ area from DTA shall be treated as
exports and goods coming from the SEZ area into DTA shall be treated as if these are
being imported. SEZ units may be set up for manufacture of goods and rendering of
services.
14.14.1 Export and Import of Goods

z SEZ units may export goods and services including agro-products, partly
processed goods, sub-assemblies and components except prohibited items of
exports in ITC (HS). The units may also export by-products, rejects, waste scrap
arising out of the production process. Export of Special Chemicals, Organisms,
Materials, Equipment and Technologies (SCOMET) shall be subject to fulfilment
of the conditions indicated in the ITC (HS) Classification of Export and Import
Items. SEZ units, other than trading/service unit, may also export to Russian
Federation in Indian Rupees against repayment of State Credit/Escrow Rupee
Account of the buyer, subject to RBI clearance, if any.
z SEZ unit may import/procure from the DTA without payment of duty all types
of goods and services, including capital goods, whether new or second hand,
prohibited items of imports in the ITC(HS). However, any permission required for
import under any other law shall be applicable. Goods shall include raw material
for making capital goods for use within the unit. The units shall also be permitted
to import goods required for the approved activity, including capital goods, free of
cost or on loan from clients.
z SEZ units may procure goods required by it without payment of duty, from
bonded warehouses in the DTA set up under the Policy and/or under Section 65 of
the Customs Act and from International Exhibitions held in India.
z SEZ units may import/procure from DTA, without payment of duty, all types of
goods for creating a central facility for use by units in SEZ. The Central facility
for software development can also be accessed by units in the DTA for export of
software.
z Gem & Jewellery units may also source gold/silver/platinum through the
nominated agencies.
z SEZ units may import/procure goods and services from DTA without payment of
duty for setting up, operation and maintenance of units in the Zone.
14.14.2 Approvals and Applications

Applications for setting up a unit in SEZ other than proposals for setting up of unit in
the services sector (except software and IT enabled services, trading or any other
service activity as may be delegated by the BOA), shall be approved or rejected by the
Units Approval Committee within 15 days as per procedure indicated in Annexure to
Appendix 14-II of Handbook (Vol I). In other cases approval may be granted by the
Board of Approval.
Proposals for setting up units in SEZ requiring Industrial Licence may be granted
approval by the Development Commissioner after clearance of the proposal by the
SEZ Board of Approval and Department of Industrial Policy and Promotion within 45
days on merits.
184 14.14.3 Entitlement for Supplies from the DTA
Supplies from DTA to SEZ shall be entitled for the following:
z DTA supplier shall be entitled for:
Drawback or DEPB in lieu of Drawback
Discharge of Export performance, if any, on the supplier.
z SEZ units shall be entitled for:
Exemption from Central Sales Tax;
Exemption from payment of Central Excise Duty on all goods eligible for
procurement by the unit;
Reimbursement of Central Excise Duty, paid on bulk tea procured from the
licenced auction centres by the Development Commissioner of concerned
zone as long as levy on bulk tea in this regard is in force;
Reimbursement of Duty paid on fuels or any other goods procured from DTA
as per the rate of drawback notified by the Directorate General of Foreign
Trade from the date of such notification.
z Supplier of precious and semi-precious stones, synthetic stones and processed
pearls from Domestic Tariff Area to the units situated in SEZ shall be eligible for
grant of Replenishment Licenses at the rates and for the items mentioned in the
Handbook (Vol. I).
z The entitlements under paragraphs (a) and (b)(ii) above shall be available
provided the goods supplied are manufactured in India.
14.15 DUTY DRAWBACK PROCEDURE

The exporter has to file a shipping bill in Electronic Data Interchange (EDI) for export
of goods under a claim for drawback. The electronic shipping bill itself shall be
treated as the claim for drawback and there is no need for filing separate drawback
claims. At JNCH the scheme of computerised processing of Drawback claims under
the Indian Customs EDI System is applicable for all exports except in respect of DBK
claims relating to cases of re-export of imported goods under Section 74 of the
Customs Act, 1962. The procedure for claiming drawback under the EDI system is
explained below:
A. In the EDI system the exporter are required to open their accounts with the Bank
nominated by the Custom House or a branch anywhere in India of any of banks
having core banking facility of transferring the funds electronically through
NEFT/ RTGS. This has to be done to enable direct credit of drawback amount to
their accounts, obviating the need for issue of cheques. The exporters are required
to indicate their Account No. in the declaration form called as Annex.-B along
with the details of the bank through which the export proceeds are to be realised.
S.D.F declaration is required in lieu of GR –1 FORM.
B. For export of goods under claim for drawback, as per Rule 13 of the Customs,
Central Excise Duties and Service Tax Drawback Rules, 1995 the exporters will
file the claim for drawback accompanied by the following documents:
a. copy of export contract or letter of credit, as the case may be,
b. copy of Packing list,
c. copy of ARE-1 wherever applicable,
d. insurance certificate, wherever necessary, and
e. copy of communication regarding rate of drawback where the drawback claim 185
is for a rate determined by the Commissioner of Central Excise or the Export–Import
Commissioner of Customs and Central Excise, as the case may be under rule
6 or rule 7 of these rules.
C. Under PUBLIC NOTICE- 54 /07 of JNCH the following documents are required
to be produced at the time of examination of the cargo.
a. CENVAT Certificate/Self-declaration known as Annexure 1 when the Central
Excise portion of the drawback is claimed.
b. Duty-free finished Leather Declaration in case of leather and leather articles.
c. Chartered Engineer’s certificate wherever applicable.
d. Invoice giving complete description of the goods under export. Invoice with
the declaration of wool content in case of woolen carpets/floor covering.
e. Packing list giving weight/quantity of individual items when the drawback is
based on unit weight/quantity.
f. Test-Reports/Sample Drawn by Central Excise authorities in case of Factory
Stuffed Containers in terms of P.N.03/2007 dtd. 09.02.2007 in case Drawback
is based on the composition.
g. NOC from the respective agencies/authorities like WLRO, ADC, APEDA,
etc. wherever applicable.
D. The steamer agents will transfer the EGM electronically to the system so that the
physical Export of goods is confirmed. The system will process the claims only on
receipt of the EGM.
E. After filing of EGM and printing of EP Copy the shipping bills automatically
move online to Drawback Queue in the EDI System for sanction. It may be noted
that unless EGM is filed and EP Copy is printed, the shipping bills do not move
online to Drawback Queue and such claims cannot be said pending with the
department for drawback purpose.
F. The drawback claims are processed through the system on first come first served
basis. Superintendent is the competent authority for sanctioning drawback up to
` one lakh and Assistant Commissioner for above one lakh. Superintendent has to
confirm whether the goods under drawback claim have been properly classified or
not. He can change the classification of the goods and on changing classification;
the system recalculates drawback amount.
G. The status of Shipping Bills and sanction of drawback claim can be ascertained
from the EDI Service Centre or Drawback Helpdesk. Status of S/Bill and query
can also be ascertained online through automatic email by sending e-mail to
docktrack.jnch@icegate.gov.in and mentioning the subject of the mail as
exp:dbkpend:sbno: SB1, SB2, SB3 or exp:dbkpend:iec:<IEC NO>, to get status of
drawback claims for particular SBs or of all drawback claims, as provided under
facility notice no. 10/2008 dated 18.01.2008.
H. On raising of a query the claim moves out of drawback queue to Exporter queue
in the System. Such claims are not regarded pending with the Department and are
deemed to have been returned to the exporter with query or deficiency memo as
per Rule 13 of the Customs, Central Excise Duties and Service Tax Drawback
Rules, 1995. As per this Rule where the exporter resubmits the claim for
drawback after complying with the requirements specified in the deficiency
memo, the same will be treated as a claim filed under sub-rule (1) of Rule 13 for
the purpose of Section 75A of the Customs Act, 1962. The exporter or his
authorised representative may obtain a printout of the query/deficiency from the
186 Service Centre if he so desires. The claim will come in Queue of the system as
soon the reply is entered.
I. Shipping Bills in respect of goods under claim for drawback against brand rates
would also be processed in the same manner, except that drawback would be
sanctioned only after the original brand letter is produced to AC Export and is
entered in the system. The exporter should specify the S.S No 98.01 for such
provisional claims.
J. All the claims sanctioned during a particular period will be enumerated in a scroll
and transferred to the Nominated Bank through the system. The Bank will credit
the drawback amount in their respective accounts of the exporters on the next day.
Bank will send a fortnightly statement to the exporters of such credits made in
their accounts.
K. The facility of Payment of Drawback in the Exporter’s Core Banking Enabled
Bank Account in any Branch of any Bank anywhere in the Country has also been
introduced vide Circular No. 01/2008-Systems dated 24.06.08. It has been pointed
out that when the Core banking branches forward the statement to the exporters,
the Shipping bill details are being omitted owing to certain limitation in the
banking software employed for NEFT/RTGS due to which the exporters are
facing difficulty in correlation of the Drawback claimed and that received. The
issue has already been taken up with RBI, since these transactions are governed by
guidelines issued by the RBI in this regard from time to time.
14.15.1 Procedure to Claim Drawback in Cases where the Rate of

Drawback is not Fixed
In cases where the amount or Rate of Drawback has not been determined, as per Rule
6 of the Drawback Rules 1995, the exporter should apply in writing to the to the
Commissioner of Central Excise having jurisdiction over the manufacturing unit for
determination of the amount or Rate Drawback within 60 (sixty) days from the date of
“Let Export Order” given by the proper officer of Customs on the relevant Shipping
Bill. The Commissioner of Central Excise may allow a further period of 30 (thirty)
days if it is satisfied that the manufacturer or exporter was prevented by sufficient
cause from filing the application within sixty days.
The amount of Rate of Drawback determined in such cases is commonly known as
“Brand Rate of Drawback”. This amount or Rate of Drawback so determined is
applicable to the specified goods exported by a particular exporter during a particular
period as mentioned in the order issued by the Central Excise.
If the exporter desires, the Commissioner of Central Excise may grant drawback
provisionally, on specific application of exporter in writing, without waiting for
verification of the data furnished by the exporters and authorise the Commissioner of
Customs at the Port of Export to pay provisional amount subject to execution of a
bond with Surety or Security for a suitable amount undertaking to refund the excess
amount paid, if any.
14.16 EXPORT-IMPORT BY POST-CUSTOMS HOUSE

AGENTS
A CHA would perform all the actions required to get your goods through customs.
This includes:
z Helping with the examination of goods.
z Providing warehouse space for a company’s goods and removing those goods at
the appropriate time.
z Making a payment of duty on behalf of the company. 187
z Tariff classification and rates of duty. Export–Import
z Conversion of currency.
z Arrival entry and clearance of vessels.
14.17 IMPORT OF DIFFERENT PRODUCTS

Everyone knows there are great deals to be found overseas items that can be picked up
for a fraction of the cost. But what most people don’t realize is that almost everything
they’re buying domestically was already imported. They’re just paying a mark-up cost
to the middleman who did the actual importing for them. For those new in business,
there’s nothing wrong with that. But for the established businessperson, importing
directly can save a lot of money.
Important steps to consider when thinking for import:
z Your wholesale cost isn’t what you pay for an item. Your wholesale cost is the
cumulative total for getting that item to your house, ready to be shipped to your
customers. You may be paying 50 cents a vase, but after you pay a Customs
broker, import duties, various fees, freight, consolidation, and insurance expenses,
your actual cost of goods may be $2.25 each.
z You’ll have to allow significant lead time when placing an overseas order. It can
sometimes take two or three months, or even longer, from the time you place your
order to the time you receive the goods. Problems with Customs that can delay
your orders even further. The costs of air freight are probably 10 times higher than
the costs of shipping but it’s faster and less risky.
z You need look at the legal aspects. There are numerous government forms to fill
out and a great many regulations regarding your imports. You are responsible for
ensuring that what you bring into this country complies with safety codes and all
other applicable laws.
14.17.1 Major Import Items of India

The rising expenditures of the middle income sections of the society have resulted in
the imports of the country. The major items of imports are:
Cereals and preparations, Fertilizers, Edible Oil, Sugar, Pulp and waste paper, Paper,
Newsprint, Crude rubber, Non-ferrous Metals, Metalliferous ores and metal scrap,
Iron and Steel, Crude Petroleum and petroleum products, Pearls, Precious and Semi-
Precious stones, Machinery, Project Goods, Pulses, Coal and its derivatives, Non-
metallic, Organic & Inorganic chemicals, Dyeing, tanning material, Medicinal
products and Pharma products, Artificial resins, yarn & fabrics (silk, cotton, wool),
electronic goods, wood and wood products, gold and silver, essential oils, computer
software, etc.
14.18 IMPORT–EXPORT INCENTIVES

The Government of India has framed several schemes to promote exports and to
obtain foreign exchange. These schemes grant incentives and other benefits. Export
Incentives plays an important role in International Trade. As these incentives impart
cost competitiveness to exports, thereby facilitating greater market penetration.
In order to promote exports and to obtain foreign exchange, the Government of India
had framed several schemes. These schemes grant incentive and other benefits. Under
schemes, raw material and other components can be imported without payment of
188 customs duty for use in goods to be exported. Export Credits Export incentives take
the form of cash assistance or cash compensatory support on exports of certain items,
duty drawback, i.e. a refund of central excise and customs duties levied on raw
materials and components used in the manufacture of exports, import replenishment
to replace imported raw materials and components used in the manufacture of
exports, airfreight subsidy on the export of certain products, special treatment for
export-oriented units for import of raw materials, and credit facilities from approved
financial institutions at pre-shipment and post-shipment stages.
Discuss the process of claiming incentives.
14.18.1 Excise Rebate

After completing the post-shipment formalities the clearing and forwarding agent
will file the following documents with the Maritime Central Excise Collector or
Jurisdictional Assistant Collector of Central Excise for claiming the refund of excise
duty for obtaining release from bond as the case may be:
z AR4/AR5 Form (Duplicate copy), which has been certified by the customs
preventive officer.
z Non-negotiable copy of the Bill of Lading and/or shipping Bill certified by the
customers’ preventive officer.
Additional documents to be submitted for claiming refund excise duty are:
z Application for Refund in Form C
z Pre-receipt
14.18.2 Duty Drawback

For claiming Duty Drawback, the exporter's agent will file the customs attested copy
of the Drawback Shipping Bill, along-with the following documents, with the
Drawback Department of the Customs House.
z Drawback Claim proforma (prescribed application form in five copies)
z Bank or Customs Certified copy of Commercial Invoice
z Non-negotiable copy of Bill of Lading
z Any other specifically prescribed document.
After finding the claim to be correct, the Drawback Department will dispatch the
cheque of the claim amount to the exporter. Alternatively, if the exporter so desires,
this amount will be sent to the exporter's bank for being credited to his account with
intimation to the exporter.
14.19 IMPORT LICENSES

An import license is a document issued by a national government authorizing the
importation of certain goods into its territory. Import licenses are considered to be
non-tariff barriers to trade when used as a way to discriminate against another
country's goods in order to protect a domestic industry from foreign competition.
Each license specifies the volume of imports allowed, and the total volume allowed
should not exceed the quota. Licenses can be sold to importing companies at a
competitive price, or simply a fee. However, it is argued that this allocation method
provides incentives for political lobbying and bribery. Government may put certain
restrictions on what is imported as well as the amount of imported goods and services.
For example, if a business wishes to import agricultural products such as vegetables,
then the government may be concerned about the impact of such importations of the 189
local market and thus impose a restriction. Export–Import
1. DTA stands for …………
2. ISI stands for …………
3. NFE stands for …………
14.20 LET US SUM UP

Exports and imports are made free, except to the extent they are regulated by the
provisions of the policy or any other law for the time being in force. Various
provisions of exports like free exports, denomination of export contracts, realization of
exports proceeds, exports of gifts, spares, passenger baggages, imported goods,
replacement goods, repaired goods, private bonded warehouse and provisions of
deemed exports have been included. The major provisions regarding imports include
actual user condition, import of second hand goods, gifts, import on export basis, re-
import of goods repaired abroad, import of machinery and equipment used in projects
abroad, sale on high seas, import under lease financing, Exports promotion capital
goods scheme and Duty exemption scheme/remission scheme.

How will you start export business? Explain.
14.22 KEYWORDS
Canalisation of Exports and Imports: Exports and Imports only through the agencies
designated by the Central Government.
Capital Goods: Any plant, machinery, equipment or accessories required for
manufacture or production of goods or for rendering services.
Competent Authority: An authority competent to exercise any power or discharge any
duty or function under the act.
Drawback: The rebate of duty chargeable on any imported material or excisable
material used in the manufacture of such goods in India.
Licensing Year: The period beginning on the 1st April of a year and ending on the 31st
March of the following year is called licensing year.

1. Describe foreign trade act, 1992.
2. What are the main objectives of Export-Import policy?
3. What do you mean by export pricing? Describe the various factors of price
determination.
4. What are the factors behind any organization to start the export-import business?
CYP 1
1. FERA
2. Director General of Foreign Trade
3. Export Inspection Agencies.
CYP 2
1. Asian Clearing Union
2. Deemed Export
3. Indian Trade Classification (Harmonised System)
CYP 3
1. Domestic Tariff Area
2. Import Substitution Industrial
3. Net Foreign Exchange Earning

India.
191
LESSON Custom Clearance of Import Goods
15
CUSTOM CLEARANCE OF IMPORT GOODS
CONTENTS
15.1 Introduction
15.2 Port Formalities and Custom Clearance
15.3 Objectives of Custom Clearance
15.3.1 Cheek Smuggling
15.3.2 Regulate Trade
15.3.3 Agency Function
15.3.4 Collection of Trade Data
15.4 Basic Information Documents and Duties
15.4.1 Basic Information
15.5 Stages of Custom Clearance
15.6 Procedure of Custom Clearance
15.6.1 Unloading at Imported Goods
15.6.2 Presentation and Noting of B/E
15.6.3 Processing of B/E
15.6.4 Physical Examination of Goods
15.6.5 Check Second
15.6.6 Check First
15.6.7 Confiscation of Goods
15.7 Let us Sum up
15.9 Keywords

z Describe port formalities and custom clearance
z Explain custom clearance objectives
z Discuss the basic information documents and duties
z Identify custom clearance stages and procedure.
192
Export Trade and Documentation 15.1 INTRODUCTION
The concept of customs operation is as old as the trade itself, in the olden days, there
was a tradition followed by traders of offering gifts, etc. to kings to be able to sell their
merchandise in different territories. The same practice has been formalized in the
modern economic and political systems. Goods are subjected to levy of duties,
whenever they cross the national frontiers/boundaries of a country. Despite all efforts
in favour of free trade, collection of revenue is still on priority of the Commissioner in
charge of a Customhouse. In this lesson, you will learn the objectives, legal
framework, basic information, documents and duties related to custom clearance of
import cargo. You will further study the stages and procedure of custom clearance and
the operation of Electronic Data Interchange System.
15.2 PORT FORMALITIES AND CUSTOM CLEARANCE

On receipt of the documents sent by the export department, the clearing and
forwarding agent takes delivery of the cargo from the railway station or the road
transport company and arranges its storage in the warehouse. He also initiates action
to obtain customs clearance and permission from the port authorities to bring cargo
into the shipment shed.
The objectives of customs control are:
z To ensure that the goods go out of the country after compliance with different
laws concerning export trade
z To ensure authenticity of value of export goods to check over/under invoicing
z To correctly assess and collect export duty, if applicable.
z To compile data on cargo movements.
For complying with these objectives, the customs grant permission for export at two
stages. Firstly, documentary checks are made at the office of the customs (i.e.
Customs House). Secondly, physical examination of goods is made in the shipment
shed to verify that the goods being exported are the same as have been declared on the
documents submitted at the Customs House. The document on which customs give
clearance for export is the Shipping Bill.
The clearing and forwarding agent is to file following documents with the Customs
House:
z Shipping Bill (4-5 copies)
z Contract/correspondence leading to the contract (Original)
z Letter of Credit, where applicable (Original)
z Commercial Invoice (one for each of the shipping Bill)
z GR Form (Original and Duplicate)
z Inspection Certificate (Original)
z AR 4/AR5 Form (Original and Duplicate)
z Packing list, if needed
z Any other document needed by the customs.
The Customs Appraiser/Examiner examines these documents and appraises the value 193
Custom Clearance of Import Goods
having regard to the following consideration:
z That the value and the quantity declared in the shipping bill is the same as in the
export order or letter of credit.
z That the formalities regarding exchange control, pre-shipment quality control
inspection, etc, have been duly completed. After examination of documents and
appraisement of value, the Customs Examiner/Appraiser makes an endorsement
on the duplicate copy of the shipping Bill. He also gives directions to the Dock
Appraiser about the extent of physical examination of the cargo to be conducted at
the Docks, All the Documents, except GR (original) Form the original Shipping
Bill and a copy of the Commercial Invoice are returned to the Forwarding Agent
to be presented to the Dock Appraiser.
After taking delivery of documents from the Export Department, Forwarding Agent
Presents the Port Trust Document to the Shed superintendent of the port. He obtains
carting order for bringing the export cargo to the transit shed for physical examination
by the Dock Appraiser and for their shipment after bringing the cargo into the shed he
presents the following documents to the Dock Appraiser for conducting physical
examination of the cargo.
z Duplicate, triplicate and export promotion copies of the shipping Bill
z Commercial Invoice
z Packing List
z AR4/AR5 form (original and duplicate) and Invoice
z Inspection Certificate (Original)
z GR Form (Duplicate)
The Dock Appraiser after conducting physical examination records examination report
and makes "Let Export" endorsement on the duplicate copy of the Shipping Bill. He
hands it over to the forwarding Agent along-with all other documents to be presented
to the preventive officer of the customs department who supervises the loading of
cargo on board the vessel.
The preventive officer makes an endorsement "Let ship" on the duplicate copy of the
Shipping Bill. The duplicate copy of the Shipping Bill is then handed over to the agent
of the shipping company; this constitutes an authorization by the customs to the
shipping company to accept the cargo on the vessel.
After the goods are loaded on board the vessel, the captain of the ship issues a receipt
known as ‘Mate's Receipt’ to the Shed Superintendent of the port. The forwarding
agent then makes a payment of the port charges and takes delivery of the Mate's
Receipt. He presents the Mate's Receipt first to the preventive officer who records the
certificate of shipment on all the copies of the shipping Bill, original and duplicate
copies of AR4/AR5 form. He returns the Export promotion copy, a copy of Drawback
shipping Bill and presents the Mate's Receipt to the shipping company and requests it
to issue the Bill of Lading (2/3 negotiable and a few non-negotiable as required).
194
Export Trade and Documentation 15.3 OBJECTIVES OF CUSTOM CLEARANCE
Apart from being a source of revenue, the major objectives of customs clearance are
as follows:
15.3.1 Cheek Smuggling

Those transactions which do not take place in accordance with provisions of different
laws in force in India amounts to smuggling. It is the duty of customs administration
to check such transactions.
15.3.2 Regulate Trade

Custom clearance helps in regulating trade in accordance with national objectives and
policies. Violation of any provision of the Exim policy as decided by the Ministry of
Commerce ipso-facto is a violation under the Customs Act with regard to various
prohibition and restrictions imposed by the Government.
15.3.3 Agency Function

To undertake agency functions, i.e. functions performed on behalf of other agencies.
For example, it is the customs responsibility to ascertain that the requirements
emanating from different acts in force are complied with or not. It may be
requirements of the Foreign Exchange Management Act or Quality Control and
Pre-shipment Inspection Act.
15.3.4 Collection of Trade Data

To collect trade data and submit the same to Directorate General of Commercial
Intelligence & Statistics (DGCI & S) Calcutta, Ministry of Commerce, which brings
out trade data in different formats for the use of (a) Various Government
Departments/Ministries, (b) Trade and Industry, (c) Researchers, and others concerned
with international trade.
Data is essential to review the past performance and plan for the future as well as to
know the trends of our trade or unit/value realization of a particular item etc.
15.4 BASIC INFORMATION DOCUMENTS AND DUTIES

You are required to be acquainted with some basic information regarding clearance of
import cargo and related documents and duties.
15.4.1 Basic Information

Goods may be imported into the country by the following modes of transportation and
accordingly there is a corresponding point of entry for each mode.
Table 15.1: Port of Entry
Modes of Transportation Point of Entry
Sea Route Sea Customs Port
Air Route Air Customs Port
Multimodal Transport Operator (MMTO) ICD/CFS
Land Route Land Customs Stations
Post Parcel Foreign Post Office
Import through Courier 195
Imports are also allowed through a registered courier service for certain categories of
items. The maximum weight limit is 32 kgs. Rate of duty applicable to goods are the
same as by any other mode of importation.
Approved Places
The points of entry are approved places and are notified. Vessels can come for
purpose of loading and unloading of goods or the aircraft can unload or load goods
only on such approved places. The examination of goods is done at Customs area
earmarked for this purpose within the port area.
Import General Manifest (IGM)

Under section 30 of the Customs Act, 1962 the person, incharge of a conveyance is
required to deliver to the proper officer the document known as IGMIIR within 24
hours after its arrival at the point of entry in the prescribed form. In case of a vessel,
the IGM is normally submitted before the arrival of the vessel to the proper 44 officer.
It can be accepted by the proper officer even after the expiry of 24 hours of its arrival
on genuine grounds. It gives details of the imported cargo to be unloaded. It can be
amended also if there is no fraudulent intention provided the proper officer is satisfied.
Customs House Agents

Exporters and importers can avail services of customs house agents. They are a body
of professionals and are licensed by the commissioner of customs after following a
prescribed procedure. They facilitate work connected with clearance of cargo from
customs. The area of their operations is expanding with the introduction of container
technology and multimodal transport system. These emerging intermediaries provide a
complete package of services i.e. removing cargo from the door of the exporter and
delivering it to the door of importer. They undertake the job of freight forwarding with
full responsibility and perform it with an efficient manner and at economical cost as a
specialized agency.
Entry Inward Permission

A vessel is under obligation to allow unloading of imported goods only after the grant
of "entry inward permission”. Incase the bill of entry has been presented and notified
with the customs but the cargo has not reached, the rate of duty applicable would be
the date on which the entry inward permission is granted by the customs to the vessel.
However, in case of aircraft no such formality exists.
Appeals
Safeguard against misuse of powers by customs officers are available to an aggrieved
person under section 128-131. Against the order of customs authorities an appeal can
be filed to the commissioner of customs (Appeals) within a period of three months
from the date of communication of the order. A second appeal can be made to the
Appellate Tribunal (CEGAT). In case the order has been passed by an officer of the
rank of Commissioner, an appeal can be filed directly to the tribunal. The final appeal
can, however, be made to the Supreme Court against the Tribunal's order.
Documents
Bill of Entry is the basic document for custom clearance of import cargo. Let us learn
them in detail.
196 Bill of Entry
For getting the imported goods cleared from customs, the importer has to present a
document for noting to customs department known as Bill of entry. It has the
following features:
z It gives the details of importer's name and address, IEC number, CHA code
number, port of shipment and particulars of origin of goods, port of consignment
and vessel's name.
z Particulars of the goods imported with regard to number, quantity, packages, etc.
z Description, classification and value of goods
z Duties to be levied, there are separate columns for purpose of mentioning various
kinds of duties leviable on goods.
z Currency, weight, freight, insurance, etc.
z Declaration as to correctness of information recorded therein by the importer.
Types of Bill of Entry

z Four copies of bill of entry are submitted; original and duplicate for customs
departments, triplicate is owner's copy and fourth is for foreign exchange purposes
to be submitted to bank. There are three types of bill of entry.
z Bill of entry for home consumption (white in colour) where an importer wants to
get this goods-cleared in one lot, he has to present the Bill of entry for home
consumption.
z Bill of entry for warehousing (Into bond, yellow in colour) Where an importer
wants to shift goods to a warehouse, and thereafter gets his goods cleared in small
lots, he bas to present 'into bond' bill of entry. Reason may be that he is unable to
pay duty leviable on all goods at one instance or may be because of storage
problem.
Public warehouses run by Central Warehousing Corporation and by Slate Public
Warehousing Corporation are available at all major centres. For capital goods
intended for use in 100% export oriented units the warehousing period limit is five
years. In all other cases warehousing is allowed only for one year. Extension of
warehousing period can not be granted if application is received after the expiry of
the earlier allowed warehousing period.
z Ex-Bond Bill of Entry (Green in Colour): When an importer wants to remove
goods from the warehouse, he has to present an Ex-bond bill of entry which is
green in colour.
Advance Bill of Entry

In order to expedite clearance of goods, it is permissible now to file the bill of entry 30
days in advance of the expected arrival of the concerned ship/aircraft carrying
imported cargo. In such situation, importer would not be in a position to give vessel
name, IGM no., etc. so much in advance. Therefore, he can leave these columns blank
to be filled later by the customs department. However, all the necessary documents are
to be enclosed with it. But if the ship/aircraft does not arrive within 30 days, the
advanced cleared bill of entry would cease to be a valid document and a Fresh bill of
entry have to be filed by the importer.
Documents to be enclosed with Bill of Entry:
z Invoice
z Licence, if required
z Insurance policy 197
z Delivery order
z Letter of credit/bank draft
z GATT declaration
z Importer declaration
z Any other document depending upon goods
Duties
Rate of Duty
z In case of bill of entry for home consumption the rate of duty would be as
prevalent on date of presentation of bill of entry.
z In case of advance bill of entry for home consumption, the rate of duty would be
as prevalent on the date on which entry inward permission is granted to vessel or
arrival of aircraft.
z In case of bill of entry for warehousing the rate of duty would be as prevalent/in
force on the date of physical removal of goods from the warehouse.
Basis of Duty
z Specific duty: when the unit of quantity becomes the basis of levying duty,
e.g. kgs, litres, numbers, meters, etc., the duty leviable is called specific duty.
z Ad-valorem duty: when the value of goods imported becomes basis of levying
duty, it is called ad-valorem duty.
Types of Duty
z Basic duty or standard duty as given in the Customs Tariff Act. It is a percentage
of the assessable value.
z Special duty or surcharge as given under Finance Act. It is also a percentage of
assessable value.
z Additional duty or countervailing duty (CVD). It is a percentage of assessable
value plus duties calculated under Basic duty and Special duty.
z Anti-dumping duty is a percentage of assessable value plus duties calculated
under Basic duty and Special duty.
Assessable Value
It is the value which becomes the basis for the purpose of levying advalorem duty i.e.
with reference to the value of the item. It is the invoice value RS indicated by the
importer if it is acceptable to the customs. In case there is doubt, the customs will
calculate it by adding insurance and freight elements. (actual or 25 per cent and 20 per
cent respectively) of the FOB value as indicated by the supplier. One per cent is added
to this as handling charges. Section l(4) of the Customs Act lays down the parameters
for arriving at the assessable value. In case of dispute the guidelines are available as
per Customs Valuation Rules, 1988.
1. DGCI&S stands for …………..
2. MMTO stands for …………..
3. IGM stands for …………..
15.5 STAGES OF CUSTOM CLEARANCE

The basic stages of custom clearance are:
z Presentation of bill of entry along with the relevant documents to the import
department of the Custom House, i.e. the concerned group.
z The bill of entry is checked by the concerned official with the IGM submitted by
the carrier and it is notified.
z Documents and the information are checked and scrutinized.
z The bill of entry is marked for assessment and appraisement to the concerned
appraiser.
z The appraiser makes an assessment on the basis of information given in the
documents and with reference to the classification and value of the goods. The
Examination Order is given.
z The customs assessed bill of entry is returned to the importer ICHA for depositing
duty within a period of 7 days.
z Duty is deposited with the cash department and at this stage the original COPY of
the bill of entry is detached and sent for record purposes.
z The documents given to the Importer ICHA for presentation to the Dock
Superintendent for physical examination of goods as per Examination Order.
z The Dock Superintendent marks the documents to one of the Examiner/Inspector
for physical examination. The examiner after examination writes the report and
signs on the reverse of the bill of entry and sends it back to the superintendent for
countersignature and the "out of charge" order is given.
z The CHA presents the documents to the Port Manager who ensures about any
charge/demurrages, if any to be paid by the Importer. The same is deposited with
the cash department. Thereafter the Port Manager issues order on the basis of
which goods are taken out of the Customs Area.
15.6 PROCEDURE OF CUSTOM CLEARANCE

The procedural formalities for getting imported goods cleared from customs are as per
requirements of section 45-49 of the CA, 1962.
15.6.1 Unloading at Imported Goods

The in-charge of the carrier having custody over imported goods is under obligation to
unload the goods in a Customs approved area. The goods after unloading are not
handed over to the actual owner of the goods but are transferred into the custody of
the Port Trust Authority or any other competent agency/person as approved by the
Commissioner. Goods listed in the IGM are allowed to be unloaded in the presence of
the officer of customs. The custodian of the imported goods is under obligation to:
z Keep it record of imported goods and also send a copy of the list of goods to the
proper officer of Customs.
z Hand over the goods to the actual claimant on presentation of documents granting 199
permission by the Customs.
15.6.2 Presentation and Noting of B/E

The importer can present bill of entry in a prescribed form to the proper officer in the
import department either for their clearance for home consumption (to take the goods
at the place where they are needed or can transfer then) in an approved public
warehouse. Capital goods intended for use in any 100% export oriented unit can be
deposited in a warehouse for a period of 5 years. The period for purpose of
warehousing for other categories of goods is one year. The warehousing period is
subject to extension on the merit of the case as considered necessary by the
commissioner.
The bill of entry must contain all goods mentioned in the B/L or any other document
as issued by the carrier to the cosigner of goods after taking custody of goods on board
the carrier. The B/E can be presented after the delivery of the IGM/IR by the incharge
of the carrier. However, it can be submitted before the submission of IGM provided
the carrier by which the imported goods have been shipped for importation into India
is expected to arrive within 30 days from the date of presentation of IGM/IR.
15.6.3 Processing of B/E

As soon as bill of entry is presented along with other documents and the same is
notified by the customs with reference to the IGM, the customs is under obligation to
process it, make scrutiny of the documents information and declaration given by the
importer and appraise the gods to duty. For this purpose, there are different group
appraisers supported by their staff. The documents pass through different hands for
necessary action/endorsement/record. The concerned appraiser has to ensure that
goods are not prohibited goods, the classification and the valuation is correct, the
transaction is in accordance with the requirements of the provisions of different Acts,
the party is not on the caution list and the documentary and other requirements have
been complied with. He makes an assessment/appraisement of goods for purpose of
levy of duty. The duty amount is pin-pointed in the bill of entry with the help of a
typewriter after proper scrutiny/check made by the internal audit department. Import
licence, debit formalities if necessary have to be completed by the concerned customs
official. The Examination Order is also recorded on the bill of entry to be followed by
the Examiner/Inspector who physically checks the goods in the dock. The customs
assessed bill of entry indicating the amount of duty to be deposited by the importer is
returned to the importer without any undue delay. The maximum limit is 3/4 days. The
importer after the receipt of customs assessed bill of entry is under obligation to
deposit the amount of duty in the treasury/bank within a stipulated period (at present 7
days). In case duty is deposited after the expiry of the stipulated period, the importer is
liable to pay additional amount of interest on amount of duty till the date of its deposit
as decided by the competent authority. This information is indicated on the bill of
entry itself when sent to the importer. On payment of duty the original copy of the bill
entry is detached and sent for the purpose of record to the manifest department by the
cash branch. The documents are given back to the Importer for handling them over to
the Dock Superintendent to examine, appraise or inspect the goods physically as per
Examination Order given by the Appraising Officer.
15.6.4 Physical Examination of Goods

The Dock Superintendent marks the paper to one of the inspector for physical of
goods on a random basis, as per Examination Order given by the Appraising Officer
(A/O), the contents of the packet are checked as per description and information given
in the bill of entry. The classification value, composition and functional aspect of the
200 item are also checked. If need be the samples are also drawn and sent to the laboratory
for their check and report. The quantity as per packing list is also checked and the
excess or deficiency if any is recorded. The examiner writes this report on the bill of
entry and it is also countersigned by the Dock Superintendent who makes “out of
charge order” endorsement.
The documents are handed over to the Manager/Security Officer in charge of the port
authority in whose custody the goods were kept after their unloading. He ensures on
scrutiny of documents about any charges/demurrages, if any, to be paid by the
importer. The Importer/CHA deposits the same with the cash department and same is
recorded on the bill of entry as a proof of payment. The Manager/Security Officer
after seeing the fact of payment makes and endorsement ‘goods released’. This is also
known as Release Order. Against the “out of charge” order given by the customs and
“Release Order” given by the port authority goods are cleared out of the Customs
Area.
15.6.5 Check Second

The above procedure is known as check second i.e. documents are first examined,
goods are appraised to duty and physical examination of goods is done thereafter.
Over 95% of the consignments are subject to check second system.
15.6.6 Check First

Where the A/O is not able to identify to goods properly or there is not sufficient
information about the composition/functions/classification of goods in question the
A/O marks the papers to the Dock Superintendent for their physical examination. This
is known as check first system.
15.6.7 Confiscation of Goods

At any of the stage mentioned above, it is notified that the goods are prohibited goods
or the importer has intended to import in violation and contravention of the provisions
of the relevant Acts in operation, penal proceedings may have to be initiated and the
goods are liable to confiscation in terms of section 11(d). The discretion lies with the
adjudication authority to allow their release to the importer on payment of a fine or to
confiscate them.
Fill in the blanks:
1. CVD stands for …………….
2. The importer can present ……………. in a prescribed form to the proper
officer in the import department either for their clearance for home
consumption.
3. ……………. given by the port authority goods are cleared out of the
Customs Area.
15.7 LET US SUM UP

The exporter should take steps to arrange for customs clearance of the export shipment
so that the goods can be exported to the foreign buyer.

Discuss the role of forwarding and CHA in custom clearance process.
201
15.9 KEYWORDS Custom Clearance of Import Goods
CHA: Customs House Agent (CHA) is a person who is licensed to act as an agent for
transaction of any business relating to the entry or departure of conveyances or the
import or export of goods at any Customs station.
Customs Duty: The Custom Duty in India is one of the most important tariffs. The
custom duty in India is regulated by the Customs Act of 1962.
Exporter: A person, country or business that sells goods to another country.
Shipment: Cargo transported under the terms of a single bill of lading or air waybill,
irrespective of the quantity or number of containers, packages, or pieces.

1. Describe Custom Tariff Act, 1975.
2. What are the objectives of custom clearance of goods?
3. What are the general documents required for custom clearance in case of Air/Sea?
4. Describe physical examination of goods in detail.

CYP 1
1. Directorate General of Commercial Intelligence & Statistics
2. Multimodal Transport Operator
3. Import General Manifest.
CYP 2
1. Countervailing duty
2. Bill of entry
3. “Release Order”

India.
202
LESSON
16
EXPORT–IMPORT DOCUMENTATION
CONTENTS
16.1 Introduction
16.2 Legal Provision
16.3 Export Documentation
16.4 Standardised Pre-shipment Export Documents
16.5 Documentation Practices in India
16.6 Master Documents
16.6.1 Commercial Documents
16.6.2 Regulatory Documents
16.7 Guidelines for Commercial Documents and Master Document–I
16.7.1 Paper Size and Specifications
16.7.2 Master Document–I
16.8 Guidelines for Regulatory Documents and Master Document–II
16.8.1 Paper Size and Specification
16.8.2 Reproduction Technique
16.9 Need for Preparing Export Documents
16.9.1 Declaration Forms
16.10 Disposal of Copies of Export Documentation Form
16.11 Export Invoice
16.12 Proforma Invoice
16.12.1 Contents of Proforma Invoice
16.12.2 Importance of Proforma Invoice
16.13 Commercial Invoice
16.13.1 Contents of Commercial Invoice
16.13.2 Significance of Commercial Invoice
16.14 Packing List
16.14.1 Components of Packing List
16.15 Mate’s Receipt
16.15.1 Types of Mate's Receipts
16.15.2 Components of Mate's Receipts
16.15.3 Significance of Mate’s Receipts
Contd…
16.16 Bill of Lading 203
Export–Import Documentation
16.16.1 Types of Bill of Lading
16.16.2 Design of Bill of Lading
16.16.3 Components of Bill of Lading
16.16.4 Endorsement on Bill of Lading
16.16.5 Sending of Bill of Lading to Importer
16.16.6 Significance of Bill of Lading for Exporters
16.16.7 Significance of Bill of Lading for Importers
16.16.8 Significance of Bill of Lading for Shipping Company
16.17 Certificate of Origin
16.17.1 Types of the Certificate of Origin
16.17.2 Contents of Certificate of Origin
16.17.3 Significance of the Certificate of Origin
16.18 Shipping Bill
16.18.1 Types of Shipping Bill
16.18.2 Components of Shipping Bill
16.18.3 Significance of Shipping Bill
16.19 Consular Invoice
16.19.1 Significance of Consular Invoice for the Exporter
16.19.2 Significance of Consular Invoice for the Importer
16.19.3 Significance of Consular Invoice for the Customs Office
16.20 Bill of Entry
16.20.1 Components of Bill of Entry
16.21 Airway Bill
16.21.1 Contents of Airway Bill
16.21.2 Importance of Airway Bill
16.22 GR Form
16.23 Other Documents
16.24 Import Documents
16.24.1 Importer Exporter Code (IEC) Number
16.24.2 Bill of Entry
16.24.3 Some Sample Documents
16.25 Let us Sum up
16.27 Keywords
204
z Explain export documentation
z Describe the need of document preparation
z Discuss commercial invoice
z Identify airway bill
z Explain certificate of origin
16.1 INTRODUCTION
At the outset it must be mentioned that improved system of documentation for exports
announced by the government of India on 31 March, 1991 is fine and should be
adopted by the exporters as far as possible. However a word of caution would be in
order. To date we have arrangements with only 80 countries around the word where
UN key Layout (Master documents) is followed. With these countries Indian exporter
could jolly well use the improved version of documents announced by the government
of India as per the New Exim policy 1992-97.
For the remaining countries (other than 80 countries where UN key Layout (Master
Documents) is not in use, the Indian exporter has to ascertain from the importer of his
requirements and must comply to his dictates for documentation. The basic dictum for
the exporter’s comply 100% the Letter of Credit requirements for Documentation,
otherwise exporter could be in problem and his payment may be stopped. Moreover
exporter prepares export documents not for his own convenience but largely to meet
the requirements of the overseas importer who largely conveys it through the Letter of
Credit. Treatment in this lesson is therefore slightly exhaustive of documents where
the old requirements have also been kept in view while introducing master documents.
Export documentation work constitutes a heavy charge on our export activity. It is
complex cumbersome and costly. This is partly due to the nature of export trade itself
involving as it does a number of intermediary organizations and authorities at different
stages of export activity between the seller and the buyer. All these, in turn, generate a
lot of paperwork and procedural formalities. The documents material to an export
sales contract are not many in number. However the problem is complicated due to the
heavy paper work and the procedural formalities that are required to be complied with
before the essential documents can be procured.
The procedural and documentary formalities associated with exports have been
evolved and practiced over the years by different authorities/organizations to suit their
own convenience without much regard to the repercussions they might have on the
total export activity. The resultant mass of paperwork caused much inconvenience and
inordinately long delay in the movement of goods. There was a need for a total
approach to the problem. This meant evolving not only simple export documents and
procedures in each of the individual areas of export activity but also ensure their
compatibility and harmony in the totality of export operation.
Notwithstanding the need for such an approach to the procedure generated problems,
it has been appreciated that the task of procedural simplification is a containing a
long-term one requiring. In some cases prior amendment of the statutes, policies and
regulations they stem from one of the ways in which this has been done is through the
use of standardized document in our export trade.
205
16.2 LEGAL PROVISION Export–Import Documentation
According to the Customs Act (Section 40), the person in charge of a Conveyance-
vessel, vehicle, Aircraft, etc. cannot permit loading of export Cargo at the Customs
Station unless and until the formal permission to export given by the proper Customs
Officer, is presented. Before granting the permission, the Customs Officer, however
ensures that the goods being exported are in accordance with the different regulations,
particularly in terms of the following:
z The goods are of the same type, sort and value as have been declared by the
exporter,
z Duty or Cess leviable thereon has been properly determined and paid,
z Provisions of Export (Control) Order, Export (Quality Control and Inspection) Act
and Foreign Exchange (Regulation) Act are complied with.
The Customs Act (Section 50) further states that the exporter, in case of goods to be
exported in a vessel or aircraft, has to present the Shipment Bill and other connected
documents to the proper officer. Any export shipment therefore, involves the
preparation of several document declarations and certificates, on the basis of which
the Customs Authorities grant necessary permission. There are also several documents
required for submission to the Port Authorities. In addition, a few more documents are
required if the export product fall within the purview of the Export Assistance
Schemes and Facilities.
16.3 EXPORT DOCUMENTATION

Once the goods are ready, an exporter has to prepare and execute various documents
at different stages of sending the shipment of goods to the importer. These documents
are important for two reasons:
z As an evidence of shipment and title of goods and
z For obtaining payment
The various documents are therefore, of vital interest to the exporter and the bank
which is the usual media of payment. The documentary requirements are both
regulatory and operational in nature and have to comply with the Rules and
Regulations of the Indian Government as well as the importing country for different
types of products. These requirements are different for different types of products.
When exporting for the first time, exporters should, always find out from their buyers
the documents required for the product concerned.
Accuracy and completeness are a prime necessity in documents covering export
shipments. Whether two or twenty copies of the Invoice are required by the buyer, the
same should be supplied as; the buyer probably has some reasons for it. Minor
discrepancies of any kind either in the date itself or in the typing in the documents,
which look harmless sometimes, assume a menacing form. Erasures and strike over in
typing or changes or additions made in ink must never be indulged as these only
arouse the suspicion that the documents have been tampered with. Any alteration or
addition made by an Authority issuing the documents must be endorsed properly, with
the signatures of the person issuing the documents only. If the documents are not the
correct ones or if they are not filled in correctly to the last, the importer may not be
able to get the goods when the ship carrying them arrives. This may seem obvious but
it bears emphasis since both the requirements and penalties are greater beyond
comparison in export than in domestic trade.
206 The main purpose of the documents accompanying a shipment is to provide a specific
and complete description of the goods so that they can be assessed correctly for Duty
purpose and meet the Import Licensing requirements or Import Quota Restrictions
imposed on the goods for clearance purpose. If there are any discrepancies in the
documents and or if the required documents are not produced, the shipment may not
be allowed for import or may even be confiscated by the Customs of the importing
country. There is a plethora of documents in export trade different forms, applications
and documents are required to be filled in for obtaining Export Licenses, completing
Pre-shipment Inspection, for Customs Clearance and shipping, for obtaining payment
and export finance and for claiming export benefits like Duty Drawback, etc.
The experienced exporter, because of the complexity of documentation, will find it a
good idea to have the various documents prepared for him by a Shipping and
Forwarding Agent or should take advice from a fellow exporter. The Exporter should
also develop a habit of thoroughly scrutinising the documents for any possible errors
or discrepancies and if any errors or discrepancies are found must rectify them
immediately before dispatching them to the Bank of buyer.
16.4 STANDARDISED PRE-SHIPMENT EXPORT

DOCUMENTS
The Government of India has made it mandatory for every exporter to use
standardised pre-shipment export documents w.e.f. September 1, 1991. This is
popularly known as Aligned Documentation System (ADS), based on UN Layout
Key. The ADS Methodology involves the preparation of documents on a uniform and
standard A4 size of paper. The documents are aligned to one another in such a way
that, the common items of information are given the same relative slots in each of the
documents included in the System. This makes it possible to prepare one Master
document embodying the information common to all the documents included in the
aligned series and to run off all the aligned documents from the same Master
document with the help of suitable marking reproduction techniques. The Pre-
shipment documents on a Standard Layout were first introduced by Sweden in 1956
followed by Denmark, Finland and Norway. It was later that most of the European
countries, USA, Australia, etc. have adopted this ADS system.
The ADS system offers the following advantages:
z Dispenses with the conventional documentation practices.
z Brings in uniformity in documentation.
z Ensures economy, speed, accuracy and convenience.
z Facilitates expeditious checking and processing of documents at different stages.
z Generates as many copies as required of Commercial and Regulatory Documents
from their respective Master Copies through Photocopying Machines.
16.5 DOCUMENTATION PRACTICES IN INDIA

In India, on an average, about 25 documents are associated with the Pre-shipment
stage to export transaction. These documents are classified into two categories
namely, Commercial and Regulatory. The Commercial documents are those which, by
Customs of Trade, are required for effecting physical transfer of goods and their 'title'
from the exporter to the importer. Regulatory Pre-shipment documents are those
which have been prescribed by different Government Departments/Bodies in
compliance of the requirements of various Rules and Regulations under relevant laws
like Exchange Control Regulations, Export Trade Control, Customs, etc.
The Government of India therefore identified some export documents for 207
standardization with the help of the concerned official and commercial interests in the
country. The documents taken up for standardization include: Invoice, Certificate of
Origin, Packing List, Bill of Lading, mate’s receipts, Shipping Bill. Different forms in
respect of each of these documents used in the country were examined from the point
of view of standardization and putting them into an aligned system. The common
items of information appearing in each of these documents were recorded to develop a
common denominator a master documents–from which the repetitive information
could be reproduced in one run on all the documents leaving only the information
specific to individual documents to be filled in separately. Any information on the
master which is not required on a particular document can be omitted by different
masking techniques at the reproduction stage.
16.6 MASTER DOCUMENTS

All these problems of late have been avoided by following a system which provides an
alternative to the repetitive, unproductive and time consuming work necessitated by
the exporter’ compulsion to prepare separately a number of documents all containing
practically the same information. This system is known as the ‘Aligned
Documentation System’. Already in use in a number of countries, this system is
reported to have made for simplicity, convenience, speed, accuracy and economy in
documentation work.
United Nations key Layout has make it possible to many countries to reproduce in one
run the repetitive information on all the export documents from just one document
called the ‘Master Document’. As a result, exports in these countries have been able to
reduce the documentation costs by 50 to 70%.
The documentation of simplified export documents has reduced the burden of the
exporters and has given a push to the country’s ongoing export drive. The exporters
now can save at least 50% of the time and cost on documentation. It will thus help in
expediting decision-making process. Virtually eliminate the chances of errors and
facilitate electronic transmission of export documentation and data. Therefore
simplification of export documentation and procedures are key measures to promote
exports.
Earlier Indian exporters were required to submit 25 documents to various agencies and
authorities merely to ship the goods. Each document had to be individually prepared.
The new system standardised these documents and aligned them to each other on basis
of United Nations’ key layout which has already been adopted by most of Indians
trading partners. Thus now instead of typing out 25 documents, exporters prepare only
two master documents.
The new system also includes simplification and relaxation of related procedures,
which will further reduce the delays and time component currently involved in export
effort. It is expected that as fallout of the introduction of the new system, a self
propelling process towards further rationalization of documentation and procedural
requirements would get in motion in all the conceived organizations. And at the end of
it the exporter should be able to spend his resource and energy more on export
production and marketing than on meeting the demands of archaic export procedures.
In the new set up attempts have been made first to standardize and simplify each
document and secondly to align them to each other using as far as possible the UN
Key Layout. These aligned documents are in time with the proforma used by countries
with whom more than 80% of India’s foreign trade is transacted.
208 The two master documents: One for commercial use and the other for regulatory
documents meant for customs. RBI and port trust-have maximum advantage of
alignment and minimum cost and time for preparing individual documents.
The two master documents contain all the information that was common to individual
documents. Earlier, there were a plethora, of commercial document which include
among others, invoice, packing, list intimation for inspection insurance declaration
form, shipment advice and the exchange control declaration form.
Thus the one run method of preparation of Documents involves the use of
standardized and aligned documents. Aligned Documentation System (ADS) is based
on the UN layout key. Under this system, different forms used in the international
trade transaction are printed on paper of the same size and in such way that the
common items of information are given the same relative slots in each of the
documents.
For the purpose of Aligned Documentation System documents have been, classified as
under:
16.6.1 Commercial Documents

Commercial documents are required for effecting physical transfer of goods and their
title from the exporter to the importer and the realization of export sale proceeds. Out
of the 16 commerce documents in the export documentation framework, as many as
14 have been standardised and aligned to one another. These are performance invoice,
commercial invoice, packing list, shipping instructions, intimation for, inspection,
certificate, of inspection of quality control, insurance declaration, certificate of
insurance, mate's receipt, bill of lading or, combined transport document, application
for certificate origin, certificate of origin, shipment advice and letter to the bank for
collection or negotiation.
However, shipping order and bill of exchange could not be brought within the fold of
the Aligned Documentation System.
The following are the 16 Commercial documents generally involved at the pre-
shipment stage:
z Proforma invoice
z Commercial Invoice
z Packing List
z Shipping Instruction
z Intimation of Inspection
z Certificate of Inspection
z Insurance Declaration
z Certificate of Insurance
z Shipping Order
z Mate's Receipt
z Bill of Lading/Combined Transport Document
z Application for Certificate of Origin
z Certificate of Origin
z Bill of Exchange
z Shipment Advice 209
z Letter to the Bank for Collection/Negotiation of Documents
16.6.2 Regulatory Documents

Regulatory pre-shipment export documents are prescribed by the different government
departments and bodies in order to comply with various rules and regulations under
the relevant laws governing export trade such as export inspection, foreign exchange
regulation, export trade control, customs, etc. Out of 9 regulatory documents 4 have
been standardised and aligned. These are shipping bill or bill of export, exchange
control declaration (GR from), export application dock challan or port trust copy of
shipping bill and receipt for payment of port charges.
It is proposed to conduct training and orientation programmes at all export centres to
familiarize the exporting community with the new system.
The regulatory documents associated with the pre-shipment stage of an Export
Transaction are given below:
z Gate Pass-I/Gate Pass-II (now deleted)
z AR-4 Form
z Shipping Bill/Bill of Export
z Export Application/Dock Challan/Port Trust Copy of Shipping Bill
z Receipt for Payment of Port charges
z Vehicle Chit
z Exchange Control Declaration (GRIPP) Forms
z Freight Payment Certificate'
z Insurance Premium Payment Certificate
Out of the above 9 Regulatory documents, 4 have been standardised. In fact, these
four documents have been reduced to only three. The receipt for payment of Port
Charges has been incorporated in the Export Application/Dock Challan/Port Trust
Copy of Shipping Bill, thus one document has been completely eliminated.
16.7 GUIDELINES FOR COMMERCIAL DOCUMENTS

AND MASTER DOCUMENT–I
16.7.1 Paper Size and Specifications
The ADS, as discussed earlier, involves the use of standardised trade documents
aligned to one another. All the documents under the system are to be prepared on A4
size of paper, measuring 297 mm * 210 mm with standard margins – 10 mm top, 20
mm left, 6 mm width and 180 mm in length. The size of the individual boxes should
be strictly as per specifications. Maximum tolerance is 1 mm. The captions inside
boxes should be printed in 6 points, sans-serif face and should be located as near to the
top left of the boxes as possible. As the documents are to be generated mechanically, it
is important for the paper to be of a consistent specification, with grammage of 70 to
85 gm, by all users. The paper should be stable in conditions of 50 to 60% relative
humidity. Needless to emphasise that accuracy in layout and printing is an essential
requirement.
210 16.7.2 Master Document–I
The Master document will be typed on a sheet of paper in light blue ink. The mask for
the photocopier may be made of a transparent polyester film (of 0.004 in. or 0.005 in.
thickness) with white opaque patches to blank out unwanted information from the
Master document or it may also be cut from an opaque white plastic sheet. After the'
desired information is typed on Master document-I, the relevant mask is laid over it.
Both the Master document and the mask over it are then fed to the photocopying
machine. The desired information is then automatically reproduced on the relevant
document through transparent or open portion of the mask. Any additional
information, which is specially required to be given in any particular documents, can
be either pre-printed or inserted in the relevant box as and when required.
16.8 GUIDELINES FOR REGULATORY DOCUMENTS

AND MASTER DOCUMENT–II
The guidelines for regulatory documents and master documents–II can be described in
detail below.
16.8.1 Paper Size and Specification

As against the commercial documents which are designed on A4 size of paper,
Regulatory documents are to be prepared on foolscap size of paper measuring
34.5 cms × 21.5 cms, The margins are, top 1.5 cms, bottom 1.5 cms, left 1.8 cms and
right 0.5 cms. The inside measurement are 31.5 cms × 19.2 cms. The measurements of
individual boxes, as indicated in the Master document–II, should be strictly adhered
to. The paper to be used for these documents should be of consistent specifications.
16.8.2 Reproduction Technique

The three Regulatory documents under reference have been so aligned that their
respective common data requirements have been accommodated on the front side of
each of these documents. This makes it possible to prepare a single Master document
(as illustrated in Master document-II) from which the front side of all the three
documents can be run off at one go without/using any mask. The caption Master
document–II would, however need to be blanked out to prevent its reproduction on the
blank forms of the Regulatory documents with pre-printed titles. The blank forms of
shipping Bills/Bills of Export, GR Forms and the Port Trust documents will have a
common pre-printed Declaration, as to the correctness of the particulars furnished in
these documents. Besides, the exporters will also attach other relevant Declaration(s)
with the Shipping Bill/Bills of Export, as per the printed statement to this effect on
these documents.
The Master document in respect of the Standardised Forms of Shipping Bill/Bill of
Export, Exchange Control Declaration (GR) Form and the Port Trust documents a sort
of three- in-one, as it seeks to present the common requirements on the front side of
each of these documents. The form of Shipping Bill, however, does incorporate
several pieces of information which are not required by the Customs but are required
by the Reserve Bank of India under the Foreign Exchange Regulations Act.
Conversely, these are some details which are required by the Customs Authorities but
not required by the RBI. Similarly, the Port Trust document may also have on its face
some information with which Port Authorities are hardly concerned. In the interest of
alleviating the burden of the Exporter in the preparation of these documents
individually and to facilitate preparation of these three documents from a single
Master document, this minor concession on the part of each of these authorisations is
not only desirable but also necessary. While the front side of these three Regulatory
documents can be prepared from Master Document–I, necessary provision has been 211
made on the reverse side of these documents. It will be useful if the following points
are kept in view while completing the Master Document–II from which the
Regulatory documents are to be generated:
z All the columns in Master document–II should be completed and necessary
information typed within the relevant boxes or columns without any overlapping.
The Caption Master document–II should be suitably covered to prevent its
impression on the documents to be generated through the Master.
z With a view to achieving total legibility, and having due regard to the layout of
the documents, it is necessary that typewriter and not a fountain pen should be
used by the exporters.
z As the Master document–II embodies all the information which is common to the
front side of the three Regulatory Documents it would need to be prepared
separately. The three documents with the requisite number of copies may be
photocopies from the Master Document–II on Bank forms of the documents with
pre-printed captions. No masks need to be used.
z Each copy of the three documents should be signed in ink by the exporter
Forwarding Agent as the case may be, so that it becomes a legally valid document.
z Six versions of Master document-II have been designed and Forwarding Agents
Exporters should use the relevant Master document-II, depending upon the type of
Shipping Bill of Export required to be filled.
Master Document-II (A): For shipping Bill for Export of Dutiable goods and
Shipping Bills of Export goods under Claim for
Duty Drawback.
Master Document-II (B): For Shipping Bills for Export of Duty Free Goods.
Master Document-II (E): For Shipping Bills for export of Goods Ex-bond.
Master Document-II (E): For Bills of Export of Duty Free Goods
Master Document-II (F): For Bills of Export of Goods Ex-bond.
z As regards Shipping Bills different forms have been designed for different types
of Shipping Bills, namely, Shipping Bills for Duty Free goods, Shipping Bill for
Duty Free goods Ex-bond, Shipping Bill for Dutiable goods and Shipping Bill for
goods under Claim for Duty Drawback. A separate Form exists for Bill of Export.
Appropriate Form should be used depending upon the type of goods to be
ex-ported.
z As the Port Trust document incorporated the receipt for payment of port charges
(called Export Application at Bombay Port), it may be necessary for the
Exporters/Forwarding Agents to prepare this document in triplicate. While the
original of the Port Trust document is meant for keeping record of receipt and
shipment of goods, the duplicate copy is to be used as the receipt for payment of
Port charges. The triplicate copy of this document will serve the purpose of the
Shipper's copy as record of shipment and payment of Port charges in respect to the
goods handled by the Port Trust.
z On the reverse of the Port Trust document Export Application/Dock Challan/Port
Trust copy of Shipping Bill-space has been provided for completion of carting
permission and Customs formalities. Particulars have also been made for
acknowledgement of goods 'on Board' by the Master of Vessel. This seeks to do
away with the practice for Kacha Notes of any interim document required to be
212 issued by the Master of Vessel prior to the issue of 'Mate's Receipt' in respect of
consignments shipped on-board.
With the adoption of the Aligned Documentation System involving the use of two
Master documents, it will be possible for the exporters and other concerned agencies
bodies to avail the advantages of 'System approach' to Export documentation.
16.9 NEED FOR PREPARING EXPORT DOCUMENTS

Export documents have to be prepared for various purposes, viz.
z Declaration of Exports as per Exchange Control Regulations of the country.
z Transportation of the goods.
z Customs clearance of the goods.
z Other purposes.
Some of the forms for preparing documents have been standardised under the Aligned
Documentation System introduced w.e.f. 1.10.1991.
16.9.1 Declaration Forms

There are four main declaration forms which are prescribed. These are called GR, PP,
VP/COD and Softex Forms. All exports to which the requirement of declaration
applies must be declared on appropriate forms as indicated below:
GR Form: Used for exports to all countries made otherwise than by Post.
PP Form: Used for exports to all countries by Parcel Post, except when
made on ''Value Payable" or "Cash on Delivery" basis.
VP COD FORM: Used for exports to all countries by Parcel Post under
arrangements to realise proceeds through Postal channels on
"Value Payable" or Cash on Delivery" basis. Used for export of
Computer Software in non-physical form.
SOFTEX: While Export Declaration are to be made in a set of to copies
(original and duplicate) of GR or PP form, VP/COD forms are to
be submitted in a single copy.
GRIPP forms are printed in distinctive colours and each set bears a printed number
which appears on both copies of the Form. They are available for sale with Reserve
Bank of India. However, exporters can get these forms through Authorised Dealers
also. VP/COD Forms are sold directly to exporters by Reserve Bank of India.
Export Declaration Forms have utmost importance and are binding on the exporter. It
is therefore necessary, that enough care is taken while declaring exports on these
forms with special reference on the following points:
z Name and address of Authorised Dealer through whom proceeds of exports have
been or will be realised should be specified in the relevant column of the form.
z Details of commission and discount due to foreign agent or buyer should be
correctly declared otherwise difficulties may arise at the time of remittance of
such commission.
z It should be clearly indicated in the form whether the export is on 'Outright sale
basis' or 'on Consignment basis' and irrelevant clauses must be struck out.
z Under the item 'Analysis of Full Export value', a break up of the full export value 213
of goods under FOB value, freight and insurance should be furnished in all cases,
irrespective of the terms of the contract.
16.10 DISPOSAL OF COPIES OF EXPORT

DOCUMENTATION FORM
GR Forms covering export of goods other than jewellery should be completed by the
exporter in duplicate and both the copies should be submitted to Customs at the Port
of Shipment. Customs will give their running Serial number on both the copies of the
GR Forms after verifying the particulars and admitting the corresponding Shipping
Bill. The value declared by exporter will also be verified by Customs and they will
also record the assessed value. Duplicate copy of GR Form will again be presented to
Customs at the time of actual shipment. After examination of goods and certifying the
quantity passed for shipment, the duplicate copy will again be returned to exporter for
submission to an Authorised Dealer. However, an exception to submission of GR
forms to the Customs Authorities has been made in case of deep Sea fishing.
PP Forms are to be first presented to an Authorised Dealer for counter signature. The
Form will be countersigned by the Authorised Dealer only if the Post Parcel is
addressed to his Branch or Correspondent Bank in the country of import. The
concerned Overseas Branch or Correspondent Bank is to be instructed to deliver the
Post Parcel against payment or acceptance of relevant Bill, as the case may be.
For Post Parcel addressed directly to the consignee, the Authorised Dealer will
countersign the Form, provided
z An irrevocable Letter of Credit for the full value of export has been opened in
favour of exporter and has been advised through Authorised Dealer concerned;
z The full value of the shipment has been received in advance by the exporter
through an Authorised Dealer.
z The Authorised Dealer is satisfied on the basis of standing and track record of the
exporter and arrangements made for realisation of the export proceeds that he
could do so. If the Authorised Dealer is not satisfied about the standing, etc. of the
exporter, the application is rejected. No reference is entertained by the Reserve
Bank in such cases.
z In the case of VP/COD Forms only one copy is required to be completed and
submitted to Post Office along with the relative parcel at the time of dispatch.
The export of computer software may be undertaken in physical form, i.e. software
prepared on magnetic tape and paper media as well as in non-physical form by direct
data transmission through dedicated earth stations/satellite links. The export of
computer software in physical form is subject to normal declaration on GRIPP Form
and regulations applicable thereto will also be applicable to such exports. However,
export of software in non-physical form is fraught with many risks and special
guidelines have been framed for handling such exports.
16.11 EXPORT INVOICE

Invoice is a document of content. It’s the exporter’s bill for goods and sets forth the
terms of sale. The invoice is a basic document. As a document of contents it must
fully identify the overseas shipment and serve as a basis for the preparation of all other
documents, which in greater or lesser detail reproduce information from it. The
exporter should strictly follow the requirements of the importer in regard to invoicing.
214 The standard document in respect of the invoice based on the United Nations Key
Layout, which has been accepted as the basis of this document in many entries. The
information requirements of the document have been determined after examining a
number of forms of invoices used by leading export organizations and after series of
discussions with the representatives of the Department of Customs and Central Excise
and the Federation of Custom House Agents’ Associations in India.
Invoices based on the suggested design will be acceptable not only in many countries
but will also help facilitate processing of documents at various stages. The Declaration
given at the bottom (left hand) of the Invoice follows the UN recommendation. The
standard Invoice can be reproduced from the master by masking only three columns,
i.e. Notify Party, Insured Value and No. of Original Bs/L No, and Date on the
invoices. But under the present procedure for customs clearance and shipment of
export cargo, this information, and particularly in respect of the B/L No. and Date,
will be available to exporters only after shipment has been effected. Where required
under letter of credit, such information will need to the banks for negotiation. But for
this, the rest of the information can be reproduced from the master.
The information referred to in the preceding lines can be given above the columns for
Country of Origin and Final Destination in the order of name of shipping line, ETD
(port of shipment), ETA (destination port) and B/L No. and Date. Unused space, in the
Buyer’s column and below the Consignee’s Column can be utilised for incorporation
of any other information which may be special to a transaction. Value and Origin
Clauses can be printed on the back side of the Standard Invoice.
There may be cases when exports are required to give detailed descriptions or
specifications of the various items forming part of the consignment exported in one
lot. In such cases, exporters are advised to use Continuation sheets’ to the Invoice.
16.12 PROFORMA INVOICE

The starting point of the export contract is in the form of offer made by the exporter to
the foreign customer. The offer made by the exporter is in the form of a proforma
invoice. It is a quotation given as a reply to an inquiry. It normally forms the basis of
all trade transactions.
It is proposed to conduct training and orientation programmes at all export centres to
familiarise the exporting community with the new system.
16.12.1 Contents of Proforma Invoice

The contents of proforma invoice are:
z Name and address of the exporter.
z Name and address of the importer.
z Mode of transportation, such as Sea or Air or Multimodal transport.
z Name of the port of loading,
z Name of the port of discharge and final destination.
z Provisional invoice number and date.
z Exporter's reference number.
z Buyer's reference number and date.
z Name of the country of origin of goods.
z Name of the country of final destination.
z Marks and container number. 215
z Number of packing descriptions.
z Description if goods given details terms of internationally accepted price
quotation,
z Signature of the exporter with date.
16.12.2 Importance of Proforma Invoice

The importance of proforma invoice is:
z It forms the basis of all trade transactions.
z It may be useful for the importer in obtaining import license or foreign exchange.
16.13 COMMERCIAL INVOICE

Commercial invoice is an important and basic export document. It is also known as a
Document of Contents as it contains all the information required for the preparation of
other documents. It is actually a seller’s bill of merchandise. It is actually a seller’s bill
of merchandise. It is prepared by the exporter after the execution of export order
giving details about the goods shipped. It is essential that the invoice is prepared in the
name of the buyer or the consignee mentioned in the letter of credit.
This is the first basic and the only complete document among all commercial
documents for the shipment. Besides fulfilling the obligation under the export
contract, the exporter needs this document for a number of other purposes including:
z Obtaining export inspection certificate
z Getting excise clearance
z Getting customs clearance
z Securing incentives.
Thus, this document is prepared at both the pre-shipment and post-shipment stages.
In the first place, Commercial Invoice is a document of contents that describes details
of goods sent by exporter. It is the statement of account, which must contain
identification marks and numbers, description of goods and quantity of goods.
Every shipment has identification marks, which identify the cargo with various
documents. These are private marks which are made on the packages. These marks
could be either in the form of symbols (say, a star, triangle, rectangle, etc.) or
numerical. Similarly, every package under a shipment is numbered, usually written
serially. The commercial invoice must specify the serial numbers given in a particular
consignment.
Commercial invoice must describe the goods shipped by the exporter. The description
of goods must correspond exactly with the description given in the contract or the
letter of credit. It means that there should not be any difference (including spelling)
between these descriptions. Thus, if a contract describes the goods as “Ten Thousand
Pairs of Blouses and Skirts”, the exporter should not describe them as “Ten Thousand
Blouses and Ten Thousand Skirts”, though logically both the descriptions mean the
same.
Sometimes description of the goods includes the number of packages and the type of
packing material. Thus, if the contract specifies shipment to be made in “ten new
gunny bags” the exporter should send the contracted goods and describe them as
needed. If the commercial invoice wrongly describes the shipment as “ten gunny
216 bags” instead of “ten new gunny bags” the bank may refuse to honour shipping
documents and not pay for them.
The quantity described on the commercial invoice should neither be less or more than
the contracted quantity. In other words, the exporter should not ship less than
contracted quantity, unless the contract permits part shipment. However, if the goods
are being shipped under a letter of credit, part shipment is permitted, unless it is
specifically prohibited. On the other hand, quantity shipped should not be more than
the contracted quantity. This is so even if the exporter may not be charging for the
additional quantity.
Second function of the commercial invoice is that it is the seller’s bill given to the
buyer. As a bill, it must contain the name and address of the buyer, unit price, and
amount and authorised signatures with designation. Unless required by the buyer, the
total invoiced value should be net of any commission or discount; in other words, it
should be the realisable amount of goods as per the trade terms. Sometimes a contract
requires a detailed break-up of the amount to be recorded on the invoice for enabling
the customs authority in the importing country to calculate import duty.
The name and address given in the commercial invoice should be the same as given in
the export contract or the letter of credit as the case may be. Under a letter of credit,
unless otherwise specified the commercial invoice must be made out in the name of
the applicant I of the credit. As in the case of quantity to be recorded on the invoice,
the amount should neither be less nor more than the stipulated amount in the contract
or the letter of credit. The only exception is that if the contract or the letter of credit
permits part-shipment, an individual invoice can be less than the total amount.
The commercial invoice also sets forth the terms of sale (i.e. fob/cif/c&f), etc. mode
and date of shipment and terms of payment. It can also serve as a packing list and a
certificate of origin. A packing list shows details of goods contained in each pack of
shipment. When the law in an importing country does not specifically require a
separate certificate of origin issued by a third party, it can be self-certified by the
exporter on the commercial invoice. Exporters themselves according to the
requirements of their business devise the format of Commercial invoice. Look at
figure on page 236, where the format of Commercial invoice has been given.
16.13.1 Contents of Commercial Invoice

The contents of commercial invoice are:
z Name and address of the consignee.
z Name and the number of Vessel or Flight.
z Name of the port of loading.
z Invoice number and date.
z Exporter's reference number.
z Buyer's reference number and date.
z Terms of delivery and payment.
z Marks and container number.
z Number and packing description.
z Description of goods giving details of quantity, rate and total amount in terms of 217
internationally accepted price quotation.
16.13.2 Significance of Commercial Invoice

The significances of commercial invoice are:
z It is the basic document useful in preparation of various other shipping
documents.
z It is used in various export formalities such as quality and pre-shipment
inspection, excise and customs procedure, etc.
z It is also useful in negotiation of documents for collection and claim of incentives.
z It is useful for accounting purposes to both exporters as well as importers.
16.14 PACKING LIST

This may be shown on invoice or separately, and should contain item by item, the
contents of cases or containers or of a shipment with its weight and description set
forth in such a manner as to permit checks of the contents by the customs on arrival at
the port of destination as well as by the recipient.
The packing list is a relatively simpler document and the whole of the information can
be reproduced from the master by masking information not desired on the packing list.
Special information, if any, can be given in the blank space in the lower third portion
of the document.
The exporter prepares the packing list to facilitate the buyer to check the shipment. It
contains the detailed description of the goods packed in each case, their gross and net
weight, etc. The difference between a packing note and a packing list is that the
packing note contains the particulars of the contents of an individual pack, while the
packing list is a consolidated statement of the contents of a number of cases or packs.
16.14.1 Components of Packing List

The various components of packing list are:
z Name and address of, the consignee.
z Name and the number of Vessel or Flight.
z Invoice number and date.
z Number and packing description.
z Description of goods in terms of quantity and special remarks, if any.
218 Normally, ten copies of the packing note/list should be prepared. The first is to be sent
with the shipping documents, two copies in advance to the buyer, one to the shipping
agent and the remaining retained by the exporter.
16.15 MATE’S RECEIPT

Mate's receipt is a receipt issued by the Commanding Officer of the ship when the
cargo is loaded on the ship. The mate's receipt is a prima facie evidence that the goods
are loaded in the vessel. The mate's receipt is first handed over to the Port Trust
Authorities. After making payment of all port dues, the exporter or his agent collects
the mate's receipt from the Port Trust Authorities. The mate's, receipt is freely
transferable. It must be handed over to the shipping company in order to get the bill of
lading. Bill of lading is prepared on the basis of the mate's receipt.
16.15.1 Types of Mate's Receipts

The types of mate’s receipts are:
z Clean Mate's Receipt: The Commanding Officer of the ship issues a clean mate's
receipt; if he is satisfied that the goods are packed properly and there is no defect
in the packing of the cargo or package.
z Qualified Mate's Receipt: The Commanding Officer of the ship issues a qualified
mate's receipt, when the goods are not packed properly and the shipping company
does not take any responsibility of damage to the goods during transit.
16.15.2 Components of Mate's Receipts

The components of mate’s receipts are:
z Name and logo of the shipping line.
z Name and address of the shipper.
z Name and the number of vessel.
z Name of the port of discharge and place of delivery.
z Packing and Container description.
z Total number of containers and packages.
z Description of goods in terms of quantity.
z Container status and seal number.
z Gross weight in kg. and volume in terms of cubic meters.
z Shipping bill number and date.
z Signature and initials of the Chief Officer.
16.15.3 Significance of Mate’s Receipts

The significance of mate’s receipts are:
z It is an acknowledgement of goods received for export on board the ship.
z It is a transferable document. It must be handed over to the shipping company in
order to get the bill of lading.
z Bill of lading, which is the title of goods, is prepared on the basis of the mate's 219
receipt.
z It enables the exporter to clear port trust dues to the Port Trust Authorities.
16.16 BILL OF LADING

Bill of lading is issued by the shipping company or its agents stating that goods are
either being shipped or have been shipped. Essentially, a transport document, it serves
many purposes in international commerce.
The bill of lading is a document issued by the shipping company or its agent
acknowledging the receipt of goods on board the vessel, and undertaking to deliver the
goods in the like order and condition as received, to the consignee or his order,
provided the freight and other charges as specified in the bill have been duly paid. It is
also a document of title to the goods and, as such, is freely transferable by
endorsement and delivery. A bill of lading serves three main purposes:
z This document evidences the contract of transport between the shipping company
and the shipper (exporter or importer).
z It is a receipt given by the shipping company for cargo received by it.
z It is a document of title (This is the most significant function of the bill of lading).
Let us first understand the meaning of the term "evidence of the contract of
affreightment (transport)". When goods are to be carried by any carrier (say a ship),
the contract of affreightment will contain terms and conditions of carriage. In
particular, this contract will mention the responsibility of the carrier (e.g. shipowner)
in providing space, receiving, loading carrying and unloading of the cargo. Thus, if
there is any loss or damage to the cargo when it is in the custody of the carrier, the
contract will provide for the circumstances in which the carrier can be held liable for
the loss or damage. Further, in case the carrier is to be liable for loss or damage, the
contract will provide for the amount of claim which carrier will be required to pay to
the cargo owner. A bill of lading also contains printed terms and conditions of the
contract of affreightment on it. However, it is not considered as a contract by itself;
instead it is the most important evidence of the contract. Law courts all over the world
have held that in case of a dispute, the aggrieved party may produce any other
evidence, which may controvert a printed clause in the bill of lading. Any other
evidence could be a specific agreement in which for example, the ship owner may
have agreed to a higher amount of liability than the standard amount. Thus, in such
cases, the ship owner does not have a defence that his maximum liability is as printed
in the bill of lading.
Bill of lading is a receipt issued by the shipping company on its agents. Law requires
that as a receipt, it must contain leading identification marks, number of packages or
quantity or weight or any other unit of account, and apparent order and condition of
the goods.
Bill of lading is the only evidence to file a claim against the shipping company in the
event of non-delivery, defective delivery or short-delivery of the cargo at the
destination. As a result, this document indicates that the contracted goods have been
either given into the charge of the shipping companies or shipped by the exporter by
the named ship on the date specified on the bill of lading. If shipment is according to
the contract terms, the exporter gets the right to demand the sale amount from the
importer while the importer is entitled to get delivery of the goods at the destination.
220 For the bill of lading to be negotiable in fact three requirements must be fulfilled:
z It must be made out to the order to the shipper.
z It must be signed by the steamship company.
z It must be endorsed in blank by the shipper.
16.16.1 Types of Bill of Lading

The various types of bill of lading are:
z Clean Bill of Lading: A bill of lading acknowledging receipt of the goods
apparently in good order and condition and without any qualification is termed as
a clean bill of lading.
z Claused Bill of Lading: A bill of lading qualified with certain adverse remarks
such as, "goods insufficiently packed in accordance with the Carriage of Goods by
Sea Act," is termed as a claused bill of lading.
z Through Bill of Lading: It covers goods being transhipped enroute but where the
first carrier has the responsibility as the principal carrier for all stages of the
journey. For example, goods may be shipped from Bombay to Dubai and
transhipped from Dubai to a port in Latin America.
z Trans-shipment B/L: It has similar characteristic as the Through B/L except that
in this case the first carrier acts only as an agent for effecting Trans-shipment of
cargo.
z Stale Bill of Lading: A bill of lading that has been held too long before it is
passed on to a bank for negotiation or to the consignee is called a stale bill of
lading.
z Freight Paid Bill of Lading: When freight is paid at the time of shipment or in
advance, the bill of landing is marked, freight paid. Such bill of lading is known as
freight bill of lading.
z Freight Collect Bill of lading: When the freight is not paid and is to be collected
from the consignee on the arrival of the goods, the bill of lading is marked, freight
collect and is known as freight collect bill of lading.
16.16.2 Design of Bill of Lading

The design for the bill of lading is based on the Standard Bill of Lading recommended
by the International Chamber of shipping. A number of shipping lines in India’s
overseas trade are already issuing bills of lading on the ISO A4 size paper. However,
in some case, these bills of lading are based on the old pattern.
The Standard Bill of Lading included in the aligned series can be reproduced from the
master by using the relevant mask. The Chief Officer of the ship through the port trust
issues bank forms of bills of lading are supplied by shipping companies to shippers
who prepare these documents and present them for signature at the shipping to the
shipper. While preparing “To Order Bills of Lading” care should be taken to mask the
Consignee box also. The words Unto Order May be typed in the Consignee box and
the name and address of the Consignee given in the box for the Notify Party. The
other details on the bill of lading will be completed by the office of the shipping
company before the document is signed and handed over to the shipper in exchange
for the mate’s receipt.
Bill of lading is a document of title that will enable the lawful holder of any of the
original Bill to take delivery of the goods at the stipulated port of destination. Thus, a
claimant of title to goods is required to surrender an original BIL (also popularly
known as negotiable copy of B/L) for claiming goods from the shipping company or 221
its agents. A bill of lading is not a negotiable instrument, though it is transferable by
endorsement and delivery. What is the purpose of transferability of the bill of lading?
Transferability enables the banks to pay money to the exporter against surrender of
shipping documents, including B/L, even before the goods reach the destination.
Similarly, it enables the goods to be resold by the importer before goods reach the
destination. For creating transferability, the bill of lading has to be made in such a way
that the goods are consigned to the order of a party. The party could be either the
exporter himself, or a negotiating or paying, bank or any other party as provided in the
contract or letter of credit. For example, if B/L is prepared in the following way, it can
be transferred through endorsement in the same manner as in a cheque. There are three
main columns in B/L. These are Consignor (Shipper); Consignee or Order of and
Notifying party. Notifying party is the party to whom the shipping company is to send
"notice of arrival". Transferability can be created by filling- up these columns in the
following manner:
z Consignor: ABC Company, New Delhi
z Consignee: (Or Order of) Bank of XYZ, New Delhi
z Notifying party: KNM, London
By not striking-off the words "Or Order Of "and. writing the name of the negotiating
bank, the bank becomes the first endorsee. Title to goods will be transferred from the
negotiating bank to the paying bank to importer on endorsements by the negotiating
and the paying banks in succession.
In contrast to the "Order BIL" is the consignee-named B/L. The consignee-named B/L
is made out in the name of a specific party. Hence, title to goods cannot be transferred
to a third party. The exporter should not ship goods under this kind of B/L as goods
can be released by the shipping company at the destination without the presentation of
the original B/L. Thus, if payment from the importer has not been secured, the
exporter may lose hold over goods and may not get paid. However, if payment in
advance has been received or if goods are being shipped under irrevocable letter of
credit, the consignee named B/L is a valid document.
According to international commercial practice, BIL along with other shipping
documents must be presented to the bank not later than 21 days of the date of
shipment as given in BIL. Sometimes the buyers may also specify the last date or the
number of days after shipment by which the documents must be submitted to the bank.
Where the exporter does not follow this stipulation, the documents are said to have
become "stale" and B/L in such case will be known as Stale B/L. A State B/L is one
which is tendered to the paying bank at so late a date that it is impossible for it to be
dispatched to the consignee in time to reach him before the goods themselves arrive at
the destination port.
Example: An exporter sent off his goods but forgot to send the Bill of Lading to the
customer. Without this document the customer was unable to obtain the goods at the
Port of destination, so the goods had to be stored at the docks until the Bill arrived.
The customer sent the storage charges to the exporter, maintaining that because the
exporter's fault, the charges had been incurred. He sued the exporter for the costs of
the storage, and won.
16.16.3 Components of Bill of Lading

The various components of bill of lading are:
z Name and logo of the shipping line.
z Name and address of the shipper.
222 z Name and the number of vessel.
z Packing and container description.
z Gross weight in kg. and volume in terms of cubic metres.
z Amount of freight paid or payable.
z Shipping bill number and date.
z Signature and initials of the Chief Officer.
16.16.4 Endorsement on Bill of Lading

By practice and custom he bill of lading has been transferable. If however, the bill
requires the goods to be delivered to a particular named person and does not include a
reference to his assignees, the bill of lading is not transferable. It is only rarely that a
bill of lading would be drawn this way.
The consignee or consignor as the case may be, can transfer the B/L either by a special
endorsement, i.e. an endorsement which names the transferee to whom delivery is to
be made or by an endorsement in blank to be bearer. The holder may, however,
convert the blank endorsement into a special endorsement by inserting, the name of a
person to whom delivery is to be made. It is then called the “endorsement in full”
16.16.5 Sending of Bill of Lading to Importer

Bill of lading is made out in sets and any number of copies may constitute the set
according to the requirements of the particular transaction and the importer. The
number of copies to be made out will be indicated by the importer before the shipment
takes place. In case there is no such indication, normally, two copies. One set of
documents is sent by the first class airmail and the second by the following mail, so
that if one is lost. Delivery of the goods can be taken by the importer because of the
second set.
16.16.6 Significance of Bill of Lading for Exporters

The various significance of bill of lading for exporters are:
z It is a contract between the shipper and the shipping company for the carriage of
the goods to the port of destination.
z It is acknowledgement indicating that the goods mentioned in the document have
been received on board for the purpose of shipment.
z A clean bill of lading certifies that the goods received on board the ship are in
order and good condition.
z It is useful for claiming incentives offered by the government to exporters.
z The exporter can claim damages from the shipping company if the goods are lost
or damaged after the issue of a clean bill of lading.
16.16.7 Significance of Bill of Lading for Importers 223
The various significance of bill of lading for importers are:
z It acts as a document of title to goods, which is transferable by endorsement and
delivery.
z The exporter sends the bill of lading to use bank of the importer so as to enable
him to take the delivery of goods.
z The exporter can give advance intimation to the foreign buyer about the shipment
of goods by sending him a non-negotiable copy of bill of lading.
16.16.8 Significance of Bill of Lading for Shipping Company

The significance of bill of lading for shipping company include:
z It is useful to the shipping company for collection of transport charges from the
importer if not collected from the exporter.
16.17 CERTIFICATE OF ORIGIN

The importers in several countries require a certificate of origin without which
clearance to import is refused. The certificate of origin states that the goods exported
are originally manufactured in the country whose name is mentioned in the certificate.
Certificate of origin is required when:
z The goods produced in a particular country are subject to preferential tariff rates
in the foreign market at the time importation.
z The goods produced in a particular country are banned for import in the foreign
market.
16.17.1 Types of the Certificate of Origin

The various types of certificate of origin are:
Non-preferential Certificate of Origin

Non-preferential certificate of origin is required in general by all countries for
clearance of goods by the importer, on which no preferential tariff is given. It is issued
by:
z The authorised Chamber of Commerce of the exporting country.
z Trade Association of the exporting country.
Certificate of Origin for Availing Concessions under GSP

Certificate of origin required for availing of concessions under Generalised System of
Preferences (GSP) extended by certain countries such as France, Germany, Italy,
BENELUX countries, UK, Australia, Japan, USA, etc. This certificate can be obtained
from specialised agencies, namely:
z Export Inspection Agencies.
z Director General of Foreign Trade.
z Commodity Boards and their regional offices.
z Development Commissioner, Handicrafts.
z Textile Committees for textile products.
224 z Marine Products Export Development Authority for marine products.
z Development Commissioners of EPZs.
Certificate for Availing Concessions under Commonwealth Preferences (CWP)

Certificate of origin for the purpose of Commonwealth Preference is also known as
'Combined Certificate of Origin and Value'. Two member countries, Led, require it.
Canada and New Zealand of the Commonwealth. For concession under
Commonwealth preferences, the certificates or origin have to be submitted in special
forms obtainable from the High Commission of the country concerned.
Certificate for Availing Concessions under other Systems of Preference

Certificate of origin is also required for tariff concessions under the Global System of
Trade Preferences (GSTP), Bangkok Agreement (BA) and SAARC Preferential
Trading Arrangement (SAPTA) under which India grants and receives tariff
concessions on imports and exports. Export Inspection Council (EIC) is the sole
authority to print blank Certificates of origin under BA, SAARC and SAPTA which
can be issued by such agencies as EPCs, DCs of EPZs, EIC, APEDA, MPEDA, FIEO,
etc.
16.17.2 Contents of Certificate of Origin

The various components of origin are:
z Name and logo of chamber of commerce.
z Name and address of the consignee.
z Name and the number of Vessel of Flight.
z Signature and initials of the concerned officer of the issuing authority.
z Seal of the issuing authority.
16.17.3 Significance of the Certificate of Origin

The significance of certificate of origin includes:
z Certificate of origin is required for availing of concessions under Generalised
System of Preferences (GSP) as well as under Commonwealth Preferences
(CWP).
z It is to be submitted to the customs for the assessment of duty and clearance of
goods with concessional duty.
z It is required when the goods produced in a particular country are banned for
import in the foreign market.
z It helps the buyer in adhering to the import regulations of the country.
z Sometimes, in order to ensure that goods bought from some other country have 225
not been reshipped by a seller, a certificate of origin is required.
16.18 SHIPPING BILL

Shipping bill is the main customs document, required by the customs authorities for
granting permission for the shipment of goods. The cargo is moved inside the dock
area only after the shipping bill is duly stamped, i.e. certified by the customs. Shipping
bill is normally prepared in five copies:
z Customs copy
z Drawback copy
z Export promotion copy
z Port trust copy
z Exporter's copy.
Free Shipping Bill is used for export of goods which neither attracts any Duty/Cess
nor is entitled to Duty Drawback on their exportation. Dutiable Shipping bill is used in
case of goods subject to Export Duty/Cess but mayor may not be entitled to Duty
Drawback. Drawback Shipping Bill or Bill of Exports is used in the case of goods
which are entitled to Drawback. Shipping Bill for Shipment Ex-bond is for use in case
of imported goods for Re-exports and which are kept in Bond.
Documents are required for the processing of a Shipping Bill:
z GR Forms in duplicate for shipments to all countries.
z Four copies of Packing list giving contents, quantity, gross and net weight of each
Package.
z Four copies of Invoices indicating all relevant particulars such as no. of packages,
quantity, unit rate, total FOB/CIF value, correct and full description of goods, etc.
(One copy of this Invoice is to be pasted on the duplicate copy of Shipping Bill).
z Contract, Letter of Credit, Purchase Order
z Inspection/Examination Certificate.
The Formats presented for the Shipping Bill are as under:
z White Shipping Bill for export of Duty Free goods prepared in triplicate in the
Standardised Format.
z Green Shipping Bill for export of goods under claim for Duty Draw back prepared
in quadruplicate in the prescribed Form.
z Yellow Shipping Bill for export of dutiable goods prepared in triplicate in the
prescribed Form.
z Pink Shipping Bill for export of Duty Free goods ex-Bond prepared in triplicate in
the prescribed Form.
Where the goods are to be cleared by the Land Customs, Bill of export is prepared
instead of Shipping Bill. Bill of Exports are also of four types i.e. white, green, yellow
and pink for the purpose stated above. Standardised Formats of the Bill of Export are
also available with the booksellers who deal with Exim publications.
226 16.18.1 Types of Shipping Bill
Based on the incentives offered by the government, customs authorities have
introduced three types of shipping bills:
z Drawback Shipping Bill: Drawback shipping bill is useful for claiming the
customs drawback against goods exported.
z Dutiable Shipping Bill: Dutiable shipping bill is required for goods which are
subject to export duty.
z Duty-free Shipping Bill: Duty-free shipping bill is useful for exporting the goods
on which there is no export duty.
Application for export is used for seeking customs permission of export goods to the
neighbouring countries like Bangladesh by road, river or rail. This is of Three Types,
namely, for export of "Free", "Dutiable" and "Drawback" cargos. Customs declaration
form for goods sent by post parcel is a standard form for all types of cargo. However,
for claiming duty drawback, the exporter has also to file another document known as
"Form D". Port authorities in India have specified documents for bringing the cargo
into the shed for shipment as well as for payment of port charges. This document is
called port-trust copy of shipping bill in Bombay dock challan in Calcutta and Export
application in Madras and Cochin. Like the shipping bill, the clearing and forwarding
agent of the exporter prepare this document.
In order to facilitate easy recognition and quick processing, following colours have
been provided to different kinds of shipping bills
Types of goods By Sea By Air
Drawback shipping bill Green Green
Dutiable shipping bill Yellow Pink
Duty free shipping bill White Pink
16.18.2 Components of Shipping Bill

The various components of shipping bill are:
z Name of the vessel, master or agents and flag.
z Name of the port at which goods are to be discharged.
z Country of final destination.
z Details about packages, description of goods, marks and numbers, quantity and
details of each case.
z FOB price and real value of goods as defined in the Sea Customs Act.
z Whether Indian or foreign merchandise to be re-exported
z Total number of packages with total weight and value.
16.18.3 Significance of Shipping Bill

The significance of shipping bill includes:
z Shipping bill is the main customs document required by the customs authorities
for granting permission for the shipment of goods.
z The cargo is moved inside the dock area only after the shipping bill is duly
stamped, i.e. certified by the customs.
z Duly endorsed shipping bill is also necessary for the collection of export 227
incentives offered by the government.
z It is useful to the Customs Appraiser while determining the actual value of goods
exported.
16.19 CONSULAR INVOICE

Consular invoice is a document required mainly by the Latin American countries like
Kenya, Uganda, Tanzania, Mauritius, New Zealand, Myanmar, Iraq, Australia, Fiji,
Cyprus, Nigeria, Ghana, Guinea, Zanzibar, etc. This invoice is the most important
document, which needs to be submitted for certification to the Embassy of the
importing country concerned. The main purpose of the consular invoice is to enable
the authorities of the importing country to collect accurate information about the
volume, value, quality, grade, source, etc. of the goods imported for the purpose of
assessing import duties and also for statistical purposes.
In order to obtain consular invoice, the exporter is required to submit three copies of
invoice to the Consulate of the importing country concerned. The Consulate of the
importing country certifies them in return for fees. One copy of the invoice is given to
the exporter while the other two are dispatched to the customs office of the importer's
country for the calculation of the import duty. The exporter negotiates a copy of the
consular invoice to the importer along with other shipping documents.
16.19.1 Significance of Consular Invoice for the Exporter

The significance of consular invoice for the exporter is as follows:
z It facilitates quick clearance of goods from the customs in exporter's as well as
importer's country.
z Certification of goods by the Consulate of the importing country indicates that the
importer has fulfilled all procedural and licensing formalities for import of goods.
z It also assures the exporter of the payment from the importing country.
16.19.2 Significance of Consular Invoice for the Importer

The significance of consular invoice for the importer includes:
z It facilitates quick clearance of goods from the customs at the port of destination
and therefore, the importer gets quick delivery of goods.
z The importer is assured that the goods imported are not banned for imports in his
country.
16.19.3 Significance of Consular Invoice for the Customs Office

The significance of consular invoice for the customs office includes:
z It makes the task of the customs authorities easy.
z It facilitates quick calculation of duties as the value of goods as determined by the
Consulate is considered for the purpose.
16.20 BILL OF ENTRY

The bill of entry is a document, prepared by the importer or his clearing agent in the
prescribed form under Bill of Entry Regulations, 1971, on the strength of which
clearance of imported goods can be made.
228 When goods are imported is a particular country, the importer has to pay the necessary
import duty. For this purpose, necessary information about the goods imported must
be given to the customs authorities in a prescribed form called bill of entry form. Bill
of entry is a document, which states that the goods of the stated values and description
in the specified quantity have entered into the country from abroad. The bill of entry is
drawn in triplicate. The customs authorities may ask the importer to supply other
documents like invoice, broker's note and insurance policy, etc. in order to verify the
correctness of the information supplied in the bill of entry form.
For the purpose of giving information in the bill of entry form, goods are classified
into three categories, namely:
z Bill of entry for home consumption (white in colour): where an importer wants
to get his goods cleared in one lot, he has to present the bill of entry for home
consumption.
z Bill of entry for warehousing (into bond, yellow in colour): Where an importer
wants to shift goods to a warehouse and thereafter gets his goods.
z Cleared in small lots, he has to present 'into bond' bill of entry. Reason may be
that he is unable to pay duty leviable on all goods at one instance or may be
because of storage problem.
green in colour.
Bill of Entry is not required in the following cases:
z Passengers baggage
z Favour parcels
z Mail box and post parcels.
z Boxes, kennels of cargos containing live animals or birds.
z Unserviceable stores, e.g. dunnage wood, empty bottles, drums, etc. of reasonable
value.
z Ship's stores in small quantities for personal use.
z Cargo by sailing vessels from customs ports when landed at open bundles only.
The importer has to fill up a separate bill-of-entry form for different classes of goods.
In India, separate forms are not used but all the entries are made in one form. The free
goods are marked as free in the entry form itself. The importer has to pay the duty
before securing the possession of the goods.
16.20.1 Components of Bill of Entry

The various components of bill of entry are:
z Import license number of the importer.
z Name of the port/dock where goods are to be cleared.
z Description of goods.
z Value of goods.
z Rate and amount of import duty payable.
z Other relevant documents.
229
16.21 AIRWAY BILL Export–Import Documentation
An airway bill, also called an air consignment note, is a receipt issued by an airline for
the carriage of goods. As each shipping company has its own bill of lading, so each
airline has its own airway bill.
Airway Bill or Air Consignment Note is not treated as a document of title and is not
issued in negotiable form.
16.21.1 Contents of Airway Bill

The various components of airway bill are:
z Name of the airport of departure and destination.
z The names and addresses of the consignor, consignee and the first carrier.
z Amount of freight paid or payable.
z Signature and initials of the issuing carrier or his agent.
16.21.2 Importance of Airway Bill

The importance of airway bill are:
z It is a contract between the airlines or his agent to carry goods to the destination.
z It is the document of instructions for the airline handling staff.
z It acts as a customs declaration form.
z Since, it contains details about freight it also represents freight bill.
16.22 GR FORM
GR Form is an exchange control document required by the Reserve Bank of India
(RBI). As per the exchange control regulations, an exporter has to realise the proceeds
of the goods he has exported within 180 days of their shipment from India. In order to
ensure this, the RBI has introduced the GR procedure.
GR form is to be submitted in duplicate 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 customs shipping bill. Customs authorities 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 the RBI.
Within 21 days from the shipment of goods, exporter must lodge the duplicate copy of
GR together with relative shipping documents with the authorised dealer named in the
GR form for negotiation of export bills.
After the documents have been negotiated, the authorised dealer will report the
transaction to the RBI. The duplicate copy of GR form together with a copy of invoice
230 will be retained by the authorised dealer till full export proceeds have been realised
and thereafter submitted to the RBI.
On account of introduction of Electronic Data Interchange (EDI) System at certain
customs offices where shipping bills are processed electronically, the existing
declaration in GR form has been replaced by a declaration in form SDF (Statutory
Declaration Form).
16.23 OTHER DOCUMENTS

Customs Invoice
Countries like U.S.A., Canada, etc. need Customs's Invoice. It is generally made out
on a special form prescribed by the Customs Authorities of the importing country and
helps for allowing entry of goods in the importing country at preferential tariff rates.
The Invoice Forms are generally available at the Consular Officer of the importing
country and are required to be signed and witnessed after duly filling out the same.
Legalised/Visaed Invoice
These are the invoices sworn for their genuineness by the seller as being correct,
before the appropriate Consulate/Chamber of Commerce Embassy as the case may be,
and they bear the stamp and authentication of the Consulate/Chamber of Commerce
Embassy as being in order. A nominal charge is collected by them from the seller for
doing this. These invoices are required by some of the Latin American Countries.
There is no prescribed form of this invoice.
Certified Invoice
At times the exporter is called upon to certify on the invoice, that the goods are of
particular origin or manufactured/packed at a particular place and in accordance with
specific contract. When Certificates as such appear on the invoice, it is called as a
Certified Invoice.
Bill of Exchange/Draft
A Bill of Exchange also known as Draft contains an order from the credit to the debtor
to pay a specified amount to a person mentioned therein. The maker of a Bill is called
the "Drawer", the person who is directed to pay is called the "Drawee" and the person
who is entitled to receive payment is called the "Payee."
When it is drawn on a foreign firm, it is termed as a Foreign Draft or Bill of
Exchange. It is prepared either in an international currency or Indian Rupees
depending on the terms of the contract. Accordingly, the Bill is known by the name of
currency in which it is drawn. For example, a Bill drawn in US dollars is known as
'Dollar Bill' and when prepared in rupees, being termed as 'Rupees Bill'.
When the goods are shipped by Sea, the bills are drawn in sets and two sets of
documents, including drafts are mailed to the foreign correspondent through an
authorised dealer for presentation to the Drawee (importer). Each one bears a
reference to the other.
A Bill of Exchange or Draft is of two types:
z 'Sight Draft' or 'Draft at Sight'
z "Usance Draft" or "Usance Bill".
When the Drawer i.e. exporter expects the Drawee i.e. importer to make; payment
immediately after the Draft is presented to him, it is called a ‘Sight: Draft'. Unless and
until the Draft is received, the Negotiating/Collecting Bank does not hand over the 231
Shipping documents and the buyer cannot take delivery of goods.
As there is no Aligned document for Draft the same can be prepared by the Exporter
in the usual format.
Certificate of Inspection
Inspection Certificate, indicating that goods have been inspected before shipment, is
needed under some contracts or by some countries. This Certificate is generally
required to be issued by one of the authorised independent Inspection
Agencies/Surveyors in the exporter's country. The Certificate is issued in the Aligned
document Form.
Black List Certificate

This is to certify that the ship/aircraft carrying the goods has not touched a particular
country on its journey or that the goods are not of a particular country. This certificate
is usually called for when countries have strained political relations with another.
Weight Note
This document is used to confirm that the Packets/Bales, etc. are of a particular weight
and not more than the stipulated weight as per contract. It may at times give gross
weight and net weight of the whole consignment.
Manufacturer's/Supplier's Quality/Inspection Certificate

This is a Certificate to the effect that the goods which have been
manufactured/supplied are as per the requirement of the Contract of Sale.
Languages Certificate
Importers in the European Economic Community Countries require Languages
Certificate along with the GSP Certificate in respect of hand loom cotton fabrics
classifiable under NEMEX Code 55.09. Indian exporters should apply for this
certificate simultaneously or separately. The Language Certificate is issued in
quadruplicate, three copies of which are given to the exporter. He should transit one
copy to his overseas importer, along with other documents, for realisation of export
proceeds.
The Languages Certificate is issued by the Textile Committee against a small fee.
Manufacturer's Certificate
In addition to the Certificate of Origin, some countries require a Manufacturer's
Certificate to the effect that goods shipped have actually been manufactured and are
available.
Certificate of Chemical Analysis

To ensure that the quality and grade of items like metallic ores, pigments, etc. is the
same as specified in the Sale Contract, importers may require the exporter to send a
Certificate of Chemical Analysis from a recognised analyst.
232 Certificate of Shipment
This Certificate is issued by the Shipping Agent and ensures that a certain lot of goods
have been shipped.
Health/Veterinary/Sanitary Certificates
When the goods that are exported are foodstuffs, marine products, hides, live stocks,
etc., usually depending upon the goods which are being imported, a certificate from
the Health/veterinary/Sanitary Authorities is called for by the overseas buyers. This is
because the importer desires to know if the goods are fit for human consumption.
Certificate of Conditioning
Certificate issued by a Competent Office in which, on the basis of the ascertained
humidity factor, the dry weight of wool or silk is reckoned and certified.
Antiquity Certificate
This Certificate is required in the case of export of antiques. It is issued by the
Archaeological Survey of India.
Certificate of Measurement
Freight can be charged either on the basis of weight or measurement. When it is
charged on weight basis, the weight declared by exporter is accepted. However,
Certificate of measurement from the Indian Chamber of Commerce or any other
approved organisation may be obtained by the exporter and given to the shipping
company for calculation of necessary freight. This Certificate contains the name of
vessel, the Port of destination, description of goods, quantity, length, breadth, depth,
etc. of packages.
Car/Lorry Ticket
This Ticket is prepared for admittance of cargo through the Port gate. This is also
known as 'Vehicle Ticket or Gate Pass'. This includes the details of export cargo, i.e.
shipper's name, car/lorry numbers, marks on packages, quantity and description.
Shut out Advice

It is a statement (packages shut out by a ship and is prepared by the shed concerned
and sent to the exporter showing the particulars of packages, for disposal arrangement.
Short Shipment Form

Short Shipment Form is an application to the Customs Authorities at Port advising the
short shipment of goods and for claiming the return of the Duty and/or Cess paid on
such short shipping goods.
Shipping Advice
A Shipping Advice is used to inform the overseas customer about the shipment of
goods. The Shipping Advice is prepared in Aligned document. The Exporter only
advises his importer about the Invoice number, Bill of Lading/Airway Bill number and
date, name of the vessel with date, the port of export, description of goods and
quantity and the date of sailing of the vessel.
233
16.24 IMPORT DOCUMENTS Export–Import Documentation
Some major import documents are:

z Importer Exporter Code (IEC) Number
z Bill of Entry
16.24.1 Importer Exporter Code (IEC) Number

No person can import goods without obtaining an Importer-Exporter Code (IEC)
Number unless he has been specifically exempted. The IEC Number is obtained from
the Regional Licensing Authority. You have already learnt the procedure of obtaining
IEC Number in Unit.
16.24.2 Bill of Entry

It is a document on which clearance of imported goods is effected. All goods
discharged from a vessel, from foreign or coastal ports are cleared on Bill of Entry in
the prescribed form. The Bill of Entry form has been standardized by the Central
Board of Excise and Customs.
Four copies of bill of entry are submitted. Original and duplicate for customer
departments, triplicate is owner's copy and the fourth copy is for the purpose of
foreign exchange to be submitted to bank. There are three types of Bill of Entry as
discussed below:
z Bill of entry for home consumption (white in colour): where an importer wants
to get his goods cleared in one lot, he has to present the Bill of entry for home
consumption.
z Bill of entry for warehousing (into bond, yellow in colour): Where an importer
wants to shift goods to a warehouse and thereafter gets his goods cleared in small
lots, he has to present 'into bond' bill of entry. Reason may be that he is unable to
pay duty leviable on all goods at one instance or may be because of storage
problem.
green in colour.
Bill of Entry is not required in the following cases:
z Passengers baggage favour parcels
z Mail box and post parcels
z Boxes, kennels of cargos containing live animals or birds
z Unserviceable stores, e.g. dunnage wood, empty bottles, drums, etc. of reasonable
value
z Ship's stores in small quantities for personal use
z Cargo by sailing vessels from customs ports when landed at open bundles only
For imports through the medium of post there is no bill of entry. Instead a waybill is
prepared by the foreign post office for assessment of duty.
234 Retirement of Import Documents
z Loading of Goods and Receipt of Shipment Advice: On loading of goods the
overseas supplier dispatches the shipment advice to the importer informing him
about the shipment of goods. The shipment advice contains invoice number, bill
of lading, airways bill number and date, name of the vessel with date, the port of
export, description of goods and quantity and the date of sailing of the vessel.
z Retirement of Import Documents: After shipping the goods, the overseas. 40'
supplier prepares the necessary documents as per the terms of contract' and letter
of credit and hands them over to his bank for their onward negotiation to importer
in the manner as specified in the L/C. The set normally contains bill of exchange,
commercial invoice, bill of lading, packing list, certificate of origin, marine
insurance policy, etc.
For the retirement of documents, the importer is required to submit the following
documents to his bank:
A letter authorising his bank to debit the equivalent Indian rupees to the value
of documents including bank charges.
Exchange control copy of the Import Licence, if applicable.
Form Al duly completed for the remittance in foreign exchange.
z Acceptance of the Bill of Exchange: Bill of Exchange accompanied by the above
documents is known as the Documentary Bill of Exchange. It is of two types:
Documents against Payment (Sight Drafts): In case of sight draft, the drawer
instructs the bank to hand over the relevant documents to the importer only
against payment.
Documents against Acceptance (Usance Draft): In case of usance draft, the
drawer instructs the bank to hand over the relevant documents to the importer
against his 'acceptance' of the bill of exchange.
z Scrutiny of Documents Received under L/C: After receipt of import documents
from the exporter's bank, the importer's bank will scrutinise the documents as to
their correctness as per the terms and conditions of L/C and hands over them to
the importer after payment. The importer should also scrutinise the documents and
ensure that there are no discrepancies.
z Appointment of C & F Agent: In India, the procedure for clearance of imported
goods is very lengthy, time consuming and involves lots of legal formalities.
Therefore, it is advisable to hire the services of C&F agents who are well versed
with such formalities. The C&F Agent prepares the bill of entry containing details
of goods to be cleared from the customs. In case, the C&F agent does not have
relevant information about the goods to be cleared, he prepares a bill of sight in
order to enable himself to physically check the goods imported and prepare bill of
entry on that basis.
16.24.3 Some Sample Documents 235
Airway Bill
Carbon copies attached of Airway Bill are:

z BLUE: Original 1 - For Shipper
z GREEN: Original 1 - For Issuing Carrier
z WHITE: Invoice
z WHITE: Remittance Copy
z PINK: Original 2 - For Consignee
z GOLDENROD: Delivery Receipt
z WHITE: For Destination Agent's Copy
z WHITE: Extra Copy
z WHITE: Extra Copy
z WHITE: Extra Copy
236 Sample Commercial Invoice
1. Exporter: The name and address of the principal party responsible for effecting
export from the United States. The exporter as named on the Export License.
2. Consignee: The name and address of the person/company to whom the goods are
shipped for the designated end use, or the party so designated on the Export
License.
3. Intermediate Consignee: The name and address of the party who effects delivery
of the merchandise to the ultimate consignee, or the party so named on the Export
License.
4. Forwarding Agent: The name and address of the duly authorized forwarder acting
as agent for the exporter.
5. Commercial Invoice No: Commercial Invoice number assigned by the exporter.
6. Customer Purchase Order No: Overseas customer's reference of order number.
7. B/L, AWB No.: Bill of Lading, or Air Waybill number, if known.
8. Country of Origin: Country of origin of shipment.
9. Date of Export: Actual date of export of merchandise. 237
10. Terms of Payment: Describe the terms, conditions, and currency of settlement as
agreed upon by the vendor and purchaser per the Pro Forma Invoice, customer
Purchase Order, and/or Letter of Credit.
11. Export References: May be used to record other useful information, e.g. other
reference numbers, special handling requirements, routing requirements, etc.
12. Air/Ocean Port of Embarkation: Ocean port/pier, or airport to be used for
embarkation of merchandise.
13. Exporting Carrier/Route: Record airline carrier/flight number or vessel
name/shipping line to be used for the shipment of merchandise.
14. Packages: Record number of packages, cartons, or containers per description line.
15. Quantity: Record total number of units per description line.
16. Net Weight/Gross Weight: Record total net weight and total gross weight
(includes weight of container) in kilograms per description line.
17. Description of Merchandise: Provide a full description of items shipped, the type
of container (carton, box, pack, etc.), the gross weight per container, and the
quantity and unit of measure of the merchandise.
18. Unit Price/Total Value: Record the unit price of the merchandise per the unit of
measure, compute the extended total value of the line.
19. Package Marks: Record in this Field, as well as on each package, the package
number (e.g. - 1 of 7, 3 of 7, etc.), shippers company name, country of origin (e.g.
- made in USA), destination port of entry, package weight in kilograms, package
size (length x width x height), and shipper's control number (e.g. - C/I number;
optional).
20. Misc. Charges: Record any miscellaneous charges which are to be paid for by the
customer – export transportation, insurance, export packaging, inland freight to
pier, etc.
21. Certifications: any certifications or declarations required of the shipper regarding
any information recorded on the commercial invoice.
Sample Certificate of Origin

1. The Undersigned: Name of the individual completing and signing the certificate
(see Block 13); may be the Exporter or Agent of the Exporter.
2. For: The Company name and address of the Exporter (Distributor or
Manufacturer) effecting the shipment of merchandise.
3. Shipped On: Name of the vessel, aircraft, rail, or trucking company. May also
include vessel number and flag, flight number and flag, rail car number, and truck
Pro number.
238
4. Date: The date the carrier left the port/terminal for the destination.
5. Consigned To: The Consignee, as it appears on the Commercial Invoice; may be
"To Order of Shipper," or "To Order of (Customer's) Bank, or to any other entity,
on the Conditions of Sale and/or the letter of credit.
6. Marks And Numbers: The marks recorded on each package, including Shipper's
Company Name, Country of Origin (i.e. Made in USA), Destination Port of Entry,
and Customer's Company Name; may also include a Shipper's Control Number
(i.e. C/I No.) and the Customer's Import license Number. "Number" refers to the
numbering of the packages in the shipment (i.e. 1 of 30, 2 of 30, etc.).
7. No. Of packages: The total number of packages, cartons, boxes, skids, etc. per
description line, including outer packaging, in kilograms.
8. Gross Weight: Total weight of packages per description line, including outer
packaging, in kilograms.
9. Net Weight: Total weight of all packages per description line, excluding outer
packaging, but including inner packaging, in kilograms.
10. Description: Full description of items being shipped, the type of containers, the
gross weight per container, and the quantity and unit of measure of the
merchandise. May also include cross references to Purchase Order or Commercial 239
Invoice number.
11. Sworn Before: Notary Republic seal/signature and date notarized.
12. Date: Date Certificate of Origin was prepared and signed.
13. Signature: The signature of the owner, employee, or agent appearing in Block 1
above.
14. Chamber of Commerce: Name of local Chamber of Commerce (and State)
certifying the origin of the merchandise.
15. Secretary: Authorized signature of the local Chamber of Commerce Secretary and
that organization's seal.
Sample Short Form Straight Bill of Lading:

1. Shipper (From): Enter the company name and address of the shipper (Consignor).
2. Point of Origin (At): Enter the city and state of the actual shipping point.
3. Date of Shipment: Enter the date of the shipment; that is, the date the Carrier took
control of the merchandise.
4. Truck/Freight: Check the truck block if the shipment is to move by truck, or the
Freight block if the shipment is to move by rail.
5. Shipper's Number: Enter a unique control number to reference the shipment with
the Carrier.
6. Carrier: Enter the name of the company which will take initial control of the
shipment and cause its delivery to the consignee.
7. Agent's Number: Enter Carrier's control number, if known or required.
8. Consigned To: Enter the full of the final recipient of the shipment, the ultimate
consignee, if different than destination, for Carrier notification purposes.
9. Destination: Enter the street address, city, and zip code where the Carrier will
make delivery to the Consignee in Field 8.
10. Route: If applicable, enter the route the Carrier will take to the consignee. This
Field may also be used to specify docks, warehouses, etc., and to specify any
intermediate Carriers.
11. Delivering Carrier: If applicable, specify the carrier which will deliver the
shipment to the ultimate consignee at the Destination, but only if different than the
Carrier entered in Field 6.
12. Vehicle/Car No.: Enter any vehicle identifying numbers or initials, if applicable.
13. No. Packages: Enter the total number of packages per line item; if the packages
are consolidated on a pallet or in an outer container, note this information on a
second line. Ex: 112 PKGS 3 Pall.
14. Description of Shipment: Enter the description of each line item, noting the type
of package (carton, barrel, etc.) and the quantity per package. Since the correct
freight classification is essential in describing an item, there must be a separate
line item for each different freight classification description. If more than one type
of packaging is used per freight classification, a separate entry must be used for
each type of package.
240 Enter any special package markings, special handling requirements, and delivery
instructions. Note: For hazardous material items, special provisions must be met
in completing this field.
15. Weight: Enter the total gross weight, in pounds, for each line item. For Bulk
shipments, the TARE and Net weights should also be referenced in the description
field. For package shipments, include the weights of pallets and skids. The total
weight of the merchandise should be shown after the last line item, with pallet and
dunnage weights shown separately.
16. Class or Rate: Enter the 5-digit class (per the Uniform Freight Classification or
the National Motor Freight Classification) or a two digit Class Rate (a percentage
of the First class 100 rate) per line item. This information may be determined with
the Carrier.
17. Without Recourse: Per standard Bill of Lading terms, the shipper is ultimately 241
liable for freight charges, even when the shipment is sent on a collect basis to the
consignee. By signing this statement, the shipper is released from the liability of
freight charges for collect shipments delivered by the Carrier to the consignee
without the Carrier's collecting the freight charges. For prepaid shipments, leave
blank.
18. Prepaid Shipments: Enter "Prepaid" if shipment is to be paid by the Shipper. If
this field is left blank, the Carrier will seek to collect the freight charges from the
consignee (see field 17).
19. Prepayments Received: Carrier enters any payments received in advance from the
Shipper for the shipment.
20. Charges Advanced: Carrier enters any advanced charges for the shipment, if
applicable.
21. C.O.D. Shipment: First, check whether the freight charges are prepaid (the Carrier
bills the shipper) or collect (the Carrier deducts the freight charges from the
amount collected from the Consignee). Second, enter the amount to be collected
for the merchandise itself - be sure to include the freight charges. Third, enter any
collection fees, if applicable. Enter total charges to be collected by the Carrier.
22. Shipment Declared Value: When the weight charged by the Carrier is dependent
upon the value of the shipment, the dollar value per unit of measure
(ex: $100/pound) must be stated by the Shipper – enter this information in field
14.
23. Shipper: Enter the company name of the shipper.
24. Shipper's Agent: Enter the signature of the individual preparing the shipment for
the shipper.
25. Carrier's Agent: The Carrier's agent will sign here prior to taking control of the
shipment.
26. Permanent Address: Enter the permanent (business) address of the shipper. This
may be the same as for field 1.
27. Certification: A signature is required by the Department of Transportation after
this statement for all shipments of hazardous material.
Shipper's Letter of Instruction

The Shipper's Letter of Instruction is just that - a "letter" from the Shipper instructing
the Freight Forwarder how and where to send the export shipment. In preparing this
form, the Shipper also fills in most of the information required on the Shipper's Export
Declaration, form 7525V (the Freight Forwarder will complete the rest). After the
Shipper completes the form, he or she retains the blue shipper's ply and forwards the
rest of the form with the shipment to the Freight Forwarder.
242
1. Exporter: The name and address of the principal party responsible for effecting
export from the United States. The exporter as named on the validated export
license. Report only the first five digits of the zip code.
2. Exporter EIN Number: The exporter's Internal Revenue Service Employer
Identification Number (EIN) or Social Security Number (SSN) if no EIN has been
assigned.
3. Parties To Transaction: When either the U.S. exporter or the foreign consignee
owns (directly or indirectly), at any time during the fiscal year, 10 percent or more
of the voting securities of the incorporated business, or an equivalent interest if an
unincorporated business enterprise, including a branch, the transaction is between
RELATED parties. Otherwise the transaction is between UNRELATED parties.
4. Ultimate Consignee: The name and address of the person/company to whom the
goods are shipped for the designated end use, or the party so designated on the
Export License.
5. Intermediate Consignee: The name and address of the party who effects delivery
of the merchandise to the ultimate consignee, or the party so named on the export
license.
6. Forwarding Agent: The name and address of the duly authorized forwarder acting 243
as agent for the exporter.
7. Inland Carrier: See note 2 on form.
8. Point (State) of Origin or FTZ No: The 2-digit U.S. Postal Service abbreviation
of the state in which the merchandise actually starts its journey to the port of
export, or (b) the state of origin of the commodity of greatest value, or (c) the state
of consolidation, or (d) the Foreign Trade Zone Number for exports leaving
an FTZ.
9. Country of Ultimate Destination: The country in which the merchandise is to be
consumed, further processed, or manufactured the final country of destination, as
known to the exporter at the time of shipment; or country of ultimate destination,
as shown on the validated export license.
10. Shipper's Reference Number: Shipper's reference with freight forwarder.
11. Date: Date shipment sent to forwarder.
12. Ship Via: Method of shipment required.
13. Consolidate Direct: Determines how forwarder is to instruct Carrier to ship
goods. Generally, a choice between speed and economy of shipment.
14. D/F - D (domestic exports): Merchandise grown, produced or manufactured
(including imported merchandise which has been enhanced in value) in the United
States. F (foreign exports) – merchandise that has entered the United States and is
being re-exported in the same condition as when it entered.
15. Marks, nos., & kinds of packages: Indicate the numbers and kinds of packages
(boxes, barrels, cases) and any descriptive marks, numbers, or other identification
shown on the packages. Such marks and numbers are required to be placed on the
outside of all packaged goods whenever feasible. SCHEDULE B NUMBER – the
11 digit commodity number as provided in the Harmonized Schedule
B – Statistical Classification of Domestic and Foreign Commodities Exported
from the United States. The eleventh digit should be typed in the Check Digit
column.
16. Quantity - Schedule B Unit(s): The unit(s) specified in the Harmonized Schedule
B with the unit indicated, or the unit as specified on the validated export license.
17. Shipping Weight: (for vessel and air shipments) the gross shipping weight in
kilos, including the weight of containers but excluding carrier equipment.
18. Shipping Weight (pounds): the gross shipping weight in pounds of the
commodities being shipped, not including weight of shipping container.
19. Cubic Meters: length X width X height in meters not required, but helpful.
20. Value (U.S. Dollars, omit cents): The selling price or cost if not sold for the
number of items recorded in the quantity field when they were sold by the vendor
to the purchaser.
21. Harmonized Schedule B Description: A proper identifying description of the
commodity as known in the country of production or exportation. This should be
sufficient to permit verification of the Harmonized Schedule B Commodity
Number, or the description shown on the export license.
22. Validated License No./General License Symbol: Export License number and
expiration date or general license symbol.
244 23. Duly Authorized Officer: Signature of exporter authorizing the named agent to
effect the export when such agent does not have the formal power of attorney.
24. ECCNs: (when required) Export Control Commodity Number – the ECCN
number of commodities listed on the Commodity Control List (commodities
subject to U.S. Department of Commerce export controls) in the Export
Administration Regulations.
25. Shipper Must Check: Specifies whether shipper (prepaid) or consignee (collect)
will pay freight charges. If shipment is to be paid for C.O.D. by consignee, specify
amount in C.O.D. AMOUNT field.
26. Special Instructions: Used to inform forwarder of any special instructions, such
as a specific carrier to be used, special telex notification, required certifications,
etc.
27. Signatures: Lift up the top piles of the form and sign the first Export declaration.
This certifies to the U.S. government that all information on the form is true and
correct.
28. Shipper's Instructions: Instructs the forwarder how to dispose of the shipment in
the event it proves to be undeliverable abroad.
29. Insurance: Used when insurance is required, and the shipper wishes to use an
insurer chosen by the Forwarder. The amount is usually 110% of the shipment
value.
Check Your Progress
State whether the statement is true or false:
1. Export documentation is the simplest part of overseas marketing.
2. Export documentation helps in protecting the interests of buyers and
sellers.
3. Under Generalised System of preferences, the developed country accord
preferential duty treatment to specified goods originating from developing
countries.
4. It is the duty of the exporter to ship the contracted goods in the agreed
form.
Fill in the blanks:
5. ………….. enable the exporter and the importer to discharge their
obligations under an export contract.
6. Bill of lading is a document of …………..
7. ………….. provides protection to cargo owners in the event of loss or
damage to cargo in transit.
8. ………….. bridges the time gap between shipment of goods and receipt
of sale amount.
9. ………….. does not evidence the title to goods.
10. Shipping Bill is prescribed by ………….. authority.
245
16.25 LET US SUM UP Export–Import Documentation
Documentation in export business is complex but not difficult to understand if one

knows the reasons of making documents at different stages of export transactions.
Some of these documents are made or secured at the pre-shipment stage while others
are made or secured after the shipment has been made. The need for export documents
arises due to commercial, legal and incentive perspectives. Commercial perspective
helps in protecting the respective interests of the exporter and importer. Regulatory
perspective emphasises to follow the regulatory provisions of that particular country.
Incentive perspective helps in getting various incentives according to the prevailing
policy of the government.
Main commercial documents in C.I.F. contract are: Commercial invoice, Bill of
lading/Airway bill, Post parcel receipt, Insurance policy/Certificate and bill of
exchange. The details required to be mentioned in these documents will depend upon
the terms and conditions of the export contract/letter of credit.

Take a printout of GR form and discuss it briefly.
16.27 KEYWORDS
Bill of Lading: A document issued by the shipping company as an evidence of receipt
for goods and contract of affreightment. It is also a document of title.
Certificate of Origin: A document, which shows the details of the shipment of goods,
which are the produce of the exporting country.
Commercial Invoice: A document prepared by the exporter showing details of the
goods dispatched by him, including identification marks and numbers, description,
weight and quantity, etc. date and mode of dispatch, unit price and total value,
currency terms of payment and other charges including freight and insurance
premium, if paid.
Consular Invoice: An invoice usually on a prescribed form signed and stamped by the
commercial consular of the country where goods are exported.
Shipping Bill: A document prescribed by the customs authorities showing details of
the goods and carrier as well as ports of shipment and destination on the basis of
which permission to ship the goods is granted.

1. What is the significance of the Aligned Documentation System?
2. Explain the contents of Commercial Invoice.
3. Describe various components of Mate's Receipt.
4. What are the different types of Bill of Lading?
5. What are the significances of Certificate of Origin?
6. What are the significances of Consular Invoice?
1. False
2. True
3. True
4. True
5. Commercial Documents
6. Title
7. Cargo Insurance Policy
8. Bill of Exchange
9. Port Parcel Receipt
10. Customs.

India.
247
MODEL QUESTION PAPER Management Functions
in Insurance
MBA
Second Year
Subject: Export Trade and Documentation

Time: 3 hours Total Marks: 100
Direction: There are total eight questions, each carrying 20 marks. You have to
attempt any five questions.
1. Explain various issues in foreign currency during import and export. Describe
various reasons of international trade.
2. What do you mean by export order? Describe the nature of export sales contract.
How will you scrutinize export order?
3. What do you mean by advance payment? Also explain the advantage of advance
payment to exporter.
4. Describe pre-shipment credit in foreign currency. Explain various types of post-
shipment finance.
5. All exports to which the requirement of declaration applies must be declared or
appropriate forms. Discuss. Explain the procedure for furnishing the forms.
6. Describe Custom Tariff Act, 1975. What are the objectives of custom clearance of
goods? What are the general documents required for custom clearance in case of
Air/Sea?
7. Describe important objectives of foreign trade policy 2009-14. Describe important
aspects of export-import policy 1992-97. Explain export import trade policy
2004-09.
8. What do you mean by export pricing? Describe the various factors of price
determination.
248
Management of Banking
and Insurance Companies

Export Trade and Documentation

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MBA (Logistics and Supply Chain Management)

Export Trade and Documentation

School of Distance Education

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1.0 AIMS AND OBJECTIVES

1.2 EVOLUTION OF INTERNATIONAL TRADE

Check Your Progress 1

1.3.1 Domestic Non-availability

1.3.2 Principle of Comparative Advantage

1.3.3 Differences in Technology

1.3.4 Differences in Resource Endowments

1.3.5 Differences in Demand

1.3.6 Existence of Economies of Scale in Production

1.3.7 Existence of Government Policies

A reduction in trade deficit is possible either by a deduction in imports or by an

1.5 GENERATION OF FOREIGN ENQUIRIES

1.6 OBTAINING LOCAL QUOTATION AND OFFERING

An important aspect of your company’s pricing analysis is the determination of

1.7 LET US SUM UP

1.8 LESSON END ACTIVITY

1.10 QUESTIONS FOR DISCUSSION

Check Your Progress: Model Answers

1.11 SUGGESTED READINGS

2.0 AIMS AND OBJECTIVES

2.2 NATURE AND FORMAT OF EXPORT ORDER

2.3 SCRUTINIZING EXPORT ORDER

2.4 NATURE OF EXPORT SALES CONTRACT

2.4.1 Form of Contract

2.4.2 Distinction between Domestic Sales Contract and Export Sales

2.5 LET US SUM UP

2.6 LESSON END ACTIVITY

Check Your Progress: Model Answers

2.9 SUGGESTED READINGS

3.0 AIMS AND OBJECTIVES

3.2 TERMS OF PAYMENT

3.3 ADVANCE PAYMENT

3.4 DOCUMENTARY CREDIT

3.4.1 Parties in Documentary Credits

2. The Buyer instructs

Figure 3.1: Relationship among the Parties to the Letter of Credit

3.4.2 Details Included in Letters of Credit

3.4.3 Practical Mechanism

3.4.4 Different Kinds of Letter of Credit

Revocable and Irrevocable Letter of Credit

Confirmed Letter of Credit

Red Clause Letter of Credit

Back-to-Back Letter of Credit

Deferred Payment Credit

Sigh and Usance Credit

Fixed and Revolving Credit

Under Revolving Credit

3.4.5 Documents required under Letter of Credit

Insurance Policy Certificate

3.4.6 Guidelines for the Exporters

3.5 FORMS OF DOCUMENTARY CREDIT

3.5.1 Documents against Payment

3.5.2 Documents against Acceptance

3.6 OPEN ACCOUNT WITH PROVISIONS FOR PERIODIC

3.7 SHIPMENT ON CONSIGNMENT BASIS

3.8 LET US SUM UP

3.9 LESSON END ACTIVITY

3.11 QUESTIONS FOR DISCUSSION

Check Your Progress: Model Answers