Description
notes For MBA Students and faculty of MBA
International Logistics
Trends in world trade growth International marketing is becoming more important to companies as the world shifts from distinct national markets to linked global markets. There are some important trends in world tread these are 1. Globalization brings homogenization of consumer needs, liberalization of trade, and competitive advantages of operating in global markets. 2. Companies are forced to think and act globally in order to survive in such a dynamic environment. All these elements have a deep impact on the development and the positioning of companies on international marketplaces where competition is cruel. 3. Furthermore, another significant change concerns the customers since they are more demanding in term of quality, lead time and order fulfilment. In this context, firms must be more and more flexible and reactive to anticipate and to adapt to such changes. This quest for flexibility and reactivity affects the conception and the management of firms and more generally their logistic systems and contributes to the development of partnership relations, to the emergence of mergers or strategic alliances between companies. 4. A firm can no longer be considered as an isolated entity but as a component of a wider supply network. International Firms have begun to implement various strategies in order to remain competitive in world market. 5. Logistics is one of the key areas in the process of international marketing as the delivery of goods to the buyer is as important as any other activity in business and marketing. Quite often, the most crucial part in International trade is the timely delivery of goods at a reasonable cost by the exporter to the importer. In fact, the prospective buyer may be willing to pay even higher price for timely supplies. 6. The emergence of logistics as an integrative activity, with the movement of raw materials from their sources of supply to the production line and ending with the movement of finished goods to the customer has gained special importance. Earlier on, all the functions comprising logistics were not viewed as components of a single system. But, with emergence of logistic as an important part of corporate strategy due to certain developments in the field of international marketing has gained special significance. nature of international logistics Logistics = Inbound logistics + Material Management + Physical Distribution Now we will discuss each and every term in this above summation Inbound logistics covers the movement of materials received from suppliers Material management describes the movements of material & components within a firm Physical distribution refers to movement of goods outward from the end of the assembly line to the costumer. Before discussing the various nature of international logistics, let us look at its definition: According to Council of logistics management: Logistics is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming the customer requirement . This definition clearly points out the inherent nature of logistics and it conveys that Logistics is concerned with getting products and services where they are needed whenever they are desired. We can categorised the nature and significance of logistics as: 1. In trade Logistics has been performed since the beginning of civilization 2. it s hardly new. However implementing best practice of logistics has become one of the most exciting and challenging operational areas of business and public sector management. 3. Logistics is unique, it never stops! 4. Logistics is happening around the globe 24 hours a day s Seven days a week during fifty-two weeks a year. Few areas of business involve the complexity or span the geography typical of logistics.
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5. Logistical management includes the design and administration of systems to controls the flow of material, work- in process, and finished inventory to support business unit strategy. 6. Logistics is the designing and managing of a system in order to control the flow of material throughout a corporation. 7. This is a very important part of an international company because of geographical barrier 8. Logistics of an international company includes movement of raw materials, coordinating flows into and out of different countries, choices of transportation, cost of the transportation, packaging the product for shipment, storing the product, and managing the entire process.
SIGNIFIGANCE OF MARKETING LOGISTICS The important of a logistics systems lies in the fact that it leads to ultimate consummation of the sales contract. The buyer is not interested in the promises of the seller that he can supply goods at competitive price but that he actually does so. Delivery according to the contract is essential to fulfilling the commercial and legal requirements. In the event of failure to comply with the stipulated supply of period, the seller may not only get his sale amount back, but may also be legally penalized, if the sales contract so specifies. There is no doubt that better delivery schedule is a good promotional strategy when buyers are reluctant to invest in warehousing and keeping higher level of inventories. Similarly, better and/or timely delivery helps in getting repeat orders through creation of goodwill for the supplier. Thus, as effective logistics system contributes immensely to the achievements of the business and marketing objectives of a firm. It creates time and place utilities in the products and thereby helps in maximizing the value satisfaction to consumers. By ensuring quick deliveries in minimum time and cost, it relieves the customers of holding excess inventories. It also brings down the cost of carrying inventory, material handling, transportation and other related activities of distribution. In nutshell, an efficient system of physical distribution/logistics has a great potential for improving customer service and reducing costs. Logistics has gained importance or significance due to the following trends Raise in transportation cost. Production efficiency is reaching a peak Fundamental change in inventory philosophy Product line proliferated Computer technology Increased use or computers Increased public concern of products Growth of several new, large retail chains or mass merchandise with large demands & very sophisticated logistics services, by pass traditional channel & distribution. Reduction in economic regulation Growing power of retailers Globalization Creating An Export Organization There are many ways an organization can go into the export business. The basic steps an organization may follow to go in export are as follows: 1. decide the export category The first step towards creating an export organization is to decide the export category. The way an organization chooses to export its products can have a significant effect on its export plan and specific marketing strategies. The basic distinction among approaches to exporting relates to the company's level of involvement in the export process. There are at least four approaches, which may be used alone or in combination:
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i.
ii.
iii.
iv.
2. 3. 4. 5. 6. 7. 8. 9. 10.
Passively filling orders from domestic buyers who then export the product. These sales are indistinguishable from other domestic sales as far as the original seller is concerned. Someone else has decided that the product in question meets foreign demand. That party takes all the risk and handles all of the exporting details, in some cases without even the awareness of the original seller. Seeking out domestic buyers who represent foreign end users or customers. Many corporations, general contractors, foreign trading companies, foreign government agencies, foreign distributors and retailers, and others do purchase for export. These buyers are a large market for a wide variety of goods and services. Exporting indirectly through intermediaries. With this approach, a company engages the services of an intermediary firm capable of finding foreign markets and buyers for its products. EMCs, ETCs, international trade consultants, and other intermediaries can give the exporter access to well-established expertise and trade contacts. Exporting directly. This approach is the most ambitious and difficult, since the exporter personally handles every aspect of the exporting process from market research and planning to foreign distribution and collections. Consequently, a significant commitment of management time and attention is required to achieve good results. However, this approach may also be the best way to achieve maximum profits and long-term growth. Selecting the Name of the firm Approval of the name Selecting ownership Deciding location Developing tread name and logo Creating necessary infrastructure Applying Pan no. Opening current account with bank Registering and licensing for export
registration and licensing Once all the research and analysis is done its time to get registered with the various government authorities. Registration with Reserve Bank of India (RBI) Prior to 1997, it was necessary for every first time exporter to obtain IEC number from Reserve Bank of India (RBI) before engaging in any kind of export operations. But now this job is being done by DGFT. Registration with Director General of Foreign Trade (DGFT) For every first time exporter, it is necessary to get registered with the DGFT (Director General of Foreign Trade), Ministry of Commerce, Government of India. DGFT provide exporter a unique IEC Number. IEC Number is a ten digits code required for the purpose of export as well as import. No exporter is allowed to export his good abroad without IEC number. However, if the goods are exported to Nepal, or to Myanmar through Indo-Myanmar boarder or to China through Gunji, Namgaya, Shipkila or Nathula ports then it is not necessary to obtain IEC number provided the CIF value of a single consignment does not exceed Indian amount of Rs. 25, 000 /-. Application for IEC number can be submitted to the nearest regional authority of DGFT. Application form which is known as "Aayaat Niryaat Form - ANF2A" can also be submitted online at the DGFT web-site:http://dgft.gov.in. While submitting an application form for IEC number, an applicant is required to submit his PAN account number. Only one IEC is issued against a single PAN number. Apart from PAN number, an applicant is also required to submit his Current Bank Account number and Bankers Certificate. A amount of Rs 1000/- is required to submit with the application fee. This amount can be submitted in the form of a Demand Draft or payment through EFT (Electronic Fund Transfer by Nominated Bank by
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DGFT. Registration with Export Promotion Council Registered under the Indian Company Act, Export Promotion Councils or EPC is a non-profit organisation for the promotion of various goods exported from India in international market. EPC works in close association with the Ministry of Commerce and Industry, Government of India and act as a platform for interaction between the exporting community and the government. So, it becomes significance for an exporter to obtain a registration cum membership certificate (RCMC) from the EPC. An application for registration should be accompanied by a self certified copy of the IEC number. Membership fee should be paid in the form of cheque or draft after ascertaining the amount from the concerned EPC. The RCMC certificate is valid from 1st April of the licensing year in which it was issued and shall be valid for five years ending 31st March of the licensing year, unless otherwise specified. Registration with Commodity Boards Commodity Board is registered agency designated by the Ministry of Commerce, Government of India for purposes of export-promotion and has offices in India and abroad. At present, there are five statutory Commodity Boards under the Department of Commerce. These Boards are responsi le for production, b development and export of tea, coffee, rubber, spices and tobacco. Registration with Income Tax Authorities Goods exported out of the country are eligible for exemption from both Value Added Tax and Central Sales Tax. So, to get the benefit of tax exemption it is important for an exporter to get registered with the Tax Authorities. Licensing An export license is a document issued by the appropriate licensing agency after which an exporter is allowed to transport his product in a foreign market. The license is only issued after a careful review of the facts surrounding the given export transaction. Export license depends on the nature of goods to be transported as well as the destination port. So, being an exporter it is necessary to determine whether the product or good to be exported requires an export license or not. While making the determination one must consider the following necessary points: y What are you exporting? y Where are you exporting? y Who will receive your item? y What will your items will be used? Canalisation Canalisation is an important feature of Export License under which certain goods can be imported only by designated agencies. For an example, an item like gold, in bulk, can be imported only by specified banks like SBI and some foreign banks or designated agencies. Application for an Export License To determine whether a license is needed to export a particular commercial product or service, an exporter must first classify the item by identifying what is called ITC (HS) Classifications. Export license are only issued for the goods mentioned in the Schedule 2 of ITC (HS) Classifications of Export and Import items. A proper application can be submitted to the Director General of Foreign Trade (DGFT). The Export Licensing Committee under the Chairmanship of Export Commissioner considers such applications on merits for issue of export licenses. Exports Free unless regulated The Director General of Foreign Trade (DGFT) from time to time specifies through a public notice according to which any goods, not included in the ITC (HS) Classifications of Export and Import items may be exported without a license. Such terms and conditions may include Minimum Export Price (MEP), registration with specified authorities, quantitative ceilings and compliance with other laws, rules, regulations.
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Selecting Export Products And Markets And Channels A key factor in any export business is clear understanding and detail knowledge of products to be exported. The selected product must be in demand in the countries where it is to be exported. Before making any selection, one should also consider the various government policies associated with the export of a particular product. Whether companies are exporting first time or have been in export trade for a long time - it is better for both the groups to be methodical and systematic in identifying a right product. It s not sufficient to have all necessary data 'in your mind' - but equally important to put everything on paper and in a structured manner. Once this job is done, it becomes easier to find the gaps in the collected information and take necessary corrective actions. There are products that sell more often than other product in international market. It is not very difficult to find them from various market research tools. However, such products will invariably have more sellers and consequently more competition and fewer margins. On the other hand - a niche product may have less competition and higher margin - but there will be far less buyers. Fact of the matter is - all products sell, though in varying degrees and there are positive as well as flip sides in whatever decision you take - popular or niche product. Key Factors in Product Selection The product should be manufactured or sourced with consistent standard quality, comparable to your competitors. ISO or equivalent certification helps in selling the product in the international market. If possible, avoid products which are monopoly of one or few suppliers. If you are the manufacturer make sure sufficient capacity is available in-house or you have the wherewithal to outsource it at short notice. Timely supply is a key success factor in export business The price of the exported product should not fluctuate very often - threatening profitability to the export business. Strictly check the government policies related to the export of a particular product. Though there are very few restrictions in export - it is better to check regulatory status of your selected product. Carefully study the various government incentive schemes and tax exemption like duty drawback and DEPB. Import regulation in overseas markets, specially tariff and non-tariff barriers. Though a major non-tariff barrier (textile quota) has been abolished - there are still other tariff and non-tariff barriers. If your product attracts higher duty in target country - demand obviously falls. Registration/Special provision for your products in importing country. This is specially applicable for processed food and beverages, drugs and chemicals. Seasonal vagaries of selected products as some products sell in summer, while others in winter. Festive season is also important factor, for example certain products are more sellable only during Christmas. Keep in mind special packaging and labelling requirements of perishable products like processed food and dairy products. Special measures are required for transportation of certain products, which may be bulky or fragile or hazardous or perishable. Selecting Export Market: After evaluation of company s key capabilities, strengths and weaknesses, the next step is to start evaluating opportunities in promising export markets. It involves the screening of large lists of countries in order to arrive at a short list of four to five. The shorting method should be done on the basis of various political, economic and cultural factors that will potentially affect export operations in chosen market. Some factors to consider include: 1. Geographical Factors
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Country, state, region, Time zones, Urban/rural location logistical considerations e.g. freight and distribution channels 2. Economic, Political, and Legal Environmental Factors o Regulations including quarantine, o Labelling standards, o Standards and consumer protection rules, o Duties and taxes 3. Demographic Factors o Age and gender, o Income and family structure, o Occupation, o Cultural beliefs, o Major competitors, o Similar products, o Key brands. 4. Market Characteristics o Market size, o Availability of domestic manufacturers, o Agents, distributors and suppliers. Foreign Market Research Understanding a market s key characteristics requires gathering a broad range of primary and secondary research, much of which you can source without cost from the internet.
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Primary research, such as population figures, product compliance standards, statistics and other facts can be obtained without any cost from international organizations like United Nations (UN) and World Trade Organizations (WTO). Analysis of export statistics over a period of several years helps an individual to determine whether the market for a particular product is growing or shrinking. Secondary research, such as periodicals, studies, market reports and surveys, can be found through government websites, international organisations, and commercial market intelligence firms. Foreign Market Selection Process Step 1: Gather Information on a Broad Range of Markets Market selection process requires a broad range of information s depending upon the products or services to be exported, which includes: y The demand for product/service. y The size of the potential audience. y Whether the target audience can affords product. y What the regulatory issues are that impact on exports of product. y Ease of access to this market proximity/freight. y Are there appropriate distribution channels for product/service. y The environment for doing business language, culture, politics etc. y Is it financially viable to export to selected market. You can gather much of the first step information yourself from a variety of sources at little or no cost. Sources of information include: y Talking to colleagues and other exporters. y Trade and Enterprise web site, publications, call centre. y The library. y The Internet. Step 2: Research a Selection of Markets In-Depth
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From the results of the first stage, narrow your selection down to three to five markets and undertake some in-depth research relating specifically to your product. While doing so, some of the questions that may arise at this stage are: y What similar products are in the marketplace (including products that may not be similar but are used to achieve the same goal, e.g. the product in our sample matrix at the end of this document is a hair removal cream. As well as undertaking competitor research on other hair removal creams, we would also need to consider other products that are used for hair removal, i.e. razors, electrolysis, wax). y What is your point of difference? What makes your product unique? W hat are the key selling points for your product? y How do people obtain/use these products? y Who provides them? y Are they imported? If so from which countries? y Is there a local manufacturer or provider? y Who would your major competitors be? What are the key brands or trade names? y What is the market s structure and shape? y What is the market s size? y Are there any niche markets, and if so how big are they? y Who are the major importers/ stockists / distributors / agencies or suppliers? y What are the other ways to obtain sales/representation? y What are the prices or fees in different parts of the market? y What are the mark-ups at different distribution levels? y What are the import regulations, duties or taxes, including compliance and professional registrations if these apply? y How will you promote your product or service if there is a lot of competition? y Are there any significant trade fairs, professional gathers or other events where you can promote your product or service? y Packaging do you need to change metric measures to imperial, do you need to list ingredients? y Will you need to translate promotional material and packaging? y Is your branding colours, imagery etc., culturally acceptable? Foreign Market Selection Entry Having completed the market selection process and chosen your target market, the next step is to plan your entry strategy. There are a number of options for entering your chosen market. Most exporters initially choose to work through agents or distributors. In the longer term, however, you may consider other options, such as taking more direct control of your market, more direct selling or promotion, or seeking alliances or agreements. Export Costing And Pricing Procedures Incoterms Pricing and costing are two different things and an exporter should not confuse between the two. Price is what an exporter offer to a customer on particular products while cost is what an exporter pay for manufacturing the same product. Export pricing is the most important factor in for promoting export and facing international trade competition. It is important for the exporter to keep the prices down keeping in mind all export benefits and expenses. However, there is no fixed formula for successful export pricing and is differ from exporter to exporter depending upon whether the exporter is a merchant exporter or a manufacturer exporter or exporting through a canalising agency. Determining Export Pricing Export Pricing can be determine by the following factors: y Range of products offered. y Prompt deliveries and continuity in supply. y After-sales service in products like machine tools, consumer durables.
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Product differentiation and brand image. Frequency of purchase. Presumed relationship between quality and price. Specialty value goods and gift items. Credit offered. Preference or prejudice for products originating from a particular source. Aggressive marketing and sales promotion. Prompt acceptance and settlement of claims. Unique value goods and gift items. Export Costing 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 which are commonly known as Incoterms Deciding Currency Of Payment An exporter without any commercial contract is completely exposed of foreign exchange risks that arises due to the probability of an adverse change in exchange rates. Therefore, it becomes important for the exporter to gain some knowledge about the foreign exchange rates, quoting of exchange rates and various factors determining the exchange rates. In this section, we have discussed various topics related to foreign exchange rates in detail. Spot Exchange Rate Also known as "benchmark rates", "straightforward rates" or "outright rates", spot rates represent the price that a buyer expects to pay for a foreign currency in another currency. Settlement in case of spot rate is normally done within one or two working days.
y y y y y y y y y
Forward Exchange Rate The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date. Method of Quoting Exchange Rates There are two methods of quoting exchange rates: y Direct Quotation: In this system, variable units of home currency equivalent to a fixed unit of foreign currency are quoted. For example: US $ 1= Rs. 42.75 y Indirect Quotation: In this system, variable units of foreign currency as equivalent to a fixed unit of home currency are quoted. For example: US $ 2.392= Rs. 100 Before 1993, banks were required to quote all the rates on indirect basis as foreign currency equivalent to RS. 100 but after 1993 banks are quoting rates on direct basis only. Exchange Rate Regime The exchange rate regime is a method through which a country manages its currency in respect to foreign currencies and the foreign exchange market. y Fixed Exchange Rate A fixed exchange rate is a type of exchange rate regime in which a currency's value is matched to the value of another single currency or any another measure of value, such as gold. A fixed exchange rate is also known as pegged exchange rate. A currency that uses a fixed exchange rate is known as a fixed currency. The opposite of a fixed exchange rate is a floating exchange rate. y Floating Exchange Rate A Floating Exchange Rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange
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rate is known as a floating currency. A Floating Exchange Rate or a flexible exchange rate and is opposite to the fixed exchange rate. y Linked Exchange Rate A linked exchange rate system is used to equalise the exchange rate of a currency to another. Linked Exchange Rate system is implemented in Hong Kong to stabilise the exchange rate between the Hong Kong dollar (HKD) and the United States dollar (USD). Forward Exchange Contracts A Forward Exchange Contract is a contract between two parties (the Bank and the customer). One party contract to sell and the other party contracts to buy, one currency for another, at an agreed future date, at a rate of exchange which is fixed at the time the contract is entered into. Benefits of Forward Exchange Contract y Contracts can be arranged to either buy or sell a foreign currency against your domestic currency, or against another foreign currency. y Available in all major currencies. y Available for any purpose such as trade, investment or other current commitments. y Forward exchange contracts must be completed by the customer. A customer requiring more flexibility may wish to consider Foreign Currency Options. Foreign Currency Options Foreign Currency Options is a hedging tool that gives the owner the right to buy or sell the indicated amount of foreign currency at a specified price before a specific date. Like forward contracts, foreign currency options also eliminate the spot market risk for future transactions. A currency option is no different from a stock option except that the underlying asset is foreign exchange. The basic premises remain the same: the buyer of option has the right but no obligation to enter into a contract with the seller. Therefore the buyer of a currency option has the right, to his advantage, to enter into the specified contract. Flexible Forwards Flexible Forward is a part of foreign exchange that has been developed as an alternative to forward exchange contracts and currency options. The agreement for flexible forwards is always singed between two parties (the buyer of the flexible forward and the 'seller' of the flexible forward) to exchange a specified amount (the face value ) of one currency for another currency at a foreign exchange rate that is determined in accordance with the mechanisms set out in the agreement at an agreed time and an agreed date (the expiry time on the expiry date ). The exchange then takes place approximately two clear business days later on the delivery date ). Currency Swap A currency swap which is also known as cross currency swap is a foreign exchange agreement between two countries to exchange a given amount of one currency for another and, after a specified period of time, to give back the original amounts swapped. Foreign Exchange Markets The foreign exchange markets are usually highly liquid as the world's main international banks provide a market around-the-clock. The Bank for International Settlements reported that global foreign exchange market turnover daily averages in April was $650 billion in 1998 (at constant exchange rates) and increased to $1.9 trillion in 2004 [1]. Trade in global currency markets has soared over the past three years and is now worth more than $3.2 trillion a day. The biggest foreign exchange trading centre is London, followed by New York and Tokyo. Deciding Payment Terms There are several ways in which you can receive payment when selling your products abroa depending d, on how trustworthy you consider the buyer to be. Typically with domestic sales, if the buyer has good credit, sales are made on open account; if not, cash in advance is required. For export sales, these ways are not the only common methods. Listed in order from most secure for the exporter to the least secure, the basic methods of payment are: 1. Cash in Advance
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Receiving payment by cash in advance of the shipment might seem ideal. In this situation, the exporter is relieved of collection problems and has immediate use of the money. A wire transfer is commonly used and has the advantage of being almost immediate. Payment by check, may result in a collection delay of up to six weeks. Therefore, this method may defeat the original intention of receiving payment before shipment. 2. Documentary Letters of Credit and Documentary Drafts Documentary letters of credit or documentary drafts are often used to protect the interests of both buyer and seller. These two methods require that payment be made based on the presentation of documents conveying the title and that specific steps have been taken. Letters of credit and drafts can be paid immediately or at a later date. Drafts that are paid upon presentation are called sight drafts. Drafts that are to be paid at a later date, often after the buyer receives the goods, are called time drafts or date drafts 3. Letters of Credit A letter of credit adds a bank's promise to pay the exporter to that of the foreign buyer provided that the exporter has complied with all the terms and conditions of the letter of credit. The foreign buyer applies for issuance of a letter of credit from the buyer's bank to the exporter's bank and therefore is called the applicant; the exporter is called the beneficiary. Payment under a documentary letter of credit is based on documents, not on the terms of sale or the physical condition of the goods. The letter of credit specifies the documents that are required to be presented by the exporter, such as an ocean bill of lading (original and several copies), consular invoice, draft, and an insurance policy. The letter of credit also contains an expiration date. Before payment, the bank responsible for making payment, verifies that all document conform to the letter of credit requirements. If not, the discrepancy must be resolved before payment can be made and before the expiration date. 4. Documentary Drafts A draft, sometimes also called a bill of exchange, is analogous to a foreign buyer's check. Like checks used in domestic commerce, drafts carry the risk that they will be dishonoured. However, in international commerce, title does not transfer to the buyer until he pays the draft, or at least engages a legal undertaking that the draft will be paid when due. i. Sight Drafts A sight draft is used when the exporter wishes to retain title to the shipment until it reaches its destination and payment is made. Before the shipment can be released to the buyer, the original ocean bill of lading (the document that evidences title) must be properly endorsed by the buyer and surrendered to the carrier. It is important to note that air waybills of lading, on the other hand, do not need to be presented in order for the buyer to claim the goods. Hence, risk increases when a sight draft is being used with an air shipment. ii. Time Drafts and Date Drafts A time draft is used when the exporter extends credit to the buyer. The draft states that payment is due by a specific time after the buyer accepts the time draft and receives the goods (e.g., 30 days after acceptance). By signing and writing "accepted" on the draft, the buyer is formally obligated to pay within the stated time. When this is done the time draft is then called a trade acceptance. It can be kept by the exporter until maturity or sold to a bank at a discount for immediate payment. 5. Open Account In a foreign transaction, an open account can be a convenient method of payment if the buyer is well established, has a long and favourable payment record, or has been thoroughly checked for creditworthiness. With an open account, the exporter simply bills the customer, who is expected to pay under agreed terms at a future date. Some of the largest firms abroad make purchases only on open account. 6. Consignment sales International consignment sales follow the same basic procedures as in the United States. The goods are shipped to a foreign distributor who sells them on behalf of the exporter. The exporter retains title to the
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goods until they are sold, at which point payment is sent to the exporter. The exporter has the greatest risk and least control over the goods with this method. Additionally, receiving payment may take quite a while. It is wise to consider risk insurance with international consignment sales. The contract should clarify who is responsible for property risk insurance that will cover the merchandise until it is sold and payment is received. In addition, it may be necessary to conduct a credit check on the foreign distributor. 7. Countertrade International countertrade is a trade practice whereby one party accepts goods, services, or other instruments of trade in partial or whole payment for its products. This type of trade fulfils financial, marketing, or public policy objectives of the trading parties. For example, a firm might trade by bartering because it or its trading partner lacks foreign exchange. Export Contracts export contract is an agreement according to the law or enforceable by the law. In order to avoid disputes, it is necessary to enter into an export contract with the overseas buyer. For this purpose, export contract should be carefully drafted incorporating comprehensive but in precise terms, all relevant and important conditions of the trade deal. Elements of the Export Contract: No one contract serves as a model for all export situations. There are, however, minimum general requirements for an export contract, outlined below: ii. Name and addresses of the parties. State clearly and fully the parties to the contract. iii. Product, standards and specifications. State the product name, as well as technical names (if any); sizes in which the product is to be supplied (if relevant); applicable national or international standards and specifications; specific buyer requirements; and sample specifications. iv. Quantity. Specify units of measure in both figures and words. v. Inspection. State the nature, manner and focus of the envisaged inspection, as well as the inspection agency. A number of goods are now subject to pre-shipment inspection by designated agencies, and foreign buyers may stipulate their own inspection agencies and conditions for inspection. vi. Total value. State the total contract value in words and figures, and specify the currency. vii. Terms of delivery. State the delivery terms, based on one of the Incoterms viii. Taxes, duties and charges. Clarify responsibility for all taxes. The prices quoted by the seller may be inclusive of taxes, duties, and charges. Levies in the country of importation (if any) may be the buyer s responsibility. ix. Delivery. Specify the place of dispatch and delivery. Also state whether the period of delivery will run from the date of the contract, from the date of notification of the issue of an irrevocable letter of credit, or from the date of receipt of the notice of issuance of the import licence by the seller. x. Part-shipment, trans-shipment and consolidation of cargo. State whether the parties to the contract have agreed on part-shipment or trans-shipment. Indicate the port of trans-shipment and the number, if any, of partial shipments agreed. If the goods are likely to be shipped under a consolidation of export cargos scheme, mention this in the contract. xi. Packaging, labelling and marking. Note all packaging, labelling and marking requirements in the contract. xii. Terms of payment: amount, mode and currency. When quoting different payment terms, the exporter should specify whether the prices are based on the current rate of exchange of in country currency, or on the basis of another currency (such as US dollars). Address payment terms for exchange rate fluctuations as well.
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Discounts and commissions. Specify the amount of discount or commission to be paid and by whom (by the exporter or by the importer). Stipulate the basis of calculation of commission and rate to be applied. Discount or commission rates may or may not be included in the export price agreed upon by the exporter and importer. xiv. Licences and permits. State whether the export transaction will require any export or import licences, and whose responsibility and expense it will be to obtain them. Import licences may be difficult to obtain in the buyer s country. xv. Insurance. A contract should provide for the insurance of goods against loss, damage, or destruction during transportation. Specify the type of risk covered and the extent of coverage. xvi. Documentary requirements. Documents needed for international trade transactions fall into four categories: Documents for export and subsequent import of goods. Documents for the buyer to take delivery of the goods. Documents relating to payment. Special documents required by the nature of the goods, and conditions of sale. Common export documents include the bill of exchange; commercial invoice and other invoices; bill of lading or airway bill; insurance policy; and letter of credit. xvii. Product guarantee. Fix and specify the length of the period of guarantee. xviii. Delay in delivery. Define the damages due to the buyer from the seller in the event of late delivery owing to reasons other than force majeure. xix. Force majeure or excuse for non-performance of contract. Include provisions in the contract defining the circumstances which would relieve partners of their liability for non-performance of the contract. Such provisions are called force majeure and are intended to identify the relief which may be available to either party to the contract should supervening circumstances occur during the period of validity of the contract. xx. Remedial action. As defaults in contractual obligations by any of the parties can occur, it is always advisable to include in the sale or purchase contract certain specific remedial actions. These remedial actions should reflect the mandatory provisions of the law applicable to the contract. xxi. Applicable law. State the law of the country which is to govern the contract. xxii. Arbitration. Include an arbitration clause to facilitate amicable and quick settlement of disputes or differences that may arise between the parties. xxiii. Signature of the parties. The signing of the contract indicates the agreement of both parties to the terms and conditions of the contract. Export Order Processing Export order must confirm to the terms of contract and then sent to the overseas buyer. But before its confirmation, it must be scrutinized with regards to products and their specifications, terms of payment, price, delivery schedule etc. The immediate task of exporter is to acknowledge the export order which is different from its acceptance . Then he should proceed to examine the export order with respect to following parameters. 1. Nature : Export order is a document, communicating the decision of foreign buyer to purchase items from exporter. It would clearly indicate the exporter pro-forma invoice/quotation number and its date, including item, quantity, price, delivery date, shipping marks, insurance, payment terms, documents required etc. Before acceptance, the export order should be scrutinized in all aspects 2. Acknowledgement : The exporter should write a simple letter to overseas buyer thanking him for the export order and stating that the confirmation of the same would be sent soon. 3. Scrutiny : The export order should be carefully scrutinized in terms of pro forma invoice/contract sent to the foreign buyer, on the following aspects:
xiii.
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The order has been received for same products for which quotation/offer was sent. Size and specifications are also as per quotation/offer. Unit measurement needs to be specified as well. It could be numbers, volume, or weight. Ordered quantity both in words and figures. This is essential to leave out any room for confusion. y Pre-shipment inspection is as per agreed in pro forma invoice. y Reshipment inspection can be done by Exporter, Inspection by exporter nominated agency, Inspection by importer nominated agency, Export Inspection Agency (EIA) GOI authorized agency The inspection agency has to be agreed upon in pro forma invoice y Payment conditions are same as stipulated. y The order must provide all the details relating to kind of packaging required including the labels and the marks to be put up. y The instructions have to be explicit specifying requirements in full details as there could be separate labels for the articles and for packaging. y Shipment and delivery date is in conformity with the exporters production plan. y Documents required are in conformity with those mentioned in pro forma invoice. Generally documents which are required are Bill of Exchange; Bill of Lading; Certificate of Origin Packing List and Insurance Policy/Certificate 4. Confirmation : If the exporter is satisfied on various aspects mentioned in the export order he should send a formal confirmation to the overseas buyer. 5. Clarification : If the exporter is not completely satisfied with the terms of export order, clarification should be sought from the buyer before its confirmation. The clarification could be in terms of : Quantity Delivery schedule, Terms of payment, INCO terms etc.
y y y y
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Unit-II Arranging pre -shipment finance Pre-shipment is also referred as packing credit . It is working capital finance provided by commercial banks to the exporter prior to shipment of goods. The finance required to meet various expenses before shipment of goods is called pre-shipment finance or packing credit. Financial assistance extended to the exporter from the date of receipt of the export order till the date of shipment is known as pre-shipment credit. Such finance is extended to an exporter for the purpose of procuring raw materials, processing, packing, transporting, warehousing of goods meant for exports. IMPORTANCE OF FINANCE AT PRE-SHIPMENT STAGE: y To purchase raw material, and other inputs to manufacture goods. y To assemble the goods in the case of merchant exporters. y To store the goods in suitable warehouses till the goods are shipped. y To pay for packing, marking and labelling of goods. y To pay for pre-shipment inspection charges. y To import or purchase from the domestic market heavy machinery and other capital goods to produce export goods. y To pay for consultancy services. y To pay for export documentation expenses. FORMS OR METHODS OF PRE-SHIPMENT FINANCE: 1. Cash Packing Credit Loan: In this type of credit, the bank normally grants packing credit advantage initially on unsecured basis. Subsequently, the bank may ask for security. 2. Advance Against Hypothecation: Packing credit is given to process the goods for export. The advance is given against security and the security remains in the possession of the exporter. The exporter is required to execute the hypothecation deed in favour of the bank. 3. Advance Against Pledge: The bank provides packing credit against security. The security remains in the possession of the bank. On collection of export proceeds, the bank makes necessary entries in the packing credit account of the exporter. 4. Advance Against Red L/C: The Red L/C received from the importer authorizes the local bank to grant advances to exporter to meet working capital requirements relating to processing of goods for exports. The issuing bank stands as a guarantor for packing credit. 5. Advance Against Back-To-Back L/C: The merchant exporter who is in possession of the original L/C may request his bankers to issue Back To-Back L/C against the security of original L/C in favour of the sub-supplier. The sub-supplier thus gets the Back-To-Bank L/C on the basis of which he can obtain packing credit. 6. Advance Against Exports Through Export Houses: Manufacturer, who exports through export houses or other agencies can obtain packing credit, provided such manufacturer submits an undertaking from the export houses that they have not or will not avail of packing credit against the same transaction. 7. Advance Against Duty Draw Back (DBK): DBK means refund of customs duties paid on the import of raw materials, components, parts and packing materials used in the export production. It also includes a refund of central excise duties paid
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on indigenous materials. Banks offer pre-shipment as well as post-shipment advance against claims for DBK. 8. Special Pre-Shipment Finance Schemes: y Exim-Bank s scheme for grant for Foreign Currency Pre-Shipment Credit (FCPC) to exporters. y Packing credit for Deemed exports export procurement
Basic document is Entry
Entry in relation to goods means entry made in Bill of Entry, Shipping Bill or Bill of Export. In case of import by post, label or declaration accompanying goods is entry Loading and Imported goods can be unloaded only at specified places. Goods can be unloading at specified exported only from specified places. places only Computerisation of Customs procedures are largely computerised. Most of documents have to customs procedures be e-filed. Amendment to Documents submitted to customs can be amended with permission In case documents of bill of entry, shipping bill or bill of export, it can be amended after clearance only on the basis of documentary evidence which was in existence at the time the goods were cleared, warehoused or exported, and not on basis of any subsequent document. [proviso to section 149]. ICD and CFS Imported and export goods are usually handled in containers. These can be stored in Inland Container Depot (ICD) or Container Freight Station (CFS). They function like dry port for handling and temporary storage of imported/export goods and empty containers. Boat Notes Boat Notes are used for transferring small cargo from ship to shore, or from shore to ship, without berthing the ship. Transshipment of Goods can be transshipped from one conveyance to other after following goods required procedure. Such transhipment may be to any major port or airport in India. The goods can be transshipped to any other customs station in India if Customs Officer is satisfied that the goods are bona fide intended for transhipment to any customs station. The facility is available at all customs ports and Inland Container Depots (ICDs). Coastal goods Procedures have been prescribed for coastal goods, even if there is neither import nor export. Export Procedures Entry Outward Export manifest/Export report Registration with DGFT and EPC Third party exports Loading in conveyance can start after Entry Outward is given by customs officer. Person in charge of conveyance is required to submit Export Manifest or Export Report . Exporter has to be obtain IEC number from DGFT is advance. He should be registered with Export Promotion Council if he intends to claim export benefits. Export can be by manufacturer himself or third party (i.e. by exporter on behalf of another). Merchant exporter means a person engaged in trading activity and exporting or intending to export goods [para 9.40 of FTP] Advance authorisation, DEPB etc. should be registered if exports are under
Registration of
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documents under Export Promotion Scheme Shipping Mill
Export Promotion Scheme.
FEMA formalities Noting, assessment, examination Certification of documents for export incentives Let export order
Export is required to submit Shipping Bill with required documents for obtaining permission to export. There are five forms : (a) Shipping Bill for export of goods under claim for duty drawback - these should be in Green colour (b) Shipping Bill for export of dutiable goods - this should be yellow colour (c) Shipping bill for export of duty free goods - it should be white colour (d) shipping bill for export of duty free goods ex-bond - i.e. from bonded store room - it should be pink colour (e) Shipping Bill for export under DEPB scheme - Blue colour. GR/SDF/Softex form (under FEMA) is required to be submitted. The shipping bill is noted, goods are assessed and examined. Export duty is paid, if applicable. If export is under export incentives, relevant documents are checked and certified. Then proof of export is obtained on ARE-1. Conveyance can leave only after Let Export order is issued.
quality control and pre -shipment inspection Realizing the importance of the need for supplying quality goods as per international standards, the Government of India has introduced Compulsory Quality Control and Pre -Shipment Inspection of over 1050 items of export under Export (Quality Control and Pre-Shipment Inspection) Act 1963. At present, the export items that are subjected to compulsory inspection includes food and agricultural products, chemicals, engineering, coir, jute and footwear. Compulsory Pre-shipment Inspection: y Foods and Agriculture & Fishery y Mineral & Ore y Organic & Inorganic Chemicals y Refectories & Rubber Products y Foot wear & Foot wear components y Ceramic Products & Pesticides y Light Eng. Products y Steel ;Products y Jute Products y Coir & Coir Products Exemption from compulsory Pre-shipment Inspection: y Status Houses y Certification by Units IPQC approved by EIA y EUO/EPZ/SEZ y Firm Letter from the overseas buyer y Specified products such as Eng/Fishery average level of Rs.1.5 Cr. for the last three years no compliant. For monitoring pre-shipment inspection, Govt. of India has set up Export Inspection Council (EIO) The EIC has set up 5 Export Inspection Agencies (EIA). The EIAs are located one each at Mumbai, Calcutta, Cochin, Delhi and Chennai. The EIAs has a network of nearly 60 offices throughout India. Each EIA is given certain jurisdiction for inspection purpose. For instance, EIA of Mumbai has jurisdiction over Maharashtra, Gujarat and Goa. Systems of Quality Control:
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For the purpose of pre-shipment inspection, EIC has recognized three systems of inspection namely: y Self-Certification y In-Process Quality Control y Consignment Wise Inspection Self-Certification: Under this system, complete authority is given to the manufacturing units to certify their own products and issue certificates for export. The manufacturing units which have been recognized under this scheme have to pay a nominal yearly fee at the rate of 0.1% of FOB price subject to minimum of Rs.2,500/- and maximum of Rs.1 lakh in a year to the concerned EIA In-Process Quality Control (IPQC): In this system, companies/units adjusted as having adequate level of quality control right from raw material stage to the finished product stage including packaging are eligible to get the inspection certificate on a formal request by the exporter. Over 800 units all over India are operating under this system. Constant vigil and surveillance are kept on units approved under IPQC and self-certification system. Units approved under the above two systems are often known as Export worth Units , because of their consistent standards of quality. Consignment wise Inspection: Under this system, each and every consignment is subject to compulsory inspection. The exporter has to follow a certain procedure such as: y He has to make an application to Export Inspection Agency with certain documents. y The EIA deputes inspector to inspect the goods y After the inspection, the goods are repacked with EIA seal y The inspector then makes a report to Deputy Director of EIA y The Dy. Director of EIA then issues Inspection Certificate in triplicate if the inspection report is favourable y If the inspection report is not favourable, a rejection note is issued. o It is to be noted that goods marked with ISI/AGMARK/BIS14000/ISO 9000 are not required to be inspected by any agency o Overseas buyer may depute his own inspection team to inspect the goods o Inspection of textile goods is conducted by Textile Committee in respect of those exporters who are registered with the textile committee. Norms: y Adequate Testing Facility y Raw Material Testing & Process Control y After Sales Services & Maintaining Product Quality y Control on bought out components y Meteorological Control & PKG. y Independent Quality Audit & Houses. Fumigation: For ensuring that no insects or bacteria are carried with the export certain types of export products are fumigated before shipment. The fumigation is carried out in the port of shipment. packing of export consignments Export packaging is also often referred to as transport packaging, which is one of three main types of packaging that are likely to be needed for exported goods. y Transport or export packaging: This is the outermost layer of packaging and is designed to protect your goods during transit. Examples include wooden crates, metal drums and plastic shrink-wrapping. y Outer packaging
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This is an intermediate layer of packaging, which often also serves a retail-promotion purpose. An example would be a box containing multiple units that doubles as a retail display fixture and can be placed directly on a shop shelf, as is common with many convenience foods. y Sales packaging This is the immediate layer of packaging around your goods the packaging that remains when the goods reach their end-user. Examples include the bottles in which beverages are contained, or the boxes many electronics items are sold in. Sales packaging often also serves a marketing purpose by containing prominent branding images and information. These three types of packaging work like Russian dolls each layer of packaging is complete on its own terms, but contained within a further layer of outer packaging. Export Packaging Options: Every organization have a wide variety of options when choosing how to package goods for export, with materials such as wood, paper, metal, plastic, glass and textiles commonly used. The main types of export packaging include: y Loose or unpacked a common option for large items such as heavy vehicles. Making sure they re stowed securely is more important than adding a layer of protective packaging. y Boxes or crates one of the most prevalent options. They are often stacked on pallets and shrink-wrapped for stability. Less durability is required if goods are also containerised. y Drums, usually made of metal or plastic commonly used for transporting liquids and powders or goods that need to be kept dry. y Wrapping often used with goods stacked on pallets, wrapping both adds to stability and protects goods. y Pallets allow smaller packing units such as boxes and cartons to be grouped together. They allow easy mechanical transporting (eg forklift trucks), which eases the process of loading, unloading and warehousing. Factors To Consider When Choosing Export Packaging Factors that will influence packaging decisions are explained below. Protection Avoiding damage to your goods is the main purpose of export packaging. One of the reasons that containers and pallets have become so standard is that they combine efficiency with excellent cargo protection. Security You need to take steps to prevent goods being stolen or tampered with. Containerisation helps with this, and using container seals makes tampering even less likely. Shrink-wrapping and secure straps also act as deterrents. Export packaging should be kept as plain as possible providing details of the contents, eg brand names, encourages theft. Mode of transport This may influence your packaging. For example, bulk ocean shipments of liquids, grain and ores don t need any packaging. And goods transported by air generally need less protective packaging than those sent by ship. Cost It s a false economy to try to cut costs by using sub-standard packaging. The standard options (eg cartons grouped on pallets and then loaded into containers) have become the standard because they re reliable. Unless your goods require special care, you re unlike to gain much by opting for above-standard ly packaging.
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Waste legislation Many markets abroad have waste regulations that favour packaging which can be easily recycled or has a minimal impact on the environment when disposed of. In many export markets, there are stricter rules on packaging waste and collection, eg the green dot system in Germany. labelling of export consignments Once you have decided what kind of packaging you need, use this page to check if there are any further issues you should consider including: y Information and labelling certain information has to be clearly marked on your export packages. y Rules in your export markets check that your consignments comply with local regulations. Certain markings may be required and in some countries certain packaging materials, eg straw filling, are prohibited. y Load securing even adapted packaging has a limit to the vibrations it can withstand before it collapses. Make sure your packaging can be secured in its container and/or vehicle. y Restrictions on wood packaging certain countries require wood packaging to be marked and accompanied by a wood packaging certificate. In many cases it will be sufficient to check that your wood packaging is ISPM 15 compliant. BRENT Packaging meets the latest ISPM 15 regulations for wood packaging. y Packaging waste you have a legal duty to minimise the weight and volume of the packaging you use. Heavy users of packaging also have to register with the Environmen Agency and become t accredited as exporters. In many export markets, there are stricter rules on packaging waste and collection, such as the green dot system in Germany. y Hazardous goods any exports of dangerous goods will have to be safely packaged and clearly marked and labelled. The rules vary slightly depending on which mode of transport you re using. Consider consulting an export in the transportation of hazardous/dangerous goods see BRENT ( Packaging). y Insurance your transport insurance cover may be adversely affected if it can be shown that your goods were damaged due to poor packaging. For more information, see our guide on transport insurance. y Contracts to avoid disputes in case goods are damaged in transit, consider including packaging specifications in your contracts with buyers. Basic Procedure And Documentation For Excise And Custom Clearance The shipment of export cargo has to be made with prior permission of, and under the close supervision of the custom authorities. The goods cannot be loaded on board the ship unless a formal permission is obtained from the custom authorities. The custom authorities grant this permission only when it is being satisfied that the goods being exported are of the same type and value as have been declared by the exporter or his C&F agent, and that the duty has been properly determined and paid, if any. The custom procedure can be briefly explained as follows: y Submission of Documents: The exporter or his agent submits the necessary documents along with the shipping bill to the Custom House. The documents include: o ARE-1 (Original and duplicate) o Excise gate pass (Original and duplicate transporters copy o Performa Invoice o Packing List o GRI form (Original and duplicate) o Customs Invoice (where required in the importing country) o Original letter of credit/contract o Declaration form in triplicate o Quality Certificate
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o o o o o
y
Purchase memo Labels Licence (if any required) including advance licence copy Railway receipt/lorry way bill Inspection Certificate by Export Inspection Agency
Verification of Documents: The Customs Appraiser verifies the documents and appraises the value of goods. He then makes an endorsement of Examination Order on the d uplicate copy of shipping bill regarding the extent of physical examination of the goods at the docks. All documents are returned back to the agent or exporter, except o Original Copy of GR to be forwarded to RBI o Original copy of shipping bill o One copy of commercial invoice y Carting Order: The exporter s agent has to obtain the carting order from the Port Trust Authorities. Carting Order is the permission to bring the goods inside the docks. The carting order is issued by the superintendent of Port Trust. Carting Order is issued only after verifying the endorsement on the duplicate copy of shipping bill. The Carting Order enables the exporter s agent to cart goods inside the docks and store them in proper sheds. y Storing the Goods in the Sheds: After securing the carting order, the goods are moved inside the docks. The goods are then stored in the sheds at the docks. y Examination of Goods: The exporter s agent then approaches the customs examiner to examine the goods. The customs examiner examines the cargo an records his report on the duplicate d copy of the shipping bill. The customs examiner then sings the Let Export Order 1. Let Export Order: The Let Export Order is then shown to the Customs Preventive Officer, along with other documents. The CPO is in charge of supervision of loading operations on the vessel. If CPO finds everything in order, he endorses the duplicate copy of shipping bill with the Let Ship Order This order helps the exporter/shipper to load the goods on the ship. y Loading Goods: The goods are then loaded on the ship. The CPO supervises the loading operations. After loading is completed, the Chief Mate (Cargo Officer) of the ship issues the Mate s Receipt . The Mate s Receipt is sent to the Port Trust Office. The C&F agent pays the port trust dues and collects the mate s receipt. The C&F agent then approaches the CPO and gets the certification of shipment of goods on AR Forms and other documents y Obtaining Bill of Lading: The Mate s Receipt is then handed over to the shipping company (on whose vessel the goods are loaded). The shipping company issues bill of lading. The Bill of Lading is issued in: o 3 negotiable copies of Bill of Lading o 10 to 12 Non-negotiable copies of Bill of Lading. The negotiable copies have title to goods; whereas non-negotiable copies do not have title to goods but are used for record purpose. PROCEDURE OF EXCISE CLEARANCE: The common procedure of excise clearance under bond and under rebate is discussed as follows: y Preparing of Invoice: The export goods have to be cleared from the factory under invoice. The invoice contains details like name of the exporter, value of goods, excise duty chargeable, etc. The invoice is to be prepared in triplicate. In case of export under Bond, the invoice should be marked as For Export without payment of duty . In addition to the invoice, a prescribed for ARE 1 has to be filed in by exporter. y Filling up of ARE-1 form (Annexure-20): The ARE-1 form needs to be filled in four copies. A fifth (Optional) may be filled in by the exporter, which can be used at the time of claiming other export incentives. The ARE-1 copies have distinct color for the purpose of verification and processing.
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Application to Assistant Commissioner of Central Excise (ACCE): The exporter has to make an application to ACCE regarding the removal of goods from the factory/warehouse for export purpose. y Information to Range Superintendent of Central Excise (RSCE): The ACCE will inform the RSCE under whose jurisdiction the goods are intended to be cleared for export y Deputation of Inspector: The RSCE will then depute an inspector to clear the goods, either at the factory or warehouse, and in certain cases at the port. y Processing of ARE-1 Form: The Excise Officer/Inspector will make endorsement on all copies of ARE-1. The handling of ARE-1 Form is done as follows: o The inspector returns the original and duplicate copies to the exporter o The triplicate copy is sent to officer (ACCE or Maritime Commissioner (MCCE) to whom bond was executed or letter of undertaking (LUT) was given. This copy can also be handed over to the exporter in a tamper proof sealed cover to be submitted to ACCE/MCCE. o The 4th copy will be retained by the excise inspector. o The 5th copy is also handed over to the exporter. o At the time of export, original, duplicate and the 5th copy (optional) will be submitted to customs officer. The customs officer will examine these copies and then export will be allowed. o The customs officer will then make endorsement of export on all copies of ARE1. He will cite shipping bill number and date and other particulars of export on ARE-1. o The original copy and quintuplicate (optional) will be returned to the exporter. The duplicate copy will be sent directly to the ACCE\MCCE i.e. excise officer with whom bond was executed will get 2 copies, one from RSCE (or excise inspector) when goods are cleared from factory and other Custom Officer after export. This will enable him to keep track to ensure that all goods cleared from factory or warehouse without payment of duty are actually exported. In case of export after payment of duty, under claim of rebate, the basic procedure is same as above, except that the triplicate copy (by excise inspector) and duplicate copy(by customs officer)will be sent to the officer to whom rebate claim is filed. If claim of rebate is by electronic submission, these copies well be sent to excise rebate audit section at the place of export. y Refund or Release of Bond: The exporter should make an application to the excise officer for refund or release of bond. The application must be supported by original copy of ARE-1 form. The excise officer crosschecks the original copy of ARE-1 form and the duplicate and triplicate copies of ARE-1 form, which he had received earlier. If the copies match, then refund is given or the bond is released. FACTORY STUFFING OF CARGO Clearance of goods to docks: If the goods meant for export is of a small quantity which may not be sufficient to make one full container, the cargo is said to be less than container load (LCL) cargo. Such cargo has to be taken to the docks where the goods will be consolidated (combining the cargo of other exporters to make up quantity for a full container) by the agent and loaded into a container. Here the examination of the cargo is done at the docks.(There are also inland container depots approved by the customs where the goods can be consolidated and stuffed into the container by the agent under the supervision of the customs officer) If the goods meant for export is of sufficient quantity to make up a full container, the exporter has the option to take the goods to the docks and get them examined and stuffed into a separate container. An exporter gets the benefit on the freight amount for a full container. (Generally called box rate)
y
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Alternatively, he can have a container allotted to him and get the same to his Mills Premises. The goods meant for exports can be stuffed into the container under the supervision of the regional Central Excise Authority. Here the exporter has to y Obtain permission from the Customs for getting the container to his mills premises for stuffing (House Stuffing) y Inform the C. Excise Authorities at least 24 hours before bringing the container for loading. The C. Excise Authority will supervise the loading, seal the container and certify the invoice as directed in the permission given by the custom authorities. A special Lock is used to lock the doors of the container. Samples from the goods will be drawn, if necessary, as required under the customs permission. Such samples will be sealed and forwarded along with the container. The examiner in the docks may arrange to send the sample for testing. Then the container is moved to the dock for loading. Generally, such containerized goods are not subject to further examination in the customs. They will be directly taken for loading.
Cargo Insurance Goods in transit are subject to risks of loss of goods arising due to fire on the ship, perils of sea, thefts etc. Marine insurance protects losses incidental to voyages and in land transportation. Marine Insurance Policy is one of the most important document used as collateral security because it protects the interest of all those who have insurable interest at the time of loss. The exporter is bound to insure the goods in case of CIF quotation, but he can also insure the goods in case of FOB contract, at the request of the importer, but the premium payment will be made by the exporter. There are different types of policies such as Specific Policy: This policy is taken to cover different risks for a single shipment. For a regular exporter, this policy is not advisable as he will have to take a separate policy every time the shipment is made, so this policy is taken when exports are infrequent. Floating Policy: This policy is taken to cover all shipments for same months. There is no time limit, but there is a limit on the value of goods and once this value is crossed by several shipments, then it has to be renewed. Open Policy: This policy remains in force until cancelled by either party, i.e. insurance company or the exporter. Open Cover Policy: This policy is generally issued for 12 months period, for all shipments to one or all destinations. The open cover may specify the maximum value of consignment that may be sent pre ship and if the value exceeded, the insurance company must be informed by the exporter. Insurance Premium: Differs upon from product to product and a number of other such factors, such as, distance of voyage, type and condition of packing etc. Premium for air consignments ar lower as e compared to consignments by sea. The Insurance Policy Normally Contains: y The name and address of the insurance company. y The name of the assured & description of the risk covered. y A description of the consignment. y The sum insured & the date of issue. y The place where claims are payable together with details of the agent to whom claims may be directed & Any other details, as applicable. Shipping Modes Procedures Bigger export firm have a traffic department will take care of overseas shipping. With smaller firm, this task is usually delegated on a fee basis, to freight forwarder. The following steps are involved in a typical overseas shipping procedure. 1. The Freight Forwarder is advised of the export order.
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2. The terms of sale are examined to determine the exporter's shipping responsibility and ability to fill the order. 3. If letter of credit is involved, it must also be carefully examined to insure that any shipping conditions (such as shipping date, no partial shipments, discharge port, transhipment restrictions, etc.) are met or, if impossible to meet, arrangements be made for the letter of credit to be amended. 4. Quotations on freight rates sought from different shipping agents. 5. A shipping line and vessel are selected. 6. Space is booked as early as possible (as shipping space is not easily available to all destinations) through a shipping agent. The space should be on a ship with an acceptable loading port and acceptable estimated time of arrival (or ETA) at the required port of destination. The choice of loading port must be balanced against the preferred date of sailing. Information about sailing schedules is available in specialized shipping publications and in the business sections of the major newspapers. The agent that represents the shipping line will, in booking the space, requires full details of the shipment, including weight, size, contents value, ports of shipment and destination. This is recorded by the exporter onto a shipping note that is sent to the steamship office. The shipping agent then sends the exporter a contract number and an engagement note showing the details of the shipment, including name of the ship, destination, loading port, loading date, arrival date, and the shipping rate. The exporter may cancel the space that has been reserved if the export order falls through. However, it should let the shipping company know as soon as possible so that the space can be allocated to someone else. Otherwise the shipping company will invoice the exporter for the unused space. 7. Customs forms are filled out for the country of destination. 8. The shipment is appropriately packaged and marked. 9. Wait for the "calling forward" notice from the shipping company. 10. The shipment is dispatched to the port with a consignment note. 11. A bill of lading is obtained from the shipping company and freight charges are paid. 12. The bill of lading and other required documents are delivered to the bank for collection. Shipping Modes Documentation Shipping documents are the documents used for the shipping transaction purposes like Export Import, Ship Husbandry, Custom Clearance, Immigration, Loading- Unloading of cargoes, etc. There are various types of documents involved in the shipping operation. Such as the following: 1. Shipping bill A shipping bill or Bill of Lading is issued by the Shipping Agent on behalf of the Ship Owners to state that certain goods have been sent on board a particular vessel from point A to point B. The details of the goods are mentioned. Shipping Bill is a mandatory document for export of any goods out of India. It is only on the basis of which organizations can get all the export incentives including drawback/DEPB & other benefits. The shipping Bills are of following types: ± Duty Free Shipping Bill : No duty applicable ± Dutiable Shipping Bill : Goods subject to export duty ± Drawback Shipping Bill : ± Shipping Bill for shipment Ex-bond.: For goods imported for re-export. 2. Bill of lading bill of ladings a document issued by a carrier to a shipper, acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified. A through bill of lading involves the use of at least two different modes of transport
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from road, rail, air, and sea. The term derives from the verb "to lade" which means to load a cargo onto a ship or other form of transportation. A bill of lading can be used as a traded object. The standard short form bill of lading is evidence of the contract of carriage of goods and it serves a number of purposes: y It is evidence that a valid contract of carriage, or a chartering contract, exists, and it may incorporate the full terms of the contract between the consignor and the carrier. y It is a receipt signed by the carrier confirming whether goods matching the contract description have been received in good condition. y It is also a document of transfer, being freely transferable but not a negotiable instrument in the legal sense, i.e. it governs all the legal aspects of physical carriage, and, like a cheque or other negotiable instrument. The bill of landing must contain the following information: y Name of the shipping company; y Flag of nationality; y Shipper's name; y Order and notify party; y Description of goods; y Gross/net/tare weight; and y Freight rate/measurements and weigh of goods/total freight 3. Mat's receipt Mate s receipt is a document originally issued by the first mate of the ship. He was the officer responsible for cargo. The document would be issued by him after the cargo was tallied into the ship by tally clerks. The shipper or his representative would then take the mate's receipt to the master or the agent to exchange it for a bill of lading, which would incorporate any conditions inserted into the mate's receipt. In modern days, the document known as the Mate's receipt" is not often signed by the mate of the ship but by some person in the shore office of the shipping company or its agents, although the name of the document remains the same. This document used in the shipment of a cargo. When the goods are received by or for the sea carrier, a mate s receipt is issued either directly by the ship or by the ship s agents. This is the first evidence that the goods are received and statements on the document describe the quantity of goods, any identifying marks and the apparent condition. 4. Cargo manifest The Cargo Manifest subsystem deals predominantly with the control and management of merchandise that arrives by boat, plane or other means of transport from abroad, and is stored in a public or private warehouse under a provisional consignment regime. The subsystem provides for the electronic exchange of information between the relevant customs office, port authorities, and other authorities, as well as with transport companies. This facilitates the imports/exports procedure and reduces the risk of error. An Entry Summary Declaration (ENS) will be submitted to a customs territory prior to the actual shipment of goods. A common safety and security risk analysis will be completed for the goods reported in the ENS, and the goods will be permitted entry into the customs territory if (and only if) common and national risk results indicate that the goods are allowed. A Manifest is then submitted to the destination customs office. Upon acceptance, a risk analysis is performed on goods unloaded, and the Temporary Storage Warehousing managed. Data captured by this subsystem are redirected to produce Single Administrative Documents. 5. Letter of Credit A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. Letters of credit are often used in international transactions to ensure that payment will be received. Due to the nature of international dealings including factors such as distance, differing laws
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in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped. Role Of Forwarding Agents Selling through Forwarding agents is a strategic entry option open to exporters. The role and importance of forwarding agents are as follows ± Selling through an overseas agent is an effective strategy. ± The agents serve as a source of market intelligence. ± The agent is in a position to render his advice to exporter or new methods and strategy for pushing up sales of your products. He also provides you support in the matter of transportation, reservation of accommodation, appointment with the government as and when required by you. ± In some countries it is compulsory under their law to sell through local agents only. It is, therefore, essential that you should carefully select your overseas agent. Some source of information on agents are: ? Government Departments Trade Associations /Chambers of Commerce /Banks ? Independent Consultants/Export Promotion Councils/Advertisement Abroad.
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Unit-III Arranging Post-Shipment Finance Post-shipment finance is the finance provided against shipping documents. It is also provided against duty drawback claims. It is provided in the following forms: Purchase of Export Documents drawn under Export Order: Purchase or discount facilities in respect of export bills drawn under confirmed export order are generally granted to the customers who are enjoying Bill Purchase/Discounting limits from the Bank. As in case of purchase or discounting of export documents drawn under export order, the security offered under L/C by way of substitution of credit-worthiness of the buyer by the issuing bank is not er, available, the bank financing is totally dependent upon the credit worthiness of the buy i.e. the importer, as well as that of the exporter or the beneficiary. The documents dawn on DP basis are parted with through foreign correspondent only when payment is received while in case of DA bills documents (including that of title to the goods) are passed on to the overseas importer against the acceptance of the draft to make payment on maturity. DA bills are thus unsecured. The bank financing against export bills is open to the risk of non-payment. Banks, in order to enhance security, generally opt for ECGC policies and guarantees which are issued in favour of the exporter/banks to protect their interest on percentage basis in case of non-payment or delayed payment which is not on account of mischief, mistake or negligence on the part of exporter. Within the total limit of policy issued to the customer, limits are generally fixed for individual customers. At the time of purchasing the bill bank has to ascertain that this limit is not exceeded so as to make the bank ineligible for claim in case of non-payment. Advances against Export Bills Sent on Collection: It may sometimes be possible to avail advance against export bills sent on collection. In such cases the export bills are sent by the bank on collection basis as against their purchase/discounting by the bank. Advance against such bills is granted by way of a 'separate loan' usually termed as 'postshipment loan'. This facility is, in fact, another form of post- shipment advance and is sanctioned by the bank on the same terms and conditions as applicable to the facility of Negotiation/Purchase/Discount of export bills. A margin of 10 to 25% is, however, stipulated in such cases. The rates of interest etc., chargeable on this facility are also governed by the same rules. This type of facility is, however, not very popular and most of the advances against export bills are made by the bank by way of negotiation/purchase/discount. Advance against Goods Sent on Consignment Basis: When the goods are exported on consignment basis at the risk of the exporter for sale and eventual remittance of sale proceeds to him by the agent/consignee, bank may finance against such transaction subject to the customer enjoying specific limit to that effect. However, the bank should ensure while forwarding shipping documents to its overseas branch/correspondent to instruct the latter to deliver the document only against Trust Receipt/Undertaking to deliver the sale proceeds by specified date, which should be within the prescribed date even if according to the practice in certain trades a bill for part of the estimated value is drawn in advance against the exports.
Documentary Collection Of Export Bills
Documentary collection refers to the collection of financial and/or commercial documents. Export documentary bill for collection is a way of international trade settlement that after the shipment of the goods, the exporter entrusts SDB to send relevant documents (especially the transport documents) and
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the draft (or without draft) to the bank at the importer s place and collect the payment for goods for the exporter. According to the way of document presentation, export documentary bill for collection falls into D/P and D/A. D/P Sight: After making delivery at the date stipulated in the contract, the exporter opens demand draft (or does not open the draft) and sends it to the bank together with the complete set of shipment documents, entrusting the bank to present them to the importer. The importer shall make payment immediately at sight of the draft (and the documents). The bank hands the shipment documents over to the importer after the payment for goods is made. D/P Usance: After making delivery at the date stipulated in the contract, the exporter entrusts the bank to present the complete set of shipment documents to the importer. The importer makes full payment for the goods upon the maturity, and then obtains the shipment documents from the bank. D/A: After making delivery at the date stipulated in the contract, the exporter opens usance draft and entrusts the bank with collection of the draft together with the shipment documents, explicitly instructing that the bank shall hand the complete set of shipment document over to the importer immediately after the importer accepts the draft and that the importer may make full payment for the goods at draft maturity date. The way of collection is based on commercial credit, and it is suitable for the importer and exporter that have built up good commercial credit. This way, compared to settlement by L/C, requires lower cost and simpler procedures. UCPDC guidelines ? Uniform Customs and Practice for Documentary Credit (UCPDC) is a set of predefined rules established by the International Chamber of Commerce (ICC) on Letters of Credit. The UCPDC is used by bankers and commercial parties in more than 200 countries including India to facilitate trade and payment through LC. ? UCPDC was first published in 1933 and subsequently updating it throughout the years. In 1994, UCPDC 500 was released with only 7 chapters containing in all 49 articles . ? The latest revision was approved by the Banking Commission of the ICC at its meeting in Paris on 25 October 2006. This latest version, called the UCPDC600, formally commenced on 1 July 2007. ? It contain a total of about 39 articles covering the following areas, which can be classified as 8 sections according to their functions and operational procedures. ISBP 2002 ? The widely acclaimed International Standard Banking Practice (ISBP) for the Examination of Documents under Documentary Credits was selected in 2007 by the ICCs Banking Commission. ? First introduced in 2002, the ISBP contains a list of guidelines that an examiner needs to check the documents presented under the Letter of Credit. Its main objective is to reduce the number of documentary credits rejected by banks. negotiating documents under L/C The documents presented under a documentary credit are scrutinized as per the International standards of scrutiny and negotiated if they strictly comply with the LC terms. This is called a clean negotiation. On the other hand if the documents do not comply with the LC terms and discrepancies are found, the negotiating bank may still opt to give value under the LC by paying or incurring a deferred payment obligation as per LC provided the beneficiary undertakes to indemnify the negotiating bank in the event of rejection by the LC opening Bank. This is technically called a payment under reserve. The Reserve will be lifted on acceptance of discrepancies by the LC opening Bank.
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An exporter presents a draft (a bill of exchange) and shipping documents specified in the letter of credit to a nominated bank or any bank if there is no nominated bank, which becomes a negotiating bank, to get paid. The detail process of negotiation is as follows 1. Instructions for Opening a Letter of Credit Items usually included in the instructions to open an L/C are as follows (1) An Irrevocable letter of credit subject to the UCP of the latest version; UCP No. 600 (2007 Revision) (2) Whether the L/C is to be confirmed by a U.S. bank or not. (3) The name and address of the beneficiary: in favor of exporter. (4) Whether the L/C is to be transferable or not (5) Terms of payment such as at sight or usance (6) Where negotiation or payment is to be effected (7) Whether the payment is to be made in U.S. dollars or other foreign currency (8) What trade terms are to be used: FOB, CFR or CIF? (9) Coverage of marine insurance: All Risks, WA, FPA, War Risks, Warehouse to warehouse or any special coverage such as a rejection clause (10) Documents to be required for negotiation y Commercial invoice y Packing list y Marine insurance certificate y Ocean bill of lading y Other documents requested by the buyer and accepted by the seller 2. Examination of a Letter of Credit When a letter of credit is received, exporter must: (1)Examine the conditions and documents specified in the L/C and determine whether he can meet them or not. (2) If there are any conditions he cannot meet, request his buyer to amend the L/C asap before he starts manufacturing export goods. (3) If the L/C calls for a time draft, have the L/C specify that the discount interest for the time draft shall be for account of accountee (importer), when agreement was a sight draft but L/C is opened with a time draft (4) Hold off shipping the order until he receives an amendments to the L/C as requested. 3. Common Discrepancies Any inconsistence or difference from the terms and conditions stipulated in the letter of credit in minute details. These discrepancies may be in form of i. Drafts a. Draft amount is different from invoice b. Draft tenor is different from the L/C c. Wrong drawee ii. Commercial invoices y Different merchandise description from the L/C y Invoices is not issued by the beneficiary y Insufficient copies are presented y Incorrect accountee's name and address are stated
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y y y y y y
Different prices from the L/C Terms of trade such as FOB, CFR or CIF different from the L/C Marks and numbers of packages are different from all other documents Weight is different from the L/C A statement required in the L/C is not presented Different currency from the L/C
iii. Packing list y Different description of merchandise from the L/C y Different number of unit, net weight and gross weight from the L/C iv. Ocean Bill of Lading y Less than a full set of original B/L is presented y The B/L not properly endorsed y The B/L not marked with "On Board notation, if B/L contains the indication intended vessel or "Received for shipment" y The B/L not properly consigned. y In the case of CFR or CIF, the term "Freight Prepaid" is not marked, that is, no indication of freight prepaid by the exporter y Merchandise description is different from the L/C v. Marine Insurance Certificate y Different coverage from the L/C y Insufficient coverage y Not the same currency as the L/C y Different merchandise description y The effective date later than the shipping date y Broker's cover note presented instead of insurance certificate or policy 4. Negotiation with Discrepancies In case discrepancies are found by negotiating bank, exporter m correct the discrepancies. If ust exporter cannot correct them such as the shipping date, then exporter should a. request the issuing bank to amend the letter of credit to cover discrepancies or authorize to pay in lieu of discrepancies b. At the same time, inform the buyer of the discrepancies and request his acceptance and amendment to the Letter of Credit. c. Release shipping documents to issuing bank after the L/C is amended. Buyer s acceptance of discrepancies are not enough. The Letter of Credit must be amended. d. Do not send the shipping documents to the issuing bank for an approval or on a collection basis. 5. Documents for Negotiation Depend on the stipulation in the letter of credit. y Exporter must present all documents specified in the letter of credit for negotiation. y Any missing document or incorrect document becomes a discrepancy. y Issuing bank of the L/C has under no circumstances an obligation to honor the draft and shipping documents with discrepancies.
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Common documents used in the international trade accompanying exporter s Draft (Bill of Exchange) a. Commercial Invoice b. Packing List c. Ocean Bill of Lading d. Marine Insurance Certificate e. Any other documents if required by the L/C i. Certificate of Country Origin ii. Consular Invoice iii. Inspection Certificate iv. Beneficiary's statement 6. Presentation of Documents The notice must state a. The bank is refusing to honor or negotiate b. Each discrepancy c. The bank s disposal of shipping documents: i. The bank is holding documents pending instructions from the presenter or ii. The issuing bank is holding documents until it receives a waiver from the applicant & agrees to accept it or iii. The bank is returning documents or iv. The bank is acting according to the previous instructions from the presenter. d. If a bank does not follow these negotiation and notice provisions, then bank cannot claim that the documents do not constitute a complying presentation, that s why The bank must honor or negotiate. e. A document presented but not required by the Credit will be disregarded. f. If a Credit contains a condition without stipulating the document to indicate compliance with the condition, then the banks will deem such condition not stated and will disregard it. Managing Exchange Earners Foreign Currency Accounts ( EEFC ) Exchange Earners' Foreign Currency Account (EEFC) is an account maintained in foreign currency with an Authorised Dealer i.e. a bank dealing in foreign exchange. It is a facility provided to the foreign exchange earners, including exporters, to credit 100 per cent of their foreign exchange earnings to the account, so that the account holders do not have to convert foreign exchange into Rupees and vice versa, thereby minimizing the transaction costs. The main features of EEFC are as follows 1. All categories of foreign exchange earners, such as individuals, c ompanies, etc. who are resident in India, may open EEFC accounts. 2. An EEFC account can be held only in the form of a current account. No interest is payable on EEFC accounts. 3. One can credit up to 100 per cent of his/ her foreign exchange earnings into the EEFC account, subject to permissible credits and debits. 4. SEZ Units cannot open EEFC Accounts. However, a unit located in a Special Economic Zone can open a Foreign Currency Account with an authorised dealer in India subject to certain conditions. SEZ Developers can open EEFC Accounts. 5. there is no restriction on withdrawal in Rupees of funds held in an EEFC account. However, the amount withdrawn in Rupees shall not be eligible for conversion into foreign currency and for re-credit to the account.
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6. the EEFC account balances can be hedged. The balances in the account sold forward by the account holders has to remain earmarked for delivery. However, the contracts can be rolled over.
availing foreign exchange facilities; Protecting Against Adverse Movements In Exchange Rates There are a number of alternatives available to protect against adverse movements in the exchange rate. Some can be intrinsic to your existing operations and available at no cost. Others are financial products available from banks and other financial institutions. Offsets When considering the extent of your exposure to exchange rate movements, it is important to take offsetting cash flows into account. For instance, any foreign currency expenses will offset your exposure to revenue in that currency. Forward exchange contracts Most people are familiar with the regular currency conversion transaction at the bank, where the bank will make a T/T payment in foreign currency, which will arrive at the receiving bank account in one or two days time, and debit your Australian Dollar account. It is also possible to arrange to fix the rate for a conversion, but not physically effect the payments until a future date. So while the rate can be fixed today, the foreign currency T/T and the Australian dollar debit may not happen until some pre-arranged date in the future. These forward contracts can generally be arranged up to 1 year ahead. Using these contracts, it is possible to exactly fix the exchange rate that will be used for your currency conversions for a period of time, and remove all exposure to movements in the exchange rate. Insurance Financial institutions offer products to insure against adverse exchange rate movements. These provide the purchaser with the potential to benefit from exchange rate movements in their favour while offering protecting against adverse movements. There is no free lunch of course and this type of insurance comes at the cost of an up-front premium. This can be in the order of 5% of the amount involved for protection against adverse movements for 12 months. Other strategies There are many more alternatives available that can be tailored to your specific requirements. An example is a zero cost insurance strategy that allows you to benefit from a certain level of protection against adverse movements by giving up some profit potential from beneficial exchange rate movements. We would be please to discuss your individual situation with you and work out if we can be of assistance in your organisation. Role Of EXIM Bank Export-Import Bank of India is the premier export finance institution of the country, set up in 1982 under the Export-Import Bank of India Act 1981. Government of India launched the institution with a mandate, not just to enhance exports from India, but to integrate the country s foreign trade and investment with the overall economic growth. Since its inception, 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.
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Exim Bank is managed by a Board of Directors, which has representatives from the Government, Reserve Bank of India, Export Credit Guarantee Corporation of India, a financial institution, public sector banks, and the business community. Exim bank has plays role in two category these are i. Export Credits ii. Finance for EOUs i. EXPORT CREDITS a. For Indian Companies Executing Contracts Overseas y Pre-shipment Credit y Supplier's Credit y For Project Exporters y For Exporters of Consultancy and Technological Services y Guarantee Facilities y Deferred Payment Exports y Term Loans for Export Production y Overseas Investment Finance y Finance for Export Marketing b. For Commercial Banks y Export Bills Rediscounting y Refinance of Supplier's Credit y Guaranteeing of Obligations c. For Overseas Entities y Buyer's Credit y Eligible Goods y Lines of Credit y Relending Facility to Banks Overseas ii. FINANCE FOR EXPORT ORIENTED UNITS a. Term Finance (For Exporting Companies) y Project Finance y Equipment Finance y Import of Technology & Related Services y Domestic Acquisitions of businesses/companies/brands y Export Product Development/ Research & Development y General Corporate Finance b. Working Capital Finance (For Exporting Companies) y Funded Working Capital Term Loans (< 2 years) Long Term Working Capital (up to 5 years) Export Bills Discounting Export Packing Credit Cash Flow financing
y Non-Funded y Letter of Credit Limits y Guarantee Limits Term Finance (For Non- Exporting Companies) y Import of Equipment
y
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y y
Working Capital Finance (For Non- Exporting Companies) y Bulk Import of Raw Material Export Finance y Pre-shipment Credit y Post Shipment Credit y Buyers' Credit y Suppliers' Credit (including deferred payment credit) y Bills Discounting y Warehousing Finance
major provisions of FEMA relating to exporters Foreign Exchange Management Act or in short (FEMA) is an act that provides guidelines for the free flow of foreign exchange in India. It has brought a new management regime of foreign exchange consistent with the emerging frame work of the World Trade Organisation (WTO). Foreign Exchange Management Act was earlier known as FERA (Foreign Exchange Regulation Act), which has been found to be unsuccessful with the policies of the Government of India. FEMA is applicable in all over India and even branches, offices and agencies located outside India, if it belongs to a person who is a resident of India. Provisions of FEMA y It prohibits foreign exchange dealing undertaken other than an authorised person; y It also makes it clear that if any person residing in India, received any Forex payment (without there being a corresponding inward remittance from abroad) the concerned person shall be deemed to have received they payment from a non authorised person. y There are 7 types of current account transactions, which are totally prohibited, and therefore no transaction can be undertaken relating to them. These include transaction relating to lotteries, football pools, banned magazines and a few others. y FEMA and the related rules give full freedom to Resident of India (ROI) to hold or own or transfer any foreign security or immovable property situated outside India. y Similar freedom is also given to a resident who inherits such security or immovable property from an ROI. y An ROI is permitted to hold shares, securities and properties acquired by him while he was a Resident or inherited such properties from a Resident. y The exchange drawn can also be used for purpose other than for which it is drawn provided drawl of exchange is otherwise permitted for such purpose. y Certain prescribed limits have been substantially enhanced. For instance, residence now going abroad for business purpose or for participating in conferences seminars will not need the RBI's permission to avail foreign exchange up to US$. 25,000 per trip irrespective of the period of stay, basic travel quota has been increased from the existing US$ 3,000 to US$ 5,000 per calendar year. export credit risk insurance and the role of ECGC. The abbreviated form for Export Credit and Guarantee Corporation is ECGC. As the name indicates this is a sort of guarantee or a sort of cover for the exporter. Let us now see what this is all about. Needless to say that an exporter before entering into a contract with the overseas buyer for making any supply, takes care to ensure that the customer with whom he is dealing have some credit worthiness. This he may be able to do either through the local agent who is in a better positon to know about the i customer or through a bank or through any of the exporter s associates if happens to be in the area of the customer etc., But, in a business things may change. The financial status of a customer may take drastic turn and an established customer may go bankrupt within a short period of time. Moreover, the buyer may be willing to make the payment, but there are other environment which prevents him from effecting the transfer of funds through the bank. For e.g., there could be break out of
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war, the balance of payment position of the country may become unfavourable, there may be some coup of the government etc., and all transactions could be sealed. It takes up the responsibility of paying the funds to the exporter and makes all efforts including legal proceedings to recover the dues from the customer, provided the exporter has taken an ECGC cover. WHAT ECGC OFFERS FOR PROTECTION OF EXPORTER S INTEREST ? ECGC offers various types of insurance cover to protect the exporter s interest. For each type of cover an exporter has to take Policy specific to the respective requirements. The Policy that is most commonly taken by the exporters is the Standard Policy or otherwise called the Shipments (Comprehensive Risks) Policy. SHIPMENTS (COMPREHENSIVE RISKS) POLICY also called STANDARD POLICY For exporters with an annual export turnover in excess of Rs.50 lakhs, the Shipments (Comprehensive Risks) Policy is the one intended for covering shipments on cash basis or on short term credit basis. (Credits not exceeding 180 days) The risks covered this Policy is as follows effective from the date of shipment.: Commercial Risks y Insolvency of the buyer y Failure of the buyer to make payment within a specified period. y Buyer s failure to accept the goods subject to certain conditions. Political Risks y Imposition of restrictions by the Govt. of the buyer s country or any government action which may block or delay the transfer of payment made by the buyer. y War, civil war, revolution or civil disturbances in the buyer s country y New import restrictions or cancellation of a valid import licence y Interruption or diversion of voyage outside India resulting in payment of additional freight or insurance charges which cannot be recovered from the buyer. y Any other cause of loss neither occurring outside India nor normally insured by general insurers and beyond the control of both the e porters and the buyer. Risks not covered under the Policy The Standard Policy does not cover losses on account of following risks: y Commercial disputes including quality disputes raised by the buyer unless the exporter obtains a decree from a competent court of law in the buyer s country in his favour y Causes inherent in the nature of the goods y Buyer s failure to obtain necessary import or exchange control clearance from authorities concerned y Insolvency or default of the agent of the exporter or of the collecting bank y Loss or damage to goods which can be covered by general insurers. y Exchange rate fluctuations y Failure of the exporter to fulfil the terms of the export contract or negligence on his part. Shipments Covered The Standard Policy is meant to cover all the shipments that may be made by an exporter during a period of 24 months ahead. The policy cannot be issued for selected shipments, selecte buyer or selected d markets. For specific requirements an exporter can opt for different policy from the various services offered by the corporation Exclusions: Shipments made against advance payments received or shipments against confirmed letters of cred it which has the confirmation from the bank in India may be excluded. However, shipments against confirmed L/C may be covered for political risks only. The premium for cover under political risks will be less than that under the comprehensive policy. ECGC may also agree to exclude certain items if the exporter is dealing in different distinct products. Shipments to Associates:
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Shipments to buyers i.e. the foreign buyers in whose business the exporter has financial interest, are normally excluded from the Policy. However such shipments can be covered against political risks. Shipments on Consignment basis: Shipments on consignment basis can be covered only against political risks. Shipments by Air Since the buyer is able to take delivery of the goods even without retiring the bank documents, shipments by air are not covered under the policy. However, the exporter may cover such shipments for payments under open terms. The exporter can have cover for such shipments, if he has obtained Credit Limit on such buyers on open delivery terms and also pays the premium at rates applicable to open delivery terms. HOW TO GET ECGC COVER Step 1 - Open Policy: An exporter desiring to get the ECGC cover has to approach the office of the ECGC making a Proposal. He must make his home work and be clear as to what will be his total turnover during a year and what will be the maximum amount he expects to be outstanding from various buyers at a given point of time. Once this is clear he can apply for an Open Policy for the maximum amount that he expects to be outstanding at a given point of time. Suppose, he expects that at any given time his outstanding will be say Rs.50/- lakhs then he can apply for a policy for this amount. After verification of the details of the exporter, the ECGC may issue a open policy for Rs.50 lakhs with a validity of say 2 years. This is the first step. Step 2 - Credit Limit on Individual Buyer Once the open policy is taken, as a next step the exporter must make out the list of the customers to whom he expects to make shipment. For each and every customer he has to apply to the ECGC to have a limit of liability fixed. Step 3 Payment of Premium and filing of monthly returns For the risk the ECGC takes, it charges a premium on the value of the shipments actually made. This is calculated as per the table to be supplied by ECGC which shows the premium per Rs.100 of exports. This table which gives the premium amount payable is framed based on the following. The various countries around the globe are divided into different groups and are classified as A1, A2, B1, B2, C1,C2 & D. The countries are grouped according to their economic standard. For e USA. .g. Canada, UK are grouped in category A. The premium amount will be less for group A countries and will be increased gradually to group B, C & D countries. The premium for group D countries will be more because they are all economically weaker count ries and payment risks are high Again the premium table is based on the period of credit. The slab is for credits up to 90 days, 120 days, 180 days etc. Longer the credit period greater is the premium. Thus, the premium will be least for group A countries and for the shorter credit period and will be maximum for group D countries and for maximum credit period FILING OF MONTHLY RETURNS: The exporter has to send a monthly return in the prescribed form to ECGC declaring the list of various shipments made and the amount of premium payable as per the premium table. The exporter has to work out the total premium applicable on the shipment effected and make payment to the ECGC The cover is only when the party goes insolvent or there are some political risk due to w hich the exporter is not in a position to get the payment immediately or on due date. This cover must be distinguished from the general insurance. VARIOUS POLICIES OFFERED BY ECGC: 1. STANDARD POLICY An exporter whose annual export turnover is more than Rs.50 lakhs is eligible for this policy Highlights
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y Lowest Premium Rate y NCB OF 5% every year y Discrepancy cover of LC y Automatic Approval for resale/shipment up to 25% of GIV y Increased discretionary limit 2. SMALL EXPORTERS POLICY
3.
4.
5.
1.
Highlights y Highest coverage/compensation y Lowest premium rate y NCB of 5% every year y Discrepancy cover for LC y Automatic approval for resale/shipment up to 25% of GIV y Increased discretionary limit SPECIFIC SHIPMENT POLICIES SHORT TERM (SSP-ST) These policies can be availed of by exporters who do not hold our Standard Policy or by exporters having standard policy, in respect of shipment permitted to be excluded from the purview of the standard policy. Exporters can pick and choose the contract/shipment to be covered and indicatethe type of cover required. Highlights: y Selection for Insurance cover y Other exports not to be declared y Add on Marine Insurance Cover y Premium rate reduced proportionately on higher share of loss to exporter. EXPORTS (SPECIFIC BUYERS) POLICY The specific buyer policy provides cover for shipments made to a particular buyer or set of buyers. An exporter not holding the standard policy can avail of this to cover their shipments to one or more buyers. Exporters holding Standard Policy can also avail this Poli y for covering shipments to c individuals Buyers, if all shipments to such buyers have been permitted to be excluded from the purview of the Standard Policy. Highlights: 1 Selective buyer can be insured 2 Option to exclude LC exports 3 Premium rate can be reduced proportionately EXPORTS TURNOVER POLICY Turnover Policy is for the benefit of large exporters who contribute not less than Rs.10 lakhs per annum towards premium. The policy envisages projection of the export turnover of the policyholder for a year and the initial determination on the premium payable on that basis, subject to adjustment at the end of the year based on actual. Highlights: 1. Simplified procedure for payment of premium 2. 10% of projected premium is waived when exports increase beyond projection 3. Increased discretionary limit BUYER EXPOSURE POLICY : The Buyer Exposure Policy is to insure the exporters having large number of shipments with simplified procedure and rationalized premium. An exporters can chose to obtain exposure based cover on the selected buyer. The cover would be cover against commercial and political risk. The option to exclude LC shipment is available. If the exporter has opted for commercial and political risks cover, failure of LC opening bank with World Rank up to 25,000 as per latest Bankers Almanac is available. If exporters opts for only political risks for LC exports premium at a less rate is offered
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2. MULTI-BUYER EXPOSURE POLICY Some exporters export to large number of buyers. The number of shipments made by them is also quite high. In order to meet the needs of such exporters, Multi buyer exposure policy is introduced. Cover would be available for exports to the buyers in countries listed under open cover category as long as the buyer is not in default buyers list maintained by the Corporation and available on its website www.ecgcindia.com. If the transaction is on LC terms, failure of the LC opening bank in respect of exports against LC will also covered, For banks with World Rank up to 25000 as per Latest Bankers Almanac Cover in respect of exports to restricted over countries would not be available under this policy Highlights: 1. Policy is best suited for exporters who make frequent shipments 2. Reduced premium rates available on conditions 3. 5% reduction on total premium on lump sum payment 4. No declaration required 5. All buyers in open countries covered on conditions 6. Protection up to Aggregate Loss Limit and Individual buyer up to 10% of All. 8. CONSIGNMENT EXPORTS POLICY (STOCKHOLDING AGENT) Economic liberalization and gradual removal of international barriers for trade and commerce are opening up various new avenues of exports opportunities to Indian exporters of quality goods. A method increasingly adopted by Indian exporters is consignment exports where goods are shi ped p and held in stock overseas ready for sale to overseas buyers, as and when orders are received. Thus separate Credit Insurance Policy is introduce to cover exclusively shipments on consignment basis taking into account their special features, providing adequate incentives and simplifying procedures considerably Highlights: y Covers only the consignments exports y Rationalized premium for 360 days y Automatic cover for ultimate buyers up to discretionary limit y Commercial risks on agents covered y Extended period for realization up to 360 days 9 CONSIGNMENT EXPORTS POLICY (GLOBAL ENTITY) A method adopted by India exporters is consignment exports where goods are shipped to their own branch office overseas ready for sale to overseas buyers, as and when orders are rec eived. Thus separate credit insurance policy is introduce to cover exclusively shipments by the exporters to their branches overseas on consignment basis taking into account their special features, providing adequate incentives and simplifying the procedures considerably. Highlights: y Covers only the consignments exports y Rationalized premium for 360 days y Automatic cover for ultimate buyers up to discretionary limit y Commercial risks on agents covered y Extended period for realization up to 360 days 10. SERVICES POLICIES Services Policies offer protection to Indian firms against payments risks involved in rendering services to foreign parties. A wide range of services, hiring or leasing can be covered under these policies. The exporters can opt for whole Turnover Services Policy or for Specific Services Policy depending on the nature of services provided. The premium rates applicable. To standard policy will be applied for whole turnover services policy and specific shipment policy (SSP-ST) premium rates will be applied for Specific Service Policy.
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1. MATURITY FACTORING The Maturity Factoring scheme, as designed by ECGC has unique features and does not exactly fit into the conventional mould of maturity factoring. The changes devised are intended to give the clients the benefits of full factoring services through the maturity factoring scheme, thus effectively addressing the needs of exporters to avail of pre- finance (advance) on the receivable, for their working capital requirements. One important feature is the very role and special benefits envisaged for banks under the scheme. Highlight y 100% credit guarantee protection against had debts y Sales register maintenance in respects of factored transaction y Regular monitoring of outstanding credits, facilitating collection of receivable on due date, recovery, at its own cost, of all recoverable had debts
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Unit-IV Major Export Promotion Schemes In India Major Export Promotion Schemes in India are as follows: 1. Duty Drawback Scheme: Under Duty Drawback Scheme relief of Customs and Central Excise Duties suffered on the inputs used in the manufacture of export product is allowed to Exporters. The admissible duty drawback amount is paid to exporters by depositing it into their nominated bank account. Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944, empower the Central Government to grant such duty drawback. Customs and Central Excise Duties Drawback Rules, 1995 have been framed outlining the procedure to be followed for the purpose of grant of duty drawback (for both kinds of duties suffered) by the Customs Authorities processing export documentation. 2. Export Promotion capital Goods (EPCG) Scheme: Under EPCG Scheme import of capital goods which are required for the manufacture of resultant export product specified in the EPCG Licence is permitted at concessional rate of Customs duty. This Scheme also enables upgradation of technology of the indigenous industry. For this purpose EPCG Licences are issued on the basis of approval granted by EPCG Committee. The EPCG Committee comprises of officers from DGFT, MOF and concerned Administrative Ministry. 3. Duty Entitlement Pass Book(DEPB) Scheme: EPB Scheme was first announced on 1.4.1997 under EXIM Policy 1997-2002. It is an export promotion scheme and envisages grant of DEPB Credit Entitlement to an exporter at the time of export at an advalorem rate notified by DGFT, in relation to FOB value of the export product. The DGFT have so far notified DEPB rates for nearly 2000 export products. These rates are based on the computation of Basic Customs Duty suffered by the exporters on the inputs listed in the Standard InputOutput Norms (SION) applicable to the export product. The crucial feature of the DEPB Scheme is that all the inputs listed in the Standard Input-Output Norms are deemed to have been imported and to have suffered Customs duties. 4. Duty Exemption Scheme: Duty Exemption Scheme is an export promotion scheme and it enables import of inputs required for export production free of Customs duty. Advance Licences are issued under Duty Exemption Scheme to allow import of inputs, which are physically incorporated in the export product (after making normal allowance for wastage). In addition, fuel, oil, energy catalysts, etc., which are consumed in the course of their use to obtain the export product can also be allowed under the scheme. 5. Brand Rate of Duty Drawback Scheme: In respect of export products where AIR of duty drawback is not notified or where the AIR of duty drawback in considered by the exporter to be insufficient to fully neutralize incidence of duties suffered on the inputs utilized in the production/manufacture of the export product, the exporters opt for Brand Rate Duty Drawback Scheme. Under this Scheme, the exporters are compensated by paying the amount of Customs & Central Excise Duty incidence which is actually incurred on the inputs used in the manufacture of export products.
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Export Assistance To Export Houses The objective of the scheme is to recognise established exporters as Export House. Trading House, Star structure and Trading House and Super Star Trading House with a view to building marketing infra expertise required for export promotion. Such House should operate as highly professional and dynamic institutions and act as important instruments of export growth. Eligibility:- Merchant as well as Manufacturer exporters, Service providers, Export Oriented Units (EOUs)/units located in Export Processing Zones (EPZs)/ Special Economic Zone (SEZ s)/ Electronic Hardware Technology Parks (EHTPs)/ Software Technology Parks (STPs) shall be eligible for such recognition. Criterion for Recognition:- The eligibility criterion for such recognition shall be on the basis of the FOB/NFE value of export of goods and services, including software exports made directly, as well as on the basis of services rendered by the service provider during the preceding three licensing years or the preceding licensing year, at the option of the exporter. The exports made, both in free foreign exchange and in India Rupees, shall be taken into account for the purpose of recognition. Exports made by Subsidiary Company:- The exports made by a subsidiary of a limited company shall be counted towards export performance of the limited company for the purpose of recognition. For this purpose, the company shall have the majority share holding in the subsidiary company. Export Performance Level:- The applicant is required to achieve the prescribed average export performance level subject to the condition that Deemed exports and export of imported goods as it is shall not be counted for export performance. The level of export perormance for the purpose of f recognition shall be done with the help of golden status certificate. Golden Status Certificate:Exporters who have attained Export House, Trading House, Star Trading Houses and Super Star Trading Houses status for three terms or more and continue to export shall be eligible for golden status certificate which would enable them to enjoy the benefits of status certificate irrespective of their actual performance thereafter as per the guidelines issued in this regard from time to time. Assistance To Export Houses : A number of financial and fiscal incentives are also available to the exporter as detailed below: I. Marketing Development Assistance (Mda) Assistance under Marketing Development Fund is provided by the Government for stimulating and diversifying the export trade. It is available in respect of Market research, Commodity research, Area survey and research, Export publicity and dissemination of information, and Grants in aid to export Promotion Councils and other approved organisation. The Federation of Indian Exporters Organisation (FIEO) disburses M grants for the following DA activities on behalf of the Ministry of Commerce: y Sales tour abroad Participation in fairs/exhibition abroad; y Bringing out publications for use abroad; y Advertising in foreign media MDA for other activities like opening of foreign offices, setting up of warehouses and after sales services, installations abroad, research and development work on products etc. Ii. Spices Export Promotion Schemes
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Under these schemes the Spices Board develops the production and exports of value added spices inancial assistance through spice house certification, Spices Board Logo, Brand Promotion Scheme, F for printing of brochure/folders, assistance for packaging development, reimbursement of air freight/courier charges for sending samples abroad etc. Iii. Air Freight Subsidy On Horticulture And Floriculture Exports In order to make exports of horticulture (i.e. fresh fruit, vegetables, tissue culture plants and materials) and floriculture products competitive in the world market, the Government grants air freight subsidy on selected fruits and floriculture items. IV. New External Marketing Assistance Scheme For Jute -10% of the F.O.B. value realisation The scheme envisages grant of market assistance at the rate of 5 on export of specified diversified products. The benefit under the scheme is available to both manufacturer exporters and merchant exporters. V. Financial Assistance Scheme For Agricultural, Horticulture And Meat Exports The Agricultural Products Export Development Authority (APEDA) provides assistance upto 50 per cent of the cost of study subject to the ceiling of Rs. 2 lakhs per beneficiary for undertaking feasibility studies and market surveys by growers, exporters and their organisations. The surveys may be conducted to find potential export markets/accessing market information and price trends, with respect to products, infrastructure requirements, etc. This assistance aims at encouraging exporters, growers and trade associations to develop their own market and information sources.
EZ units, EOUs, EHTP, STP and BTP units
In order to promote exports and to obtain foreign exchange, the Government of India has framed several schemes. These schemes grant incentives and other benefits. The few important export incentives, from the point of view of indirect taxes are briefed below: Free Trade Zones & Tax Heavens: Trade Zones like Special Economic Zones (SEZs), Export Oriented Units (EOUs), Electronics Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio -Technology Parks (BTPs) has been given consent by the Government in order to promote exports. No excise duties are payable on goods manufactured in these zones provided they are made for export purpose only. 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. 1. SPECIAL ECONOMIC ZONES (SEZs) India is one of the first countries in Asia to recognise the effectiveness of the Export Processing Zone (EPZ) model in promoting exports. Asia s first EPZ was set up in Kandla in 1965. With a view to create an environment for achieving rapid growth in exports, a Special Economic Zone policy was announced in the Export and Import (EXIM) Policy 2000. The salient features are: y A designated duty free enclave to be treated as foreign territory only for trade operations and duties and tariffs. y No licence required for import.
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y y y y y y y
Manufacturing, trading or service activities allowed. SEZ units to be positive net foreign exchange earner within three years. Domestic sales subject to full customs duty and import policy in force. Full freedom for subcontracting. Duty-free goods to be utilised over the approval period of 5 years. No routine examination by customs authorities of export/import cargo. Minimum size of multi-product SEZ, not to be less than 1000 hectares.
India s Policy on SEZs Keeping in view the above, a competitive package for SEZ developers and units has been put in place. The major components of this package include: · Duty-free import/domestic procurement of goods for development, operation, and maintenance of SEZs and SEZ units. · Extension of income tax benefits under Section 80 IA of the Income Tax (IT) Act to SEZ developers for a block of 10 years in 15 years, as per the choice of the developers. · 100% income tax exemption for SEZ units under Section 10A of the IT Act for the first 5 years, 50% for 2 years thereafter, and 50% of the ploughed back export profit for the next 3 years. · 100% income tax exemption for 3 consecutive years and 50% for the next 2 years to offshore banking units set up in Special Economic Zones. · External commercial borrowing by SEZ units without any maturity restrictions through recognized banking channels. · Treating supplies from the Domestic Tariff Area (DTA) to SEZ at par with physical exports. · Exemption from Central Sales Tax on sales made from the DTA to SEZs. · Exemption from Service Tax for SEZ units and developers. · Exemption from State taxes and levies, as notified by various State Governments. At presant, all the eight EPZs located at Kandla and Surat (Gujarat), Santa Cruz (Maharastra), Cochin (Kerela), Madras (Tamil Nadu), Noida (UP), Falta (West Bengal), and Vishakapatnam (Andhra Pradesh) which have been converted into SEZs are functional. In addition, 7 new SEZs have become operational in 2004/2005 which are given as under: Administrative set up for SEZs: The functioning of the SEZs is governed by a three tier administrative set up (i) the Board of Approval is the apex body in the Department, (ii) the Unit Approval Committee at the Zonal level dealing with approval of units in the SEZs and other related issues, and (iii) each Zone is headed by a Development Commissioner, who is also heading the Unit Approval Committee. The performance of the SEZ units are monitored annually by the Unit Approval Committee and units are liable for penal action under the provision of Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of the approval Approval mechanism of SEZs Any proposal for setting up of SEZ in the Private/Joint/State Sector is routed through the concerned State government who in turn forwards the same to the Department of Commerce with its recommendations for consideration of the Board of Approval. On the other hand, any proposals for setting up of units in the SEZ are approved at the Zonal level by the Approval Committee consisting of Development Commissioner, Customs Authorities and representatives of State Government. Approval given for setting up new SEZs in Private/Joint/State Sector Approvals have so far been given for setting up of 117 new Special Econom Zones (including 3 Free ic Trade Warehousing Zones) spread over 15 States and 2 Union Territories in the Private/Joint Sector or by
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the State Governments and its agencies. Of the 117 SEZs approved for establishment, 7 SEZs have already become operational, 6 SEZs are now getting ready for operation and the other are at various stages of implementation. 2. Export Oriented Units (EOUs) The Export Oriented Units (EOUs) scheme, introduced in early 1981, is complementary to the SEZ scheme. It adopts the same production regime but offers a wide option in locations with reference to factors like source of raw materials, ports of export, hinterland facilities, availability of technological skills, existence of an industrial base and the need for a larger area of land for the project. The EOUs are mainly concentrated in Textiles and Yarn, Food Processing, Electronics, Chemicals, Plastics, Granites and Minerals/Ores Recent policy changes in the EOU scheme are: · · · · · 3. Duty free spares up to 5% of the value of Capital Goods imported for excavation purposes in the Granite sector will be allowed to be removed to the quarries. The de-bonding procedure for EOUs has been simplified. Capital Goods will be allowed to be transferred or given on loan basis to other units under intimation to both Excise Department and Development Commissioner. Transfer of samples to other EOUs on returnable basis within a period of 30 days to be allowed. EOUs to be permitted to claim income tax exemption in respect of income on export proceeds realised within a period of 12 months from date of export.
Electronics Hardware Technology Parks (EHTPs) For encouraging exports of electronic hardware items including hard disk drives, computers, television, etc., such parks have been developed by the Ministry of Communications & Information Technology. An Electronic Hardware Technology Park (EHTP) may be an individual unit by itself or a unit located in an area designated as EHTP Complex. As in the case of STP Sch eme, the EHTP Scheme is also administered by the Ministry of Communications & Information Technology. Obligations and Benefits The entire production of an EHTP is to be exported to hard currency areas except sales in the Domestic Tariff Areas, subject to the limits set down. Benefits granted to EHTPs y An EHTP may import free of duty capital goods, raw materials, components and ot her related inputs. However these should not be on the negative list of prohibited items in the Foreign Trade Policy. Second hand capital goods may also be imported by EHTP units. y An EHTP unit may bunch the products manufactured by it for sale in the DTA with its entitlement. y EHTPs are duty free and bonded areas and customs exemptions are extended accordingly. y An EHTP is exempted from the payment of corporate income tax up to 2010 and also central sales tax reimbursement. y An EHTP may gear up to 100 per cent foreign equity.
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y y
y y y
Supplies that are effected in DTAs under global tender conditions and payment in forex are also considered as part of relinquishment of export obligation. Supplies made by DTAs to an EHTP unit will be regarded as deemed exports and is entitled to benefits under the Foreign Trade Policy. To get this benefit, goods have to be produced in the country and the supplies have to be made against a letter of authority issued by an officer designated in this behalf of the STPI, Government of India. An EHTP unit may be setup for both software and hardware in an integrated manner. EHTP unit may purchase indigenous goods free of excise duty. EHTP unit may sell Goods/Services in DTA up to 50% of FOB value of exports, subject to fulfilment of positive NFE as per the policy & payment of applicable duties.
4.
Software Technology Parks (STPs) Software Technology Parks of India (STPI) is a government agency in India, established in 1991 under the Ministry of Communications and Information Technology, that manages the Software Technology Park scheme. It is an export oriented scheme for the development and export of computer software, including export of professional services. It provides physical infrastructure, including dedicated high speed connectivity to technology parks, freedom for 100% foreign equity investment and tax incentives. STPI provides physical hosting for the National Internet Exchange of India. STPI claims to have played a seminal role in India having earned a reputation as an information technology superpower. More than 6,000 businesses are registered under the STPI umbrella, with 36% growth by value in 2005-06 exports over the previous year. The state with the largest export contribution was Karnataka (see Bangalore). STPI has a presence in many of the major cities of India including the cities of Bangalore, Bhubaneswar, Chennai, Hyderabad, Gurgaon, Pune, Guwahati, Noida, Mumbai, Kochi, Kolkata, Kanpur, Lucknow, Dehradun, Patna, Ranchi, Gandhinagar, Imphal, Shillong, Nashik etc. STP schemes provide facilities for the IT industry, helping them undertake software development and IT enabled services for 100% exports that include professional services. For that, data communication links have been established, providing high speed connectivity. 5. Bio-Technology Parks (BTPs): The Biotechnology Parks and Biotech Incubation Centres established under this programme provided a good template for the promotion of Biotech start-up companies and the promotion of Public Private Partnerships. Biotech Park and Incubation Centres have been established at Lucknow, Uttar Pradesh and Shapoorji Pallonji Biotech Park, Genome Valley, Hyderabad (Andhra Pradesh). The other projects approved for Himachal Pradesh, Karnataka and Kerala for settin up of biotech g incubation / pilot plant facilities are at various stages of development. There are already over five parks in the country to house biotech and life sciences companies and another five are expected to come up in the next couple of years. With biotechnology industry registering over 35 percent growth in the last few years, this industry is seen as one of the key attributes that will contribute to the socio-economic growth of the state. So several states are making conscious efforts to create a conducive environment to attract entrepreneurs to set up their units and leverage on the vast talent pool and rich biodiversities in the respective states. Even the Government of India has been supporting this industry since 1986 by establishing a strong network of research institutes and developing academic institutes to fulfill the human resources requirement.
Facilities For 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
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Deemed Exports shall be eligible for the following benefits in respect of manufacture and supply of goods qualifying as Deemed Exports: 1. Special Imp rest Licence/Advance Intermediate License. 2. Deemed Exports Drawback Scheme i.e, on the Deemed Exports, Drawback at the rate fixed by the Ministry of Finance for the DGFT or his regional Officers pay the goods physically exported. 3. Refund of terminal excise duty ie., Central Excise duty, if paid any, on the goods supplied under Deemed Exports is refunded by the DGFT or his regional Officers. 4. Special Import License at the rate of 6 per cent of the FOB value (excluding all taxes and levies) 5. If the supplier has made the supplies against Advance Release Order(ARO) or Back to Back Letter of Credit, he shall be entitled for the benefits of Deemed Exports Drawback Scheme, Refund or terminal excise duty and Special Imprested License. 6. In respect of supply of capital goods to EPCG license holder, the supplier shall be entitled to the benefits stated above except, however, that the benefit of Special Imprested License or Deemed Export Drawback Scheme shall be available only in case of supplies made to Zero duty EPCG license holder. Marketing Development Assistance Export promotion continues to be a major thrust area for the Government. In view of the prevailing macro economic situation with emphasis on exports and to facilitate various measure being undertaken s to stimulate and diversify the country s export trade, Marketing Development Assistance (MDA) Scheme is under operation through the Department of Commerce to support the under mentioned activities: (i) (ii) (iii) (iv) (v) Assist exporters for export promotion activities abroad Assist Export Promotion Councils (EPCs) to undertake export promotion activities for their product(s) and commodities Assist approved organizations/trade bodies in undertaking exclusive nonrecurring innovative activities connected with export promotion efforts for their members Assist Focus export promotion programmes in specific regions abroad like FOCUS (LAC), Focus (Africa), Focus (CIS) and Focus (ASEAN + 2) programmes. Residual essential activities connected with marketing promotion efforts abroad.
Role of Commodity board: There are five statutory Commodity Boards under the Department of Commerce, Government of India. These Boards are responsible for production, development and export of tea, coffee, rubber, spices and tobacco. Coconut development Board is also an autonomous body which functions under the Ministry of Agriculture, Govt. of India. Commodity Boards help their members in product development, product innovation and technology up gradation. They assist exporters with o verseas marketing, exchange trade delegati6ns and provide information on exportimport policies. They conduct research, Formulate policies to promote production and trade, facilitate acquiring of Trade Marks and Geographical Indications; certification services providing licenses for trading etc.
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The function or role of the commodity board are as follows: To take up various problems, points, suggestions to the States / Central Government and semi Government Bodies. To take up issues with the Export Promotion Organization - EPCs, Commodity Board, FIEO, ITPO, Various Government Ministries and Departments for making easy participation in the Fairs and Exhibitions organized in India and Overseas. To make efforts for creation of transparency in the function of th EP Organization-EPCs, e Commodity Board, FIEO etc. To organize Seminars and Meetings at various places to discuss ways and means to overcome problems and difficulties of the member-exporters / exporting community. To invite Government officials , officials of EP Organizations and Dignitaries at the meetings / Seminars for facilitation and resolving problems relating to exports of the member exporters / exporting community. To publish brochures, booklets containing useful information for member exporters, fo reign buyers/buying agents etc. To distribute the brochures, booklets, directories etc. at the time of fair and other occasions for the benefits of member exporters. To set up International Trade Centres and Flatted Factory Complex (Industrial Parks). To unite exporters to take common cause / issues with the concerned Organization ,Foreign Embassies and Foreign Mission in India and Foreign Trade Offices in India and Indian embassies / High Commissions overseas etc Role Of Export Promotion Councils: The Export Promotion Councils are non-profit organisations registered under the Indian Companies Act or the Societies Registration Act, as the case may be. They are supported by financial assistance from the Government of India. The main role of the EPCs is to project India's image abroad as a reliable supplier of high quality goods and services. In particular, the EPCs encourage and monitor the observance of international standards and specifications by exporters. The EPCs keep abreast of the trends and opportunites in i international markets for goods and services and assist their members in taking advantage of such opportunities in order to expand and diversify exports. The major Role EPCs plays for tread promotion are as follows: 1. To provide commercially useful information and assistance to their members in developing and increasing their exports 2. To offer professional advice to their members in areas such as technology upgradation, quality and design improvement, standards and specifications, product developmentand innovation etc. 3. To organise visits of delegations of its members abroad to explore overseas market opportunities. 4. To organise participation in trade fairs, exhibitions and buyer-seller meets in India and abroad. 5. To promote interaction between the exporting community and the Government both at the Central and State levels 6. To build a statistical base and provide data on the exports and imports of the country, exports and imports of their members, as well as other relevant international trade data.
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doc_975855206.docx
notes For MBA Students and faculty of MBA
International Logistics
Trends in world trade growth International marketing is becoming more important to companies as the world shifts from distinct national markets to linked global markets. There are some important trends in world tread these are 1. Globalization brings homogenization of consumer needs, liberalization of trade, and competitive advantages of operating in global markets. 2. Companies are forced to think and act globally in order to survive in such a dynamic environment. All these elements have a deep impact on the development and the positioning of companies on international marketplaces where competition is cruel. 3. Furthermore, another significant change concerns the customers since they are more demanding in term of quality, lead time and order fulfilment. In this context, firms must be more and more flexible and reactive to anticipate and to adapt to such changes. This quest for flexibility and reactivity affects the conception and the management of firms and more generally their logistic systems and contributes to the development of partnership relations, to the emergence of mergers or strategic alliances between companies. 4. A firm can no longer be considered as an isolated entity but as a component of a wider supply network. International Firms have begun to implement various strategies in order to remain competitive in world market. 5. Logistics is one of the key areas in the process of international marketing as the delivery of goods to the buyer is as important as any other activity in business and marketing. Quite often, the most crucial part in International trade is the timely delivery of goods at a reasonable cost by the exporter to the importer. In fact, the prospective buyer may be willing to pay even higher price for timely supplies. 6. The emergence of logistics as an integrative activity, with the movement of raw materials from their sources of supply to the production line and ending with the movement of finished goods to the customer has gained special importance. Earlier on, all the functions comprising logistics were not viewed as components of a single system. But, with emergence of logistic as an important part of corporate strategy due to certain developments in the field of international marketing has gained special significance. nature of international logistics Logistics = Inbound logistics + Material Management + Physical Distribution Now we will discuss each and every term in this above summation Inbound logistics covers the movement of materials received from suppliers Material management describes the movements of material & components within a firm Physical distribution refers to movement of goods outward from the end of the assembly line to the costumer. Before discussing the various nature of international logistics, let us look at its definition: According to Council of logistics management: Logistics is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming the customer requirement . This definition clearly points out the inherent nature of logistics and it conveys that Logistics is concerned with getting products and services where they are needed whenever they are desired. We can categorised the nature and significance of logistics as: 1. In trade Logistics has been performed since the beginning of civilization 2. it s hardly new. However implementing best practice of logistics has become one of the most exciting and challenging operational areas of business and public sector management. 3. Logistics is unique, it never stops! 4. Logistics is happening around the globe 24 hours a day s Seven days a week during fifty-two weeks a year. Few areas of business involve the complexity or span the geography typical of logistics.
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5. Logistical management includes the design and administration of systems to controls the flow of material, work- in process, and finished inventory to support business unit strategy. 6. Logistics is the designing and managing of a system in order to control the flow of material throughout a corporation. 7. This is a very important part of an international company because of geographical barrier 8. Logistics of an international company includes movement of raw materials, coordinating flows into and out of different countries, choices of transportation, cost of the transportation, packaging the product for shipment, storing the product, and managing the entire process.
SIGNIFIGANCE OF MARKETING LOGISTICS The important of a logistics systems lies in the fact that it leads to ultimate consummation of the sales contract. The buyer is not interested in the promises of the seller that he can supply goods at competitive price but that he actually does so. Delivery according to the contract is essential to fulfilling the commercial and legal requirements. In the event of failure to comply with the stipulated supply of period, the seller may not only get his sale amount back, but may also be legally penalized, if the sales contract so specifies. There is no doubt that better delivery schedule is a good promotional strategy when buyers are reluctant to invest in warehousing and keeping higher level of inventories. Similarly, better and/or timely delivery helps in getting repeat orders through creation of goodwill for the supplier. Thus, as effective logistics system contributes immensely to the achievements of the business and marketing objectives of a firm. It creates time and place utilities in the products and thereby helps in maximizing the value satisfaction to consumers. By ensuring quick deliveries in minimum time and cost, it relieves the customers of holding excess inventories. It also brings down the cost of carrying inventory, material handling, transportation and other related activities of distribution. In nutshell, an efficient system of physical distribution/logistics has a great potential for improving customer service and reducing costs. Logistics has gained importance or significance due to the following trends Raise in transportation cost. Production efficiency is reaching a peak Fundamental change in inventory philosophy Product line proliferated Computer technology Increased use or computers Increased public concern of products Growth of several new, large retail chains or mass merchandise with large demands & very sophisticated logistics services, by pass traditional channel & distribution. Reduction in economic regulation Growing power of retailers Globalization Creating An Export Organization There are many ways an organization can go into the export business. The basic steps an organization may follow to go in export are as follows: 1. decide the export category The first step towards creating an export organization is to decide the export category. The way an organization chooses to export its products can have a significant effect on its export plan and specific marketing strategies. The basic distinction among approaches to exporting relates to the company's level of involvement in the export process. There are at least four approaches, which may be used alone or in combination:
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i.
ii.
iii.
iv.
2. 3. 4. 5. 6. 7. 8. 9. 10.
Passively filling orders from domestic buyers who then export the product. These sales are indistinguishable from other domestic sales as far as the original seller is concerned. Someone else has decided that the product in question meets foreign demand. That party takes all the risk and handles all of the exporting details, in some cases without even the awareness of the original seller. Seeking out domestic buyers who represent foreign end users or customers. Many corporations, general contractors, foreign trading companies, foreign government agencies, foreign distributors and retailers, and others do purchase for export. These buyers are a large market for a wide variety of goods and services. Exporting indirectly through intermediaries. With this approach, a company engages the services of an intermediary firm capable of finding foreign markets and buyers for its products. EMCs, ETCs, international trade consultants, and other intermediaries can give the exporter access to well-established expertise and trade contacts. Exporting directly. This approach is the most ambitious and difficult, since the exporter personally handles every aspect of the exporting process from market research and planning to foreign distribution and collections. Consequently, a significant commitment of management time and attention is required to achieve good results. However, this approach may also be the best way to achieve maximum profits and long-term growth. Selecting the Name of the firm Approval of the name Selecting ownership Deciding location Developing tread name and logo Creating necessary infrastructure Applying Pan no. Opening current account with bank Registering and licensing for export
registration and licensing Once all the research and analysis is done its time to get registered with the various government authorities. Registration with Reserve Bank of India (RBI) Prior to 1997, it was necessary for every first time exporter to obtain IEC number from Reserve Bank of India (RBI) before engaging in any kind of export operations. But now this job is being done by DGFT. Registration with Director General of Foreign Trade (DGFT) For every first time exporter, it is necessary to get registered with the DGFT (Director General of Foreign Trade), Ministry of Commerce, Government of India. DGFT provide exporter a unique IEC Number. IEC Number is a ten digits code required for the purpose of export as well as import. No exporter is allowed to export his good abroad without IEC number. However, if the goods are exported to Nepal, or to Myanmar through Indo-Myanmar boarder or to China through Gunji, Namgaya, Shipkila or Nathula ports then it is not necessary to obtain IEC number provided the CIF value of a single consignment does not exceed Indian amount of Rs. 25, 000 /-. Application for IEC number can be submitted to the nearest regional authority of DGFT. Application form which is known as "Aayaat Niryaat Form - ANF2A" can also be submitted online at the DGFT web-site:http://dgft.gov.in. While submitting an application form for IEC number, an applicant is required to submit his PAN account number. Only one IEC is issued against a single PAN number. Apart from PAN number, an applicant is also required to submit his Current Bank Account number and Bankers Certificate. A amount of Rs 1000/- is required to submit with the application fee. This amount can be submitted in the form of a Demand Draft or payment through EFT (Electronic Fund Transfer by Nominated Bank by
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DGFT. Registration with Export Promotion Council Registered under the Indian Company Act, Export Promotion Councils or EPC is a non-profit organisation for the promotion of various goods exported from India in international market. EPC works in close association with the Ministry of Commerce and Industry, Government of India and act as a platform for interaction between the exporting community and the government. So, it becomes significance for an exporter to obtain a registration cum membership certificate (RCMC) from the EPC. An application for registration should be accompanied by a self certified copy of the IEC number. Membership fee should be paid in the form of cheque or draft after ascertaining the amount from the concerned EPC. The RCMC certificate is valid from 1st April of the licensing year in which it was issued and shall be valid for five years ending 31st March of the licensing year, unless otherwise specified. Registration with Commodity Boards Commodity Board is registered agency designated by the Ministry of Commerce, Government of India for purposes of export-promotion and has offices in India and abroad. At present, there are five statutory Commodity Boards under the Department of Commerce. These Boards are responsi le for production, b development and export of tea, coffee, rubber, spices and tobacco. Registration with Income Tax Authorities Goods exported out of the country are eligible for exemption from both Value Added Tax and Central Sales Tax. So, to get the benefit of tax exemption it is important for an exporter to get registered with the Tax Authorities. Licensing An export license is a document issued by the appropriate licensing agency after which an exporter is allowed to transport his product in a foreign market. The license is only issued after a careful review of the facts surrounding the given export transaction. Export license depends on the nature of goods to be transported as well as the destination port. So, being an exporter it is necessary to determine whether the product or good to be exported requires an export license or not. While making the determination one must consider the following necessary points: y What are you exporting? y Where are you exporting? y Who will receive your item? y What will your items will be used? Canalisation Canalisation is an important feature of Export License under which certain goods can be imported only by designated agencies. For an example, an item like gold, in bulk, can be imported only by specified banks like SBI and some foreign banks or designated agencies. Application for an Export License To determine whether a license is needed to export a particular commercial product or service, an exporter must first classify the item by identifying what is called ITC (HS) Classifications. Export license are only issued for the goods mentioned in the Schedule 2 of ITC (HS) Classifications of Export and Import items. A proper application can be submitted to the Director General of Foreign Trade (DGFT). The Export Licensing Committee under the Chairmanship of Export Commissioner considers such applications on merits for issue of export licenses. Exports Free unless regulated The Director General of Foreign Trade (DGFT) from time to time specifies through a public notice according to which any goods, not included in the ITC (HS) Classifications of Export and Import items may be exported without a license. Such terms and conditions may include Minimum Export Price (MEP), registration with specified authorities, quantitative ceilings and compliance with other laws, rules, regulations.
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Selecting Export Products And Markets And Channels A key factor in any export business is clear understanding and detail knowledge of products to be exported. The selected product must be in demand in the countries where it is to be exported. Before making any selection, one should also consider the various government policies associated with the export of a particular product. Whether companies are exporting first time or have been in export trade for a long time - it is better for both the groups to be methodical and systematic in identifying a right product. It s not sufficient to have all necessary data 'in your mind' - but equally important to put everything on paper and in a structured manner. Once this job is done, it becomes easier to find the gaps in the collected information and take necessary corrective actions. There are products that sell more often than other product in international market. It is not very difficult to find them from various market research tools. However, such products will invariably have more sellers and consequently more competition and fewer margins. On the other hand - a niche product may have less competition and higher margin - but there will be far less buyers. Fact of the matter is - all products sell, though in varying degrees and there are positive as well as flip sides in whatever decision you take - popular or niche product. Key Factors in Product Selection The product should be manufactured or sourced with consistent standard quality, comparable to your competitors. ISO or equivalent certification helps in selling the product in the international market. If possible, avoid products which are monopoly of one or few suppliers. If you are the manufacturer make sure sufficient capacity is available in-house or you have the wherewithal to outsource it at short notice. Timely supply is a key success factor in export business The price of the exported product should not fluctuate very often - threatening profitability to the export business. Strictly check the government policies related to the export of a particular product. Though there are very few restrictions in export - it is better to check regulatory status of your selected product. Carefully study the various government incentive schemes and tax exemption like duty drawback and DEPB. Import regulation in overseas markets, specially tariff and non-tariff barriers. Though a major non-tariff barrier (textile quota) has been abolished - there are still other tariff and non-tariff barriers. If your product attracts higher duty in target country - demand obviously falls. Registration/Special provision for your products in importing country. This is specially applicable for processed food and beverages, drugs and chemicals. Seasonal vagaries of selected products as some products sell in summer, while others in winter. Festive season is also important factor, for example certain products are more sellable only during Christmas. Keep in mind special packaging and labelling requirements of perishable products like processed food and dairy products. Special measures are required for transportation of certain products, which may be bulky or fragile or hazardous or perishable. Selecting Export Market: After evaluation of company s key capabilities, strengths and weaknesses, the next step is to start evaluating opportunities in promising export markets. It involves the screening of large lists of countries in order to arrive at a short list of four to five. The shorting method should be done on the basis of various political, economic and cultural factors that will potentially affect export operations in chosen market. Some factors to consider include: 1. Geographical Factors
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Country, state, region, Time zones, Urban/rural location logistical considerations e.g. freight and distribution channels 2. Economic, Political, and Legal Environmental Factors o Regulations including quarantine, o Labelling standards, o Standards and consumer protection rules, o Duties and taxes 3. Demographic Factors o Age and gender, o Income and family structure, o Occupation, o Cultural beliefs, o Major competitors, o Similar products, o Key brands. 4. Market Characteristics o Market size, o Availability of domestic manufacturers, o Agents, distributors and suppliers. Foreign Market Research Understanding a market s key characteristics requires gathering a broad range of primary and secondary research, much of which you can source without cost from the internet.
o o o
Primary research, such as population figures, product compliance standards, statistics and other facts can be obtained without any cost from international organizations like United Nations (UN) and World Trade Organizations (WTO). Analysis of export statistics over a period of several years helps an individual to determine whether the market for a particular product is growing or shrinking. Secondary research, such as periodicals, studies, market reports and surveys, can be found through government websites, international organisations, and commercial market intelligence firms. Foreign Market Selection Process Step 1: Gather Information on a Broad Range of Markets Market selection process requires a broad range of information s depending upon the products or services to be exported, which includes: y The demand for product/service. y The size of the potential audience. y Whether the target audience can affords product. y What the regulatory issues are that impact on exports of product. y Ease of access to this market proximity/freight. y Are there appropriate distribution channels for product/service. y The environment for doing business language, culture, politics etc. y Is it financially viable to export to selected market. You can gather much of the first step information yourself from a variety of sources at little or no cost. Sources of information include: y Talking to colleagues and other exporters. y Trade and Enterprise web site, publications, call centre. y The library. y The Internet. Step 2: Research a Selection of Markets In-Depth
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From the results of the first stage, narrow your selection down to three to five markets and undertake some in-depth research relating specifically to your product. While doing so, some of the questions that may arise at this stage are: y What similar products are in the marketplace (including products that may not be similar but are used to achieve the same goal, e.g. the product in our sample matrix at the end of this document is a hair removal cream. As well as undertaking competitor research on other hair removal creams, we would also need to consider other products that are used for hair removal, i.e. razors, electrolysis, wax). y What is your point of difference? What makes your product unique? W hat are the key selling points for your product? y How do people obtain/use these products? y Who provides them? y Are they imported? If so from which countries? y Is there a local manufacturer or provider? y Who would your major competitors be? What are the key brands or trade names? y What is the market s structure and shape? y What is the market s size? y Are there any niche markets, and if so how big are they? y Who are the major importers/ stockists / distributors / agencies or suppliers? y What are the other ways to obtain sales/representation? y What are the prices or fees in different parts of the market? y What are the mark-ups at different distribution levels? y What are the import regulations, duties or taxes, including compliance and professional registrations if these apply? y How will you promote your product or service if there is a lot of competition? y Are there any significant trade fairs, professional gathers or other events where you can promote your product or service? y Packaging do you need to change metric measures to imperial, do you need to list ingredients? y Will you need to translate promotional material and packaging? y Is your branding colours, imagery etc., culturally acceptable? Foreign Market Selection Entry Having completed the market selection process and chosen your target market, the next step is to plan your entry strategy. There are a number of options for entering your chosen market. Most exporters initially choose to work through agents or distributors. In the longer term, however, you may consider other options, such as taking more direct control of your market, more direct selling or promotion, or seeking alliances or agreements. Export Costing And Pricing Procedures Incoterms Pricing and costing are two different things and an exporter should not confuse between the two. Price is what an exporter offer to a customer on particular products while cost is what an exporter pay for manufacturing the same product. Export pricing is the most important factor in for promoting export and facing international trade competition. It is important for the exporter to keep the prices down keeping in mind all export benefits and expenses. However, there is no fixed formula for successful export pricing and is differ from exporter to exporter depending upon whether the exporter is a merchant exporter or a manufacturer exporter or exporting through a canalising agency. Determining Export Pricing Export Pricing can be determine by the following factors: y Range of products offered. y Prompt deliveries and continuity in supply. y After-sales service in products like machine tools, consumer durables.
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Product differentiation and brand image. Frequency of purchase. Presumed relationship between quality and price. Specialty value goods and gift items. Credit offered. Preference or prejudice for products originating from a particular source. Aggressive marketing and sales promotion. Prompt acceptance and settlement of claims. Unique value goods and gift items. Export Costing 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 which are commonly known as Incoterms Deciding Currency Of Payment An exporter without any commercial contract is completely exposed of foreign exchange risks that arises due to the probability of an adverse change in exchange rates. Therefore, it becomes important for the exporter to gain some knowledge about the foreign exchange rates, quoting of exchange rates and various factors determining the exchange rates. In this section, we have discussed various topics related to foreign exchange rates in detail. Spot Exchange Rate Also known as "benchmark rates", "straightforward rates" or "outright rates", spot rates represent the price that a buyer expects to pay for a foreign currency in another currency. Settlement in case of spot rate is normally done within one or two working days.
y y y y y y y y y
Forward Exchange Rate The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date. Method of Quoting Exchange Rates There are two methods of quoting exchange rates: y Direct Quotation: In this system, variable units of home currency equivalent to a fixed unit of foreign currency are quoted. For example: US $ 1= Rs. 42.75 y Indirect Quotation: In this system, variable units of foreign currency as equivalent to a fixed unit of home currency are quoted. For example: US $ 2.392= Rs. 100 Before 1993, banks were required to quote all the rates on indirect basis as foreign currency equivalent to RS. 100 but after 1993 banks are quoting rates on direct basis only. Exchange Rate Regime The exchange rate regime is a method through which a country manages its currency in respect to foreign currencies and the foreign exchange market. y Fixed Exchange Rate A fixed exchange rate is a type of exchange rate regime in which a currency's value is matched to the value of another single currency or any another measure of value, such as gold. A fixed exchange rate is also known as pegged exchange rate. A currency that uses a fixed exchange rate is known as a fixed currency. The opposite of a fixed exchange rate is a floating exchange rate. y Floating Exchange Rate A Floating Exchange Rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange
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rate is known as a floating currency. A Floating Exchange Rate or a flexible exchange rate and is opposite to the fixed exchange rate. y Linked Exchange Rate A linked exchange rate system is used to equalise the exchange rate of a currency to another. Linked Exchange Rate system is implemented in Hong Kong to stabilise the exchange rate between the Hong Kong dollar (HKD) and the United States dollar (USD). Forward Exchange Contracts A Forward Exchange Contract is a contract between two parties (the Bank and the customer). One party contract to sell and the other party contracts to buy, one currency for another, at an agreed future date, at a rate of exchange which is fixed at the time the contract is entered into. Benefits of Forward Exchange Contract y Contracts can be arranged to either buy or sell a foreign currency against your domestic currency, or against another foreign currency. y Available in all major currencies. y Available for any purpose such as trade, investment or other current commitments. y Forward exchange contracts must be completed by the customer. A customer requiring more flexibility may wish to consider Foreign Currency Options. Foreign Currency Options Foreign Currency Options is a hedging tool that gives the owner the right to buy or sell the indicated amount of foreign currency at a specified price before a specific date. Like forward contracts, foreign currency options also eliminate the spot market risk for future transactions. A currency option is no different from a stock option except that the underlying asset is foreign exchange. The basic premises remain the same: the buyer of option has the right but no obligation to enter into a contract with the seller. Therefore the buyer of a currency option has the right, to his advantage, to enter into the specified contract. Flexible Forwards Flexible Forward is a part of foreign exchange that has been developed as an alternative to forward exchange contracts and currency options. The agreement for flexible forwards is always singed between two parties (the buyer of the flexible forward and the 'seller' of the flexible forward) to exchange a specified amount (the face value ) of one currency for another currency at a foreign exchange rate that is determined in accordance with the mechanisms set out in the agreement at an agreed time and an agreed date (the expiry time on the expiry date ). The exchange then takes place approximately two clear business days later on the delivery date ). Currency Swap A currency swap which is also known as cross currency swap is a foreign exchange agreement between two countries to exchange a given amount of one currency for another and, after a specified period of time, to give back the original amounts swapped. Foreign Exchange Markets The foreign exchange markets are usually highly liquid as the world's main international banks provide a market around-the-clock. The Bank for International Settlements reported that global foreign exchange market turnover daily averages in April was $650 billion in 1998 (at constant exchange rates) and increased to $1.9 trillion in 2004 [1]. Trade in global currency markets has soared over the past three years and is now worth more than $3.2 trillion a day. The biggest foreign exchange trading centre is London, followed by New York and Tokyo. Deciding Payment Terms There are several ways in which you can receive payment when selling your products abroa depending d, on how trustworthy you consider the buyer to be. Typically with domestic sales, if the buyer has good credit, sales are made on open account; if not, cash in advance is required. For export sales, these ways are not the only common methods. Listed in order from most secure for the exporter to the least secure, the basic methods of payment are: 1. Cash in Advance
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Receiving payment by cash in advance of the shipment might seem ideal. In this situation, the exporter is relieved of collection problems and has immediate use of the money. A wire transfer is commonly used and has the advantage of being almost immediate. Payment by check, may result in a collection delay of up to six weeks. Therefore, this method may defeat the original intention of receiving payment before shipment. 2. Documentary Letters of Credit and Documentary Drafts Documentary letters of credit or documentary drafts are often used to protect the interests of both buyer and seller. These two methods require that payment be made based on the presentation of documents conveying the title and that specific steps have been taken. Letters of credit and drafts can be paid immediately or at a later date. Drafts that are paid upon presentation are called sight drafts. Drafts that are to be paid at a later date, often after the buyer receives the goods, are called time drafts or date drafts 3. Letters of Credit A letter of credit adds a bank's promise to pay the exporter to that of the foreign buyer provided that the exporter has complied with all the terms and conditions of the letter of credit. The foreign buyer applies for issuance of a letter of credit from the buyer's bank to the exporter's bank and therefore is called the applicant; the exporter is called the beneficiary. Payment under a documentary letter of credit is based on documents, not on the terms of sale or the physical condition of the goods. The letter of credit specifies the documents that are required to be presented by the exporter, such as an ocean bill of lading (original and several copies), consular invoice, draft, and an insurance policy. The letter of credit also contains an expiration date. Before payment, the bank responsible for making payment, verifies that all document conform to the letter of credit requirements. If not, the discrepancy must be resolved before payment can be made and before the expiration date. 4. Documentary Drafts A draft, sometimes also called a bill of exchange, is analogous to a foreign buyer's check. Like checks used in domestic commerce, drafts carry the risk that they will be dishonoured. However, in international commerce, title does not transfer to the buyer until he pays the draft, or at least engages a legal undertaking that the draft will be paid when due. i. Sight Drafts A sight draft is used when the exporter wishes to retain title to the shipment until it reaches its destination and payment is made. Before the shipment can be released to the buyer, the original ocean bill of lading (the document that evidences title) must be properly endorsed by the buyer and surrendered to the carrier. It is important to note that air waybills of lading, on the other hand, do not need to be presented in order for the buyer to claim the goods. Hence, risk increases when a sight draft is being used with an air shipment. ii. Time Drafts and Date Drafts A time draft is used when the exporter extends credit to the buyer. The draft states that payment is due by a specific time after the buyer accepts the time draft and receives the goods (e.g., 30 days after acceptance). By signing and writing "accepted" on the draft, the buyer is formally obligated to pay within the stated time. When this is done the time draft is then called a trade acceptance. It can be kept by the exporter until maturity or sold to a bank at a discount for immediate payment. 5. Open Account In a foreign transaction, an open account can be a convenient method of payment if the buyer is well established, has a long and favourable payment record, or has been thoroughly checked for creditworthiness. With an open account, the exporter simply bills the customer, who is expected to pay under agreed terms at a future date. Some of the largest firms abroad make purchases only on open account. 6. Consignment sales International consignment sales follow the same basic procedures as in the United States. The goods are shipped to a foreign distributor who sells them on behalf of the exporter. The exporter retains title to the
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goods until they are sold, at which point payment is sent to the exporter. The exporter has the greatest risk and least control over the goods with this method. Additionally, receiving payment may take quite a while. It is wise to consider risk insurance with international consignment sales. The contract should clarify who is responsible for property risk insurance that will cover the merchandise until it is sold and payment is received. In addition, it may be necessary to conduct a credit check on the foreign distributor. 7. Countertrade International countertrade is a trade practice whereby one party accepts goods, services, or other instruments of trade in partial or whole payment for its products. This type of trade fulfils financial, marketing, or public policy objectives of the trading parties. For example, a firm might trade by bartering because it or its trading partner lacks foreign exchange. Export Contracts export contract is an agreement according to the law or enforceable by the law. In order to avoid disputes, it is necessary to enter into an export contract with the overseas buyer. For this purpose, export contract should be carefully drafted incorporating comprehensive but in precise terms, all relevant and important conditions of the trade deal. Elements of the Export Contract: No one contract serves as a model for all export situations. There are, however, minimum general requirements for an export contract, outlined below: ii. Name and addresses of the parties. State clearly and fully the parties to the contract. iii. Product, standards and specifications. State the product name, as well as technical names (if any); sizes in which the product is to be supplied (if relevant); applicable national or international standards and specifications; specific buyer requirements; and sample specifications. iv. Quantity. Specify units of measure in both figures and words. v. Inspection. State the nature, manner and focus of the envisaged inspection, as well as the inspection agency. A number of goods are now subject to pre-shipment inspection by designated agencies, and foreign buyers may stipulate their own inspection agencies and conditions for inspection. vi. Total value. State the total contract value in words and figures, and specify the currency. vii. Terms of delivery. State the delivery terms, based on one of the Incoterms viii. Taxes, duties and charges. Clarify responsibility for all taxes. The prices quoted by the seller may be inclusive of taxes, duties, and charges. Levies in the country of importation (if any) may be the buyer s responsibility. ix. Delivery. Specify the place of dispatch and delivery. Also state whether the period of delivery will run from the date of the contract, from the date of notification of the issue of an irrevocable letter of credit, or from the date of receipt of the notice of issuance of the import licence by the seller. x. Part-shipment, trans-shipment and consolidation of cargo. State whether the parties to the contract have agreed on part-shipment or trans-shipment. Indicate the port of trans-shipment and the number, if any, of partial shipments agreed. If the goods are likely to be shipped under a consolidation of export cargos scheme, mention this in the contract. xi. Packaging, labelling and marking. Note all packaging, labelling and marking requirements in the contract. xii. Terms of payment: amount, mode and currency. When quoting different payment terms, the exporter should specify whether the prices are based on the current rate of exchange of in country currency, or on the basis of another currency (such as US dollars). Address payment terms for exchange rate fluctuations as well.
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Discounts and commissions. Specify the amount of discount or commission to be paid and by whom (by the exporter or by the importer). Stipulate the basis of calculation of commission and rate to be applied. Discount or commission rates may or may not be included in the export price agreed upon by the exporter and importer. xiv. Licences and permits. State whether the export transaction will require any export or import licences, and whose responsibility and expense it will be to obtain them. Import licences may be difficult to obtain in the buyer s country. xv. Insurance. A contract should provide for the insurance of goods against loss, damage, or destruction during transportation. Specify the type of risk covered and the extent of coverage. xvi. Documentary requirements. Documents needed for international trade transactions fall into four categories: Documents for export and subsequent import of goods. Documents for the buyer to take delivery of the goods. Documents relating to payment. Special documents required by the nature of the goods, and conditions of sale. Common export documents include the bill of exchange; commercial invoice and other invoices; bill of lading or airway bill; insurance policy; and letter of credit. xvii. Product guarantee. Fix and specify the length of the period of guarantee. xviii. Delay in delivery. Define the damages due to the buyer from the seller in the event of late delivery owing to reasons other than force majeure. xix. Force majeure or excuse for non-performance of contract. Include provisions in the contract defining the circumstances which would relieve partners of their liability for non-performance of the contract. Such provisions are called force majeure and are intended to identify the relief which may be available to either party to the contract should supervening circumstances occur during the period of validity of the contract. xx. Remedial action. As defaults in contractual obligations by any of the parties can occur, it is always advisable to include in the sale or purchase contract certain specific remedial actions. These remedial actions should reflect the mandatory provisions of the law applicable to the contract. xxi. Applicable law. State the law of the country which is to govern the contract. xxii. Arbitration. Include an arbitration clause to facilitate amicable and quick settlement of disputes or differences that may arise between the parties. xxiii. Signature of the parties. The signing of the contract indicates the agreement of both parties to the terms and conditions of the contract. Export Order Processing Export order must confirm to the terms of contract and then sent to the overseas buyer. But before its confirmation, it must be scrutinized with regards to products and their specifications, terms of payment, price, delivery schedule etc. The immediate task of exporter is to acknowledge the export order which is different from its acceptance . Then he should proceed to examine the export order with respect to following parameters. 1. Nature : Export order is a document, communicating the decision of foreign buyer to purchase items from exporter. It would clearly indicate the exporter pro-forma invoice/quotation number and its date, including item, quantity, price, delivery date, shipping marks, insurance, payment terms, documents required etc. Before acceptance, the export order should be scrutinized in all aspects 2. Acknowledgement : The exporter should write a simple letter to overseas buyer thanking him for the export order and stating that the confirmation of the same would be sent soon. 3. Scrutiny : The export order should be carefully scrutinized in terms of pro forma invoice/contract sent to the foreign buyer, on the following aspects:
xiii.
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The order has been received for same products for which quotation/offer was sent. Size and specifications are also as per quotation/offer. Unit measurement needs to be specified as well. It could be numbers, volume, or weight. Ordered quantity both in words and figures. This is essential to leave out any room for confusion. y Pre-shipment inspection is as per agreed in pro forma invoice. y Reshipment inspection can be done by Exporter, Inspection by exporter nominated agency, Inspection by importer nominated agency, Export Inspection Agency (EIA) GOI authorized agency The inspection agency has to be agreed upon in pro forma invoice y Payment conditions are same as stipulated. y The order must provide all the details relating to kind of packaging required including the labels and the marks to be put up. y The instructions have to be explicit specifying requirements in full details as there could be separate labels for the articles and for packaging. y Shipment and delivery date is in conformity with the exporters production plan. y Documents required are in conformity with those mentioned in pro forma invoice. Generally documents which are required are Bill of Exchange; Bill of Lading; Certificate of Origin Packing List and Insurance Policy/Certificate 4. Confirmation : If the exporter is satisfied on various aspects mentioned in the export order he should send a formal confirmation to the overseas buyer. 5. Clarification : If the exporter is not completely satisfied with the terms of export order, clarification should be sought from the buyer before its confirmation. The clarification could be in terms of : Quantity Delivery schedule, Terms of payment, INCO terms etc.
y y y y
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Unit-II Arranging pre -shipment finance Pre-shipment is also referred as packing credit . It is working capital finance provided by commercial banks to the exporter prior to shipment of goods. The finance required to meet various expenses before shipment of goods is called pre-shipment finance or packing credit. Financial assistance extended to the exporter from the date of receipt of the export order till the date of shipment is known as pre-shipment credit. Such finance is extended to an exporter for the purpose of procuring raw materials, processing, packing, transporting, warehousing of goods meant for exports. IMPORTANCE OF FINANCE AT PRE-SHIPMENT STAGE: y To purchase raw material, and other inputs to manufacture goods. y To assemble the goods in the case of merchant exporters. y To store the goods in suitable warehouses till the goods are shipped. y To pay for packing, marking and labelling of goods. y To pay for pre-shipment inspection charges. y To import or purchase from the domestic market heavy machinery and other capital goods to produce export goods. y To pay for consultancy services. y To pay for export documentation expenses. FORMS OR METHODS OF PRE-SHIPMENT FINANCE: 1. Cash Packing Credit Loan: In this type of credit, the bank normally grants packing credit advantage initially on unsecured basis. Subsequently, the bank may ask for security. 2. Advance Against Hypothecation: Packing credit is given to process the goods for export. The advance is given against security and the security remains in the possession of the exporter. The exporter is required to execute the hypothecation deed in favour of the bank. 3. Advance Against Pledge: The bank provides packing credit against security. The security remains in the possession of the bank. On collection of export proceeds, the bank makes necessary entries in the packing credit account of the exporter. 4. Advance Against Red L/C: The Red L/C received from the importer authorizes the local bank to grant advances to exporter to meet working capital requirements relating to processing of goods for exports. The issuing bank stands as a guarantor for packing credit. 5. Advance Against Back-To-Back L/C: The merchant exporter who is in possession of the original L/C may request his bankers to issue Back To-Back L/C against the security of original L/C in favour of the sub-supplier. The sub-supplier thus gets the Back-To-Bank L/C on the basis of which he can obtain packing credit. 6. Advance Against Exports Through Export Houses: Manufacturer, who exports through export houses or other agencies can obtain packing credit, provided such manufacturer submits an undertaking from the export houses that they have not or will not avail of packing credit against the same transaction. 7. Advance Against Duty Draw Back (DBK): DBK means refund of customs duties paid on the import of raw materials, components, parts and packing materials used in the export production. It also includes a refund of central excise duties paid
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on indigenous materials. Banks offer pre-shipment as well as post-shipment advance against claims for DBK. 8. Special Pre-Shipment Finance Schemes: y Exim-Bank s scheme for grant for Foreign Currency Pre-Shipment Credit (FCPC) to exporters. y Packing credit for Deemed exports export procurement
Basic document is Entry
Entry in relation to goods means entry made in Bill of Entry, Shipping Bill or Bill of Export. In case of import by post, label or declaration accompanying goods is entry Loading and Imported goods can be unloaded only at specified places. Goods can be unloading at specified exported only from specified places. places only Computerisation of Customs procedures are largely computerised. Most of documents have to customs procedures be e-filed. Amendment to Documents submitted to customs can be amended with permission In case documents of bill of entry, shipping bill or bill of export, it can be amended after clearance only on the basis of documentary evidence which was in existence at the time the goods were cleared, warehoused or exported, and not on basis of any subsequent document. [proviso to section 149]. ICD and CFS Imported and export goods are usually handled in containers. These can be stored in Inland Container Depot (ICD) or Container Freight Station (CFS). They function like dry port for handling and temporary storage of imported/export goods and empty containers. Boat Notes Boat Notes are used for transferring small cargo from ship to shore, or from shore to ship, without berthing the ship. Transshipment of Goods can be transshipped from one conveyance to other after following goods required procedure. Such transhipment may be to any major port or airport in India. The goods can be transshipped to any other customs station in India if Customs Officer is satisfied that the goods are bona fide intended for transhipment to any customs station. The facility is available at all customs ports and Inland Container Depots (ICDs). Coastal goods Procedures have been prescribed for coastal goods, even if there is neither import nor export. Export Procedures Entry Outward Export manifest/Export report Registration with DGFT and EPC Third party exports Loading in conveyance can start after Entry Outward is given by customs officer. Person in charge of conveyance is required to submit Export Manifest or Export Report . Exporter has to be obtain IEC number from DGFT is advance. He should be registered with Export Promotion Council if he intends to claim export benefits. Export can be by manufacturer himself or third party (i.e. by exporter on behalf of another). Merchant exporter means a person engaged in trading activity and exporting or intending to export goods [para 9.40 of FTP] Advance authorisation, DEPB etc. should be registered if exports are under
Registration of
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documents under Export Promotion Scheme Shipping Mill
Export Promotion Scheme.
FEMA formalities Noting, assessment, examination Certification of documents for export incentives Let export order
Export is required to submit Shipping Bill with required documents for obtaining permission to export. There are five forms : (a) Shipping Bill for export of goods under claim for duty drawback - these should be in Green colour (b) Shipping Bill for export of dutiable goods - this should be yellow colour (c) Shipping bill for export of duty free goods - it should be white colour (d) shipping bill for export of duty free goods ex-bond - i.e. from bonded store room - it should be pink colour (e) Shipping Bill for export under DEPB scheme - Blue colour. GR/SDF/Softex form (under FEMA) is required to be submitted. The shipping bill is noted, goods are assessed and examined. Export duty is paid, if applicable. If export is under export incentives, relevant documents are checked and certified. Then proof of export is obtained on ARE-1. Conveyance can leave only after Let Export order is issued.
quality control and pre -shipment inspection Realizing the importance of the need for supplying quality goods as per international standards, the Government of India has introduced Compulsory Quality Control and Pre -Shipment Inspection of over 1050 items of export under Export (Quality Control and Pre-Shipment Inspection) Act 1963. At present, the export items that are subjected to compulsory inspection includes food and agricultural products, chemicals, engineering, coir, jute and footwear. Compulsory Pre-shipment Inspection: y Foods and Agriculture & Fishery y Mineral & Ore y Organic & Inorganic Chemicals y Refectories & Rubber Products y Foot wear & Foot wear components y Ceramic Products & Pesticides y Light Eng. Products y Steel ;Products y Jute Products y Coir & Coir Products Exemption from compulsory Pre-shipment Inspection: y Status Houses y Certification by Units IPQC approved by EIA y EUO/EPZ/SEZ y Firm Letter from the overseas buyer y Specified products such as Eng/Fishery average level of Rs.1.5 Cr. for the last three years no compliant. For monitoring pre-shipment inspection, Govt. of India has set up Export Inspection Council (EIO) The EIC has set up 5 Export Inspection Agencies (EIA). The EIAs are located one each at Mumbai, Calcutta, Cochin, Delhi and Chennai. The EIAs has a network of nearly 60 offices throughout India. Each EIA is given certain jurisdiction for inspection purpose. For instance, EIA of Mumbai has jurisdiction over Maharashtra, Gujarat and Goa. Systems of Quality Control:
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For the purpose of pre-shipment inspection, EIC has recognized three systems of inspection namely: y Self-Certification y In-Process Quality Control y Consignment Wise Inspection Self-Certification: Under this system, complete authority is given to the manufacturing units to certify their own products and issue certificates for export. The manufacturing units which have been recognized under this scheme have to pay a nominal yearly fee at the rate of 0.1% of FOB price subject to minimum of Rs.2,500/- and maximum of Rs.1 lakh in a year to the concerned EIA In-Process Quality Control (IPQC): In this system, companies/units adjusted as having adequate level of quality control right from raw material stage to the finished product stage including packaging are eligible to get the inspection certificate on a formal request by the exporter. Over 800 units all over India are operating under this system. Constant vigil and surveillance are kept on units approved under IPQC and self-certification system. Units approved under the above two systems are often known as Export worth Units , because of their consistent standards of quality. Consignment wise Inspection: Under this system, each and every consignment is subject to compulsory inspection. The exporter has to follow a certain procedure such as: y He has to make an application to Export Inspection Agency with certain documents. y The EIA deputes inspector to inspect the goods y After the inspection, the goods are repacked with EIA seal y The inspector then makes a report to Deputy Director of EIA y The Dy. Director of EIA then issues Inspection Certificate in triplicate if the inspection report is favourable y If the inspection report is not favourable, a rejection note is issued. o It is to be noted that goods marked with ISI/AGMARK/BIS14000/ISO 9000 are not required to be inspected by any agency o Overseas buyer may depute his own inspection team to inspect the goods o Inspection of textile goods is conducted by Textile Committee in respect of those exporters who are registered with the textile committee. Norms: y Adequate Testing Facility y Raw Material Testing & Process Control y After Sales Services & Maintaining Product Quality y Control on bought out components y Meteorological Control & PKG. y Independent Quality Audit & Houses. Fumigation: For ensuring that no insects or bacteria are carried with the export certain types of export products are fumigated before shipment. The fumigation is carried out in the port of shipment. packing of export consignments Export packaging is also often referred to as transport packaging, which is one of three main types of packaging that are likely to be needed for exported goods. y Transport or export packaging: This is the outermost layer of packaging and is designed to protect your goods during transit. Examples include wooden crates, metal drums and plastic shrink-wrapping. y Outer packaging
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This is an intermediate layer of packaging, which often also serves a retail-promotion purpose. An example would be a box containing multiple units that doubles as a retail display fixture and can be placed directly on a shop shelf, as is common with many convenience foods. y Sales packaging This is the immediate layer of packaging around your goods the packaging that remains when the goods reach their end-user. Examples include the bottles in which beverages are contained, or the boxes many electronics items are sold in. Sales packaging often also serves a marketing purpose by containing prominent branding images and information. These three types of packaging work like Russian dolls each layer of packaging is complete on its own terms, but contained within a further layer of outer packaging. Export Packaging Options: Every organization have a wide variety of options when choosing how to package goods for export, with materials such as wood, paper, metal, plastic, glass and textiles commonly used. The main types of export packaging include: y Loose or unpacked a common option for large items such as heavy vehicles. Making sure they re stowed securely is more important than adding a layer of protective packaging. y Boxes or crates one of the most prevalent options. They are often stacked on pallets and shrink-wrapped for stability. Less durability is required if goods are also containerised. y Drums, usually made of metal or plastic commonly used for transporting liquids and powders or goods that need to be kept dry. y Wrapping often used with goods stacked on pallets, wrapping both adds to stability and protects goods. y Pallets allow smaller packing units such as boxes and cartons to be grouped together. They allow easy mechanical transporting (eg forklift trucks), which eases the process of loading, unloading and warehousing. Factors To Consider When Choosing Export Packaging Factors that will influence packaging decisions are explained below. Protection Avoiding damage to your goods is the main purpose of export packaging. One of the reasons that containers and pallets have become so standard is that they combine efficiency with excellent cargo protection. Security You need to take steps to prevent goods being stolen or tampered with. Containerisation helps with this, and using container seals makes tampering even less likely. Shrink-wrapping and secure straps also act as deterrents. Export packaging should be kept as plain as possible providing details of the contents, eg brand names, encourages theft. Mode of transport This may influence your packaging. For example, bulk ocean shipments of liquids, grain and ores don t need any packaging. And goods transported by air generally need less protective packaging than those sent by ship. Cost It s a false economy to try to cut costs by using sub-standard packaging. The standard options (eg cartons grouped on pallets and then loaded into containers) have become the standard because they re reliable. Unless your goods require special care, you re unlike to gain much by opting for above-standard ly packaging.
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Waste legislation Many markets abroad have waste regulations that favour packaging which can be easily recycled or has a minimal impact on the environment when disposed of. In many export markets, there are stricter rules on packaging waste and collection, eg the green dot system in Germany. labelling of export consignments Once you have decided what kind of packaging you need, use this page to check if there are any further issues you should consider including: y Information and labelling certain information has to be clearly marked on your export packages. y Rules in your export markets check that your consignments comply with local regulations. Certain markings may be required and in some countries certain packaging materials, eg straw filling, are prohibited. y Load securing even adapted packaging has a limit to the vibrations it can withstand before it collapses. Make sure your packaging can be secured in its container and/or vehicle. y Restrictions on wood packaging certain countries require wood packaging to be marked and accompanied by a wood packaging certificate. In many cases it will be sufficient to check that your wood packaging is ISPM 15 compliant. BRENT Packaging meets the latest ISPM 15 regulations for wood packaging. y Packaging waste you have a legal duty to minimise the weight and volume of the packaging you use. Heavy users of packaging also have to register with the Environmen Agency and become t accredited as exporters. In many export markets, there are stricter rules on packaging waste and collection, such as the green dot system in Germany. y Hazardous goods any exports of dangerous goods will have to be safely packaged and clearly marked and labelled. The rules vary slightly depending on which mode of transport you re using. Consider consulting an export in the transportation of hazardous/dangerous goods see BRENT ( Packaging). y Insurance your transport insurance cover may be adversely affected if it can be shown that your goods were damaged due to poor packaging. For more information, see our guide on transport insurance. y Contracts to avoid disputes in case goods are damaged in transit, consider including packaging specifications in your contracts with buyers. Basic Procedure And Documentation For Excise And Custom Clearance The shipment of export cargo has to be made with prior permission of, and under the close supervision of the custom authorities. The goods cannot be loaded on board the ship unless a formal permission is obtained from the custom authorities. The custom authorities grant this permission only when it is being satisfied that the goods being exported are of the same type and value as have been declared by the exporter or his C&F agent, and that the duty has been properly determined and paid, if any. The custom procedure can be briefly explained as follows: y Submission of Documents: The exporter or his agent submits the necessary documents along with the shipping bill to the Custom House. The documents include: o ARE-1 (Original and duplicate) o Excise gate pass (Original and duplicate transporters copy o Performa Invoice o Packing List o GRI form (Original and duplicate) o Customs Invoice (where required in the importing country) o Original letter of credit/contract o Declaration form in triplicate o Quality Certificate
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o o o o o
y
Purchase memo Labels Licence (if any required) including advance licence copy Railway receipt/lorry way bill Inspection Certificate by Export Inspection Agency
Verification of Documents: The Customs Appraiser verifies the documents and appraises the value of goods. He then makes an endorsement of Examination Order on the d uplicate copy of shipping bill regarding the extent of physical examination of the goods at the docks. All documents are returned back to the agent or exporter, except o Original Copy of GR to be forwarded to RBI o Original copy of shipping bill o One copy of commercial invoice y Carting Order: The exporter s agent has to obtain the carting order from the Port Trust Authorities. Carting Order is the permission to bring the goods inside the docks. The carting order is issued by the superintendent of Port Trust. Carting Order is issued only after verifying the endorsement on the duplicate copy of shipping bill. The Carting Order enables the exporter s agent to cart goods inside the docks and store them in proper sheds. y Storing the Goods in the Sheds: After securing the carting order, the goods are moved inside the docks. The goods are then stored in the sheds at the docks. y Examination of Goods: The exporter s agent then approaches the customs examiner to examine the goods. The customs examiner examines the cargo an records his report on the duplicate d copy of the shipping bill. The customs examiner then sings the Let Export Order 1. Let Export Order: The Let Export Order is then shown to the Customs Preventive Officer, along with other documents. The CPO is in charge of supervision of loading operations on the vessel. If CPO finds everything in order, he endorses the duplicate copy of shipping bill with the Let Ship Order This order helps the exporter/shipper to load the goods on the ship. y Loading Goods: The goods are then loaded on the ship. The CPO supervises the loading operations. After loading is completed, the Chief Mate (Cargo Officer) of the ship issues the Mate s Receipt . The Mate s Receipt is sent to the Port Trust Office. The C&F agent pays the port trust dues and collects the mate s receipt. The C&F agent then approaches the CPO and gets the certification of shipment of goods on AR Forms and other documents y Obtaining Bill of Lading: The Mate s Receipt is then handed over to the shipping company (on whose vessel the goods are loaded). The shipping company issues bill of lading. The Bill of Lading is issued in: o 3 negotiable copies of Bill of Lading o 10 to 12 Non-negotiable copies of Bill of Lading. The negotiable copies have title to goods; whereas non-negotiable copies do not have title to goods but are used for record purpose. PROCEDURE OF EXCISE CLEARANCE: The common procedure of excise clearance under bond and under rebate is discussed as follows: y Preparing of Invoice: The export goods have to be cleared from the factory under invoice. The invoice contains details like name of the exporter, value of goods, excise duty chargeable, etc. The invoice is to be prepared in triplicate. In case of export under Bond, the invoice should be marked as For Export without payment of duty . In addition to the invoice, a prescribed for ARE 1 has to be filed in by exporter. y Filling up of ARE-1 form (Annexure-20): The ARE-1 form needs to be filled in four copies. A fifth (Optional) may be filled in by the exporter, which can be used at the time of claiming other export incentives. The ARE-1 copies have distinct color for the purpose of verification and processing.
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Application to Assistant Commissioner of Central Excise (ACCE): The exporter has to make an application to ACCE regarding the removal of goods from the factory/warehouse for export purpose. y Information to Range Superintendent of Central Excise (RSCE): The ACCE will inform the RSCE under whose jurisdiction the goods are intended to be cleared for export y Deputation of Inspector: The RSCE will then depute an inspector to clear the goods, either at the factory or warehouse, and in certain cases at the port. y Processing of ARE-1 Form: The Excise Officer/Inspector will make endorsement on all copies of ARE-1. The handling of ARE-1 Form is done as follows: o The inspector returns the original and duplicate copies to the exporter o The triplicate copy is sent to officer (ACCE or Maritime Commissioner (MCCE) to whom bond was executed or letter of undertaking (LUT) was given. This copy can also be handed over to the exporter in a tamper proof sealed cover to be submitted to ACCE/MCCE. o The 4th copy will be retained by the excise inspector. o The 5th copy is also handed over to the exporter. o At the time of export, original, duplicate and the 5th copy (optional) will be submitted to customs officer. The customs officer will examine these copies and then export will be allowed. o The customs officer will then make endorsement of export on all copies of ARE1. He will cite shipping bill number and date and other particulars of export on ARE-1. o The original copy and quintuplicate (optional) will be returned to the exporter. The duplicate copy will be sent directly to the ACCE\MCCE i.e. excise officer with whom bond was executed will get 2 copies, one from RSCE (or excise inspector) when goods are cleared from factory and other Custom Officer after export. This will enable him to keep track to ensure that all goods cleared from factory or warehouse without payment of duty are actually exported. In case of export after payment of duty, under claim of rebate, the basic procedure is same as above, except that the triplicate copy (by excise inspector) and duplicate copy(by customs officer)will be sent to the officer to whom rebate claim is filed. If claim of rebate is by electronic submission, these copies well be sent to excise rebate audit section at the place of export. y Refund or Release of Bond: The exporter should make an application to the excise officer for refund or release of bond. The application must be supported by original copy of ARE-1 form. The excise officer crosschecks the original copy of ARE-1 form and the duplicate and triplicate copies of ARE-1 form, which he had received earlier. If the copies match, then refund is given or the bond is released. FACTORY STUFFING OF CARGO Clearance of goods to docks: If the goods meant for export is of a small quantity which may not be sufficient to make one full container, the cargo is said to be less than container load (LCL) cargo. Such cargo has to be taken to the docks where the goods will be consolidated (combining the cargo of other exporters to make up quantity for a full container) by the agent and loaded into a container. Here the examination of the cargo is done at the docks.(There are also inland container depots approved by the customs where the goods can be consolidated and stuffed into the container by the agent under the supervision of the customs officer) If the goods meant for export is of sufficient quantity to make up a full container, the exporter has the option to take the goods to the docks and get them examined and stuffed into a separate container. An exporter gets the benefit on the freight amount for a full container. (Generally called box rate)
y
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Alternatively, he can have a container allotted to him and get the same to his Mills Premises. The goods meant for exports can be stuffed into the container under the supervision of the regional Central Excise Authority. Here the exporter has to y Obtain permission from the Customs for getting the container to his mills premises for stuffing (House Stuffing) y Inform the C. Excise Authorities at least 24 hours before bringing the container for loading. The C. Excise Authority will supervise the loading, seal the container and certify the invoice as directed in the permission given by the custom authorities. A special Lock is used to lock the doors of the container. Samples from the goods will be drawn, if necessary, as required under the customs permission. Such samples will be sealed and forwarded along with the container. The examiner in the docks may arrange to send the sample for testing. Then the container is moved to the dock for loading. Generally, such containerized goods are not subject to further examination in the customs. They will be directly taken for loading.
Cargo Insurance Goods in transit are subject to risks of loss of goods arising due to fire on the ship, perils of sea, thefts etc. Marine insurance protects losses incidental to voyages and in land transportation. Marine Insurance Policy is one of the most important document used as collateral security because it protects the interest of all those who have insurable interest at the time of loss. The exporter is bound to insure the goods in case of CIF quotation, but he can also insure the goods in case of FOB contract, at the request of the importer, but the premium payment will be made by the exporter. There are different types of policies such as Specific Policy: This policy is taken to cover different risks for a single shipment. For a regular exporter, this policy is not advisable as he will have to take a separate policy every time the shipment is made, so this policy is taken when exports are infrequent. Floating Policy: This policy is taken to cover all shipments for same months. There is no time limit, but there is a limit on the value of goods and once this value is crossed by several shipments, then it has to be renewed. Open Policy: This policy remains in force until cancelled by either party, i.e. insurance company or the exporter. Open Cover Policy: This policy is generally issued for 12 months period, for all shipments to one or all destinations. The open cover may specify the maximum value of consignment that may be sent pre ship and if the value exceeded, the insurance company must be informed by the exporter. Insurance Premium: Differs upon from product to product and a number of other such factors, such as, distance of voyage, type and condition of packing etc. Premium for air consignments ar lower as e compared to consignments by sea. The Insurance Policy Normally Contains: y The name and address of the insurance company. y The name of the assured & description of the risk covered. y A description of the consignment. y The sum insured & the date of issue. y The place where claims are payable together with details of the agent to whom claims may be directed & Any other details, as applicable. Shipping Modes Procedures Bigger export firm have a traffic department will take care of overseas shipping. With smaller firm, this task is usually delegated on a fee basis, to freight forwarder. The following steps are involved in a typical overseas shipping procedure. 1. The Freight Forwarder is advised of the export order.
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2. The terms of sale are examined to determine the exporter's shipping responsibility and ability to fill the order. 3. If letter of credit is involved, it must also be carefully examined to insure that any shipping conditions (such as shipping date, no partial shipments, discharge port, transhipment restrictions, etc.) are met or, if impossible to meet, arrangements be made for the letter of credit to be amended. 4. Quotations on freight rates sought from different shipping agents. 5. A shipping line and vessel are selected. 6. Space is booked as early as possible (as shipping space is not easily available to all destinations) through a shipping agent. The space should be on a ship with an acceptable loading port and acceptable estimated time of arrival (or ETA) at the required port of destination. The choice of loading port must be balanced against the preferred date of sailing. Information about sailing schedules is available in specialized shipping publications and in the business sections of the major newspapers. The agent that represents the shipping line will, in booking the space, requires full details of the shipment, including weight, size, contents value, ports of shipment and destination. This is recorded by the exporter onto a shipping note that is sent to the steamship office. The shipping agent then sends the exporter a contract number and an engagement note showing the details of the shipment, including name of the ship, destination, loading port, loading date, arrival date, and the shipping rate. The exporter may cancel the space that has been reserved if the export order falls through. However, it should let the shipping company know as soon as possible so that the space can be allocated to someone else. Otherwise the shipping company will invoice the exporter for the unused space. 7. Customs forms are filled out for the country of destination. 8. The shipment is appropriately packaged and marked. 9. Wait for the "calling forward" notice from the shipping company. 10. The shipment is dispatched to the port with a consignment note. 11. A bill of lading is obtained from the shipping company and freight charges are paid. 12. The bill of lading and other required documents are delivered to the bank for collection. Shipping Modes Documentation Shipping documents are the documents used for the shipping transaction purposes like Export Import, Ship Husbandry, Custom Clearance, Immigration, Loading- Unloading of cargoes, etc. There are various types of documents involved in the shipping operation. Such as the following: 1. Shipping bill A shipping bill or Bill of Lading is issued by the Shipping Agent on behalf of the Ship Owners to state that certain goods have been sent on board a particular vessel from point A to point B. The details of the goods are mentioned. Shipping Bill is a mandatory document for export of any goods out of India. It is only on the basis of which organizations can get all the export incentives including drawback/DEPB & other benefits. The shipping Bills are of following types: ± Duty Free Shipping Bill : No duty applicable ± Dutiable Shipping Bill : Goods subject to export duty ± Drawback Shipping Bill : ± Shipping Bill for shipment Ex-bond.: For goods imported for re-export. 2. Bill of lading bill of ladings a document issued by a carrier to a shipper, acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified. A through bill of lading involves the use of at least two different modes of transport
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from road, rail, air, and sea. The term derives from the verb "to lade" which means to load a cargo onto a ship or other form of transportation. A bill of lading can be used as a traded object. The standard short form bill of lading is evidence of the contract of carriage of goods and it serves a number of purposes: y It is evidence that a valid contract of carriage, or a chartering contract, exists, and it may incorporate the full terms of the contract between the consignor and the carrier. y It is a receipt signed by the carrier confirming whether goods matching the contract description have been received in good condition. y It is also a document of transfer, being freely transferable but not a negotiable instrument in the legal sense, i.e. it governs all the legal aspects of physical carriage, and, like a cheque or other negotiable instrument. The bill of landing must contain the following information: y Name of the shipping company; y Flag of nationality; y Shipper's name; y Order and notify party; y Description of goods; y Gross/net/tare weight; and y Freight rate/measurements and weigh of goods/total freight 3. Mat's receipt Mate s receipt is a document originally issued by the first mate of the ship. He was the officer responsible for cargo. The document would be issued by him after the cargo was tallied into the ship by tally clerks. The shipper or his representative would then take the mate's receipt to the master or the agent to exchange it for a bill of lading, which would incorporate any conditions inserted into the mate's receipt. In modern days, the document known as the Mate's receipt" is not often signed by the mate of the ship but by some person in the shore office of the shipping company or its agents, although the name of the document remains the same. This document used in the shipment of a cargo. When the goods are received by or for the sea carrier, a mate s receipt is issued either directly by the ship or by the ship s agents. This is the first evidence that the goods are received and statements on the document describe the quantity of goods, any identifying marks and the apparent condition. 4. Cargo manifest The Cargo Manifest subsystem deals predominantly with the control and management of merchandise that arrives by boat, plane or other means of transport from abroad, and is stored in a public or private warehouse under a provisional consignment regime. The subsystem provides for the electronic exchange of information between the relevant customs office, port authorities, and other authorities, as well as with transport companies. This facilitates the imports/exports procedure and reduces the risk of error. An Entry Summary Declaration (ENS) will be submitted to a customs territory prior to the actual shipment of goods. A common safety and security risk analysis will be completed for the goods reported in the ENS, and the goods will be permitted entry into the customs territory if (and only if) common and national risk results indicate that the goods are allowed. A Manifest is then submitted to the destination customs office. Upon acceptance, a risk analysis is performed on goods unloaded, and the Temporary Storage Warehousing managed. Data captured by this subsystem are redirected to produce Single Administrative Documents. 5. Letter of Credit A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. Letters of credit are often used in international transactions to ensure that payment will be received. Due to the nature of international dealings including factors such as distance, differing laws
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in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped. Role Of Forwarding Agents Selling through Forwarding agents is a strategic entry option open to exporters. The role and importance of forwarding agents are as follows ± Selling through an overseas agent is an effective strategy. ± The agents serve as a source of market intelligence. ± The agent is in a position to render his advice to exporter or new methods and strategy for pushing up sales of your products. He also provides you support in the matter of transportation, reservation of accommodation, appointment with the government as and when required by you. ± In some countries it is compulsory under their law to sell through local agents only. It is, therefore, essential that you should carefully select your overseas agent. Some source of information on agents are: ? Government Departments Trade Associations /Chambers of Commerce /Banks ? Independent Consultants/Export Promotion Councils/Advertisement Abroad.
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Unit-III Arranging Post-Shipment Finance Post-shipment finance is the finance provided against shipping documents. It is also provided against duty drawback claims. It is provided in the following forms: Purchase of Export Documents drawn under Export Order: Purchase or discount facilities in respect of export bills drawn under confirmed export order are generally granted to the customers who are enjoying Bill Purchase/Discounting limits from the Bank. As in case of purchase or discounting of export documents drawn under export order, the security offered under L/C by way of substitution of credit-worthiness of the buyer by the issuing bank is not er, available, the bank financing is totally dependent upon the credit worthiness of the buy i.e. the importer, as well as that of the exporter or the beneficiary. The documents dawn on DP basis are parted with through foreign correspondent only when payment is received while in case of DA bills documents (including that of title to the goods) are passed on to the overseas importer against the acceptance of the draft to make payment on maturity. DA bills are thus unsecured. The bank financing against export bills is open to the risk of non-payment. Banks, in order to enhance security, generally opt for ECGC policies and guarantees which are issued in favour of the exporter/banks to protect their interest on percentage basis in case of non-payment or delayed payment which is not on account of mischief, mistake or negligence on the part of exporter. Within the total limit of policy issued to the customer, limits are generally fixed for individual customers. At the time of purchasing the bill bank has to ascertain that this limit is not exceeded so as to make the bank ineligible for claim in case of non-payment. Advances against Export Bills Sent on Collection: It may sometimes be possible to avail advance against export bills sent on collection. In such cases the export bills are sent by the bank on collection basis as against their purchase/discounting by the bank. Advance against such bills is granted by way of a 'separate loan' usually termed as 'postshipment loan'. This facility is, in fact, another form of post- shipment advance and is sanctioned by the bank on the same terms and conditions as applicable to the facility of Negotiation/Purchase/Discount of export bills. A margin of 10 to 25% is, however, stipulated in such cases. The rates of interest etc., chargeable on this facility are also governed by the same rules. This type of facility is, however, not very popular and most of the advances against export bills are made by the bank by way of negotiation/purchase/discount. Advance against Goods Sent on Consignment Basis: When the goods are exported on consignment basis at the risk of the exporter for sale and eventual remittance of sale proceeds to him by the agent/consignee, bank may finance against such transaction subject to the customer enjoying specific limit to that effect. However, the bank should ensure while forwarding shipping documents to its overseas branch/correspondent to instruct the latter to deliver the document only against Trust Receipt/Undertaking to deliver the sale proceeds by specified date, which should be within the prescribed date even if according to the practice in certain trades a bill for part of the estimated value is drawn in advance against the exports.
Documentary Collection Of Export Bills
Documentary collection refers to the collection of financial and/or commercial documents. Export documentary bill for collection is a way of international trade settlement that after the shipment of the goods, the exporter entrusts SDB to send relevant documents (especially the transport documents) and
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the draft (or without draft) to the bank at the importer s place and collect the payment for goods for the exporter. According to the way of document presentation, export documentary bill for collection falls into D/P and D/A. D/P Sight: After making delivery at the date stipulated in the contract, the exporter opens demand draft (or does not open the draft) and sends it to the bank together with the complete set of shipment documents, entrusting the bank to present them to the importer. The importer shall make payment immediately at sight of the draft (and the documents). The bank hands the shipment documents over to the importer after the payment for goods is made. D/P Usance: After making delivery at the date stipulated in the contract, the exporter entrusts the bank to present the complete set of shipment documents to the importer. The importer makes full payment for the goods upon the maturity, and then obtains the shipment documents from the bank. D/A: After making delivery at the date stipulated in the contract, the exporter opens usance draft and entrusts the bank with collection of the draft together with the shipment documents, explicitly instructing that the bank shall hand the complete set of shipment document over to the importer immediately after the importer accepts the draft and that the importer may make full payment for the goods at draft maturity date. The way of collection is based on commercial credit, and it is suitable for the importer and exporter that have built up good commercial credit. This way, compared to settlement by L/C, requires lower cost and simpler procedures. UCPDC guidelines ? Uniform Customs and Practice for Documentary Credit (UCPDC) is a set of predefined rules established by the International Chamber of Commerce (ICC) on Letters of Credit. The UCPDC is used by bankers and commercial parties in more than 200 countries including India to facilitate trade and payment through LC. ? UCPDC was first published in 1933 and subsequently updating it throughout the years. In 1994, UCPDC 500 was released with only 7 chapters containing in all 49 articles . ? The latest revision was approved by the Banking Commission of the ICC at its meeting in Paris on 25 October 2006. This latest version, called the UCPDC600, formally commenced on 1 July 2007. ? It contain a total of about 39 articles covering the following areas, which can be classified as 8 sections according to their functions and operational procedures. ISBP 2002 ? The widely acclaimed International Standard Banking Practice (ISBP) for the Examination of Documents under Documentary Credits was selected in 2007 by the ICCs Banking Commission. ? First introduced in 2002, the ISBP contains a list of guidelines that an examiner needs to check the documents presented under the Letter of Credit. Its main objective is to reduce the number of documentary credits rejected by banks. negotiating documents under L/C The documents presented under a documentary credit are scrutinized as per the International standards of scrutiny and negotiated if they strictly comply with the LC terms. This is called a clean negotiation. On the other hand if the documents do not comply with the LC terms and discrepancies are found, the negotiating bank may still opt to give value under the LC by paying or incurring a deferred payment obligation as per LC provided the beneficiary undertakes to indemnify the negotiating bank in the event of rejection by the LC opening Bank. This is technically called a payment under reserve. The Reserve will be lifted on acceptance of discrepancies by the LC opening Bank.
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An exporter presents a draft (a bill of exchange) and shipping documents specified in the letter of credit to a nominated bank or any bank if there is no nominated bank, which becomes a negotiating bank, to get paid. The detail process of negotiation is as follows 1. Instructions for Opening a Letter of Credit Items usually included in the instructions to open an L/C are as follows (1) An Irrevocable letter of credit subject to the UCP of the latest version; UCP No. 600 (2007 Revision) (2) Whether the L/C is to be confirmed by a U.S. bank or not. (3) The name and address of the beneficiary: in favor of exporter. (4) Whether the L/C is to be transferable or not (5) Terms of payment such as at sight or usance (6) Where negotiation or payment is to be effected (7) Whether the payment is to be made in U.S. dollars or other foreign currency (8) What trade terms are to be used: FOB, CFR or CIF? (9) Coverage of marine insurance: All Risks, WA, FPA, War Risks, Warehouse to warehouse or any special coverage such as a rejection clause (10) Documents to be required for negotiation y Commercial invoice y Packing list y Marine insurance certificate y Ocean bill of lading y Other documents requested by the buyer and accepted by the seller 2. Examination of a Letter of Credit When a letter of credit is received, exporter must: (1)Examine the conditions and documents specified in the L/C and determine whether he can meet them or not. (2) If there are any conditions he cannot meet, request his buyer to amend the L/C asap before he starts manufacturing export goods. (3) If the L/C calls for a time draft, have the L/C specify that the discount interest for the time draft shall be for account of accountee (importer), when agreement was a sight draft but L/C is opened with a time draft (4) Hold off shipping the order until he receives an amendments to the L/C as requested. 3. Common Discrepancies Any inconsistence or difference from the terms and conditions stipulated in the letter of credit in minute details. These discrepancies may be in form of i. Drafts a. Draft amount is different from invoice b. Draft tenor is different from the L/C c. Wrong drawee ii. Commercial invoices y Different merchandise description from the L/C y Invoices is not issued by the beneficiary y Insufficient copies are presented y Incorrect accountee's name and address are stated
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y y y y y y
Different prices from the L/C Terms of trade such as FOB, CFR or CIF different from the L/C Marks and numbers of packages are different from all other documents Weight is different from the L/C A statement required in the L/C is not presented Different currency from the L/C
iii. Packing list y Different description of merchandise from the L/C y Different number of unit, net weight and gross weight from the L/C iv. Ocean Bill of Lading y Less than a full set of original B/L is presented y The B/L not properly endorsed y The B/L not marked with "On Board notation, if B/L contains the indication intended vessel or "Received for shipment" y The B/L not properly consigned. y In the case of CFR or CIF, the term "Freight Prepaid" is not marked, that is, no indication of freight prepaid by the exporter y Merchandise description is different from the L/C v. Marine Insurance Certificate y Different coverage from the L/C y Insufficient coverage y Not the same currency as the L/C y Different merchandise description y The effective date later than the shipping date y Broker's cover note presented instead of insurance certificate or policy 4. Negotiation with Discrepancies In case discrepancies are found by negotiating bank, exporter m correct the discrepancies. If ust exporter cannot correct them such as the shipping date, then exporter should a. request the issuing bank to amend the letter of credit to cover discrepancies or authorize to pay in lieu of discrepancies b. At the same time, inform the buyer of the discrepancies and request his acceptance and amendment to the Letter of Credit. c. Release shipping documents to issuing bank after the L/C is amended. Buyer s acceptance of discrepancies are not enough. The Letter of Credit must be amended. d. Do not send the shipping documents to the issuing bank for an approval or on a collection basis. 5. Documents for Negotiation Depend on the stipulation in the letter of credit. y Exporter must present all documents specified in the letter of credit for negotiation. y Any missing document or incorrect document becomes a discrepancy. y Issuing bank of the L/C has under no circumstances an obligation to honor the draft and shipping documents with discrepancies.
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Common documents used in the international trade accompanying exporter s Draft (Bill of Exchange) a. Commercial Invoice b. Packing List c. Ocean Bill of Lading d. Marine Insurance Certificate e. Any other documents if required by the L/C i. Certificate of Country Origin ii. Consular Invoice iii. Inspection Certificate iv. Beneficiary's statement 6. Presentation of Documents The notice must state a. The bank is refusing to honor or negotiate b. Each discrepancy c. The bank s disposal of shipping documents: i. The bank is holding documents pending instructions from the presenter or ii. The issuing bank is holding documents until it receives a waiver from the applicant & agrees to accept it or iii. The bank is returning documents or iv. The bank is acting according to the previous instructions from the presenter. d. If a bank does not follow these negotiation and notice provisions, then bank cannot claim that the documents do not constitute a complying presentation, that s why The bank must honor or negotiate. e. A document presented but not required by the Credit will be disregarded. f. If a Credit contains a condition without stipulating the document to indicate compliance with the condition, then the banks will deem such condition not stated and will disregard it. Managing Exchange Earners Foreign Currency Accounts ( EEFC ) Exchange Earners' Foreign Currency Account (EEFC) is an account maintained in foreign currency with an Authorised Dealer i.e. a bank dealing in foreign exchange. It is a facility provided to the foreign exchange earners, including exporters, to credit 100 per cent of their foreign exchange earnings to the account, so that the account holders do not have to convert foreign exchange into Rupees and vice versa, thereby minimizing the transaction costs. The main features of EEFC are as follows 1. All categories of foreign exchange earners, such as individuals, c ompanies, etc. who are resident in India, may open EEFC accounts. 2. An EEFC account can be held only in the form of a current account. No interest is payable on EEFC accounts. 3. One can credit up to 100 per cent of his/ her foreign exchange earnings into the EEFC account, subject to permissible credits and debits. 4. SEZ Units cannot open EEFC Accounts. However, a unit located in a Special Economic Zone can open a Foreign Currency Account with an authorised dealer in India subject to certain conditions. SEZ Developers can open EEFC Accounts. 5. there is no restriction on withdrawal in Rupees of funds held in an EEFC account. However, the amount withdrawn in Rupees shall not be eligible for conversion into foreign currency and for re-credit to the account.
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6. the EEFC account balances can be hedged. The balances in the account sold forward by the account holders has to remain earmarked for delivery. However, the contracts can be rolled over.
availing foreign exchange facilities; Protecting Against Adverse Movements In Exchange Rates There are a number of alternatives available to protect against adverse movements in the exchange rate. Some can be intrinsic to your existing operations and available at no cost. Others are financial products available from banks and other financial institutions. Offsets When considering the extent of your exposure to exchange rate movements, it is important to take offsetting cash flows into account. For instance, any foreign currency expenses will offset your exposure to revenue in that currency. Forward exchange contracts Most people are familiar with the regular currency conversion transaction at the bank, where the bank will make a T/T payment in foreign currency, which will arrive at the receiving bank account in one or two days time, and debit your Australian Dollar account. It is also possible to arrange to fix the rate for a conversion, but not physically effect the payments until a future date. So while the rate can be fixed today, the foreign currency T/T and the Australian dollar debit may not happen until some pre-arranged date in the future. These forward contracts can generally be arranged up to 1 year ahead. Using these contracts, it is possible to exactly fix the exchange rate that will be used for your currency conversions for a period of time, and remove all exposure to movements in the exchange rate. Insurance Financial institutions offer products to insure against adverse exchange rate movements. These provide the purchaser with the potential to benefit from exchange rate movements in their favour while offering protecting against adverse movements. There is no free lunch of course and this type of insurance comes at the cost of an up-front premium. This can be in the order of 5% of the amount involved for protection against adverse movements for 12 months. Other strategies There are many more alternatives available that can be tailored to your specific requirements. An example is a zero cost insurance strategy that allows you to benefit from a certain level of protection against adverse movements by giving up some profit potential from beneficial exchange rate movements. We would be please to discuss your individual situation with you and work out if we can be of assistance in your organisation. Role Of EXIM Bank Export-Import Bank of India is the premier export finance institution of the country, set up in 1982 under the Export-Import Bank of India Act 1981. Government of India launched the institution with a mandate, not just to enhance exports from India, but to integrate the country s foreign trade and investment with the overall economic growth. Since its inception, 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.
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Exim Bank is managed by a Board of Directors, which has representatives from the Government, Reserve Bank of India, Export Credit Guarantee Corporation of India, a financial institution, public sector banks, and the business community. Exim bank has plays role in two category these are i. Export Credits ii. Finance for EOUs i. EXPORT CREDITS a. For Indian Companies Executing Contracts Overseas y Pre-shipment Credit y Supplier's Credit y For Project Exporters y For Exporters of Consultancy and Technological Services y Guarantee Facilities y Deferred Payment Exports y Term Loans for Export Production y Overseas Investment Finance y Finance for Export Marketing b. For Commercial Banks y Export Bills Rediscounting y Refinance of Supplier's Credit y Guaranteeing of Obligations c. For Overseas Entities y Buyer's Credit y Eligible Goods y Lines of Credit y Relending Facility to Banks Overseas ii. FINANCE FOR EXPORT ORIENTED UNITS a. Term Finance (For Exporting Companies) y Project Finance y Equipment Finance y Import of Technology & Related Services y Domestic Acquisitions of businesses/companies/brands y Export Product Development/ Research & Development y General Corporate Finance b. Working Capital Finance (For Exporting Companies) y Funded Working Capital Term Loans (< 2 years) Long Term Working Capital (up to 5 years) Export Bills Discounting Export Packing Credit Cash Flow financing
y Non-Funded y Letter of Credit Limits y Guarantee Limits Term Finance (For Non- Exporting Companies) y Import of Equipment
y
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y y
Working Capital Finance (For Non- Exporting Companies) y Bulk Import of Raw Material Export Finance y Pre-shipment Credit y Post Shipment Credit y Buyers' Credit y Suppliers' Credit (including deferred payment credit) y Bills Discounting y Warehousing Finance
major provisions of FEMA relating to exporters Foreign Exchange Management Act or in short (FEMA) is an act that provides guidelines for the free flow of foreign exchange in India. It has brought a new management regime of foreign exchange consistent with the emerging frame work of the World Trade Organisation (WTO). Foreign Exchange Management Act was earlier known as FERA (Foreign Exchange Regulation Act), which has been found to be unsuccessful with the policies of the Government of India. FEMA is applicable in all over India and even branches, offices and agencies located outside India, if it belongs to a person who is a resident of India. Provisions of FEMA y It prohibits foreign exchange dealing undertaken other than an authorised person; y It also makes it clear that if any person residing in India, received any Forex payment (without there being a corresponding inward remittance from abroad) the concerned person shall be deemed to have received they payment from a non authorised person. y There are 7 types of current account transactions, which are totally prohibited, and therefore no transaction can be undertaken relating to them. These include transaction relating to lotteries, football pools, banned magazines and a few others. y FEMA and the related rules give full freedom to Resident of India (ROI) to hold or own or transfer any foreign security or immovable property situated outside India. y Similar freedom is also given to a resident who inherits such security or immovable property from an ROI. y An ROI is permitted to hold shares, securities and properties acquired by him while he was a Resident or inherited such properties from a Resident. y The exchange drawn can also be used for purpose other than for which it is drawn provided drawl of exchange is otherwise permitted for such purpose. y Certain prescribed limits have been substantially enhanced. For instance, residence now going abroad for business purpose or for participating in conferences seminars will not need the RBI's permission to avail foreign exchange up to US$. 25,000 per trip irrespective of the period of stay, basic travel quota has been increased from the existing US$ 3,000 to US$ 5,000 per calendar year. export credit risk insurance and the role of ECGC. The abbreviated form for Export Credit and Guarantee Corporation is ECGC. As the name indicates this is a sort of guarantee or a sort of cover for the exporter. Let us now see what this is all about. Needless to say that an exporter before entering into a contract with the overseas buyer for making any supply, takes care to ensure that the customer with whom he is dealing have some credit worthiness. This he may be able to do either through the local agent who is in a better positon to know about the i customer or through a bank or through any of the exporter s associates if happens to be in the area of the customer etc., But, in a business things may change. The financial status of a customer may take drastic turn and an established customer may go bankrupt within a short period of time. Moreover, the buyer may be willing to make the payment, but there are other environment which prevents him from effecting the transfer of funds through the bank. For e.g., there could be break out of
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war, the balance of payment position of the country may become unfavourable, there may be some coup of the government etc., and all transactions could be sealed. It takes up the responsibility of paying the funds to the exporter and makes all efforts including legal proceedings to recover the dues from the customer, provided the exporter has taken an ECGC cover. WHAT ECGC OFFERS FOR PROTECTION OF EXPORTER S INTEREST ? ECGC offers various types of insurance cover to protect the exporter s interest. For each type of cover an exporter has to take Policy specific to the respective requirements. The Policy that is most commonly taken by the exporters is the Standard Policy or otherwise called the Shipments (Comprehensive Risks) Policy. SHIPMENTS (COMPREHENSIVE RISKS) POLICY also called STANDARD POLICY For exporters with an annual export turnover in excess of Rs.50 lakhs, the Shipments (Comprehensive Risks) Policy is the one intended for covering shipments on cash basis or on short term credit basis. (Credits not exceeding 180 days) The risks covered this Policy is as follows effective from the date of shipment.: Commercial Risks y Insolvency of the buyer y Failure of the buyer to make payment within a specified period. y Buyer s failure to accept the goods subject to certain conditions. Political Risks y Imposition of restrictions by the Govt. of the buyer s country or any government action which may block or delay the transfer of payment made by the buyer. y War, civil war, revolution or civil disturbances in the buyer s country y New import restrictions or cancellation of a valid import licence y Interruption or diversion of voyage outside India resulting in payment of additional freight or insurance charges which cannot be recovered from the buyer. y Any other cause of loss neither occurring outside India nor normally insured by general insurers and beyond the control of both the e porters and the buyer. Risks not covered under the Policy The Standard Policy does not cover losses on account of following risks: y Commercial disputes including quality disputes raised by the buyer unless the exporter obtains a decree from a competent court of law in the buyer s country in his favour y Causes inherent in the nature of the goods y Buyer s failure to obtain necessary import or exchange control clearance from authorities concerned y Insolvency or default of the agent of the exporter or of the collecting bank y Loss or damage to goods which can be covered by general insurers. y Exchange rate fluctuations y Failure of the exporter to fulfil the terms of the export contract or negligence on his part. Shipments Covered The Standard Policy is meant to cover all the shipments that may be made by an exporter during a period of 24 months ahead. The policy cannot be issued for selected shipments, selecte buyer or selected d markets. For specific requirements an exporter can opt for different policy from the various services offered by the corporation Exclusions: Shipments made against advance payments received or shipments against confirmed letters of cred it which has the confirmation from the bank in India may be excluded. However, shipments against confirmed L/C may be covered for political risks only. The premium for cover under political risks will be less than that under the comprehensive policy. ECGC may also agree to exclude certain items if the exporter is dealing in different distinct products. Shipments to Associates:
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Shipments to buyers i.e. the foreign buyers in whose business the exporter has financial interest, are normally excluded from the Policy. However such shipments can be covered against political risks. Shipments on Consignment basis: Shipments on consignment basis can be covered only against political risks. Shipments by Air Since the buyer is able to take delivery of the goods even without retiring the bank documents, shipments by air are not covered under the policy. However, the exporter may cover such shipments for payments under open terms. The exporter can have cover for such shipments, if he has obtained Credit Limit on such buyers on open delivery terms and also pays the premium at rates applicable to open delivery terms. HOW TO GET ECGC COVER Step 1 - Open Policy: An exporter desiring to get the ECGC cover has to approach the office of the ECGC making a Proposal. He must make his home work and be clear as to what will be his total turnover during a year and what will be the maximum amount he expects to be outstanding from various buyers at a given point of time. Once this is clear he can apply for an Open Policy for the maximum amount that he expects to be outstanding at a given point of time. Suppose, he expects that at any given time his outstanding will be say Rs.50/- lakhs then he can apply for a policy for this amount. After verification of the details of the exporter, the ECGC may issue a open policy for Rs.50 lakhs with a validity of say 2 years. This is the first step. Step 2 - Credit Limit on Individual Buyer Once the open policy is taken, as a next step the exporter must make out the list of the customers to whom he expects to make shipment. For each and every customer he has to apply to the ECGC to have a limit of liability fixed. Step 3 Payment of Premium and filing of monthly returns For the risk the ECGC takes, it charges a premium on the value of the shipments actually made. This is calculated as per the table to be supplied by ECGC which shows the premium per Rs.100 of exports. This table which gives the premium amount payable is framed based on the following. The various countries around the globe are divided into different groups and are classified as A1, A2, B1, B2, C1,C2 & D. The countries are grouped according to their economic standard. For e USA. .g. Canada, UK are grouped in category A. The premium amount will be less for group A countries and will be increased gradually to group B, C & D countries. The premium for group D countries will be more because they are all economically weaker count ries and payment risks are high Again the premium table is based on the period of credit. The slab is for credits up to 90 days, 120 days, 180 days etc. Longer the credit period greater is the premium. Thus, the premium will be least for group A countries and for the shorter credit period and will be maximum for group D countries and for maximum credit period FILING OF MONTHLY RETURNS: The exporter has to send a monthly return in the prescribed form to ECGC declaring the list of various shipments made and the amount of premium payable as per the premium table. The exporter has to work out the total premium applicable on the shipment effected and make payment to the ECGC The cover is only when the party goes insolvent or there are some political risk due to w hich the exporter is not in a position to get the payment immediately or on due date. This cover must be distinguished from the general insurance. VARIOUS POLICIES OFFERED BY ECGC: 1. STANDARD POLICY An exporter whose annual export turnover is more than Rs.50 lakhs is eligible for this policy Highlights
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y Lowest Premium Rate y NCB OF 5% every year y Discrepancy cover of LC y Automatic Approval for resale/shipment up to 25% of GIV y Increased discretionary limit 2. SMALL EXPORTERS POLICY
3.
4.
5.
1.
Highlights y Highest coverage/compensation y Lowest premium rate y NCB of 5% every year y Discrepancy cover for LC y Automatic approval for resale/shipment up to 25% of GIV y Increased discretionary limit SPECIFIC SHIPMENT POLICIES SHORT TERM (SSP-ST) These policies can be availed of by exporters who do not hold our Standard Policy or by exporters having standard policy, in respect of shipment permitted to be excluded from the purview of the standard policy. Exporters can pick and choose the contract/shipment to be covered and indicatethe type of cover required. Highlights: y Selection for Insurance cover y Other exports not to be declared y Add on Marine Insurance Cover y Premium rate reduced proportionately on higher share of loss to exporter. EXPORTS (SPECIFIC BUYERS) POLICY The specific buyer policy provides cover for shipments made to a particular buyer or set of buyers. An exporter not holding the standard policy can avail of this to cover their shipments to one or more buyers. Exporters holding Standard Policy can also avail this Poli y for covering shipments to c individuals Buyers, if all shipments to such buyers have been permitted to be excluded from the purview of the Standard Policy. Highlights: 1 Selective buyer can be insured 2 Option to exclude LC exports 3 Premium rate can be reduced proportionately EXPORTS TURNOVER POLICY Turnover Policy is for the benefit of large exporters who contribute not less than Rs.10 lakhs per annum towards premium. The policy envisages projection of the export turnover of the policyholder for a year and the initial determination on the premium payable on that basis, subject to adjustment at the end of the year based on actual. Highlights: 1. Simplified procedure for payment of premium 2. 10% of projected premium is waived when exports increase beyond projection 3. Increased discretionary limit BUYER EXPOSURE POLICY : The Buyer Exposure Policy is to insure the exporters having large number of shipments with simplified procedure and rationalized premium. An exporters can chose to obtain exposure based cover on the selected buyer. The cover would be cover against commercial and political risk. The option to exclude LC shipment is available. If the exporter has opted for commercial and political risks cover, failure of LC opening bank with World Rank up to 25,000 as per latest Bankers Almanac is available. If exporters opts for only political risks for LC exports premium at a less rate is offered
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2. MULTI-BUYER EXPOSURE POLICY Some exporters export to large number of buyers. The number of shipments made by them is also quite high. In order to meet the needs of such exporters, Multi buyer exposure policy is introduced. Cover would be available for exports to the buyers in countries listed under open cover category as long as the buyer is not in default buyers list maintained by the Corporation and available on its website www.ecgcindia.com. If the transaction is on LC terms, failure of the LC opening bank in respect of exports against LC will also covered, For banks with World Rank up to 25000 as per Latest Bankers Almanac Cover in respect of exports to restricted over countries would not be available under this policy Highlights: 1. Policy is best suited for exporters who make frequent shipments 2. Reduced premium rates available on conditions 3. 5% reduction on total premium on lump sum payment 4. No declaration required 5. All buyers in open countries covered on conditions 6. Protection up to Aggregate Loss Limit and Individual buyer up to 10% of All. 8. CONSIGNMENT EXPORTS POLICY (STOCKHOLDING AGENT) Economic liberalization and gradual removal of international barriers for trade and commerce are opening up various new avenues of exports opportunities to Indian exporters of quality goods. A method increasingly adopted by Indian exporters is consignment exports where goods are shi ped p and held in stock overseas ready for sale to overseas buyers, as and when orders are received. Thus separate Credit Insurance Policy is introduce to cover exclusively shipments on consignment basis taking into account their special features, providing adequate incentives and simplifying procedures considerably Highlights: y Covers only the consignments exports y Rationalized premium for 360 days y Automatic cover for ultimate buyers up to discretionary limit y Commercial risks on agents covered y Extended period for realization up to 360 days 9 CONSIGNMENT EXPORTS POLICY (GLOBAL ENTITY) A method adopted by India exporters is consignment exports where goods are shipped to their own branch office overseas ready for sale to overseas buyers, as and when orders are rec eived. Thus separate credit insurance policy is introduce to cover exclusively shipments by the exporters to their branches overseas on consignment basis taking into account their special features, providing adequate incentives and simplifying the procedures considerably. Highlights: y Covers only the consignments exports y Rationalized premium for 360 days y Automatic cover for ultimate buyers up to discretionary limit y Commercial risks on agents covered y Extended period for realization up to 360 days 10. SERVICES POLICIES Services Policies offer protection to Indian firms against payments risks involved in rendering services to foreign parties. A wide range of services, hiring or leasing can be covered under these policies. The exporters can opt for whole Turnover Services Policy or for Specific Services Policy depending on the nature of services provided. The premium rates applicable. To standard policy will be applied for whole turnover services policy and specific shipment policy (SSP-ST) premium rates will be applied for Specific Service Policy.
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1. MATURITY FACTORING The Maturity Factoring scheme, as designed by ECGC has unique features and does not exactly fit into the conventional mould of maturity factoring. The changes devised are intended to give the clients the benefits of full factoring services through the maturity factoring scheme, thus effectively addressing the needs of exporters to avail of pre- finance (advance) on the receivable, for their working capital requirements. One important feature is the very role and special benefits envisaged for banks under the scheme. Highlight y 100% credit guarantee protection against had debts y Sales register maintenance in respects of factored transaction y Regular monitoring of outstanding credits, facilitating collection of receivable on due date, recovery, at its own cost, of all recoverable had debts
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Unit-IV Major Export Promotion Schemes In India Major Export Promotion Schemes in India are as follows: 1. Duty Drawback Scheme: Under Duty Drawback Scheme relief of Customs and Central Excise Duties suffered on the inputs used in the manufacture of export product is allowed to Exporters. The admissible duty drawback amount is paid to exporters by depositing it into their nominated bank account. Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944, empower the Central Government to grant such duty drawback. Customs and Central Excise Duties Drawback Rules, 1995 have been framed outlining the procedure to be followed for the purpose of grant of duty drawback (for both kinds of duties suffered) by the Customs Authorities processing export documentation. 2. Export Promotion capital Goods (EPCG) Scheme: Under EPCG Scheme import of capital goods which are required for the manufacture of resultant export product specified in the EPCG Licence is permitted at concessional rate of Customs duty. This Scheme also enables upgradation of technology of the indigenous industry. For this purpose EPCG Licences are issued on the basis of approval granted by EPCG Committee. The EPCG Committee comprises of officers from DGFT, MOF and concerned Administrative Ministry. 3. Duty Entitlement Pass Book(DEPB) Scheme: EPB Scheme was first announced on 1.4.1997 under EXIM Policy 1997-2002. It is an export promotion scheme and envisages grant of DEPB Credit Entitlement to an exporter at the time of export at an advalorem rate notified by DGFT, in relation to FOB value of the export product. The DGFT have so far notified DEPB rates for nearly 2000 export products. These rates are based on the computation of Basic Customs Duty suffered by the exporters on the inputs listed in the Standard InputOutput Norms (SION) applicable to the export product. The crucial feature of the DEPB Scheme is that all the inputs listed in the Standard Input-Output Norms are deemed to have been imported and to have suffered Customs duties. 4. Duty Exemption Scheme: Duty Exemption Scheme is an export promotion scheme and it enables import of inputs required for export production free of Customs duty. Advance Licences are issued under Duty Exemption Scheme to allow import of inputs, which are physically incorporated in the export product (after making normal allowance for wastage). In addition, fuel, oil, energy catalysts, etc., which are consumed in the course of their use to obtain the export product can also be allowed under the scheme. 5. Brand Rate of Duty Drawback Scheme: In respect of export products where AIR of duty drawback is not notified or where the AIR of duty drawback in considered by the exporter to be insufficient to fully neutralize incidence of duties suffered on the inputs utilized in the production/manufacture of the export product, the exporters opt for Brand Rate Duty Drawback Scheme. Under this Scheme, the exporters are compensated by paying the amount of Customs & Central Excise Duty incidence which is actually incurred on the inputs used in the manufacture of export products.
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Export Assistance To Export Houses The objective of the scheme is to recognise established exporters as Export House. Trading House, Star structure and Trading House and Super Star Trading House with a view to building marketing infra expertise required for export promotion. Such House should operate as highly professional and dynamic institutions and act as important instruments of export growth. Eligibility:- Merchant as well as Manufacturer exporters, Service providers, Export Oriented Units (EOUs)/units located in Export Processing Zones (EPZs)/ Special Economic Zone (SEZ s)/ Electronic Hardware Technology Parks (EHTPs)/ Software Technology Parks (STPs) shall be eligible for such recognition. Criterion for Recognition:- The eligibility criterion for such recognition shall be on the basis of the FOB/NFE value of export of goods and services, including software exports made directly, as well as on the basis of services rendered by the service provider during the preceding three licensing years or the preceding licensing year, at the option of the exporter. The exports made, both in free foreign exchange and in India Rupees, shall be taken into account for the purpose of recognition. Exports made by Subsidiary Company:- The exports made by a subsidiary of a limited company shall be counted towards export performance of the limited company for the purpose of recognition. For this purpose, the company shall have the majority share holding in the subsidiary company. Export Performance Level:- The applicant is required to achieve the prescribed average export performance level subject to the condition that Deemed exports and export of imported goods as it is shall not be counted for export performance. The level of export perormance for the purpose of f recognition shall be done with the help of golden status certificate. Golden Status Certificate:Exporters who have attained Export House, Trading House, Star Trading Houses and Super Star Trading Houses status for three terms or more and continue to export shall be eligible for golden status certificate which would enable them to enjoy the benefits of status certificate irrespective of their actual performance thereafter as per the guidelines issued in this regard from time to time. Assistance To Export Houses : A number of financial and fiscal incentives are also available to the exporter as detailed below: I. Marketing Development Assistance (Mda) Assistance under Marketing Development Fund is provided by the Government for stimulating and diversifying the export trade. It is available in respect of Market research, Commodity research, Area survey and research, Export publicity and dissemination of information, and Grants in aid to export Promotion Councils and other approved organisation. The Federation of Indian Exporters Organisation (FIEO) disburses M grants for the following DA activities on behalf of the Ministry of Commerce: y Sales tour abroad Participation in fairs/exhibition abroad; y Bringing out publications for use abroad; y Advertising in foreign media MDA for other activities like opening of foreign offices, setting up of warehouses and after sales services, installations abroad, research and development work on products etc. Ii. Spices Export Promotion Schemes
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Under these schemes the Spices Board develops the production and exports of value added spices inancial assistance through spice house certification, Spices Board Logo, Brand Promotion Scheme, F for printing of brochure/folders, assistance for packaging development, reimbursement of air freight/courier charges for sending samples abroad etc. Iii. Air Freight Subsidy On Horticulture And Floriculture Exports In order to make exports of horticulture (i.e. fresh fruit, vegetables, tissue culture plants and materials) and floriculture products competitive in the world market, the Government grants air freight subsidy on selected fruits and floriculture items. IV. New External Marketing Assistance Scheme For Jute -10% of the F.O.B. value realisation The scheme envisages grant of market assistance at the rate of 5 on export of specified diversified products. The benefit under the scheme is available to both manufacturer exporters and merchant exporters. V. Financial Assistance Scheme For Agricultural, Horticulture And Meat Exports The Agricultural Products Export Development Authority (APEDA) provides assistance upto 50 per cent of the cost of study subject to the ceiling of Rs. 2 lakhs per beneficiary for undertaking feasibility studies and market surveys by growers, exporters and their organisations. The surveys may be conducted to find potential export markets/accessing market information and price trends, with respect to products, infrastructure requirements, etc. This assistance aims at encouraging exporters, growers and trade associations to develop their own market and information sources.
EZ units, EOUs, EHTP, STP and BTP units
In order to promote exports and to obtain foreign exchange, the Government of India has framed several schemes. These schemes grant incentives and other benefits. The few important export incentives, from the point of view of indirect taxes are briefed below: Free Trade Zones & Tax Heavens: Trade Zones like Special Economic Zones (SEZs), Export Oriented Units (EOUs), Electronics Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio -Technology Parks (BTPs) has been given consent by the Government in order to promote exports. No excise duties are payable on goods manufactured in these zones provided they are made for export purpose only. 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. 1. SPECIAL ECONOMIC ZONES (SEZs) India is one of the first countries in Asia to recognise the effectiveness of the Export Processing Zone (EPZ) model in promoting exports. Asia s first EPZ was set up in Kandla in 1965. With a view to create an environment for achieving rapid growth in exports, a Special Economic Zone policy was announced in the Export and Import (EXIM) Policy 2000. The salient features are: y A designated duty free enclave to be treated as foreign territory only for trade operations and duties and tariffs. y No licence required for import.
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y y y y y y y
Manufacturing, trading or service activities allowed. SEZ units to be positive net foreign exchange earner within three years. Domestic sales subject to full customs duty and import policy in force. Full freedom for subcontracting. Duty-free goods to be utilised over the approval period of 5 years. No routine examination by customs authorities of export/import cargo. Minimum size of multi-product SEZ, not to be less than 1000 hectares.
India s Policy on SEZs Keeping in view the above, a competitive package for SEZ developers and units has been put in place. The major components of this package include: · Duty-free import/domestic procurement of goods for development, operation, and maintenance of SEZs and SEZ units. · Extension of income tax benefits under Section 80 IA of the Income Tax (IT) Act to SEZ developers for a block of 10 years in 15 years, as per the choice of the developers. · 100% income tax exemption for SEZ units under Section 10A of the IT Act for the first 5 years, 50% for 2 years thereafter, and 50% of the ploughed back export profit for the next 3 years. · 100% income tax exemption for 3 consecutive years and 50% for the next 2 years to offshore banking units set up in Special Economic Zones. · External commercial borrowing by SEZ units without any maturity restrictions through recognized banking channels. · Treating supplies from the Domestic Tariff Area (DTA) to SEZ at par with physical exports. · Exemption from Central Sales Tax on sales made from the DTA to SEZs. · Exemption from Service Tax for SEZ units and developers. · Exemption from State taxes and levies, as notified by various State Governments. At presant, all the eight EPZs located at Kandla and Surat (Gujarat), Santa Cruz (Maharastra), Cochin (Kerela), Madras (Tamil Nadu), Noida (UP), Falta (West Bengal), and Vishakapatnam (Andhra Pradesh) which have been converted into SEZs are functional. In addition, 7 new SEZs have become operational in 2004/2005 which are given as under: Administrative set up for SEZs: The functioning of the SEZs is governed by a three tier administrative set up (i) the Board of Approval is the apex body in the Department, (ii) the Unit Approval Committee at the Zonal level dealing with approval of units in the SEZs and other related issues, and (iii) each Zone is headed by a Development Commissioner, who is also heading the Unit Approval Committee. The performance of the SEZ units are monitored annually by the Unit Approval Committee and units are liable for penal action under the provision of Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of the approval Approval mechanism of SEZs Any proposal for setting up of SEZ in the Private/Joint/State Sector is routed through the concerned State government who in turn forwards the same to the Department of Commerce with its recommendations for consideration of the Board of Approval. On the other hand, any proposals for setting up of units in the SEZ are approved at the Zonal level by the Approval Committee consisting of Development Commissioner, Customs Authorities and representatives of State Government. Approval given for setting up new SEZs in Private/Joint/State Sector Approvals have so far been given for setting up of 117 new Special Econom Zones (including 3 Free ic Trade Warehousing Zones) spread over 15 States and 2 Union Territories in the Private/Joint Sector or by
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the State Governments and its agencies. Of the 117 SEZs approved for establishment, 7 SEZs have already become operational, 6 SEZs are now getting ready for operation and the other are at various stages of implementation. 2. Export Oriented Units (EOUs) The Export Oriented Units (EOUs) scheme, introduced in early 1981, is complementary to the SEZ scheme. It adopts the same production regime but offers a wide option in locations with reference to factors like source of raw materials, ports of export, hinterland facilities, availability of technological skills, existence of an industrial base and the need for a larger area of land for the project. The EOUs are mainly concentrated in Textiles and Yarn, Food Processing, Electronics, Chemicals, Plastics, Granites and Minerals/Ores Recent policy changes in the EOU scheme are: · · · · · 3. Duty free spares up to 5% of the value of Capital Goods imported for excavation purposes in the Granite sector will be allowed to be removed to the quarries. The de-bonding procedure for EOUs has been simplified. Capital Goods will be allowed to be transferred or given on loan basis to other units under intimation to both Excise Department and Development Commissioner. Transfer of samples to other EOUs on returnable basis within a period of 30 days to be allowed. EOUs to be permitted to claim income tax exemption in respect of income on export proceeds realised within a period of 12 months from date of export.
Electronics Hardware Technology Parks (EHTPs) For encouraging exports of electronic hardware items including hard disk drives, computers, television, etc., such parks have been developed by the Ministry of Communications & Information Technology. An Electronic Hardware Technology Park (EHTP) may be an individual unit by itself or a unit located in an area designated as EHTP Complex. As in the case of STP Sch eme, the EHTP Scheme is also administered by the Ministry of Communications & Information Technology. Obligations and Benefits The entire production of an EHTP is to be exported to hard currency areas except sales in the Domestic Tariff Areas, subject to the limits set down. Benefits granted to EHTPs y An EHTP may import free of duty capital goods, raw materials, components and ot her related inputs. However these should not be on the negative list of prohibited items in the Foreign Trade Policy. Second hand capital goods may also be imported by EHTP units. y An EHTP unit may bunch the products manufactured by it for sale in the DTA with its entitlement. y EHTPs are duty free and bonded areas and customs exemptions are extended accordingly. y An EHTP is exempted from the payment of corporate income tax up to 2010 and also central sales tax reimbursement. y An EHTP may gear up to 100 per cent foreign equity.
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y y
y y y
Supplies that are effected in DTAs under global tender conditions and payment in forex are also considered as part of relinquishment of export obligation. Supplies made by DTAs to an EHTP unit will be regarded as deemed exports and is entitled to benefits under the Foreign Trade Policy. To get this benefit, goods have to be produced in the country and the supplies have to be made against a letter of authority issued by an officer designated in this behalf of the STPI, Government of India. An EHTP unit may be setup for both software and hardware in an integrated manner. EHTP unit may purchase indigenous goods free of excise duty. EHTP unit may sell Goods/Services in DTA up to 50% of FOB value of exports, subject to fulfilment of positive NFE as per the policy & payment of applicable duties.
4.
Software Technology Parks (STPs) Software Technology Parks of India (STPI) is a government agency in India, established in 1991 under the Ministry of Communications and Information Technology, that manages the Software Technology Park scheme. It is an export oriented scheme for the development and export of computer software, including export of professional services. It provides physical infrastructure, including dedicated high speed connectivity to technology parks, freedom for 100% foreign equity investment and tax incentives. STPI provides physical hosting for the National Internet Exchange of India. STPI claims to have played a seminal role in India having earned a reputation as an information technology superpower. More than 6,000 businesses are registered under the STPI umbrella, with 36% growth by value in 2005-06 exports over the previous year. The state with the largest export contribution was Karnataka (see Bangalore). STPI has a presence in many of the major cities of India including the cities of Bangalore, Bhubaneswar, Chennai, Hyderabad, Gurgaon, Pune, Guwahati, Noida, Mumbai, Kochi, Kolkata, Kanpur, Lucknow, Dehradun, Patna, Ranchi, Gandhinagar, Imphal, Shillong, Nashik etc. STP schemes provide facilities for the IT industry, helping them undertake software development and IT enabled services for 100% exports that include professional services. For that, data communication links have been established, providing high speed connectivity. 5. Bio-Technology Parks (BTPs): The Biotechnology Parks and Biotech Incubation Centres established under this programme provided a good template for the promotion of Biotech start-up companies and the promotion of Public Private Partnerships. Biotech Park and Incubation Centres have been established at Lucknow, Uttar Pradesh and Shapoorji Pallonji Biotech Park, Genome Valley, Hyderabad (Andhra Pradesh). The other projects approved for Himachal Pradesh, Karnataka and Kerala for settin up of biotech g incubation / pilot plant facilities are at various stages of development. There are already over five parks in the country to house biotech and life sciences companies and another five are expected to come up in the next couple of years. With biotechnology industry registering over 35 percent growth in the last few years, this industry is seen as one of the key attributes that will contribute to the socio-economic growth of the state. So several states are making conscious efforts to create a conducive environment to attract entrepreneurs to set up their units and leverage on the vast talent pool and rich biodiversities in the respective states. Even the Government of India has been supporting this industry since 1986 by establishing a strong network of research institutes and developing academic institutes to fulfill the human resources requirement.
Facilities For 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
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Deemed Exports shall be eligible for the following benefits in respect of manufacture and supply of goods qualifying as Deemed Exports: 1. Special Imp rest Licence/Advance Intermediate License. 2. Deemed Exports Drawback Scheme i.e, on the Deemed Exports, Drawback at the rate fixed by the Ministry of Finance for the DGFT or his regional Officers pay the goods physically exported. 3. Refund of terminal excise duty ie., Central Excise duty, if paid any, on the goods supplied under Deemed Exports is refunded by the DGFT or his regional Officers. 4. Special Import License at the rate of 6 per cent of the FOB value (excluding all taxes and levies) 5. If the supplier has made the supplies against Advance Release Order(ARO) or Back to Back Letter of Credit, he shall be entitled for the benefits of Deemed Exports Drawback Scheme, Refund or terminal excise duty and Special Imprested License. 6. In respect of supply of capital goods to EPCG license holder, the supplier shall be entitled to the benefits stated above except, however, that the benefit of Special Imprested License or Deemed Export Drawback Scheme shall be available only in case of supplies made to Zero duty EPCG license holder. Marketing Development Assistance Export promotion continues to be a major thrust area for the Government. In view of the prevailing macro economic situation with emphasis on exports and to facilitate various measure being undertaken s to stimulate and diversify the country s export trade, Marketing Development Assistance (MDA) Scheme is under operation through the Department of Commerce to support the under mentioned activities: (i) (ii) (iii) (iv) (v) Assist exporters for export promotion activities abroad Assist Export Promotion Councils (EPCs) to undertake export promotion activities for their product(s) and commodities Assist approved organizations/trade bodies in undertaking exclusive nonrecurring innovative activities connected with export promotion efforts for their members Assist Focus export promotion programmes in specific regions abroad like FOCUS (LAC), Focus (Africa), Focus (CIS) and Focus (ASEAN + 2) programmes. Residual essential activities connected with marketing promotion efforts abroad.
Role of Commodity board: There are five statutory Commodity Boards under the Department of Commerce, Government of India. These Boards are responsible for production, development and export of tea, coffee, rubber, spices and tobacco. Coconut development Board is also an autonomous body which functions under the Ministry of Agriculture, Govt. of India. Commodity Boards help their members in product development, product innovation and technology up gradation. They assist exporters with o verseas marketing, exchange trade delegati6ns and provide information on exportimport policies. They conduct research, Formulate policies to promote production and trade, facilitate acquiring of Trade Marks and Geographical Indications; certification services providing licenses for trading etc.
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The function or role of the commodity board are as follows: To take up various problems, points, suggestions to the States / Central Government and semi Government Bodies. To take up issues with the Export Promotion Organization - EPCs, Commodity Board, FIEO, ITPO, Various Government Ministries and Departments for making easy participation in the Fairs and Exhibitions organized in India and Overseas. To make efforts for creation of transparency in the function of th EP Organization-EPCs, e Commodity Board, FIEO etc. To organize Seminars and Meetings at various places to discuss ways and means to overcome problems and difficulties of the member-exporters / exporting community. To invite Government officials , officials of EP Organizations and Dignitaries at the meetings / Seminars for facilitation and resolving problems relating to exports of the member exporters / exporting community. To publish brochures, booklets containing useful information for member exporters, fo reign buyers/buying agents etc. To distribute the brochures, booklets, directories etc. at the time of fair and other occasions for the benefits of member exporters. To set up International Trade Centres and Flatted Factory Complex (Industrial Parks). To unite exporters to take common cause / issues with the concerned Organization ,Foreign Embassies and Foreign Mission in India and Foreign Trade Offices in India and Indian embassies / High Commissions overseas etc Role Of Export Promotion Councils: The Export Promotion Councils are non-profit organisations registered under the Indian Companies Act or the Societies Registration Act, as the case may be. They are supported by financial assistance from the Government of India. The main role of the EPCs is to project India's image abroad as a reliable supplier of high quality goods and services. In particular, the EPCs encourage and monitor the observance of international standards and specifications by exporters. The EPCs keep abreast of the trends and opportunites in i international markets for goods and services and assist their members in taking advantage of such opportunities in order to expand and diversify exports. The major Role EPCs plays for tread promotion are as follows: 1. To provide commercially useful information and assistance to their members in developing and increasing their exports 2. To offer professional advice to their members in areas such as technology upgradation, quality and design improvement, standards and specifications, product developmentand innovation etc. 3. To organise visits of delegations of its members abroad to explore overseas market opportunities. 4. To organise participation in trade fairs, exhibitions and buyer-seller meets in India and abroad. 5. To promote interaction between the exporting community and the Government both at the Central and State levels 6. To build a statistical base and provide data on the exports and imports of the country, exports and imports of their members, as well as other relevant international trade data.
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