Module 4

• Export and Import Procedure – Licensing & Joint ventures - International Investment -FDI – Production linkages, Foreign – Investment in India, Cross Border – Forex reserve – Over view of Currency Exchange and Risk Management.

Export Import Procedures

Export procedures

• Export procedures involve several activities. These activities are classified into five stages.

• Preliminaries• Offer and receipt of confirmed orders• Production and clearance of the products of exports• Shipment• Negotiation of documents and realization of export

proceeds and• Obtaining various export proceeds

(i) Preliminaries

1. Importer- Exporter –code number (IEC Number)-

Individuals and business firms intending to export and /or import goods and/ or services should obtain an importer- exporter number from the regional licensing authorities, unless exempted by DGFT. This number mentioned is be shown in documents

• Membership in certain bodies- after obtaining the IEC number, the exporters and importers may obtain membership in certain bodies like export promotion council, India trade promotion organization etc. membership in these organizations help the exporter and importer regarding information and documentation

• Registration- the exporter/ importer have to register themselves with the Export Promotion Councils (EPC), Sales Tax authorities etc.

Inquiry, offer and receipt of confirmed order

• Inquiry is the request made by a prospective importer regarding his wish to import certain goods. Offer is a proposal submitted by an exporter expressing his intention to export specific goods at a specific price with specific price with specific terms and conditions. Exporter usually makes an offer in the form of a ‘proforma invoice’.

The proforma invoice includes the following items

• Name of the buyer- the complete address of the buyer/importer

• Description of the goods- a brief description of the goods indicating technical, physical and chemical features.. If necessary a detailed description is provided.

• Price- unit wise and total price of the goods in internationally accepted a currencies. It should also include the quantity of discounts and cash discounts both in unit wise and total. The price indicated in the invoice should be f.o.b, c and f, c.i.f or in other internationally accepted form

• Condition of sale- conditions of sale should be incorporated in detail. Important among them are;-– Validity- the period for which the invoice is valid.

The importer can accept the invoice any time before the validity period. buyer can stipulate the validity period in case of tenders.

– Escalation clause- the price of the products may increase before the delivery period due to increase in the cost of inputs and thus the cost of production. Therefore the exporter may include an escalation clause for escalation price.

• Delivery schedule- a realistic delivery schedule should be indicated. Based on the pricing mode, the exporter has to indicate the delivery schedule. In case of c.i.f quotations, the goods have to be delivered to the port of destination.

• Inspection- the authority who will conduct inspection of goods ( if necessary) sholud also be indicated.

• Force majeure clause- the exporter may sometimes fail to deliver the goods in case if uncontrollable situations like war, riots, natural calamities etc. Therefore the exporter indicates the force majeure clause in order to get rescue in such situation

• Payment terms- payment terms like letter of credit, bill of exchange should be indicated.

• Other obligations- other obligations of the following nature should also be indicated;-– Post sales service to be provided by the exporter– Providing spare parts– Warranty/guarantee for the

equipment/technology

• Confirmed order- the buyer sends the confirmed order to the exporter by signing the duplicate copy of the invoice. The signed invoice by the importer becomes the confirmed order.

• Export license- the exporter has to obtain license from the authorities concerned, if the items to be exported require a license

• Procuring finance-if the exporter does not have the required finance to undertake the exports, he/she should obtain finance form different sources.

Production and procurement of goods

• The exporting house after obtaining a confirmed order should produce the goods as specified in the invoice. If the exporting house does not have production facilities, it has to procure the products from others.

• Packaging and marking- after the goods are procured, the exporter should arrange for packaging and marketing as per the international standards prescribed by various bodies. The Bureau of Indian Standards has prescribed packaging standards for certain items. Similarly the British Standard Packaging Code and the Exporters Encyclopedia published in the USA provide detailed packaging instructions. Shipping companies also provide packaging instructions. International Cargo- handling coordination association has also prescribed packaging instructions.

• The exporter has to follow these instructions while packaging the goods

• Quality control and pre shipment inspection- the exporter has to arrange for quality control and pre shipment inspection in order to ensure the quality of products as indicated in the invoice.

• The Export Inspection Council or other appropriate body conducts the quality control inspection, if the goods exported are included under the Compulsory Quality Control and Pre shipment Inspection Scheme in accordance with the provisions of Export (Quality Control and Inspection Act, 1963

• Excise duty rebates- government has exempted the goods meant for exports from the imposition of excise duty. Exporters can export the excisable goods either under claim for rebate of excise duty or in bond without payment of duty. The rule is provided under the Rule 12 of the Central Excise Rules of 1944. Exporters has to submit the following forms for rebate after the excise duty

• Gate Pass, GP-I• AR-4 form

shipment

• Transporting the goods by ship is cheaper compared to that by air. In addition, physical size of the product create hurdles for transporting by air.

• Regarding shipment, the exporter has to contact the shipping companies for space, after getting the confirmed order. Sometimes getting space in ships is easy through the agents as they have information of all shipping companies throughout the world

• The shipping company may issue shipping advise or shipping order, depending upon the requirement of the exporter. In case of shipping advise, the shipping company has no obligation to accept the cargo as the shipping company has no obligation to accept the cargo as the shipping advise is only providing information of availability o f space at the time of issue of the acceptance. But in case of shipping order, the shipping company has the obligation to accept the cargo

• Customs clearance- the exporter has to get customs clearance of the goods before, they are loaded on the ship. Customs authorities accord their formal apporaval after scrutinizing complete set of shipping documents, copies of shipping bill etc.. These documents include ;

• Proforma invoice in original and duplicate• GR-I form (in duplicate)

• AR-4 form ( in original and duplicate)• Export license (if required)• Letter of credit covering the export order, export

contract or order in original• Certificate of inspection (where necessary)• Form of declaration (in duplicate)• Shipping bill ( five copies)• Quality control inspection certificate (if required)• Packaging list• Letter of registration certificate ( if applicable)

• GR-I Form –this form is an exchange control document required by the RBI. The exporter has to realize the proceeds of the goods exported with in 180 days from the date of the shipment from India. This document is not necessary in case of Nepal and Bhutan.

• Shipping bill- this is an exchange document needed by the customs officials for granting permission for shipment. The bill contain the following information;

– Name of the exporter/shipper including the address and the IEC number

– Description and quantity of goods to be shipped– Value of the goods– Number of pakages and markings on them– Amount of drawback claimed.– Port of destination– Name of the ship and its agent

• Five copies of the shipping bill are to be provided to the customs officials

• Export license – export license is necessary for certain categories of goods. Export license can be obtained from the joint director general of foreign trade(JDGFT)

• Carting order-once the goods are ready for export and the shipping order is available , the exporter has to approach the Superintendent of the concerned Port Trust for the latter's permission to move the goods physically inside the port area. The superintendent of the Port Trust issues the order for moving the goods into the port area after verifying the sipping bill and the shipping order. This order is given by the superintendent is called the ‘carting order’ after getting the carting order. After getting the carting order, the exporter physically moves the goods into the port area.

• Customs examination of cargo at docks- the customs authorities after checking the documents, check the products to be exported at the docks. The exporter can arrange for the physical check of the products in his factory or warehouse. Applications for this facility can be made to the Assistant Collector of customs. The customs Appraiser after checking the consignment, will seal the packages, after his satisfaction. Such packages are normally not checked again at the port, unless the bonafides of the exporter are doubtful

• The customs authorities accord formal approval for export, once they are satisfied with the products and documents. After obtaining the approval from the customs authorities, the exporter can make the arrangements for loading the cargo on a ship

• Let ship- after getting the approval from the customs officials, the exporter arranges for loading the products on the ship. Before loading take place, the exporters forwarding agent has to get the permission from the Preventive officer of the customs department. This permission is called the ‘let ship order’. Let ship order authorizes the shipping company to accept the cargo on board the vessel . The goods are to be loaded on the sip in the presence of the customs officials after obtaining the shipment order.

• Mate’s receipt- after the goods are loaded on the ship, the captain of the ship furnishes a document to the Port superintendent. This document is called the “mates receipt’ which certifies the loading of the cargo. This document provides the details of products, conditions of the products at the time of loading etc.

Port Trust Dues- the port trust authorities after receiving the ‘mates receipt’ from the captain of the ship, issues the ‘ bill of lading’ to the exporter.

Bill of lading- the exporter’s forwarding agent collects the ‘males receipts’ and submits the same to the authorities and in turn collects the billof lading from the port authorities.

• The exporters forwarding agent provides the following documents to the exporter at the final stage. They are– A copy of the invoice duly attested by the customs– Drawback copy of the shipping bill– Export promotion copy of the shipping bill– Full set of ‘clean on board’ bill of ladding together with the

non negotiable copies– The original letter of credit– Customers order or contract– Duplicate copy of the AR-4 form

Shipping by other modes of transport

• All the goods are not transported through ship. Other modes of transport like air, and land are also used for exporting the goods.– Shipping by air- mostly perishable goods, goods of less

weight and goods which are needed by the importer urgently are transported by air

– Shipping by post- certain goods of less weight are exported by post- the emergence of E- commerce increased the export trade by post. Postal Notice No.13 dtd 3rd December 1973 regulates the export trade by post

• Shipping by land- export of the excisable goods to the near by countries is similar to the one laid down for export by sea. The AR-4 is different for export by land. The Excisable goods are presented to the Frontier Customs Officer / Border Examination along with form 4A.

• After the goods are exported, the exported is interested in getting payment for the exports made.

DOCUMENTS

• The exporter submits the relevant documents to his banker for getting the payment for the goods exported. Submission of relevant documents to the bank and the process of getting the payment from the bank is called ‘negotiating the documents”, through the bank. The documents are called ‘negotiable set of documents’. This set normally includes

• Bill of lading• Commercial invoice together with the packing slip and bill

of exchange• Certificate of origin• GR-I form (in duplicate)• Marine Insurance policy ( in duplicate)• Letter of credit (in original)

– The letter of credit is opened by the importer through his bank authorities drawing a bill of exchange. Payment will be made against this bill of exchange by the importer bank. The exporter bank realizes the export proceeds and pays to the exporter.

• Aligned documentation system- Government of India appointed a committee to recommend on the documentation regarding export trade. Government of India accepted the documentation regarding the export trade. Government of India accepted the recommendations of the committee and introduced standardized documents with effects from 1st October 1981, which is known as ‘ the aligned documentation system’. The system is based on the UN layout key. Standardised documents for Indian exporters based on the Aligened Documentation System include;

– Invoice– Exchange control declaration (GR) form– Shipping bill (dock challan/ duty draw back and

port trust copy)– Bill of lading

EXPORT INCENTIVES

• Export incentives include– Duty drawback and– Excise duty refund

– Duty drawback- exporter is eligible to get the excise duty and central excise paid on all raw materials, components and consumables used in the production of goods exported, under this scheme.

• Excise duty refund- exporter is eligible for refund of the excise duty. He/she can recover it after export, if he paid at the beginning. He/she also can execute a bind with the excise authorities without making the payment.

Import procedure

• Importing refers to the purchase of foreign products for the consumption or sale in the home country. Import process consists of five stages;-– Determining the market demand and purchase

motivation– Locating and negotiating with the sources of supply– Securing physical distribution– Preparing documentation and customs proceeding to

facilitate movement among countries and organizations.– Developing a plan for resale or consumption.

• Different kinds of institutions import goods and services from the foreign countries. Different kinds of importers include;– Private industrialists– Government agencies– Facilitating agencies – End users

Stages in import procedures

• Preliminaries• Enquiring and placing indent• Obtaining the foreign exchange• Arranging for payment• Payment of customs duties and taking the

delivery of goods

Preliminaries

• The importing firm or an individual has to obtain a license and importer exporter code number from the controller of exports and imports. The firm can become an established importer by importing the goods it intends to import during the prescribed period. The import license are usually issued for a period of one year at a time

Enquiring and placing the indent

• After obtaining the import license, the importer has to enquire with various exporters of exporting countries regarding the goods, he would like to import. Importer at this stage ask the exporter to send the invoice. The importer may accept the invoice and send the indent directly to the exporter. Other wise they may send the indent through specialized intermediaries called indent houses.

• Indent may be closed or open. Open indent does not specify the price and the other details of the goods and leaves them to the discretion of the exporter. On the other hand, the closed indent specifies the brand, price, number, packaging, shipping mode, insurance etc. the indents incorporating the exact price is called ‘confirmatory indent’ indent houses help the importers in negotiating for price, discounts etc. as they maintain close links with the foreign firms. As such, some importers use the services of indent houses. Thus, the importers order for the goods either directly or through indent houses

Obtaining foreign exchange

• The importer, after sending the indent has to procure the required foreign exchange from the Exchange Control Department of the RBI. He/she has to produce the import license and the prescribed forms for securing foreign exchange which is needed to pay for the import of goods.

• Reserve bank releases the foreign exchange based on the strength of the application, availability of foreign exchange policy of the government

Arrangement for payment

• The importer has to make arrangements for paying for imports after obtaining the foreign exchange.

Documents-

• Letter of credit- letter of credit is the centre for international commercial transactions. Importers instead of paying for imports before taking delivery of goods, request their bankers to issue a letter of credit that indicates that the banker will pay to the exporter as long as the goods are shipped in accordance with specified instructions and conditions. Thus importers bank issue letter of credit to the importers. Letter of credit indicates that the bank will pay the value to the imports to the exporter. Banks issue letter of credit against a deposit or collateral security. Bank charge commission for the issue of letter of credit.

• Importers bank after issuing a letter of credit, it send it to the exporters banks. The exporters bank tells the exporter that it has received a letter of credit and he or she can ship the goods. The exporter ships the goods. The exporter submits a draft equal to the value of exports along with necessary documents to his/her bank. The exporters bank forwards the same to the importers bank along with the documents submitted by the exporter and the letter of credit. Then the importers bank will honor the draft and pay the money to the exporters bank, if all the conditions are fulfilled. Exporters bank after receiving the money, pay the same to the exporter.

Documentary credit

• Alternatively, he may request the exporter to forward the documentary bill through his banker, which would be delivered to him either against acceptance of the bill of exchange or against the payment. Thus, the document may be received by the importer either through D/A(documents against payment) or D/P (documents against payment). The importers bank after receiving the documents from the exporters bank, hands over the documents to the importer if it is D/A bill. The banker delivers the documents to the importer when the latterpays the amount of the bill on maturity.

Bill of exchange

• Bill of exchange/ draft- billof exchange or draft is an order written by an exporter instructing an importer or his/ her agent to pay a specified amount of money at a specified time.

Bill of lading

• Bill of lading is the third important instrument financing international trade. The shipping company or other common carrier company has received the goods as described in it. Bill of lading is a receipt, contract and a document.

• As indicated in the letter of credit, the importers bank receives all the documents from the exporters bank. Then the importers bank provides the documents to the importer. After obtaining the documents from the bank, the importer awaits the information of ship carrying the goods.

• The importer obtains the ‘endorsement for delivery on the back of bill of lading from the shipment company by paying for freight, if the exporter does not pay it. Then the importer presents the ‘Port Trust Due Receipts’(two copies) and the bill of entry to the port trust ti obtain clearance regarding dock dues.

• Bill of entry certifies the fact that goods of specified quantity, value and description are entering the country.

Payment of customs duty

• The importer has to pay for the customs duties. If necessary. The customs duty may be based on the weight, and size of the goods or based on the value of the goods. The customs duty may also be paid under the’ Permanent Deposit system’. Under this system the importer maintains a running account with customs office and deposits money from time which is adjusted to the duty payable.