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A BRIEF ON

TOPICS

y UCP600y TYPES OF LETTER OF CREDITy BILL OF EXCHANGEy EXIM BANKy LINE OF CREDITy FEMA REGULATIONSy DEPBy DUTY DRAWBACK

SUBMITTED BY:

SHWETHA GEORGY

ASAN MEMORIAL INSTITUTE OF MANAGEMENT

MADRAS UNIVERSITY

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UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY

CREDITS

The Uniform Customs and Practice for Documentary Credits (UCP) is a set of rules on

the issuance and use of letters of credit. The UCP is utilised by bankers and commercial

parties in more than 175 countries in trade finance. Some 11-15% of international trade

utilises letters of credit, totaling over a trillion dollars (US) each year.

Historically, the commercial parties, particularly banks, have developed the techniques and

methods for handling letters of credit in international trade finance. This practice has been

standardized by the ICC (International Chamber of Commerce) by publishing the UCP in

1933 and subsequently updating it throughout the years. The ICC has developed and moulded

the UCP by regular revisions, the current version being the UCP600.

The result is the most successful international attempt at unifying rules ever, as the UCP has

substantially universal effect. 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 UCP600,

formally commenced on 1 July 2007.

ICC and the UCP

A significant function of the ICC is the preparation and promotion of its uniform rules of

practice. The ICCs aim is to provide a codification of international practice occasionally

selecting the best practice after ample debate and consideration. The ICC rules of practice are

designed by bankers and merchants and not by legislatures with political and local

considerations. The rules accordingly demonstrate the needs, customs and practices of

business. Because the rules are incorporated voluntarily into contracts, the rules are flexible

while providing a stable base for international review, including judicial scrutiny.

International revision is thus facilitated permitting the incorporation of the changing practices

of the commercial parties.

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ICC, which was established in 1919, had as its primary objective facilitating the flow of

international trade at a time when nationalism and protectionism threatened the easing of

world trade. It was in that spirit that the UCP were first introduced to alleviate the

confusion caused by individual countries promoting their own national rules on letter of

credit practice. The aim was to create a set of contractual rules that would establish

uniformity in practice, so that there would be less need to cope with often conflicting national

regulations. The universal acceptance of the UCP by practitioners in countries with widely

divergent economic and judicial systems is a testament to the rules success.

UCP600

The latest revision of UCP is the sixth revision of the rules since they were first promulgated

in 1933. It is the fruit of more than three years of work by the ICC's Commission on Banking

Technique and Practice.

The UCP remain the most successful set of private rules for trade ever developed. A range of

individuals and groups contributed to the current revision including: the UCP Drafting

Group, which waded through more than 5000 individual comments before arriving at this

final text; the UCP Consulting Group, consisting of members from more than 25 countries,

which served as the advisory body; the more than 400 members of the ICC Commission on

Banking Technique and Practice who made pertinent suggestions for changes in the text; and

130 ICC National Committees worldwide which took an active role in consolidating

comments from their members.

During the revision process, notice was taken of the considerable work that had been

completed in creating the International Standard Banking Practice for the Examination of

Documents under Documentary Credits (ISBP), ICC Publication 645. This publication has

evolved into a necessary companion to the UCP for determining compliance of documentswith the terms of letters of credit. It is the expectation of the Drafting Group and the Banking

Commission that the application of the principles contained in the ISBP, including

subsequent revisions thereof, will continue during the time UCP 600 is in force. At the time

UCP 600 is implemented, there will be an updated version of the ISBP to bring its contents in

line with the substance and style of the new rules.

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Note that UCP600 does not automatically apply to a credit if the credit is silent as to which

set of rules it is subject to. A credit issued by SWIFT MT700 is no longer subject by default

to the current UCP it has to be indicated in field 40E, which is designated for specifying the

"applicable rules".

Where a credit is issued subject to UCP600, the credit will be interpreted in accordance with

the entire set of 39 articles contained in UCP600. However, exception to the rules can be

made by express modification or exclusion. For example, the parties to a credit may agree

that the rest of the credit shall remain valid despite the beneficiary's failure to deliver an

instalment. In such case, the credit has to nullify the effect of article 32 of UCP600, such as

by wording the credit as: "The credit will continue to be available for the remaining

instalments notwithstanding the beneficiary's failure to present complied documents of an

instalment in accordance with the instalment schedule."

eUCP

The eUCP was developed as a supplement to UCP due to the strong sense at the time that

banks and corporates together with the transport and insurance industries were ready to utilise

electronic commerce. The hope and expectation that surrounded the development of eUCP

has failed to materialise into day to day transactions and its usage has been, to put it mildly,

minimal. Owing to this lack of usage, it was felt that this was not the right time to incorporate

the eUCP into the UCP600 and it will remain as a supplement albeit slightly amended to

identify its relationship with UCP600.

An updated version of the eUCP came into effect on 1 July 2007 to coincide the

commencement of the UCP600. There are no substantive changes to the eUCP, merely

references to the UCP600.

Precautions for Exporters & Importers :

The documentary letter of credit (credit) is an important and well-established instrument for

securing payments in international trade. However, to ensure smooth processing it is vital for

exporters /beneficiaries to fulfill the terms and conditions of the credit exactly and to present

complying documents to the bank. Even minor discrepancies or errors can result in the

honouring of the documents being delayed or prevented altogether. It is always important to

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check the credit very carefully as soon as customers receive it to ensure that it conforms to

the underlying contract and that the terms and conditions can be met. If necessary it is

possible to have the credit amended accordingly.Banks have to educate their customers in this

regard.

The following checklist would help customers to adhere to the terms and conditions of the

credit and to prepare complying documents.

General documentary credit conditions

y If the credit stipulates a latest date of dispatch: were the goods shipped in time?y Can the deadline for presenting the documents to the bank be met?(Under UCP 600

Art. 14 c this is 21 days after the date of shipment, unless the credit states otherwise

and an original transport document is required)

y Are all documents presented in the prescribed number (originals and copies)?y Does the invoice amount match the credit amount, i.e. is it not higher or lower or

within the permitted tolerances? (UCP 600 Art. 30)

y Is the supplied quantity consistent with the credit? (UCP 600 Art. 30)y Are the terms of delivery (e.g. INCOTERMS 2000) consistent with the credit?y Does the credit prohibit partial shipments?y Does the credit prohibit transshipment?y Are the markings, weights, quantity, type and dimensions of the packages consistent

throughout the documents?

y Are the descriptions of goods, services and performance consistent throughout thedocuments?.

y If documents are required to be presented in a particular language: Is this documentobtainable in the required language?

The UCP 600 revision is to be welcomed and will be easier to use for banks and

traders. The Interpretations and Definitions are helpful and there is greater

simplicity and clarity in the drafting. Time will tell whether documentary rejections

are reduced. Traders are advised to make their sale contracts clear and specific in

relation to the letter of credit requirements to minimise the chance of rejections.

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TYPES OF LETTERS OF CREDIT

It is named a Letter because initially the LCs were issued manually in a Letter format address

by Issuing Bank to Beneficiary confirming its conditional undertaking to reimburse the

Beneficiary, the amount of the LC provided above 2 basic conditions are fulfilled.

A letter of credit is a document issued mostly by a financial institution which usually

provides an irrevocable payment undertaking (it can also be revocable, confirmed,

unconfirmed, transferable or others e.g. back to back: revolving but is most commonly

irrevocable/confirmed) to a beneficiary against complying documents as stated in the credit.

Letter of Credit is abbreviated as an LC or L/C, and often is referred to as a documentary

credit, abbreviated as DC or D/C, documentary letter of credit, or simply as credit (as in the

UCP 500 and UCP 600). Once the beneficiary or a presenting bank acting on its behalf,

makes a presentation to the issuing bank or confirming bank, if any, within the expiry date of

the LC, comprising documents complying with the terms and conditions of the LC, the

applicable UCP and international standard banking practice, the issuing bank or confirming

bank, if any, is obliged to honour irrespective of any instructions from the applicant to the

contrary. In other words, the obligation to honour (usually payment) is shifted from the

applicant to the issuing bank or confirming bank, if any. Non-banks can also issue letters of

credit however parties must balance potential risks.

Parties involved in LC transaction:

1. The Applicant is the party that arranges for the letter of credit to be issued.2. The Beneficiary is the party named in the letter of credit in whose favor the letter of

credit is issued.

3. The Issuing or Opening Bankis the applicants bank that issues or opens the letterof credit in favor of the beneficiary and substitutes its creditworthiness for that of theapplicant.

4. An Advising Bankmay be named in the letter of credit to advise the beneficiary thatthe letter of credit was issued. The role of the Advising Bank is limited to establish

apparent authenticity of the credit, which it advises.

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5. The Paying Bankis the bank nominated in the letter of credit that makes payment tothe beneficiary, after determining that documents conform, and upon receipt of funds

from the issuing bank or another intermediary bank nominated by the issuing bank.

6. The Confirming Bank is the bank, which, under instruction from the issuing bank,substitutes its creditworthiness for that of the issuing bank. It ultimately assumes the

issuing banks commitment to pay.

Commercial Letter of Credit Flow

Applicant approaches Issuing/ Opening Bank with LC application form duly filled and

requests Issuing Bank to issue a Letter of Credit in favour of Beneficiary.

1. Issuing Bank issues a Letter of Credit as per the application submitted by anApplicant and sends it to the Advising Bank, which is located in Beneficiarys

country, to formally advise the LC to the beneficiary.

2. Advising Bank advises the LC to the Beneficiary.3. Once Beneficiary receives the LC and if it suits his/ her requirements, he/ she

prepares the goods and hands over them to the carrier for dispatching to the

Applicant.

4. He/ She then hands over the documents along with the Transport Document as per LCto the Negotiating Bank to be forwarded to the Issuing Bank.

5. Issuing Bank reimburses the Negotiating Bank with the amount of the LC postNegotiating Banks confirmation that they have negotiated the documents in strict

conformity of the LC terms. Negotiating Bank makes the payment to the Beneficiary.

6. Simultaneously, the Negotiating Bank forwards the documents to the Issuing Bank tobe released to the Applicant to claim the goods from the carrier.

7. Applicant reimburses the Issuing Bank for the amount, which it had paid to theNegotiating Bank.

8. Issuing Bank releases all documents along with the titled Transport Documents to theApplicant.

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Letter of Credit Process:

Settlements Under a Letter of Credit

All commercial letters of credit must clearly indicate whether they are payable by sight

payment, by deferred payment, by acceptance, or by negotiation. These are noted as formal

demands under the terms of the commercial letter of credit.

y In a sight payment, the commercial letter of credit is payable when the beneficiarypresents the complying documents and if the presentation takes place on or before the

expiration of the commercial letter of credit.

y In a deferred payment, the commercial letter of credit is payable on a specifiedfuture date. The beneficiary may present the complying documents at an earlier date,

but the commercial letter of credit is payable only on the specified future date.

y An acceptance is a time draft drawn on, and accepted by, a banking institution, whichpromises to honor the draft at a specified future date. The act of acceptance is without

recourse as it is a commitment to pay the face amount of the accepted draft.

y Under negotiation, the negotiating bank, a third party negotiator, expedites paymentto the beneficiary upon the beneficiarys presentation of the complying documents to

the negotiating bank. The bank pays the beneficiary, normally at a discount of the face

amount of the value of the documents, and then presents the complying documents,

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including a sight or time draft, to the issuing bank to receive full payment at sight or

at a specified future date.

Types of letter of credit

Unconfirmed Letter of Credit

An unconfirmed irrevocable letter of credit provides a commitment by the issuing bank to

pay, accept, or negotiate a letter of credit. An advising bank forwards the letter of credit to the

beneficiary without responsibility or undertaking on its part except that it must use reasonable

care to check the authenticity of the credit which it advised. It does not provide a

commitment from the advising bank to pay, so the beneficiary is reliant upon the undertakingof the overseas bank. The beneficiary is not protected from the credit risk of the issuing bank

nor the country risk.

Confirmed Letter of Credit

A confirmed irrevocable letter of credit is one to which the advising bank adds its

confirmation, makes its own independent undertaking to effect payment, negotiation or

acceptance, providing documents are presented which comply with the terms of the letter of

credit. The advising bank, which may also be the confirming bank, assumes the country

(political and economic) risk of the applicants country as well as the credit risk, failure and

default of the issuing bank and effects payment to the beneficiary without recourse.

In order for a letter of credit to be confirmed, a bank accepting this risk would have a

correspondent relationship with the issuing bank. If the advising bank does not have such a

relationship, the letter of credit can be confirmed by an independent bank. The negative

aspect here is the cost of adding another bank to the scenario.

A seller should consider requesting a confirmed credit when

y the credit standing of the issuing bank is unknown to the seller or viewed by the selleras questionable.

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y exchange controls in the buyers country may prevent local banks from honoringcertain external payments.

y the importing country is suffering economic difficulties: large external debt and/orhigh debt service ratios, a persistent negative balance of payments, or a record of

being late or having defaulted on its international payments.

Transferable Credit

Under a transferable letter of credit a beneficiary (the first beneficiary) can ask the

issuing/advising/confirming bank to transfer the letter of credit in whole or in part to another

party/ies such as supplier/s (second beneficiary/ies). A transferable letter of credit is usually

used when the beneficiary is not the manufacturer/original supplier of some/all of the

goods/services. This process enables the beneficiary to pay the manufacturer/original supplier

by letter of credit. If the bank agrees, this bank, referred to as the transferring bank, advises

the letter of credit to the second beneficiary/ies in the terms and conditions of the original

letter of credit with certain constraints defined in Article 48 of UCP 500.

In general, unless the letter of credit states that it is transferable, it is considered non-

transferable.

Assignment of Proceeds Letter of Credit

The right to the proceeds of a letter of credit can sometimes be assigned where the

beneficiary of a letter of credit is not the actual supplier of all or part of the letter of credit and

wants the bank to pay the supplier out of funds received from the letter of credit. The

beneficiary may choose this option if he or she

y does not want to request a transferable letter of credit from a buyer in order to keepthe buyer from knowing who is the actual supplier of the goods.

y does not have the necessary credit with the bank to issue a new letter of credit to asupplier.

An assignment of proceeds takes the form of an irrevocable instruction from the beneficiary

to the bank requesting that it pay the supplier out of the proceeds of the letter of credit which

becomes due when documents are presented in compliance with the terms of the letter of

credit.

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Revolving Letter of Credit

Although infrequently used today, revolving letters of credit were a tool created to allow

companies conducting regular business to issue a letter of credit that could roll-over

without the company having to reapply, thus enabling business flow to continue withoutinterruption as long as the terms and conditions, quantities, and other transaction details did

not change. In addition, if a letter of credit were a revolving one, there were few ways to stop

it from rolling over; so, should a conflict arise between the parties while the letter of credit

was in place or should the products change, there was little recourse for either party. In the

business world today, the fact is that, unless required by law or because of high risk, on-going

business is usually conducted without of letters of credit

Standby Letter of Credit

As is the case with the revolving letter of credit, standby letters of credit are infrequently used

today. A standby letter of credit is one which is issued as a back-up or form of insurance for

the seller should the buyer default on the agreed-upon payment terms. A standby letter of

credit is issued in the same way a documentary credit is in that the collateral needed for

issuance is required by the issuing bank and the beneficiary must comply with every detail as

outlined in the letter of credit. The problem with this instrument is that the applicant has no

guarantee, other than the sellers word, that the standby will not be drawn against even if

payment is made as agreed. This situation is challenging, especially if the letter of credit is

confirmed and the advising bank sees only documents pertaining to the shipment as outlined

in the letter of credit and has no knowledge of other payments being made

Irrevocable Letter of Credit

An irrevocable letter of credit can neither be amended nor cancelled without the agreement of

all parties to the credit. Under UCP500 all letters of credit are deemed to be irrevocable

unless otherwise stated. Here, the importer's bank gives a binding undertaking to the supplierprovided all the terms and conditions of the credit are fulfilled.

Back-to-Back Letter of Credit

A back-to-back letter of credit can be used as an alternative to the transferable letter of credit.

Rather than transferring the original letter of credit to the supplier, once the letter of credit is

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received by the exporter from the opening bank, that letter of credit is used as security to

establish a second letter of credit drawn on the exporter in favour of his importer. Many

banks are reluctant to issue back-to-back letters of credit due to the level of risk to which they

are exposed, whereas a transferable credit will not expose them to higher risk than under the

original credit

Irrevocable Letter of Credit

Irrevocable Letter of Credit cannot be cancelled. This seller is assured of payment for his

supply of goods/services provided all terms and conditions of L/C are conformed to. This

mode of payment is generally used in international trade transactions.

As the payment against this Irrevocable Letter of Credit is guaranteed by the issuing bank and

the holder of this Irrevocable Letter of Credit (seller) can borrow short term finance from anyother bank or lending institution at a very low rate of interest and within a very short time.

Red clause letter of credit (L/C)

L/C that carries a provision (traditionally written or typed in red ink) which allows a seller to

draw up to a fixed sum from the advising or paying-bank, in advance of the shipment or

before presenting the prescribed documents. It is normally used only where the buyer and

seller have close working relationship because, in effect, the buyer is extending an unsecured

loan to the seller (and bears the financial risk and the currency risk). Rare nowadays, the red

clause L/Cs were once popular in fur trade with China and wool trade with Australia.

Green clause letter of credit

Also known as anticipatory credits. A letter of creditwhich contains a clause authorising

the nominated bank to make advances to the seller against security (such as a payment

guarantee from a third party or the pre-shipment storage of the goods in the name of thenominated bank or the issuing bank) before shipment /presentation of documents. If the seller

fails to present the documents, the issuing banks or buyers reimbursement obligations can

be recovered through enforcement of the security.

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Advantages of Letter of Credit:

1. The beneficiary is assured of payment as long as it complies with the terms andconditions of the letter of credit. The letter of credit identifies which documents must

be presented and the data content of those documents. The credit risk is transferred

from the applicant to the issuing bank.

2. The beneficiary can enjoy the advantage of mitigating the issuing banks country riskby requiring that a bank in its own country confirm the letter of credit. That bank then

takes on the country and commercial risk of the issuing bank and protects the

beneficiary.

3. The beneficiary minimizes collection time as the letter of credit accelerates paymentof the receivables.

4. The beneficiarys foreign exchange risk is eliminated with a letter of credit issued inthe currency of the beneficiarys country.

Risks involved in Letter of Credit.

1. Since all the parties involved in Letter of Credit deal with the documents and not withthe goods, the risk of Beneficiary not shipping goods as mentioned in the LC is still

persists.

2. The Letter of Credit as a payment method is costlier than other methods of paymentsuch as Open Account or Collection

3. The Beneficiarys documents must comply with the terms and conditions of the Letterof Credit for Issuing Bank to make the payment.

4. The Beneficiary is exposed to the Commercial risk on Issuing Bank, Political risk onthe Issuing Banks country and Foreign Exchange Risk in case of Usance Letter of

Credits.

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BILL OF EXCHANGE

A negotiable instrument is a document guaranteeing the payment of a specific amount of

money, either on demand, or at a set time. According to the Negotiable Instruments Act, 1881

there are just three types of negotiable instruments i.e., promissory note, bill of exchange and

cheque.

More specifically, it is a document contemplated by a contract, which (1) warrants the

payment of money, the promise of or order for conveyance of which is unconditional; (2)

specifies or describes the payee, who is designated on and memorialized by the instrument;

and (3) is capable of change through transfer by valid negotiation of the instrument.

As payment of money is promised subsequently, the instrument itself can be used by theholder in due course as a store of value; although, instruments can be transferred for amounts

in contractual exchange that are less than the instruments face value (known as

discounting). Under United States law, Article 3 of the Uniform Commercial Code as

enacted in the applicable State law governs the use of negotiable instruments, except

banknotes (Federal Reserve Notes, aka "paper dollars").

Classes

Promissory notes and bills of exchange are two primary types of negotiable instruments.

Promissory note

A negotiable promissory note is unconditional promise in writing made by one person to

another, signed by the maker, engaging to pay on demand to the payee, or at fixed or

determinable future time, sum certain in money, to order or to bearer. (see Sec.194) Bank

note is frequently referred to as a promissory note, a promissory note made by a bank and

payable to bearer on demand.

Bill of exchange

A bill of exchange or "draft" is a written order by the drawer to the drawee to pay money to

the payee. A common type of bill of exchange is the cheque (checkin American English),

defined as a bill of exchange drawn on a banker and payable on demand. Bills of exchange

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are used primarily in international trade, and are written orders by one person to his bank to

pay the bearer a specific sum on a specific date. Prior to the advent of paper currency, bills of

exchange were a common means of exchange. They are not used as often today.

B

ill of exchange, 1933

A bill of exchange is an unconditional order in writing addressed by one person to another,

signed by the person giving it, requiring the person to whom it is addressed to pay on demand

or at fixed or determinable future time a sum certain in money to order or to bearer. (Sec.126)

It is essentially an order made by one person to another to pay money to a third person.

A bill of exchange requires in its inception three partiesthe drawer, the drawee, and the

payee.

The person who draws the bill is called the drawer. He gives the order to pay money to third

party. The party upon whom the bill is drawn is called the drawee. He is the person to whom

the bill is addressed and who is ordered to pay. He becomes an acceptor when he indicates his

willingness to pay the bill. (Sec.62) The party in whose favor the bill is drawn or is payable is

called the payee.

The parties need not all be distinct persons. Thus, the drawer may draw on himself payable to

his own order. (see Sec. 8)

A bill of exchange may be endorsed by the payee in favour of a third party, who may in turn

endorse it to a fourth, and so on indefinitely. The "holder in due course" may claim the

amount of the bill against the drawee and all previous endorsers, regardless of any

counterclaims that may have disabled the previous payee or endorser from doing so. This is

what is meant by saying that a bill is negotiable.

In some cases a bill is marked "not negotiable" see crossing of cheques. In that case it canstill be transferred to a third party, but the third party can have no better right than the

transferor.

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EXPORT-IMPORT BANK OF INDIA

EXIM Bank

y set up by an act of parliament in september 1981y wholly owned by government of indiay commenced operations in march 1982y apex financial institution

The I nstitution

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 countrys 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.

The Initiatives

y Exim Bank of India has been the prime mover in encouraging project exportsfrom India. The Bank provides Indian project exporters with a comprehensive

range of services to enhance the prospect of their securing export contracts,particularly those funded by Multilateral Funding Agencies like the World

Bank, Asian Development Bank, African Development Bank and European

Bank for Reconstruction and Development.

y The Bank extends lines of credit to overseas financial institut ions, foreigngovernments and their agencies, enabling them to finance imports of goods

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evaluate international risks, exploit export opportunities and improve

competitiveness, thereby helping them in their globalisation efforts.

Objectives

for providing financial assistance to exporters and importers, and for functioningas the principal financial institution for coordinating the working of institutions

engaged in financing export and import o f goods and services with a view to

promoting the countrys international trade

shall act on business principles with due regard to public interest

Project & Services Exports

y Exim Bank plays a pivotal role in promoting and financing project exports.y Exports of projects and services, broadly categorised into:y Civil engineering construction projectsy Turnkey projectsy Consultancy servicesy Capital goods and transport vehiclesy Over the past two decades, increasing number of contracts have been secured by

Indian companies in West Asia, North Africa, Sub Saharan Africa,South & South

East Asia, CIS and Latin America.

y Such projects have supplemented the efforts of the host country governments inachieving their developmental objectives.Pioneering Role in Promoting Project

Lines of credit

y Enables export of equipment and technology on deferred credit terms.y Buyers Credit: Direct Exposure on overseas borrowers.y Exporters get payment on shipment.y Extended to overseas Governments, Government agencies overseas, National or

regional development banks abroad, Commercial banks abroad.

y Government of Indias Lines of Credit also extended through EximBank.

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Promoting investment(Supporting Two-way InvestmentEXIM BANK)

y Comprehensive assistance:Pre investment advisory services

Finance through debt and equity

y Finance available for: Greenfield projects; Brownfield expansion; Overseas acquisitions directly or through special purpose vehicles

y Exim Bank also undertakes direct equity participation in Indian ventures abroad toenhance credibility and acceptability of Indian ventures overseas

Direct minority equity participation upto US$10 mn in overseasWOS/JV in FC

y Exim Bank also facilitates joint investments by Indian and overseas company in thirdcountry markets in addition to facilitating investments into India.

Promotional Activities(Exim Bank as Consultant)

y Setting up an Exim Bank in Malaysiay Establishing an Export Credit Guarantee Company in Zimbabwey Blueprint for establishing Exim Bank in Zimbabwey Feasibility study for setting up theAfreximBanky Designing of Export Financing Programmes Turkey, South Africay Export Development Project : Ukraine, Vietnam, Armeniay Mauritius Study on Projecting Mauritius as an Investment Hub for Indian Firmsy Feasibility study for establishment of an export credit and guarantee facility for Gulf

Cooperation Council countries

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LINE OF CREDIT

Exim Bank extends Lines of Credit (LOCs) to overseas financial institutions, regional

development banks, sovereign governments and other entities overseas, to enable buyers in

those countries, to import goods and services from India on deferred credit terms. The Indian

exporters can obtain payment of eligible value from Exim Bank, without recourse to them,

against negotiation of shipping documents. LOC is a financing mechanism that provides a

safe mode of non-recourse financing option to Indian exporters, especially to SMEs, and

serves as an effective market entry tool.

Procedural flow chart

1. Exim Bank signs agreement with Borrower and announces when effective.2. Exporter checks procedures and Service fee with Exim Bank and negotiates contract

with Importer.

3.

Importer consults borrower and signs contract with exporter.

4. Borrower approves contract.5. Exim Bank approves contract and advises borrower and also exporter and commercial

bank.

6. Exporter ships goods.7. Commercial bank negotiates shipping documents and pays exporter.8. Exim Bankreimburses Commercial bank on receipt of claim by debit to borrower.

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9. Borrower repays Exim Bank on due date.

FEMA REGULATIONS

FEMA History

FEMA has more than 3,700 full time employees. They work at FEMA headquarters in

Washington D.C., at regional and area offices across the country, the Mount Weather

Emergency Operations Center, and the National Emergency Training Center in Emmitsburg,

Maryland. FEMA also has nearly 4,000 standby disaster assistance employees who are

available for deployment after disasters. Often FEMA works in partnership with other

organizations that are part of the nation's emergency management system. These partners

include state and local emergency management agencies, 27 federal agencies and the

American Red Cross.

FEMA Mission

FEMAs mission is to support our citizens and first responders to ensure that as a nation we

work together to build, sustain, and improve our capability to prepare for, protect against,

respond to, recover from, and mitigate all hazards.

Laws, Regulation and Guidence

Laws

y State, Indian Tribal, and local governments are required to develop a hazardmitigation plan as a condition for receiving certain types of non-emergency disasterassistance, including funding for mitigation projects. The Robert T. Stafford Disaster

Relief and Emergency Assistance Act (Public Law 93-288), as amended by the

Disaster Mitigation Act of 2000, provides the legal basis for State, local, and Indian

Tribal governments to undertake a risk-based approach to reducing risks from natural

hazards through mitigation planning.

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Regulations

y

The requirements and procedures for State, Tribal and Local Mitigation Plans are

found in the Code of Federal Regulations (CFR) at Title 44, Chapter 1, Part 201 (44

CFR Part 201).

y The rule changes below show the historical record of the mitigation planningregulations and have been incorporated in, or superseded by, the current regulations

o February 26, 2002, Interim Final Rule - State and local planning requirements,funding authorization and increases

o October 1, 2002, Interim Final Rule - Deadline extensiono October 28, 2003, Interim Final Rule - Local plan requirement clarificationo September 13, 2004, Interim Final Rule - State and Tribal extension optiono October 31, 2007, Interim Final Rule - Local plan requirements for flood

hazards and new Tribal Mitigation Plan type

Guidance

FEMA's Multi-Hazard Mitigation Planning Guidance is the official guidance for State, local,

and Indian Tribal governments to meet the requirements of the Mitigation Planning

regulations under the Stafford Act and 44 CFR Part 201.

y State Multi-Hazard Mitigation Planning Guidancey Local Multi-Hazard Mitigation Planning Guidancey Tribal Multi-Hazard Mitigation Planning Guidance

Hazard Mitigation Planning RiskAssessment

The risk assessment process provides the foundation for the rest of the mitigation planning

process. The four basic components of the risk assessment are: 1) identify hazards; 2) profile

hazard events; 3) inventory assets; and 4) estimate losses. This process measures the potential

loss of life, personal injury, economic injury, and property damage resulting from natural

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hazards by assessing the vulnerability of people, buildings, and infrastructure to natural

hazards. While many data sources and tools are available at various levels of government,

academia, and the private sector, several options are listed below as a starting point for use in

conducting a multi-hazard risk assessment.

Multi-Hazard

y HAZUS-MHy Environmental Planning and Historic Preservation Programy Natural Hazards Gatewayy Coastal Services Centery National Geophysical Data Centery National Water and Climate Centery National Climatic Data Centery Natural Hazards Centery Global Change Master Directory

Hurricane

y National Hurricane Center Informationy Historical Hurricane Tracks

Flood

y Flood Hazard Mappingy Floodplain Managementy Community Rating Systemy Emergency Management Institute Community Rating System Resource Centery National Dam Safety Programy National Inventory of Dams (NID)y Association of State Dam Safety Officialsy Nationwide River Gage Site for Flooding Informationy National Flood Risk Management Program

Wildfire

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y US Fire Administrationy Wildland Fire Assessment Systemy National Interagency Fire Centery National Wildfire Hazard Mitigation Programs Database

Earthquake

y National Earthquake Hazards Reduction Programy National Earthquake Information Center

Tribal

y Bureau of Indian Affairsy HUD Office of Native American Programsy EPA American Indian Tribal Portaly EPA Tribal Programsy Indian Health Service Area Offices and Facilities

Laws and Regulations

This section includes text of the laws and regulations for the NFIP.

y Coastal Barrier Resources Act (CBRA)y Federal Registery Flood Insurance Reform Act of 2004y Coastal Barrier Improvement Act of 1990 (CBIA)y National Flood Insurance Act of 1968 & Flood Disaster Protection Act of 1973y National Flood Insurance Reform Act of 1994y NFIP Statutory Authorityy NFIRA of 1994 Bulletinsy Stafford Acty Standard Flood Insurance Policy Formsy Title 44, code of Federal Regulations (CFR)y U.S. Code, title 42 - National Flood Insurance Program

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y WYO Company Arrangementsy

DUTY ENTITLEMENT PASS BOOK

DEPB stands for Duty Entitlement Pass Book. It is a scheme which is offered by the Indian

government to encourage exports from the country.

DEPB means Duty Entitlement Pass Book to neutralise the incidence of basic and special

customs duty on import content of export product. This is provided by way of grant of duty

credit against the export product at specified rates. The DEPB Scheme which was notified on

1/4/1997 consisted of (a) Post-export DEPB and (b) Pre-export DEPB. The pre-export DEPB

scheme was abolished w.e.f. 1/4/2000. Under the post-export DEPB, which is issued afterexports, the exporter is given a duty entitlement Pass Book at a pre-determined credit on the

FOB value. The DEPB allows import of any items except the items which are otherwise

restricted for imports.

Duty Entitlement Pass Book Scheme in short DEPB is an export incentive scheme. Notified

on 1/4/1997, the DEPB Scheme consisted of (a) Post-export DEPB and (b) Pre-export DEPB.

The pre-export DEPB scheme was abolished w.e.f. 1/4/2000. Under the post-export DEPB,

which is issued after exports, the exporter is given a

duty entitlement Pass Book Scheme at a pre-determined credit on the FOB value. The DEPB

rates is allows import of any items except the items which are otherwise restricted for

imports. Items such as Gold Nibs, Gold Pen, Gold watches etc. though covered under the

generic description of writing instruments, components of writing instruments and watches

are thus not eligible for benefit under the DEPB scheme.

The DEPB Rates are applied on the basis of FOB value or value cap whichever is lower. For

example, if the FOB value is Rs.700/- per piece, and the value cap is Rs.500/- per piece, the

DEPB rate shall be applied on Rs.500/-. The DEPB rate and the value cap shall be applicable

as existing on the date of exports as defined in paragraph 15.15 of Handbook (Vol.1).

DEPB Scheme is issued only on post-export basis and pre/export DEPB Scheme has been

discontinued. The provisions of DEPB Scheme are mentioned in Para 4.3 and 4.3.1 to 4.3.5

of the Foreign Trade Policy or Exim Policy. One significant change in the new DEPB

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Scheme is that in terms of Para 4.3.5 of the Exim Policy even excise duty paid in cash on

inputs used in the manufacture of export product shall be eligible for brand rate of duty

drawback as per rules framed by Department of Revenue which was not mentioned in the

earlier DEPB Scheme.

Benefits of DEPBRates

The benefit of DEPB schemes is available on the export products having extraneous material

up to 5% by weight. In such cases, extraneous material up to 5% shall be ignored and the

DEPB rate as notified for that export product is be allowed.

Review of DEPBRates

The Government of India review the DEPB rates after getting the appropriate a export import

data on FOB value of exports and CIF value of inputs used in the export product, as per

SION. Such data and information is usually obtained from the concerned Export Promotion

Councils.

Implementation of the DEPBRates

Some additional facilities as listed below have been provided for better implementation of the

DEPB Rates

y DEPB rates rationalized to account for the changes in Customs duties.y Caps fixed on certain items but there would be no verification of Present Market

Value (PMV) on such items.

y A number of ports have been added for availing facilities under the Duty ExemptionScheme, including DEPB.

y The threshold limit of Rs. 200 million for fixing new DEPB rates removed.

Provisional DEPBRate

The main objective behind the provisional DEPB rates is to encourage diversification and to

promote export of new products. However, provisional DEPB rates would be valid for a

limited period of time during which exporter would furnish data on export and import for

regular fixation of rates.

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Maintenance ofRecord

It is necessary for Custom House at ports to maintain a separate record of details of exports

made under DEPB Schemes.

Port of Registration

The exports/imports made from the specified ports given shall be entitled for DEPB.

Sea Ports: Mumbai, Kolkata, Cochin, Dahej, Kakinada, Kandla, Mangalore, Marmagoa,

Mundra, Chennai, Nhavasheva, Paradeep, Pipavav, Sikka, Tuticorin Vishakhapatnam, Surat

(Magdalla), Nagapattinam, Okha , Dharamtar and Jamnagar.

Airports: Ahmedabad, Bangalore, Bhubaneshwar Mumbai, Kolkata Coimbatore Air Cargo

Complex, Cochin, Delhi, Hyderabad, Jaipur, Srinagar, Trivandrum, Varanasi, Nagpur and

Chennai.

ICDs : Agra, Ahmedabad, Bangalore, Bhiwadi, Coimbatore, Daulatabad, (Wanjarwadi and

Maliwada), Delhi, Dighi (Pune), Faridabad, Guntur, Hyderabad, Jaipur, Jallandhar, Jodhpur,

Kanpur, Kota, Ludhiana, Madurai and the land Customs station at Ranaghat Mallanpur,

Moradabad, Meerut Nagpur, Nasik, Gauhati (Amingaon), Pimpri (Pune), Pitampur (Indore),

Rudrapur (Nainital), Salem Singanalur, Surat, Tirupur, Udaipur, Vadodara, Varanasi, Waluj,

Bhilwara, Pondicherry ,Garhi-Harsaru, Bhatinda, Dappar, Chheharata (Amritsar), Karur,

Miraj and Rewari.

LCS: Ranaghat, Singhabad , Raxaul , Jogbani, Nautanva ( Sonauli), Petrapole and

Mahadipur.

The exports made to the following Special Economic Zones (SEZ) are also entitled to DEPB.

SEZ : Santacruz , Kandla, Kochi, Vishakhapatnam, Chennai, FALTA, Surat, NOIDA

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Credit under DEPB and Present Market Value

In respect of products where rate of credit entitlement under DEPB Scheme comes to 10% or

more, amount of credit against each such export product shall not exceed 50% of Present

Market Value (PMV) of export product. During export, exporter shall declare on shipping bill

that benefit under DEPB Scheme would not exceed 50% of PMV of export product.

However PMV declaration shall not be applicable for products for which value cap exists

irrespective of DEPB rate of product.

Utilization of DEPB credit

Credit given under DEPB Schemes is utilized for payment of indian customs duty including

capital goods, which are free to import.

Re-export of goods imported under DEPB Scheme

In case of return of any exported goods, which has been found defective or unfit for use may

be again exported according to the exim guidelines as mentioned by the Department of

Revenue.

In such cases 98% of the credit amount debited against DEPB for the export of such goods is

generated by the concerned Commissioner of Customs in the form of a Certificate,

containing the amount generated and the details of the original DEPB. On the basis of

certificate, a fresh DEPB is issued by the concerned DGFT Regional Authority. It is

important to note that the issued DEPB have the same port of registration and shall be valid

for a period equivalent to the balance period available on the date of import of such

defective/unfit goods.

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DUTY DRAW BACK

Customs has a number of assistance schemes available for industry operating in overseasmarkets.The Duty Drawback Scheme enables exporting companies to obtain a refund of

Customs duty paid on imported goods where those goods will be treated, processed, or

incorporated into other goods for export, or are exported unused since importation. Only the

person who is the legal owner of the goods at the time the goods are exported, or a person to

whom this right has been assigned, is eligible to make a claim for duty drawback. Claimants

are not required to submit documents with their application but if requested, should be able to

provide evidence that goods subject to the claim have been duty paid originally, not used in

Australia, and exported. Claimants are required to keep all documentation for a minimum of

five (5) years.

Duty drawback is available on most goods. However, it cannotbe claimed where:

goods have been used in Australia other than for thepurposes of

exhibition, processing, treatment or further manufacture or

goods are valued at exportation at less than 25 per cent oftheir imported value or

the import duty paid on the goods has been refunded.

Lodging a claim

All claims for duty drawback must be lodged on the Claim for Drawback Form (B807). The

form can be downloaded from the Customs website www.customs.gov.au or obtained from

Customsregional offices.An Australian Business Number (ABN) is used to identify duty

drawback claimants. If an ABN is unavailable, personal details must be provided to enable

Customs to issue a Customs Client Identification (CCID). An Export Declaration Number

(EDN) is also required as evidence of export for each line claimed. All consignments sent by

post/sea/air that are intended for drawback are regarded as prescribed goods and need to be

entered for export whether they are less than $2,000 or not.

Calculation of duty drawback claims

Duty drawbacks are processed on the basis of self-assessment. The amount of duty to be

drawn back must be calculated, at the determination of the claimant, using one of three (3)

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calculation methods available for duty drawback. In all methods the amount of a claim for

drawback of import duty must not exceed the amount of import duty paid on the goods.

The three calculation methods are:

A .... shipment by shipment basis for use where imports directly relate to exports.

B ..... representative or averaging shipment basis is generally used for high volume low

value goods. A representative shipment for a period is picked as a typically representative

sample of the values of identical items. The averaging of shipments is costed over time and

must not result in an overclaim.

C ...... imputation method for use when import documents aregenerally unavailable and

allows the basis on which to calculate duty drawback to be 30 per cent of the purchase price

of the goods. This option can only be used where goods are fully imported and have been

purchased in Australia by the exporter.

The word drawback has denoted a situation in which a duty or tax that has been lawfully

collected is refunded or remitted, wholly or partially, because of a particular use made of the

commodity on which the duty or tax was collected.

Drawback was initially authorized by the first tariff act of the United States in 1789. Since

then it has been part of the law, although from time to time the conditions under which it is

payable have changed.

The rationale for drawback has always been to encourage American commerce or

manufacturing, or both. It permits American businesses to compete in foreign markets

without the handicap of including in its costs, and consequently in its sales price, the duty

paid on imported merchandise.

Types of Drawback

Several types of drawback are authorized under Title 19 United States Code Section 1313 (19

U.S.C. 1313):

If articles are exported or destroyed, which were manufactured in the United States with the

use of imported merchandise, then the duties paid on the imported merchandise used may be

refunded as drawback, less one percent, which is retained by Customs to defray costs. (19

U.S.C. 1313(a) the direct identification manufacturing drawback provision)

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If both imported merchandise and any other merchandise of the same kind and quality are

used to manufacture articles, some of which are exported or destroyed before use, then

drawback not exceeding 99 percent of the duty which was paid on the imported merchandise

is payable on the exports. It is immaterial whether the actual imported merchandise or the

domestic merchandise of the same kind and quality was used in the exported articles. This

provision in the Code makes it possible for firms to obtain drawback without the expense of

maintaining separate inventories for imported and domestic merchandise. (19 U.S.C.

13131(b), the substitution manufacturing drawback provision)

Some of the more common transactions to which drawback is applied include:

1. Merchandise is exported or destroyed because it does not conform with samples or

specifications, or was shipped without the consent of the consignee, then 99 percent

of the duties which were paid on the merchandise may be recovered as drawback. (19

U.S.C. 1313(c))

2. Certain products manufactured with the use of domestic alcohol are exported or

shipped to various island possessions, a drawback of the internal revenue taxes paid

on the domestic alcohol may be refunded. (19 U.S.C. 1313(d))

3. Finished Petroleum derivatives (19 U.S.C. 1313(p))

4. Packaging material used to package merchandise exported or destroyed under section

1313(a), (b), (c), or (j), may receive 99 percent of the duties paid on the packaging

material as drawback. (19 U.S.C. 1313(q))

How To Obtain Drawback

As most manufacturers are interested in sections 131 3(a) and (b), only the procedures for

obtaining drawback under these provisions are discussed. The purpose of drawback is toenable a manufacturer to compete in foreign markets. To do so, however, the manufacturer

must know, prior to making contractual commitments, that he will be entitled to drawback on

his exports. The drawback procedure has been designed to give the manufacturer this

assurance and protection.

Manufacturing drawback rulings

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To obtain drawback, a manufacturer or producer of articles intended to be claimed for

drawback must first apply for a manufacturing drawback ruling. There are two types of

manufacturing drawback rulings: (1) General and (2) Specific.

General Manufacturing DrawbackRuling

General manufacturing drawback rulings are provided for in Section 191.7, of the Customs

Regulations (19 C.F.R. 191.7) and are designed to simplify drawback for certain common

manufacturing operations. These rulings are contained in Appendix A to Part 191, Customs

Regulations 19 C.F.R. Part 191) and include the following:

1. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a) (T.D. 81-

234; T.D. 83-123)

2. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a) or 1313(b)

for Agents (T.D. 81-181)

3. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a) for Burlap

or Other Textile Material (T.D. 83-53)

4. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b) for

Component Parts (T.D. 81-300)

5. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a) for

Flaxseed (T.D. 83-80)

6. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a) for Fur

Skins or Fur Skin Articles (T.D. 83-77)

7. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b) for Orange

Juice (T.D. 85-110)

8. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b) for

Petroleum or Petroleum Derivatives (T.D. 84-49)

9. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b) for Piece

Goods (T.D. 83-73)

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10. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b) for Raw

Sugar (T.D. 83-59)

11. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b) for Steel

(T.D. 81-74)

12. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b) for Sugar

(T.D. 81-92)

13. General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a) for Woven

Piece Goods (T.D. 83-84)

A manufacturer or producer engaged in an operation that falls within a published general

manufacturing drawback ruling may submit a letter of notification of intent to operate under

that general ruling. Letters of notification of intent to operate under a general manufacturing

drawback ruling must be submitted to any drawback office where drawback entries will be

filed and liquidated, provided that the general manufacturing drawback ruling will be

followed without variation. If there is any variation in the general manufacturing drawback

ruling, the manufacturer or producer shall apply for a specific manufacturing drawback ruling

under Section 191.8.

Specific Manufacturing DrawbackRuling

Where a manufacturer or producer cannot follow any one of the prescribed general

manufacturing rulings without variation, the manufacturer or producer must apply for a

specific manufacturing drawback ruling under Section 191.8. Sample formats for specific

manufacturing drawback rulings are contained in Appendix B to Part 191, Customs

Regulations (19 C.F.R. Part 191).

An application for a specific manufacturing drawback ruling must be submitted, in triplicate,

to:

U.S. Customs Service Headquarters

Duty and Refund Determination Branch

Office of Regulations and Rulings

Washington, DC 20229

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Export of qualified U.S.-made petroleum products may be shown by matching production at

a specific refinery with exports of qualified petroleum products of the same kind and quality

that occur within 180 days after the refinery produced the designated petroleum product.

Export of qualified imported petroleum products may be shown by matching the amount

imported with exports of qualified petroleum products of the same kind and quality that occur

within 180 days after the import. (Section 1313(p) drawback)

Payment of Claims

When a claim has been completed by filing all required documents, the entry will be

liquidated by the port director to determine the amount of drawback due. Drawback is

payable to the exporter unless the manufacturer reserves to himself the right to claim the

drawback.

Accelerated Payment

The privilege to obtain accelerated payment of drawback, under certain conditions, is

authorized by Section 192.72. Accelerated payment generally will insure that a claimant will

receive his drawback no later than 2 months after he files a claim. Accelerated drawback also

applies to unused drawback.

Effect of the NorthA

merican Free TradeA

greement (NA

FTA

)

The NAFTA provisions on drawback will apply to goods imported into the United States and

subsequently exported to Canada on or after January 1, 1996. The NAFTA provisions on

drawback will apply to goods imported into the United States and subsequently exported to

Mexico, on or after January 1, 2001.

Under the NAFTA, the amount of Customs duties that will be refunded, reduced or waived is

the lesser of the total amount of Customs duties paid or owed on the goods or materials when

imported into the United States and the total amount of Customs duties paid or owed on the

finished good in the NAFTA country to which it is exported, for purposes of 19 U.S.C.

1313(a), (b), (f), (h), and (g).No NAFTA country, on condition of export, will refund,

reduce or waive the following: antidumping or countervailing duties, premiums offered or

collected pursuant to any tendering system with respect to the administration of quantitative

import restrictions, tariff rate quotas or trade preference levels, or a fee pursuant to Section 22

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of the U.S. Agricultural Adjustment Act. Moreover, unused substitution drawback (19 U.S.C.

1313(j)(2)) was eliminated as of January 1, 1994.

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