UNIT 1

CONCEPT OF IMPORT AND EXPORT:

Export:

The Customs Act, 1962, says "export", with its grammatical variations and cognate expressions, means taking out of India to a place outside India; "export goods" means any goods which are to be taken out of India to a place outside India; and "exporter", in relation to any goods at any time between their entry for export and the time when they are exported, includes any owner or any person holding himself out to be the exporter.

FEMA 1999(1)(i) "export", with its grammatical variations and cognate expressions, means- (i) the taking out of India to a place outside India any goods, (ii) provision of services from India to any person outside India;

A function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. If used for trade, exports are exchanged for other products or services. Exports are one of the oldest forms of economic transfer, and occur on a large scale between nations that have fewer restrictions on trade, such as tariffs or subsidies.

Significance of Exports

Foreign Exchange Earnings

Supply of excess/surplus output to other countries

Reciprocity in goods and services

Increase in employment

Increase in GDP

Genial relations amongst nations

Fulfilling the requirements of WTO

Attaining targets specified in bilateral and multilateral agreements. Etc

Types of Export

The export can be classified into the following categories.

Merchandise Exports, Services Exports, Project Exports, Deemed Exports

Merchandise Exports: Merchandise exports refer to the export of physical goods, for example, readymade garments, engineering goods, furniture, works of art etc.

Service Exports: Services exports refers to the export of goods that don’t exist in physical form, that is, professional, technical or general services. Examples of the exports

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would include export of computer softwares, architectural, entertainment or technical consultancy services etc.

Project export refers to establishment of a project by a business firm in another country. The term ‘Project’ as been defined as ‘non-routine, non-repetitive and one-off undertaking, normally with discrete time, financial and technical performance goals.’ It is viewed as scientifically evolved work plan devised to achieve a specific objective within a specific period of time.

Deemed Exports ‘Deemed Exports’ refer to those “transactions in which the goods are made in India, which are to be received by the recipient of the goods.” The essential condition is that such goods are manufactured in India. This category of export has been introduced by the Export Import Policy of the Government of India. Some of the examples of goods regarded as ‘’Deemed Exports”, as given in Export-Import Policy (2002-07) are; Supply of goods against duty free licenses Supply of goods to projects financed by multilateral or bilateral agencies/Funds notified by the Department of Economic Affairs, Ministry of Finance, Government of India. Supply of goods to the power, oil and gas including refineries and so on.

Scope of Exports:-

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SCOPE OF EXPORTSExport of AgricultureExports of ProjectsExports of PharmaceuticalsExports of National accountsExport of TextileExports of JewelleryExports of ServicesExports of Electronic goodsDeemed ExportsFunctions of Export:-

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Limitations of Export:-

IMPORT

According to The Customs Act, 1962, "import", with its grammatical variations and cognate expressions, means bringing into India from a place outside India; "imported goods" means any goods brought into India from a place outside India but does not include goods which have been cleared for home consumption; and "importer", in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner or any person holding himself out to be the importer.

FEMA 1999 (1) (p) "import", with its grammatical variations and cognate expressions, means bringing into India any goods or services;

An import is a process through which goods brought into a jurisdiction, especially across a national border, from an external source. The party bringing in the good is called an importer. An import in the receiving country is an export from the sending (transporting) country.

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1. Financial Management effort2. Extra costs3. Managment mistakes4. Product modifications5. Customer demand6. Financial risks7. Market informationLIMITATIONOF EXPORTSFUNCTIONS OF EXPORT1. Procurement of Export Order 2. Importer Laision3. Export order evaluation4. Reprogramming5. Planning for Export order execution6. Directing for exports7. Export order execution8. Export Cycle9. Reporting on export order

Significance of Imports

Fulfillment of domestic needs

Arrangement of cheaper goods

Preservation of domestic scarce resources

Upliftment of standard of living

Focus on production of specialized items

Reciprocity in goods and services

Increase in knowhow and usage of latest technology….. Leads to R&D activities domestically

Increase in competition and check on monopoly

More choice to customers. Etc.

EXIM MANAGEMENT

Export management is the application of managerial process to the functional area of exports.

It is a form of management which is required to bring about coordination and integration of all those involved in an export business.

It is thus, concerned with securing export orders and achieving their successful completion in time as per the requirement specified by the foreign buyers.

Export management is the application of managerial functions/process to the functional area of export.

It is a form management which is required to bring about coordination and integration of all those activities, persons and things involved in an export business.

It is thus, concerned with securing export order and achieving successful completion in time as per the requirements specified in the contract or as specified by the foreign buyers as well as the Governments.

The main objectives of export management

(i) secure export orders, (ii) to ensure timely shipment of goods as per prescribed norms of quality and other

specifications including terms and conditions agreed to between the export and the importer, and

(iii) to earn foreign exchange(iv) To obtain export order adequately(v) To execute export process properly

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(vi) To ensure timely shipment of goods as per prescribed norms of quality and other specifications including terms and conditions agreed between the exporter and the importer

(vii) To generate maximum revenue in terms of foreign exchange (viii) To take advantage of export incentives and schemes(ix) To promote export substantially

Export function:

The functional area of exports is concerned with the export of goods i.e. sale of goods from one country to another country against payment in foreign currency (or any agreed currency).

It involves two things viz., outflow of goods and inflow of foreign currency.

Goods can be defined as things of value required for satisfying the needs and requirements of the people…… if something has no value it cannot enter international trade as there would be no buyers for it.

The functions performed by the export manager

1. Planning for export order procurement and execution

2. Procurement of export order

3. Export order execution

4. Importer liaison

5. Export order evaluation

6. Directing the exports of goods/Routing the goods

7. Payment receipts

8. Reporting on export order execution

EXPORT PROCEDURE:-

Export procedure consists of several commercial and regulatory formalities,

which an exporter is required to complete during the course of export trade transactions. These

formalities are very complex and time-consuming and involve considerable documentation.

• Hence, the exporters must possess adequate knowledge of such formalities. At the same

time, it should be ensured that the rules- and regulations of not only exporting country but

also of importing country are duly complied with.

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RegistrationPre-shipmentShipment Post-shipment • it should be ensured that all the required documents, whether commercial or regulatory,

are prepared and filed with the appropriate authorities.

1. REGISTRATION STAGE

The exporter is required

to register its organisation with a number of

institutions and authorities, which directly or

indirectly help it in the smooth conduct of

export. The registration stage includes:

A. Registration of the Organisation: - The

form of organisation selected by the exporter

must be registered under the appropriate Act

of the country.

A joint stock company under the

Companies Act, 1956 (2013);

A partnership firm under the Indian Partnership Act, 1932.);

A sole trader should seek permission from the local authorities, as required.

B. Opening-Bank Account: - The exporter should open a current account in the name of

the firm or company with a commercial bank which is authorised by the Reserve Bank of

India (RBI) to deal in foreign exchange. Such bank also serves as a source of pre-

shipment and post-shipment finance for the exporter.

C. Obtaining Importer-Exporter Code Number (lEC No.): - Prior to 1.1.1997, it was

obligatory for every exporter to obtain CNX number from the RBI. However, since then,

IEC number issued by the Director General for Foreign Trade (DGFT) has replaced the

CNX number. The application form for obtaining IEC number should be accompanied

by fee of Rs. 1000(subject to change).

D. Obtaining Permanent Account Number- (PAN): Export income is subject to a

number of exemptions and deductions under different sections of the Income Tax Act

1961. For claiming such exemptions and deductions, the exporter should register its

organisation with the Income Tax Authorities and obtain the Permanent Account

Number (PAN).

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E. Obtaining Sales Tax Number: - Exportable goods are exempted from sales tax,

provided, the 'exporter or its firm is registered with the Sales Tax Authorities. For this

purpose, the exporter is required to make an application in the prescribed form to the'

Sales Tax Office (STO) in whose jurisdiction his {exporter's) office is situated.

F. Registration with Export Promotion Council (EPC) :- It is obligatory for every

exporter to register with the appropriate Export Promotion Council (EPC) and obtain the

'Registration-cum-Membership Certificate' (RCMC). The benefits provided in the

current EXIM Policy are extended only to the registered exporters having valid RCMC.

G. Registration with ECGC: - The exporter should also register with the Export Credit

and Guarantee Corporation of India (ECGC) in order to secure overseas payments

against political and commercial risks. It also helps the exporters in obtaining the

financial assistance from commercial banks and other financial institutions.

H. Registration with other Authorities: - The exporter should also register with various

other authorities, such as:

Federation of Indian Export Organisation (FIEO),

Indian Trade Promotion Organisation (ITPO),

Chambers of Commerce (COC),

Productivity Councils, etc.

2. PRE- SHIPMENT STAGE

This consists of the following steps:

A. Approaching Foreign Buyers: - In order to secure an export order, a new exporter can

make use of one or more of the techniques, such as,' advertising in international media,

sales promotion, public relation, personal selling, publicity and participation in trade fairs

and exhibitions.

B. Inquiry and Offer: - An inquiry is a request from a prospective importer about

description of goods, their standard or grade, size, weight or quantity, terms of payments,

etc. On getting an inquiry, the exporter must process it immediately by making an offer in

the form of a Performa invoice.

C. Confirmation of Order: - Once the negotiations are completed and the terms and

conditions are finalised, the exporter sends three copies of Performa Invoice to the

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importer for the confirmation of order. The importer signs these copies and sends back

two copies to the exporter.

D. Opening Letter of Credit:- The documentary credit or letter of credit is the most

appropriate and secured method of payment adopted to settle international transactions.

On finalization of the export contract, the importer opens a letter of credit in favour of the

exporter, if agreed upon in the contract.

E. Arrangement of Pre-shipment Finance: On securing the letter of credit, the exporter

procures a pre-shipment finance from his bank for procuring raw materials and other

components, processing and packing of goods and transfer of goods to the port of

shipment.

F. Production or Procurement of Goods: - On securing the pre-shipment finance from the

bank, the exporter either arranges for the production of the required goods or procures

them from the domestic market as per the specifications of the importer.

G. Packing and Marking: - Then the goods should be properly packed and marked with

necessary details such as port of shipment and destination, country of origin, gross and

net weight, etc. If required, assistance can be taken from the Indian Institute of Packing

(IIP).

H. Pre-shipment ‘Inspection’ - If the goods to be exported are subject to compulsory

quality control and pre-shipment inspection then the exporter should contact the Export

Inspection Agency (EIA) for obtaining an inspection certificate.

I. Central Excise Clearance: - The exporters are totally exempted from the payment of

central excise duty. However, the exemption should be claimed in one of the following

ways:

Export under Rebate.

Export under bond.

J. Obtaining Insurance Cover: - The exporter must take appropriate policies in order to

insure risks: -

ECGC policy in order to cover credit risks.

Marine policy, if the price quotation agreed upon is CIF.

K. Appointment of C&F Agent: - Since exporting is a complex and time consuming

process, the exporter should appoint a Clearing and Forwarding (C&F) agent for the

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smooth clearance of goods from the customs and preparation and submission of various

export documents.

3. SHIPMENT STAGE

Export, cargo can be exported to the overseas buyer by sea, air or

land. However, shipment by sea is the most popular and generally resorted to, as it is

comparatively cheaper. Moreover, the ship's capacity is far greater than other modes of

transportation. Nevertheless, transportation by air is utilized for export of expensive items

like, diamonds, gold, etc. The shipment stage includes the following steps:

A. Reservation of Shipping Space: - Once the export contract is finalised, the exporter

reserves the required space in the vessel for shipment. On accepting the exporter's

request, the shipping company issues a Shipping Order. The original copy of the shipping

order as given to the exporter and the duplicate instruction by the shipping company to

the commanding officer of the ship that the goods as per the details given should be

received on board.

B. Arrangement of Internal Transportation up to the Port of Shipment: The exporter

makes necessary arrangements for transportation of goods to the port either by road or

railways. On loading goods into the railway wagon, the railway authorities issue a

'Railway Receipt', which may be either 'freight paid' or 'freight to pay'. It serves as a title

to the goods. The exporter doses the railway receipt in favour of his agent to enable him

to take delivery of the goods at the port of shipment.

C. Preparation and Processing of Shipping Documents :- As the goods reaches the port

of shipment, the exporter should issue detailed instructions to the C&F agent for the

shipment of cargo along with a complete set of the documents listed below:-

Letter of Credit along with the export contract or export order.

Commercial Invoice (2 copies),

Packing List or Packing Note,

Certificate of Origin,

GR (Guaranteed Remittances) Form (original and duplicate),

ARE-I Form,

Certificate of Inspection, where necessary (original copy) ,

Marine Insurance Policy.

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D. Customs Examination and Issue of 'Let Export Order’: - The Customs Examiner at

the port of shipment physically examines the goods and seals the packages in his

presence. The same can be arranged for at the factory or warehouse of the exporter by

making an application to the Assistant Collector of Customs. The Customs Examiner, if

satisfied, issues a formal permission for the loading of cargo on the ship in the form of a

'Let Export Order'.

E. Obtaining 'Let Ship Order' from the Customs Preventive Officer: - 'Let Export

Order' must be supplemented by a 'Let Ship Order' issued by the Customs Preventive

Officer. The C&F agent submits the duplicate copy of Shipping Bill, duly endorsed by

the Customs Examiner, to the Customs Preventive Officer who endorses it with the 'Let

Ship Order'.

F. Customs Examination and Issue of 'Let Export Order’: - The Customs Examiner at

the port of shipment physically examines the goods and seals the packages in his

presence. The same can be arranged for at the factory or warehouse of the exporter by

making an application to the Assistant Collector of Customs. The Customs Examiner, if

satisfied, issues a formal permission for the loading of cargo on the ship in the form of a

'Let Export Order'.

G. Obtaining 'Let Ship Order' from the Customs Preventive Officer: - 'Let Export

Order' must be supplemented by a 'Let Ship Order' issued by the Customs Preventive

Officer. The C&F agent submits the duplicate copy of Shipping Bill, duly endorsed by

the Customs Examiner, to the Customs Preventive Officer who endorses it with the 'Let

Ship Order'.

H. Obtaining Mate's Receipt and Bill of Lading: - The goods are then loaded on board

the ship for which the Mate or the Captain of the ship issues Mate's Receipt to the Port

Superintendent. The Port Superintendent, on receipt of port dues, hands over the Mate's

Receipt to the C&F Agent. The C&F Agent surrenders the Mate's Receipt to the Shipping

Company for obtaining the Bill of Lading. The Shipping Company issues two to three

negotiable and two to three non-negotiable copies of Bill of Lading.

4. POST SHIPMENT STAGE

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The post-shipment stage consists of the following steps:

A. Submission of Documents by the C&F Agent to the Exporter: - On the completion of

the shipping procedure, the C&F agent submits the following documents to the exporter:-

• A copy of invoice duly attested by the Customs.

• Copy of the shipping bill.

• Export promotion copy of the shipping bill.

• A full set of negotiable and non-negotiable copies of bill of lading.

• The original L/C, export order or contract.

• Duplicate copy of the ARE-I form (Application for Removal of Excisable Goods

for Export).

B. Shipment Advice to Importer: - After the shipment of goods, the exporter intimates the

importer about the shipment of goods giving him details about the date of shipment, the

name of the vessel, the destination, etc. He should also send one copy of non-negotiable

bill of lading to the importer.

C. Presentation of Documents to Bank for Negotiation: - Submission of relevant

documents to the bank and the process of getting the payment from the bank is called

"Negotiation of the Documents" and title documents are called 'Negotiable Set of

Documents'. The set normally contains:

Bill of Exchange, Sight Draft or Usance Draft,

Full set of Bill of Lading or Airway Bill,

Original Letter of Credit, Customs Invoice,

Commercial Invoice including one copy duly certified by the Customs,

Packing List, Foreign exchange declaration forms,

GR/SOFTEX/PP forms in duplicate,

Exchange control copy of the Shipping Bill, Certificate of Origin, Certificates

etc., Marine Insurance Policy, in duplicate.

D. Dispatch of Documents: - The bank negotiates these documents to the importer's bank in

the manner as specified in the L/C. Before negotiating documents, the exporter's bank

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scrutinises them in order to ensure that all formalities have been complied with and all

documents are in order. The bank then sends the Bank Certificate and attested copies of

commercial invoice to the exporter.

E. Acceptance of the bill of exchange: - bill of exchange accompanied by the above

documents is known as the Documentary Bill of Exchange. It is of two types:

Documents against Payment (Sight Drafts): - In case of sight draft, the

drawer instructs the bank to hand over the relevant documents to the importer

only against payment.

Documents against Acceptance (Usance Draft): - In case of usance draft,

the drawer instructs the bank to hand over the relevant documents to the

importer against his 'acceptance' of the bill of exchange.

F. Letter of Indemnity: - The exporter can get immediate payment from his bank on the

submission of documents by signing a letter of indemnity. By signing the letter of

indemnity the exporter undertakes to indemnify the bank in the event of non-receipt of

payment from the importer along with accrued interests.

G. Realisation of Export Proceeds :- On receiving the documentary bill of exchange, the

importer releases payment in case of sight draft or accepts the usance draft undertaking to

pay on maturity of the bill of exchange. The exporter's bank receives the payment

through importer‘s bank and is credited to exporter's account.

REGULATIONS OF EXPORT AND IMPORT IN INDIA

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Need for Export Documents Vital interst to Exporter and ImporterDocumentary requirements of ExportingLong distanceAssistance form intermediariesComplete description of goodsEvidence of shipment and title of goodsUNIT 2

EXPORT AND IMPORT DOCUMENTATION

Meaning of Export Documentation:- The process of making and maintenance of required

documents in the export business for fulfilling the legal requirements, completing the contract

and finishing the export procedures is known as Export documentation. In this procedure various

documents are prepared at different stages of export considering the specifications put by both

the parties. While preparing the documents the stipulations of both the countries are considered.

In other words, Export documentation is a tedious but necessary process that all exporters must

pay close attention to, as documentation requirements vary considerably by country, commodity

and situation. Export documentation is necessary because export trade cannot take place without

certain documents. These documents help to protect the interests of both the exporter and the

importer. With the help of these documents, the exporter is able to get his sale value and the

importer is able to get the ordered goods.

Need for Export Documents:-

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1. Vital Interest to Exporter and Importer: The shipment is represented by the set of

documents once the goods have been cleared by the customs for their transportation to

the importer. These documents are of vital interest to both the exporter and the importer.

2. Evidence of shipment and title of goods: Export document provides evidence to

shipment and title of goods, as the goods are being shipped, then the exporter is required

to have an evidence with him, so that in case of any mishappening or loss of goods,

exporter can claim the goods and also in case the importer asks about the status of goods,

then the exporter can provide him the relevant documents.

3. Documentary requirements of Exporting: The documentary requirements are both

regulatory and operational in nature, and the necessary documents should be prepared to

comply with the rules and regulations of the exporting and the importing country.

4. Complete description of the goods: The main purpose of the documents accompanying

a shipment is to provide a specific and complete description of the goods so that they can

be assessed correctly for duty purpose and meet the import licensing requirements or

import quota restrictions imposed on the goods for clearance purpose.

5. Long distance: Unlike domestic trade, buyers and sellers are separate very long distance

in overseas trade transactions. This necessitates concluding a formal contract laying down

duties and responsibilities of buyers and sellers respectively.

6. Assistance form intermediaries: No international trade transactions can be completed

without the assistance of at least three intermediaries- a carrier, who undertakes to deliver

the goods to the buyer on behalf of seller, an insurance company that covers the risks

arising out of hazards of long voyage and finally a banker who collects the sale proceeds

from the buyer and hands over to the same of the exporter.

The Preliminary:-

1. Importer Exporter Code Number (IECN).

2. Obtain Registration-Cum-Membership Certificate (RCMC) .

3. Manufacturer è Raw Materials Duty Free.

4. Get familiar with the excise formalities

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Key Documents Principal Documents related to exportingAuxiliary Documents related to exportingPrincipal documents in Export 1. Certificate of Origin2. AR4 and AR5 form3. GP/GR/PP/VPP/COD/SOFTEX form4. Airway Bill5. Bill of Lading6. Consular Invoice7. Commercial Invoice8. Bill of Exchange9. Letter of Credit10. Shipping Bill11. Shipment Advice12. Insurance Certificate13. Packing list and note14. Certificate of Origin5. Understand the local government regulations

6. Get information of the government’s regulations

7. Availability of Vessels/Airlines, the transport charges, frequency of operation etc.

8. Look for a Custom House Agent (CHA)

Key documents required in Export Business:-

1. Principal Documents related to exporting The documents which are used all over the world by the exporter and form the essential link in foreign trade between the exporter and the importer and are used to control payment title and transactions are called principal documents. These are the documents, which are required to be sent by the exporter to the importer. It may also include certain documents which are required under Foreign Exchange

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Management Act. The documents classified under principal documents for export are explained below:

1) Certificate of Origin: As the very name indicates, a certificate of origin is a certificate

that specifies the name of the country where goods are produced. This is absolutely

necessary where the importing country has banned the entry of goods of certain countries

to ensure that the goods from those countries are not allowed to enter in.

A certificate of origin can be obtained from Chamber of Commerce, Export Promotion

Council and various trade associations which have been authorized by Government of

India to issue. The agency from which certificate of origin is obtained should confirm to

the terms of letter of credit.

Types of Certificate of Origin:-

a. Non-Preferential Certificate of Origin- Non-preferential certificate of origin is

required to general by all countries for clearance of goods by the importer, on

which no preferential tariff is given. It is issued by:

The authorized Chamber of Commerce of the exporting country

Trade Association of the exporting country.

b. Certificate of Origin for Availing Concessions under GSP- Certificate of

origin required for availing of concessions under Germanized System of

Preferences (GSP) extended by certain countries such as France, Germany, Italy,

BENELUX countries, U.K., Australia, Japan, and U.S.A. etc.

c. Certificate for availing concession under Commonwealth Preferences

(CWP)- Certificate of origin for the purpose of Commonwealth Preference is also

known as Combined ‘Certificate of Origin and Value’. It is required by two

member countries, i.e., Canada and New Zealand of the commonwealth.

d. Certificate for Availing Concessions under other system of Preferences-

Certificate of origin is also required for tariff concessions, under the Global

System of Trade Preferences (GSTP), Bangkok Agreement (BA), and SAARC

Preferential Trading Arrangement (SAPTA) under which India grants and

receives tariff concessions on imports and exports.

Content of Certificate of Origin:-

A. Name and logo of chamber of commerce

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B. Name and address of the Exporter

C. Name and address of the Consignee

D. Name and the number of vessel of flight

E. Name of the port of loading

F. Name of the port of discharge and place of delivery

G. Marks and container number

H. Packing and container description

I. Total number of containers and packages

J. Description of goods in terms of quantity

K. Seal of the issuing authority.

Significance of the Certificate of Origin:-

1. COO is required for availing of concessions under Generalized System of Preferences

(GSP) as well as under Commonwealth Preferences (CWP)

2. It is to be submitted to the custom for the assessment of duty clearance of goods with

concessional duty

3. It is required when the goods produced in a particular country are banned for import in

the foreign market

4. It helps the buyer in adhering to the import regulations of the country

5. Sometimes, in order to ensure that goods bought from some other country have not been

re-shipped by a seller, a certificate of origin is required.

2) Bill of Lading (B/L): B/L is a document which is issued by the shipping company or his

agent acknowledging the receipt on cargo on board. This is an undertaking to deliver the

goods in the same order and condition as received to the consignee or his agent on receipt

of freight, the shipping company is entitled to. It is a very important document to the

exporter as it constitutes document of title to the goods. B/L is made in signed set of 2

originals, any one of which can give title of the goods. The shipping company also issues

non-negotiable copies which are not documents of title to goods but serves the purpose of

record only.

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Contents of B/L:-

A. Name and address of the shipper

B. Name and address of the vessel

C. Name of port of loading

D. Date of loading of goods

E. Name of port of discharge and place of delivery

F. Quantity, quality, marks and other description

G. Number of packages

H. Freight paid or payable

I. Name of the shipping company

J. Number of originals issued

K. Voyage number and date

L. Signature of the issuing authority.

Purpose of B/L:-

1. As a document of Title to goods

2. As a Receipt from the shipping company

3. As a Contract of Freightment

4. As a Collateral Security.

Types of B/L:-

1. Straight B/L: This is typically used when shipping to a customer. The Straight B/L is for

shipping items that have already been paid for.

2. To Order B/L: Used for shipments when payment is not made in advance. This can be

shipping to one of your distributors or a customer on terms.

3. Clean B/L: A Clean B/L is simply a BOL that the shipping carrier has to sign off on

saying that when the packages were loaded they were in good condition.

4. Inland B/L: This allows the shipping carrier to ship cargo, by road or rail, across

domestic land, but not overseas.

5. Ocean B/L: Ocean B/L allows the shipper to transport the cargo overseas, nationally or

internationally.

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6. Through B/L: It allows for the shipping carrier to pass the cargo through several

different modes of transportation and/or several different modes of transport, land or

ocean.

7. Multimodal or Combined Transport B/L: This is a type of Through B/L that involves

a minimum of two different modes of transport, land or ocean.

8. Direct B/L: Use a Direct B/L when you know the same vessel that picked up the cargo

will deliver it to its final destination.

9. State B/L: Occasionally in case of short over-seas cargo transportation, the cargo arrives

to port before the B/L. when that happens, the Bill of Landing is then “stale”.

Significance of B/L:-

1. Significance to the Exporter

1) It is an acknowledgement from the shipping company that the goods have been

received for the purpose of shipment.

2) After receipt of B/L, it helps him to send the shipping advice to the importer

3) If any damage occurs to the cargo during transit, he can hold the shipping company

responsible

4) A copy of B/L is required to be attached to the application form to claim the

incentives

5) It is a contract of carriage between the exporter and the shipping company

2. Significance to the Importer

1) It is a document of the title of goods, which enables him to transfer the title by

endorsement and delivery

2) The exporter can send a non-negotiable copy of B/L as advance intimation of shipment

to the importer

3) It enables him to pay the freight amount as the B/L contains freight details

3. Significance to the Shipping Company

It helps the shipping company to collect the freight amount from the exporter (CIF

contract) or importer (FOB contract).

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3) Consular Invoice: Consular invoice is a document required mainly by the Latin

American countries like Kenya, Uganda, Tanzania, Mauritius, etc. Collection of accurate

information by the authorities of the importing country for assessing import duties and

also for statistical purposes.   For obtaining consular invoice the exporter is required to

submit three copies of invoice to the Consulate of the importing country concerned.

Significance of Consular Invoice:-

1. Significance to the Exporter

It enables prompt clearance from the customs of exporter’s country for shipping the

goods

It facilitates quick clearance of goods from the customs in exporter’s as well as

importer’s country

It also assures the exporter of the payment from the importing country.

2. Significance to the Importer

In the importer’s country, the customs do not normally open the packages. It helps the

importer to get speedy delivery of goods

Lot of unnecessary hardship which importer faces once the packages are opened is

avoided

The importer is assured that the goods imported are not banned for imported in his

country.

3. Significance to the Customs

It makes the task of the customs authorities easy

It facilitates quick calculation of duties as the value of goods as determine by the

consulate is considered for the purpose.

4) Commercial Invoice: A commercial invoice is the seller’s bill for merchandise or goods

sold by him. This is the basic document in an export transaction. It contains all the

information which is required for the preparation of all other documents. There is no

standard form of commercial invoice. The exporter has to design its own form. Some

countries, however, prescribe their own forms. In such cases, the exporter has necessarily

21

to use the form prescribed by the importing country. It is also known as a ‘Document of

Contents’.

Significance of Commercial Invoice:-

1) Useful in preparation of various other shipping documents.

2) Used in various export formalities.

3) Useful in negotiation of documents for collection and claim of incentives.

4) Useful for accounting purposes to both exporters as well as importers.

5) It is a Prima Facie evidence of the contract of sale and purchase of goods.

Content of Commercial Invoice:-

1) Name and address of the Exporter

2) Name and address of the consignee

3) Name and the number of vessel or flight

4) Name of the port of loading

5) Name of the port of discharge and final destination

6) Invoice number and date

7) Exporter’s reference number

8) Buyers’ reference number and date

9) Name of the country of origin of goods

10) Marks and container number

11) Number and packing description.

5) Bill of Exchange: An instrument in writing containing an unconditional order signed by

the drawer directing a certain person to pay a certain sum of money only to or to the order

of a person or the bearer of the instrument. The exporter may agree to supply goods to the

importer

22

Features of bill of exchange:-

1. Negotiable Instrument.

2. Also known as “Draft”.

3. Drawn on the issuing bank or another drawee bank.

4. Does not block the funds of the importers.

Content of bill of exchange:-

1. Name & signature of the drawer

2. Name of the drawee

3. Name of the payee

4. Specified sum

5. Fixed date or determinable future date of payment.

Parties to a bill of exchange:-

1. Drawer

2. Drawee

3. Payee

4. Endorser

5. Endorsee.

Types of bill of exchange:-

1. Sight bill of exchange: In this bill of exchange, also known as demand bill of exchange,

the drawee has to make the payment on presentation.

2. Usance bill of exchange: In case of usance or time B/E, payment is to be made on the

maturity date, after a certain period known as tenor.

3. Documentary bill of exchange: It is one where the relative shipping documents such as

bill of lading, marine insurance policy, invoice and other documents are sent along with

the other bill of exchange.

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4. Documents against Acceptance: In this case, the documentary evidence accompanying

the bill of exchange is deliverable against acceptance by the drawee. This means the

documentary bill becomes a clean bill after delivery of the documents.

5. Documents against Payment: It is accepted by the drawee, the documents of title will

be held by the bank or the finance company till the maturity of the B/E.

6) Packing list and Note: Packing list may be shown on invoice or separately, and should

contain item by item, the contents of cases or containers or of a shipment with its weight

and description set forth in such manner as to permit checks of the contents by the

customs on arrival at the port of destination as well as by the recipient.

Packing note should, include the packing note number, the date of packing, the name

and address of the exporter, the name and address of the importer, the order number, date,

shipment, per S/S, bill of lading number and date, marking numbers, case number to

which the note relates, and the contents of the goods in terms of quantity and weight.

The difference between a packing notes a packing list is that the packing note contains

the particulars of an individual pack, while the packing list is a consolidated statement of

the contents of a number of cases or packs.

Contents of Packing List:-

Date of packing

Number of packing note

Number of case to which it relates to

Contents of case in terms of quantity and weight

Marking number

Name of exporter

Name of importer.

7) Certificate of Inspection: Certificate of Inspection are documents issued by governing

bodies to confirm that something has been checked and found to comply with

documented specifications. In the United States, local, state and federal governmental

bodies issue certificates of inspection for multiple items. It is useful to the importer.

24

Key Elements of COI:-

1. Name and address of the consignee

2. Name and address of the consignor

3. Description of goods

4. Date of the inspection

5. Statement of sampling methodology

6. Statement of the result of the inspection

7. The name, signature and/or stamp or seal of the inspection entity.

8) AR4 and AR5 Form: Both AR4 and AR5 forms can be used for export in Bond or under

Rebate of Central Excise Duty.

AR4 Form is to be used where either finished stage duty is not paid or its rebate is to be

claimed later on.

AR5 Form is used where goods are manufactured/exporter without the payment of duty

or inputs (input stage duty).

9) GP/GR/PP/VPP/COD/SOFTEX Forms: These forms are submitted to the customs

authorities in compliance of exchange control regulations. All exporter other than those

exporting to Nepal or Bhutan are required to submit a declaration in the prescribed form

duly supported by such evidence as may be prescribed or so specified and true in all

material particulars, which, among others, shall include the amount representing: The full

export value of the goods.

10) Airway bill: An airway bill, also called an air consignment note, is a receipt issued by an

airline for the carriage of goods. Airway Bill or Air Consignment Note is not treated as a

document of title and is not issued in negotiable form. Air way bill is a non-negotiable

transport document covering transport of cargo by air from airport-to-airport. The Air

way bill is issued by the air carrier.

Contents of Airway bill:-

1. Name of the airport of departure and destination.

2. The names and addresses of the consignor, consignee and the first carrier.

25

3. Marks and container number.

4. Packing and container description.

5. Total number of containers and packages.

6. Description of goods in terms of quantity.

7. Container status and seal number.

8. Amount of freight paid or payable.

9. Signature and initials of the issuing carrier or his agent.

 Importance of Airway Bill:-

1. It is a contract between the airlines or his agent to carry goods to the destination.

2. It is the document of instructions for the airline handling staff.

3. It acts as a customs declaration form.

4. Since, it contains details about freight it also represents freight bill.

11) Shipping Bill: Shipping bill is required by the customs. There are separate forms of

shipping bills for free goods, and goods for which there is a claim for drawback of duty.

It is only after the shipping bill is stamped by the customs that the cargo is allowed to be

carted to the docks. The following three forms of the shipping bill are available with the

Customs authorities:

a. Dutiable Shipping Bill: It is for goods, for which there is export duty.

b. Free Shipping Bill: It is for goods, for which there is no export duty.

c. Drawback Shipping Bill: It is required for claiming the Customs drawback against

goods exported.

26

12) Shipment Advice: The shipping advice is a notice to the importer on summary of the

shipment. Foreign importer may arrange the cargo insurance on time based on the

shipping advice (if buyer is to arrange the insurance). Moreover, importer may know

when to receive the goods and arrange with a customs broker for the cargo clearance. The

shipping advice is particularly important in short-sea trades, for example within the Asian

countries where the goods may arrive at the port of destination before the shipping

documents, and in the ports of destination where theft and pilferage of the imported

goods is rampant.

While preparing shipment advice, following information should be included:

Purchase order number under shipment

Any other reference number of export contract

If LC involved, LC number, invoice number of shipper

Bill of lading number or Airway bill number

MBL/MAWB number if applicable

Any other information, either specified by overseas buyer or shipper wants to

include.

13) Insurance Certificate: The insurance certificate is issued by an insurance company or

its agents, which may include a carrier, freight forwarder, and customs broker or logistics

firm. If the seller provides insurance, the insurance certificate states the type and amount

of coverage. This instrument is negotiable.

Key elements of IC:-

1. Appears on its face to be issued and signed by an insurance carrier, underwriter or agent

for same

2. Covers the risks specified in the documentary LC

3. Is presented as the sole original, or if issued in more than one original, all originals

4. The insurance currently should be consistent with the currency of the LC.

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14) Letter of Credit:

Features of L/C:-

1. Negotiability: Letters of credit are usually negotiable. The issuing bank is obligated to

pay not only the beneficiary, but also any Bank nominated by the beneficiary. Negotiable

instrument are passed freely from one party to another almost in the same way as money.

2. Revocability: L/C may be either revocable or irrevocable. A revocable LC may be

revoked or modified for any reason, at any time by the issuing bank without notification.

A revocable LC cannot be confirmed.

3. Transfer and assignment: The beneficiary has the right to transfer or assign the right to

draw, under a credit only when the credit states that it is transferable or assignable.

Credits governed by the Uniform Commercial Code may be transferred an unlimited

number of times.

4. Sight and Time Drafts: A sight draft is payable as soon as it is presented for payment.

The bank is allowed a reasonable time to review the documents before making payment.

A time draft is not payable until the lapse of a particular time period stated on the draft.

Procedure for Opening LC:-

1. Importer’s request

2. Issue of Letter of Credit

3. Receipt of LC

4. Shipment of goods

5. Negotiation of documents

6. Re-imbursement of payment

7. Documents to importer.

Parties of LC:-

1. Applicant or Opener: It is the buyer or importer of goods who opens the letter of credit

through his bank in favor of exporter.

2. Beneficiary: It is the exporter of goods in whose favor the LC is opened by the importer

through his bank.

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3. Issuing bank: It is the importer’s bank, who issues a LC in favor of the exporter on the

request of the importers.

4. Advising bank: It is the branch of issuing bank situated in the exporter’s country. Such

branch receives the LC and looks after its onward transmission to the beneficiary.

5. Confirming bank: It is the bank situated in the Exporter’s country, which guarantees the

credit on the request of the issuing bank. Many times the advising bank and the

confirming bank are same.

6. Negotiating bank: It is bank situated in the exporter’s country through which documents

are negotiated by the exporters, i.e., exporter’s bank.

Types of LC:-

1. Sight or Usance LC: A letter of credit known as Sight LC the LC at sight if it involves

payment to the exporter against sight draft. On the other hand, if the payment is to be made

against usance draft, then the LC is known as Usance LC.

2. Confirmed or Unconfirmed LC: An irrevocable LC is confirmed when another bank adds its

confirmation to the LC upon the request or authorization of the issuing bank.

3. Negotiable LC: A LC is known as negotiable if it states that the credit shall be available by

negotiable. Negotiation means the purchase by the nominated bank of drafts and/or documents

under complying presentations, by advancing or agreeing to advance funds to the beneficiary on

or before the banking day on which reimbursement is due to the nominated bank.

4. Revolving LC: A revolving LC is one which provides for the renewal of the amount of the

credit without any amendments to the LC in relation to a given time period or a given amount.

The revolving LC may be revocable or irrevocable.

5. Red clause and Green clause LC: A red clause LC is a kind of credit which enables the

confirming bank or the nominated bank to the beneficiary even before the presentation of the

documents. Since the clause used to be written customarily in red link hence the name Red

clause LC. On the other hand, the LC is known as Green Clause LC if it provides for the credit

given to the exporter to cover the period of storage of goods at the export.

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6. Transferrable LC: Transferrable LC means a credit that specifically states that it is

“transferrable”. A transferrable credit may be made available in whole or in part to another

beneficiary at the request of the beneficiary by the transferring bank.

7. Back-to-Back LC: Back-to-back LC is a credit which is issued at the strength of another LC.

8. With Recourse or Without Recourse LC: A LC is with recourse when the under the terms

of the credit, the negotiating bank or the nominated bank can approach the beneficiary for the

refund of the payment made under the LC. It is without recourse when the negotiating or the

nominated bank cannot approach the beneficiary to refund the payment under the LC. A

confirmed LC is without recourse to the beneficiary and the confirmed or the negotiable credits

are always with recourse to the beneficiary.

9. Standby LC: Standby LC is an assurance to the beneficiary that the applicant shall perform,

his part of the obligation undertakes by him under the contract between the applicant and the

beneficiary.

Significance of Letter of Credit:-

1) Significance of LC to Exporter

Prevents of Blockage of Funds: The LC is received from the importer can be

discussed with the confirming bank and money can be realised immediately. This

prevents blockage of funds.

Prevents Bad Debts: In the case of a LC, the payment is guaranteed by the issuing

bank and therefore, the risk of bad debts is less. A confirmed LC is more secure

due to double guarantees from the issuing bank and the confirming bank.

Fulfilment of Import Regulations: The LC is issued by the issuing bank after the

importer complies with the import regulations and exchange control regulations in

his country. Thus, after getting LC unnecessary delays caused by import

regulations can be avoided.

Import’s Obligations: The importer may refuse to accept goods in the case of

other methods of payment. But in the case of the LC, the importer cannot do so

because it is obligatory for him to accept goods and make payment once he gets

the documents negotiated in his favour.

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Helps to Procure Pre-shipment Finance: In India an exporter can obtain pre-

shipment finance from commercial Banks on the strength of a letter of, credit

issued the importer’s bank in his favour.

2) Significance of LC to Importer

Better terms of trade: Since in the case of a LC, Payment is assured, the importer

is in a better position to negotiate the terms of trade with foreign suppliers which

otherwise is not possible.

Guaranteed shipment: Shipment of goods cannot be delayed once a LC is issued.

Therefore, the importer is assured of the delivery of goods in time.

Delivery in time: A LC is honoured only after the exporter dispatches. The

shipping documents to the importer. Thus a LC assumes timely delivery of goods

to the importer.

Overdraft facility: The Importer may also get LC issued in favour of the exporter

on the basis of overdraft facility extended to him by the issuing bank. Thus, the

importer gets possessions of goods without making actual payment.

No advance payment: The importer is not required to make any advance payment

to the exporter once a LC is issued.

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2. Auxiliary Documents related to exporting:

These documents may be required for the preparation or procurement of some of the

principal document or for arranging some of the preliminaries in effecting shipment of

goods, such as giving instruction to freight forwarder, arranging pre-shipment

inspections, marine insurance cover, shipping space, procurement of bills of lading etc.

These documents are as:

1) Proforma Invoice: Quotation in form of regular invoice sent as a reply to an inquiry. It

is an advance copy of final invoice. The term sales confirmation is used in lieu of P.I. in

some countries. In other words, Proforma invoice is the starting point of an export

contract. It is a quote in an invoice format that may be required by the buyer to apply for

an import license, contract for pre-shipment inspection, open a letter of credit or arrange

for transfer of hard currency.

Importance of Proforma Invoice:-

It forms the basis of all trade transactions.

The importer may apply for opening a letter of credit.

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Auxiliary documents in Export Proforma Invoiceintimation for InspectionShipping InstructionsDeclaration of insuranceShipping OrderMate's ReceiptDock challanApplication of the certificate Origin

It may be useful for the importer in obtaining import license or foreign exchange.

Contents of Proforma Invoice:-

Name and address of the exporter

Name and address of the importer

Mode of transportation

Name of the port of loading

Name of the port of discharge

Provisional invoice number and date

Exporter’s reference number

Buyer’s reference number and date

Name of the country of origin of goods

Marks and container number.

2) Intimation for Inspection: There is a prescribed form known as “intimation for

inspection”, which is required to filled in by an exporter. This intimation should be filled

in triplicate. In this intimation, details of the goods are to be given as per invoice. The

exporter is also required to attach the following documents along with application for

intimation of inspection to be the submitted to the nearby Export Inspection Agency:

Copy of the commercial invoice for description of goods to be exported

Copy of Letter of Credit

Requisites fees for inspection of cargo in a crossed cheque/draft or Indian Portal

Order.

3) Shipping Instructions: This document includes the information supplied by the

shipper/exporter providing detailed instructions pertaining to the shipment. It is used to

send shipping instructions to the shipping company or the shipping agent regarding

shipment of export cargo. This facilitates the preparation of bill of lading and other

documents by the shipping agent. It also known as Cargo declaration.

4) Declaration of Insurance: It is filled with the insurer for every shipment as soon as all

pertinent data in connection therewith are known to the insured. This information may

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not be at hand until the shipment has arrived, but the automatic attachment feature of the

open policy protects the importer or exporter.

Contents of DOI:-

Name of the shipper/exporter

Name and address of buyer

Details of good such as packages, quantity, value in foreign currency as well as in

Indian etc

Name of the Vessel/aircraft

Value for which insurance to be covered.

5) Shipping order: For booking space, the exporter has to apply to the hipping company

either directly or through freight broke if the space is available, the shipping company

will issue to the broker/shipper a document called a shipping order.

6) Dock Challan: Also known as Port Trust Copy of the shipping bill in Bombay and

Export Application form in ports other than Calcutta, Dock challan is a document

prescribed by the port authorities. When the cargo is brought at the dock gate, the shipper

has to submit this document along with the Vehicle Ticket to the Gate Inspector.

7) Application of the Certificate of Origin: It’s also known as Certificate of Origin C/O.

8) Mate’s Receipt: When the cargo is loaded on the ship, the commanding officer of the

ship will issue a receipt called the "mate receipt" for goods. The Mate’s receipt is first

handed over to the Port Trust authorities so that all the port dues may be paid by the

exporter.

Significance of Mate’s Receipt:

1. It is an acknowledgement of goods received for export on board the ship.

2. It is a transferable document. It must be handed over to the shipping company in order to

get the bill of lading.

3. Bill of lading, which is the title of goods, is prepared on the basis of the mate's receipt.

4. It enables the exporter to clear port trust dues to the Port Trust Authorities.

5. Mate's receipt is a prima facie evidence that goods are loaded in the vessel.

34

6. The mate's receipt is first handed over to the Port Trust Authorities. After making

payment of all port dues, the exporter or his agent collects the mate's receipt from the

Port Trust Authorities.

7. The mate's, receipt is freely transferable. It must be handed over to the shipping company

in order to get the' bill of lading.

Types of Mate’s Receipt:-

I. Clean Mate's Receipt: The Commanding Officer of the ship issues a clean mate's

receipt; if he is satisfied that the goods are packed properly and there is no defect in the

packing of the cargo or package.

II. Qualified Mate's Receipt: The Commanding Officer of the ship issues a qualified mate's

receipt, when the goods are not packed properly and the shipping company does not take

any responsibility of damage to the goods during transit.

Contents of Mate’s Receipt:-

I. Name and logo of the shipping line

II. Name and address of the shipper

III. Name and the number of vessel

IV. Name of the port of loading

V. Marks and container number

UNIT 3

Processing of an Export Order

Introduction:- An export order has to be processed to meet the requirements of materials

required by the importers. An export order must be processed as expeditiously so that the buyers

can receive the materials on time, as per their delivery schedules and also confirming to the

specifications stipulated by them.

35

Stages in Export Order Processing:-

1. Inquiry and Offer: The exporter may get an inquiry for exports through the trade

promotion council or a direct request from the prospective importer from another

country. The enquiry will also specify complete details of the goods, e.g., the volume and

the value, the grading, sizes, the expected time of delivery and the mode of shipment

along with the port of destination etc.

2. Acceptance and Confirmation of Purchase Order: Once the importer has accepted the

offer made to him, he will have to place an order with the exporter. The negotiation if any

will take place before placing of a confirmed order by the foreign buyer.

3. Export sales contract: The confirmation and the acceptance of the offer will result into

formation of an export contract between the exporter and importer. This contract will

carry details on the terms and conditions or the international deal.

4. Export permission and Licenses: There is freedom to export all items unless these

items are banned or put on the restrictive list for which a license will be required from the

competent authority. The exporter will have to check if he needs to get the license issued

for the items for which he has received the export order.

36

5. Managing finances for Exports: There are various schemes and finances available for

pre-shipment finances. The exporters can check with the banks and export promotion

councils of their respective products as to how to avail these financial assistances.

6. Managing Production/Procurement of Goods: Once all formalities have been

completed and the exporter has entered into a sales contract with the importer, the

exporter has to now ensure he manufacturers or procures goods as per the specifications

given in the export contract.

7. Reserving Shipping Berth: Though the leading shipping companies announce their

schedules in leading media papers and daily shipping intelligence news from time to time

but generally the task of booking berth space for cargo is outsourced by shipping

companies to the carrying and forwarding agent.

8. Packing and Marking: The importer will specify in the export contract about the

standards and specifications to be followed for the packing and marking of the goods

meant for export. In the absence of any such instructions the standard practices prevailing

in the industry will have to be followed.

9. Pre-shipment inspection: In order to ensure the exporters from the India strictly adhere

to the quality expectations and standards of international trade, the Government of India

had introduced the Export Quality Control and Inspection act in the year 1963.

Role played by various parties in Export Order Processing:-

1. Exporter: The first function of exporter is to plan for securing the export order. This

requires deciding the exact item for export market. A study of the profile of the target

customer group and the business practices of the target export markets is of paramount

importance in the process securing an export order. Effective planning is essential for the

success of execution of export order.

2. Negotiating bank: It is the bank that negotiates the documents submitted to them by the

beneficiary under the credit either advised through them or restricted to them for

negotiation. On negotiation of the documents they will claim the reimbursement under

the credit and makes the payment to the beneficiary provided the documents submitted

are in accordance with the terms and conditions of the letters of credit.

3. Shipping company: There are many international shipping companies that provide

services at a low cost to worldwide destination. Shipping companies take the complete

37

responsibility of moving the stuff. They also performed other specialized services like-

package shipping, air shipping, vehicles shipping, and ocean shipping box shipping.

4. Reserve Bank of India: There are various functions of the reserve bank of India. In

India, exports have played a major role in accelerating the economic growth of the

country. The initiates’ taken by Reserve Bank of India and Government of India have

contributed to the impressive increase in our exports.

5. Customs Clearance Officers: Before granting the permission, the Custom Officer

ensures that the goods being exported are in accordance with different regulations,

particularly in terms of the followings:

The goods are of the same type, sort and value as have been declared by the

exporter.

The duty or success leviable thereon has been properly determined and paid.

Provisions of Export order, Export act, and Foreign exchange act are complied with.

6. Clearing and Forwarding Agent: A freight forward is an agent who handles exports

shipments for a fee. Freight forwards play a very important role for exporters. Freight

forward can provide advice on the permits, licenses, inspections, and other documents

and proceedings that are required according to the import laws in the country of

destination.

7. Directorate General of Foreign Trade: Some of the DGFT and it offers throughout the

country are as follows:

Implementation of EXIM policy

Principles of restrictions

Granting Importer-exporter code number

Permitting transit facility

Import of gifts shall be permitted.

Methods of Payment in International Business: Terms of Payment

Introduction:- The currency of our country is not a legal tender in other countries and hence it

will not be accepted abroad in discharge of debts and obligations. All importers face this problem

that their exporters in other countries required payment in their homeland currency.

Types of Payment Terms:-

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In export payment for the goods can be made by means of any of the following methods of

payment, also known as payment terms which are as follows:-

Payment Method Where Used Advantages to Buyer Advantages to Seller

1) Cash in

Advance

New relationship. Smaller

transactions. Buyer unable to

obtain LC.

None.

Pays prior to receipt of

goods and documents.

Eliminates risk of non-

payment.

2) Open

Account

High trust relationship.

Intercompany transactions.

Allow buyer to delay

payment until goods have

been examined.

Offers attractive terms to

buyers but at the risk of

non-payment.

3) Letter of

Credit

Ability of importer to pay is

uncertain. In countries with

regulatory requirements.

Provides reasonable

assurance that proper

shipment is made prior to

payment.

Substitute’s bank credit

for that of buyers.

Provide assured, prompt

payment.

4) Documents

against

payment

(D/P)

Ongoing business

relationship. Transactions do

not require protection and

expense of LC.

Delays payment until after

receipt of documents.

Seller retains title to

goods until payment.

Relies on bank to collect

payment from buyer.

5) Documents

against

Acceptance

(D/A)

As for D/P, but allows for

credit terms to buyer.

Delays payment until after

receipt of goods. Buyer is

financed directly by the

seller.

Seller retains title of

goods until acceptance.

Relies on banks to

collect payment from

buyer.

6) Consignment

sale

High trust relationship

Buyer has no means to

finance inventory.

Allows buyer to delay

payment until goods have

been sold.

Offers attractive terms to

buyers but at risk of

non-payment and loss of

merchandise.

1. Cash in Advance: Cash in Advance affords the exporter the greatest protection because

payment is received either before shipment or upon arrival of the goods. This method

also allows the exporter to avoid tying upto its own funds. Although less common than in

the past, cash payment upon presentation of documents is still widespread. Under this

method, the exporter receives payment from the overseas importer in advance in the form

39

of demand draft or cheque denominated in foreign currency or by way of direct

telegraphic transfer against the supply of goods to be made later on. In the case of huge

payments in advance, the importer demands that an advance payment guarantee be

provided through a bank.

2. Open Account: Open account is an arrangement between the exporter and the importer

whereby the goods are manufactured and delivered even before the payment is required.

This mode of payment provides for payment at some stated specified future date. The

importer does accept not any negotiable instrument and thus, does not provide any

evidence to the exporter of his legal commitment to make the payment. There is also the

added risk emanating from the possibility that the political events may impose some

restrictions on the remittance of funds from the importing country to exporter country.

3. Documentary against Payment (D/P): Under this method, the shipping documents

concerning the shipment of goods are given to the importer against payment for the

goods. The payment is made by the importer against sight draft sent along with the

shipping documents. If the importer does not honor the draft, he is not given the shipping

documents.

4. Documentary against Acceptance (D/A): Under this method, the remitting bank hands

over the shipping documents to the importer only upon acceptance of the accompanying

draft. The acceptance implies that he agrees to pay the amount of the draft on the due

date. Under D/A terms, there is always a period of credit on the expiry of which the

importer is required to make payment.

5. Payment under Consignment Sale: In this case, the exporter makes shipment to the

overseas consignee/agent but retains the title to the goods as the risk attendant thereto,

even though the overseas consignee will have to physical possession of the goods. The

payment is made only when the goods are ultimately sold by the overseas consignee to

other parties.

6. Letter of Credit: A LC is a document containing the guarantee of a bank to honor drafts

drawn on it by an exporter, under certain conditions and up to certain amounts, provided

that the beneficiary fulfills the stipulated conditions. Letter of Credit, popularly known as

L/C, is by far the most important single document in international trade. Letter of Credit

is the most appropriate and secured method of payment adopted to settle international

40

Factors considerCorrect Payment MerchandiseUnderstanding of Insurance termsCurrenciesInsolvency of BuyerKnowledge of various Payment tremsNegotiation with CustomerSecure Paymenttransactions, on the finalization of the export, contract and the importer opens a LC in

favour of the exporter, if agreed upon in the contract.

Factors to be Considered while Deciding Terms of Payment:-

QUALITY CONTROL and PRE-SHIPMENT INSPECTION

Introduction:- In order to promote exports of quality goods as per the international standards, the Government of India has introduced compulsory Quality Control and Pre-shipment

41

Inspection for 90% of the items of export under one of the other system as per the Export (Quality control and Pre-shipment Inspection) Act, 1963. Some of these items are:-

1. Food and agricultural products

2. Chemicals and allied products

3. Engineering goods

4. Textiles

5. Coir, jute and leather products such as footwear etc.

The act Empowers the Government to:-

1. Notified commodities, which shall be subjected to Quality Control or inspection or both,

prior to the export

2. Specify the type of Quality Control or Inspection, which will be applied to a notified

commodity

3. Establish, adopt or recognize one or more standard specifications to a notified commodity

4. Prohibit the export in the course of international trade of a notified commodity.

Requisites:-

1. Standards for quality of export products

2. Testing facilities

3. Procedural details.

Types of Pre-shipment Inspection:-

Voluntary Inspection Compulsory Inspection

1. Exporter himself 1. Export inspection council through EIA

1. Buyers representatives 2. EPC’s, Boards & Authorities

3. Buying agent in the exporter’s country 4. Textile committee

5. Inspection agencies in private sector. 6. Development commission.

Procedure for Pre-shipment Inspection:-

These exporters who are approved under self certification have to submit their inspection

certificates to the export inspection agency, where compulsory inspection is required following

process will be follow:-

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Step 1- Application to EIA (Export Inspection Agency): The exporter has to apply in the

prescribed form for “Intimation for Inspection” to EIA at least 7 days prior to the expected date

of shipment with following documents:

Copy of export contract

Copy of LC

Details of Packing specifications and declaration regarding importers technical

specifications etc.

Step 2- Deputation of Inspector: After getting the application the EIA deputes and inspector to

conduct pre-shipment inspection at the exporter’s factory or warehouse. The exporter should

keep the goods ready for inspection on the day and time allotted for inspection.

Step 3- Inspection and Testing: The inspector conducts inspection randomly and prepares the

report and submits to the EIA. The exporter is requiring arranging all the facilities required to

inspection and testing. In case of non-availability of facilities the testing may be done in any

private labs.

Step 4- Packing and Sealing of goods: If the inspector is satisfied with the quality of goods the

inspector may issue and order for packing of goods in his/her presence. After packing the

consignment is marked and seal with the official seal of EIA.

Step 5- Submission of report to EIA and issue of Inspection Certificate: The inspector will

submit report to DIA. If the report is favorable the deputy director issues a triplicate:

Original copy submit to the Custom Authority

One duplicate copy send to the importer

One copy will have to the exporter.

In case the report is not favorable the deputy director will issue a rejection note.

Step 6- Appeal against Rejection: When the deputy director issue a rejection then the exporter

can again appeal for the re-inspection.

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UNIT 4

EXPORT FINANCING

• Pre-shipment finance deals with the finance schemes available before the shipment has been made.

• Post shipment, on the contrary ,deals with credit available after the goods have been shipped.

• Both stages are crucial for the exporter. He needs finance to get the procurement/ production going after receipt of the exporter order. Money is also needed to fund the working capital expenses for day to day activities.

• Post- shipment finance is required to take care of the financial needs after the shipment is over.

• Pre –shipment finance facilities offer liquidity to the exporter to procure raw material, carry out processing packing transporting and warehousing of the goods to be exported. Post shipment finance provides credit facility from the date of shipment of the goods to the time export payment is realized.

Types of finance:

1. Short term finance2. Long term finance

Sources of short term finance:

An MNC has wider options compared to domestic firm. It can get funds from 3 short-term financing options :-

1. Intercompany Finance:means to have either parent company or sister affiliate provide an intercompany loan.

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Intercompany Finance

Local currency financing

Euro note and Euro commercial paper

These loans may be limited in amount or duration by official exchange control.Interest rates are frequently required to fall within set limits.Relevant parameters in establishing cost of such loan include lender’s opportunity cost of funds, expected exchange rate movements over term of loan.

2. Local currency Finance:means like most domestic firms, affiliates desiring local financing attempts to finance their working capital requirements locally i.e., through commercial banking system.Bank Loans – are loans from commercial banks

form of short-term interest-bearing financing described as self-liquidating short-term bank credits are unsecured borrower signs a note evidencing its obligation to repay loan when due +

accrued interest loan must be repaid or renewed after specific interval banks usually insert a cleanup clause on company to ensure that short-term

credits not being used for permanent financing

Forms of Bank financing/Bank Credit include :-1. Term loans – are attractive; straight loans; often unsecured; made for fixed period of

time, usually 90 days; made for specific purpose with specific conditions & is repaid in a single lump

sum; used by borrowers who have infrequent need for bank credit.

2. Line of credit – is an informal agreement permits the company to borrow up to a stated maximum amount (line of credit) from the bank when it requires funds & pay back the loan when it has excess cash;

it is usually good for 1 year, with renewals renegotiated every year; used by frequent borrowers.

3. Overdraft – is simply a line of credit against which draft (cheques) can be drawn (written) up to a specified maximum amount(overdraft line). The borrower pays interest on debit bal. only.

4. Revolving credit agreement – is similar to line of credit except that now the bank is legally committed to extend credit up to the stated maximum.firm pays interest on its outstanding borrowings + commitment fee on unused portion of credit line.

5. Discounting – of trade bills is preferred short-term financing technique in many countries.

these bills can be rediscounted with Bank. discounting results from some set of transactions.

Interest Rates on Bank Loans :-

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is based on personal negotiation b/w banker & borrower. There are certain bank loan pricing conventions :

-- Interest on loan can be paid at maturity or in advance.

Sources of Non-Bank Funds include :-

Commercial paper – CP is a short-term unsecured promissory note sold by large corporations on a discount basis to institutional investors & to other corporations.

3. Euro notes & Euro Commercial Paper : a recent innovation in nonbank short-term credits that bears a strong resemblance to commercial paper is called Euro note. denominated in foreign currency (like $) & issued by corporations & govt.the prefix “Euro” indicates – notes are issued outside country in whose currency they are denominated.interest rates are adjusted each time the notes are rolled over.Euronotes are often called Euro-commercial paper(Euro-CP).

Criterion to select particular source of Fund:

1) Selection of a particular source of funds is based on a perfect trade-off between liquidity & profitability.

2) It means that the cost of funds is to be minimised but, at the same time, sufficient liquidity needs to be maintained.

3) In order to evaluate cost of different types of funds, finance managers compare b/w costs of –

a) Internal funds & the external fundsb) International money market funds & the host-country funds

Internal Sources of Capital for International Businesses

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Need of export Financing:

Export Financing Forms:

Forms of Export Credit

1. Pre-

shipment credit

2. Post-Shipment credit

3. Factoring

4. Forfeiting

5. Other incentives and facilities

1. Pre- Shipment Credit: Pre –shipment credit/finance is provided to the exporter for meeting their needs of getting the shipment ready. It is generally offered as Packing Credit. The

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Types of Pre-shipment FinancePacking credit against Incentives receivables from the government of IndiaAdvance against cheques/Drafts received as advance paymentPacking creditexporter has to submit the prescribed application form for obtaining packing credit together with the required papers to the bank. Commercial banks/EXIM Bank provide loan to the exporters at the concessional rates of interest against export order both at pre-shipment and post-shipment stage.Facilities to Exporter:

a) Exporters are provided timely and adequate credit to meet the exports commitments.b) Exporters are allowed pre and post-shipment credit at competitive interest ratesc) Export Credit is made available both in Indian Rupee and Foreign Currency as well.

Types:

Forms :

• Packing Credit in Indian Rupee

• Packing Credit in Foreign Currency (PCFC) 

1. Packing Credit:It refers to the credit granted by bank to enable an exporter to pack the goods meant for export.

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It is granted on the basis of a confirmed export order or irrevocable letter of credit opened by an importer in favor of exporter.

• Eligibility 1. LOC or export order must be in the name of export company/firm.2. Funds should be divided by merchant exporter and export company.Criteria for the

grant of packing credit:-3. Name of the overseas buyer4. Particulars of goods5. Quantity and unit price or value of order6. Date of shipment7. Terms of sales and payment

Margin requirement:-Margins are stipulated mainly to serve the following purposes:-

1. To make the exporter have some stake in the business, so that he will be more conscious

2. To take care of erosion in the value of goods charged to the bank3. To ensure that bank finance is not extended to cover exporter’s profit margin.

2. Advance against Cheques/ Drafts received as Advance Payment: The banks may grant advance to the exporter at the concessional rates of interest

notified by the Reserve Bank of India, against the proceeds to be realised by them in respect of any cheque or draft received by them as advance payment towards an exporter order.

This facility is extended by the banks to only those exporters who have an unblemished track record of dealings with the bank.

Thus, it is a kind of accommodation granted by the bank to the exporter for the transit period stipulated by the Foreign Exchange Dealers Association of India for collection of the instrument or till the date of realisation of proceeds thereof whichever is earlier.

3. Post shipment finance:Any loan or advance granted or any other credit provided by an institution to an exporter of goods from India from the date of extending credit after shipment of goods to the date of realization of export proceeds and includes any loan or advance granted to an exporter , in consideration of , or on the security of, any duty drawback or any other incentive receivable from govt. of India. Features of post shipment finance:• Available after shipment• Given to exporter only in whose name exports have been done• Can be short term or long term• Its a working capital finance• Fund based credit• Maximum period of concessional rates of interest from the date of shipment is six

months.

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Types:

a. Export Bills purchased/discounted. b. Export Bills negotiated c. Advance against export bills sent on collection basis. d. Advance against export on consignment basis e. Advance against un-drawn balance on exports f. Advance against claims of Duty Drawback.

1. Export Bills Purchased/ Discounted : (DP & DA bills)The banks may sanction advance against purchase or discount of export bills drawn under confirmed contracts. If the L/C is not available as security, the bank is totally dependent upon the credit worthiness of the exporter.

2. Export Bills Negotiated (Bill under L/C):Because of the security available in this method, banks often become ready to extend the finance against bills under LC.However, this arises two major risk factors for the banks:

The risk of nonperformance by the exporter, In which case, the issuing banks do not honor the letter of credit.

Documentary risk where the issuing bank refuses to honor its commitment.

So, it is important for the negotiating and the lending bank to properly check all documents before submission.

3. Advance Against Export Bills Sent on Collection BasisBills can only be sent on collection basis if the bills drawn under LC have some discrepancies. Banks may allow advance against these collection bills to an exporter with concessional rates depending upon the transit period in case of DP Bills and transit period plus usance period in case of usance bill. Transit period is from the date of acceptance of the export documents for collection by the bank.

4. Advance Against Export on Consignment BasisThe bank may grant post-shipment finance against goods sent on consignment basis.

5. Advance against Undrawn Balance It is a very common practice in export to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc. Banks do finance against the undrawn balance, subject to a maximum of 10 percent of the export value against an undertaking from the exporter.

6. Advance Against Claims of Duty DrawbackDBK 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 on indigenous materials. Banks offer pre-shipment as well as post- shipment advance against claims for DBK.

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EXIM BANK:

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UNIT 5

EXPORT PROMOTION:

Export promotion is an international effort by the Govt.& related organization so as to promote trade through improvement in export quantity, export procedure, assistance & so on.

Basically it’s a deliberate objective attempt to enhance export through its focussed change with market competitiveness.

Export promotion refers to that policy/effort of the government that offers encouragement to the exporters with a view to enhance the export of the country. In order to achieve this objective exporters are given numerous incentives and facilities.

Significance:

1. More GDP growth.

2. Increase foreign reserves

3. Decrease unemployment

4. Increase per capita income

5. More trade

6. More income to growth

7. High rate of capital formation

8. More brand value to country

9. Higher incentives to exporters

10. More self dependency

11. Tech advancement

12. Better product

13. Better usage of natural resources

Institution for export promotion:

The following Institutions Promote export from India

Indian Trade Promotion Organisation (ITPO).

Indian Institute of Foreign Trade (11FT).

Indian Institute of Packaging (lIP).

Indian Counsel of Arbitration (ICA).

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Federation of Indian Export Organisation (FIEO).

Marine Products Exports Development Authority (MPEDA).

Export Processing Zones (EPZ).

100% Export Oriented Units (EOUs).

Facilities for Units in EOUs, EPZs, EHTPs & STPs.

M. Visvesvaraya Industrial Research & Development Center (MVIRDC).

Chamber of Commerce (COC)

EPCs, Boards, Authorities and Associations etc.

Ministry of Commerce and Industry…. Its departments and directorates

Through

EXIM Policy, Export Promotion Activities, Export Promotion Schemes,

Seminars/Workshops/Fairs/ Exhibitions etc.

EXPORT PROMOTION COUNCIL:

Export Promotion Councils are registered as non -profit organizations under the Indian Companies Act 1956 (now 2013).

Maximum EPCs under the administrative control of the Department of Commerce and Few EPCs related to textile sector under the administrative control of Ministry of Textiles.

The Export Promotion Councils perform both advisory and executive functions.

E.g…. Textiles EPCs

Federation of Indian Export Organizations (FIEO)

The Federation of Indian Export Organizations represents the Indian entrepreneur's spirit of enterprise in the global market, set up in October, 1965, the Federation, known popularly as "FIEO", has kept pace with the country's evolving economic and trade policies, and provided the content, direction and thrust to India's expanding international trade. As an apex body of all Indian export promotion organizations, FIEO works as a partner of the Government of the India to promote Indian exports.

ACTIVITIES:

Export Promotion Activities :

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FIEO Organizes various activities like Seminars, Workshops, Open House Meets, Buyer-Seller Meets and Exchanging Business Delegations etc.

In the last financial year FIEO organized activities pertaining to China, MERCOSUR, Italy, Botswana, Argentina, Fiji, Israel, Syria, Jordan, EU, Ethiopia, Uzbekistan, Kyrgyzstan, Romania and many more countries covering all regions of the World.

Market Development Assistance : Market Development Assistance (MDA) Scheme is under operation through the Department of Commerce, Government of India to assist exporters for export promotion activities abroad.

Certificate of Origin : Certificate of Origin is required by most countries to establish proof of origin of the goods being imported by them. FIEO has been authorized to issue Certificate of Origin under SAPTA and BANGKOK Agreement and non-preferential purposes.

Taking up Issues/Problems of Members :FIEO takes up problems of members relating to Foreign Trade Policy, Banking, Income Tax, Customs, Central Excise etc with Policy makers in the Government’s various Departments/ Ministries.

Live Chat with Members : Members can chat live with Director General FIEO on every Wednesday from 3.00 p.m. to 5.00 p.m. and seek clarifications/advices on any matter relating to foreign trade.

International Exposure and Guidance through Website : Provides 24x7 exposure to members through Search with FIEO. Buyers can reach members through FIEO search. Members can have access to commercial reports, buyers list, trade & tender inquiries and Updates on trade policy, exhibitions, fairs etc.

Disseminating Commercial Intelligence : FIEO brings out a monthly bulletin ‘FIEO News’ to keep its members updated with policy changes, changing market trends, upcoming export opportunities etc. FIEO News is circulated among all the members free of cost. FIEO News is available on website FIEO News .

EXPORT PROMOTION MEASURES IN INDIA:

DUTY EXEMPTION SCHEME

An advance licence is issued under duty exemption scheme to allow import of inputs, which are physically incorporated in the export product.

Advance Licence: An advance licence is issued for duty free import of inputs subject to actual user condition according to the EXIM Policy. Such licences other than the advance licence for deemed export, are exempted from payment of basic customs duty, surcharge, additional customs duty, anti-dumping duty and safeguard duty, if any.

Advance licence can be issued for: i) physical exports ii) Intermediate supply and iii) Deemed exports

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The licences are issued to the manufacturer exporter or the merchant exporter. The licences and/or materials imported there under sha1l not be transferable even after completion of export obligation. The licences are issued to make a positive value addition.

The licences are subject to the fulfillment of a time bound export obligation as specified in the policy.

Advance Licence for Intermediate supply: Advance licence may be issued for intermediate supply to a manufacturer-exporter for the import of inputs required in the manufacture of goods to be supplied to the ultimate exporter/deemed exporter holding another advance licence.

Advance licence for deemed export: Advance licence can be issued for deemed export to the main contractor for import of inputs required in the manufacture of goods to be supplied to the categories mentioned in the policy.

An advance licence for deemed export can also be availed by the sub-contractor of the main contractor to such project. The licences sha1l be exempted from basic customs duty, surcharge and additional customs duty only.

DUTY REMISSION SCHEME : DFRC, DEPB

Duty Free Replenishment Certificate (DFRC): This certificate is issued to a merchant exporter or manufacturer exporter for the import of inputs used in the manufacturer of goods without payment of basic customs duty, surcharge and special additional duty. Such inputs shall be subject to the payment of additional customs duty equal to the excise duty at the time of import.

Duty Free Replenishment certificate shall be issued only in respect of export products covered under the Standard Input Output Norms (SIONS) as notified by DGFT.

This certificate shall be issued for import of inputs, as per SION, having same quality, technical characteristics and specifications as used in the end product indicated in the shipping' bill.

The validity period of this licence shall be 12 months. DFRC and the material imported against it shall be freely transferable. The certificate shall be subject to a minimum value addition of 33%.

Duty Entitlement Passbook Scheme (DEPB)

The exporters, who are not desirous of availing the licensing facility, may avail the facility of DEPS. The objective of this scheme is to neutralise the incidence of customs duty on the import content of export product. The neutralisation is provided by way of grant of duty credit against the export goods.

Under this scheme, an exporter may apply for credit as a specified percentage of FOB value of exports made in freely convertible currency.

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This credit is made available for the import of raw materials intermediates components, parts, packing material etc. The holder of DEPB shall have the option to pay additional customs duty, if any, in cash as well.

EXIM Policy

Aims at

(i) Promoting exports and augmenting foreign exchange earnings; and

(ii) Regulating exports wherever it is necessary for the purpose of either avoiding competition among the Indian exporters or ensuring domestic availability of essential items of mass consumption at reasonable prices.

Export promotion capital goods scheme:

It was first introduced by the EXIM policy of 1992-97 in order to enable manufacturer exporter to import machinery and other capital goods for export production at concessional or no custom duties at all.

• This facility is subject to export obligation, i.e., the exporter is required to guarantee exports of certain minimum value, which is in multiple of the value of capital goods imported.

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