Export Policy and Export Export Policy and Export Financing, Back to Back L/C and Financing, Back to Back L/C and its operationits operation

Presented by-Md. Mosharraf Hossain, M. Sc (Math) (1st Class) & MBA (Banking)

(1st Class), (DU), DAIBB

VP & Manager, DBBL, Baburhat Branch, Narsingdi

o Export Policy: Export policies, formulated by the Ministry of Commerce,

GoB provide the overall guideline and incentives for promotion of exports in Bangladesh. Export policies also set out commodity-wise annual target. This policy prepared for three-years period to make them contemporaneous with the three years plans and to provide continuity to the policy regime.

In this policy the Govt. has been trying to increase the job market so that the country can reduce the poverty by half by 2015

Export Policy

Objective of Export PolicyObjectives of Export Policy:o To update and liberalize the trade regime in accordance with the

needs and requirements of the World Trade Organization;o To encourage labor-intensive (especially female labor) export-

oriented production;o To ensure availability of raw material for producing export

products;o To increase productivity, and diversifying products;o To improve the quality of products; to encourage the use of

modern, sustainable and environment-friendly technology; to produce higher value products; and to improve the design of the products;

o To increase efficiency to use e-commerce and e-governance

Objective of Export Policy (Contd.)o To initiate new strategies for the expansion of the

markets for export products, making proper utilization of computer technology, encouraging all modern technology including e-commerce;

o To assist the development of necessary infrastructure, particularly sector-specific backward and forward linkages, in order to encourage the production of exportable products;

o To provide all-out support to new exporters as well as to current exporters;

o To assist the development of a skill labor-force through proper training to manage international trade;

o To provide adequate guidance to merchandise societies, business organizations, business people and related in understanding the changing international trading system.

Strategy of Export PolicyStrategies of Export Policies:o Increasing the institutional skills and working capacity of the

Export Promotion Bureau (EPB); providing assistance in capacity building of the Customs Authorities, sea and land port authorities, Department of Fisheries, BSTI, Tea Board as well as of different trade bodies;

o Strengthening and expanding the “Product Development Council” activities through joint initiatives of the governmental and non-governmental sector so as to encourage the production and export of potential products;

o Providing assistance to producers and exporters in certain areas, such as demand-related foreign market intelligence, attaining higher price etc.;

o Providing up-date information to the exporters on export market and technology for the purpose of export diversification;

Strategy of Export Policyo Creating training opportunities and establishing sector-specific

training institutes for workers, staff and management people to increase productivity;

o Providing assistance in export promotion through increased institutional facilities including trading house and export;

o Providing assistance in establishing “seal of quality organization” or similar organization trading so as to ensure, where applicable the quality of the products;

o Encouraging the establishment of product-wise design center for the improvement of product designs;

o Assisting the exporters to get familiarized with the working procedure of significantly successful exporting countries;

o Providing financial and tax subsidies or incentives, including low-interest loans, to the exporters;

o Sending trade missions abroad and providing assistance exporters to hold single trade fairs abroad as well as to participate in different international trade fairs, and thus making the products popular and creating markets for them;

Highest Priority Sectoro Agro-products and agro-processing products;o Light engineering products (including auto-

parts and bicycles);o Footwear and leather products;o Pharmaceutical products;o Software and ICT products; ando Home Textileo Ship Building Industry; ando Toiletries products.

Facilities for Highest Priority Sectoro Projects loans with reduced interest rates on a priority basis;o Income tax exemptions;o Subsidies which are compatible with WTO Agreement on

Agriculture, and WTO Agreement on Subsidies and countervailing Measure;

o Possible financial benefits or subsidies for utility services such as electricity, water and gas, provided that they are compatible with WTO Agreement on Agriculture, and WTO Agreement on Subsidies and Countervailing Measure;

o Export Loan with soft terms and lesser interest rate;o Reduced air travel fears;o Duty draw back/ bond facilities;o Privileges for the establishment of backward linkage industries

including infrastructural development so as to reduce production cost;

o Expansion of institutional and technical facilities to improve and control product quality;

o Assistance in production and marketing;o Assistance in foreign market search; ando Taking necessary initiatives to attract foreign investment.

Special Development Sectors of Export Policy:o finished leather production;o frozen fish production and processing;o handicraft products;o electronic products;o fresh flower and foliage;o jute products;o hand-woven textiles from hill areas (pahari taat bostro) products;o uncut diamond;o herbal medicine and medicinal plants;o ceramic product and melamine;o plastic products; ando furniture industry.

Facilities for special development sectoro Projects loans with reduced interest rates on a priority basis;o Income tax exemptions;o Subsidies which are compatible with WTO Agreement on Agriculture,

and WTO Agreement on Subsidies and countervailing Measure;o Possible financial benefits or subsidies for utility services such as

electricity, water and gas, provided that they are compatible with WTO Agreement on Agriculture, and WTO Agreement on Subsidies and Countervailing Measure;

o Export Loan with soft terms and lesser interest rate;o Reduced air travel fears;o Duty draw back/ bond facilities;o Privileges for the establishment of backward linkage industries

including infrastructural development so as to reduce production cost;

o Expansion of institutional and technical facilities to improve and control product quality;

o Assistance in production and marketing;o Assistance in foreign market search; ando Taking necessary initiatives to attract foreign investment.

General Export Facilities:o Use of Foreign Exchange Earned from Export;o Export Promotion Fund;o Providing Fund for Export;o Export Loan;o Exemption of Insurance Premium;o Incentives for Export of Non-traditional Industrial

Products;o Bond Facilities for Export Oriented Industries;o Providing alternatives incentives, instead of duty bond

or duty-draw-back to export-oriented local textiles and readymade garments industries;

o Easing VAT return on Export-Facilitating Services;o General Facilities for Export-Oriented Industries;

General Export Facilitieso Reduced Air Fare for the Export of Special Privileged

Products including Fruits and Vegetable;o Withdrawal of Royalty for the Expansion of Cargo

Facilities of Foreign Airlines for Export Purpose;o Venture Capital Facilities for Small and Medium

Enterprise;o Research and Development;o Encouragement and Facilities for Exports Based on sub-

contracting;o Fixation of Annual Limits for Sending Samples of Export

Products;o Issuance of Multiple-Entry Visa;o Foreign Trade related Training;o Setting up of the World Trade Center;o Encourage of Increased Use of Local Raw Materials;

Financial Incentives for Export Incentiveso Financial Incentives:o Exporters can deposit 10% of FOB value of their export earnings

in own accounts in dollar and pound sterling;o Insurance premium rebate for non-traditional exports;o 50% tax rebate on export earnings;o Duty Draw back facilities;o Bonded warehouse facilities to 100% export oriented firms;o Duty free import of capital equipments for 100% export oriented

firms;o 5.00% cash incentives for RMG using local fabrics, 12.50% for

Frozen Shrimp & Others fish, 17.50% for Leather goods, 10.00% for Potato, 10.00% for By-cycle, 15.00% for Bone Dust, 10.00% for Jute goods, 10.00% for Poultry, 10.00% for Light engineering, 15-20% for Handicraft made from Bamboo, Cane and coconut fiber and 20.00% for 100% Halal Meat, 20.00% for Agricultural goods and processed Agri-products, 20.00% for liquid glucose produced from Ishwardi EPZ, 7.50% for Finished lather and 10.00% for PET bottle.

o Registration of Exporters o Securing the Order o Procuring the materials o Shipment of goods

Export Procedure

Documents required of exporto EXP Form;o ERC (valid);o L/C copy;o Customs Duty Certificate;o Shipping Instruction;o Transport Documents;o Insurance Documents;o Invoice;o Other Documents;o Bill of Exchange (if required);o Certificate of Origin;o Inspection Certificate;o Quality Control Certificate;o G.S.P Certificate;o Phyto-sanitary Certificate.

Export Financing

Stages of Export Financing:o Pre-shipmento Post-shipmentCategories of Export Financing:o Pre-shipment credito Post-shipment credit

Pre-shipment Financing

o Pre-shipment credit is given for the following purpose:

o Cash for local procurement and meeting related expenses;

o Procuring and processing of goods for export;o Packing and transporting of goods for export;o Payment of insurance premium;o Inspection fees;o Freight charges etc.

Pre-shipment Financing (contd..)

Pre-shipment credit takes the following forms:o Export Cash Credit (Hypothecation);o Export Cash Credit (Pledge);o Export Cash Credit against Trust Receipt;o Packing Credit;o Back to Back letter of credit;o Credit against anticipatory letter of credit

Post-shipment Financing

Banks in our country extended post-shipment credit to the exporters through:o Negotiation of documents under L/C;o Purchase of DP & DA bills;o Advance against Export Bills surrendered

for collection

Post-shipment FinancingExport Development Fund:o An exporter identified above is eligible to avail of EDF facilities on

the basis of the conditionality stated below:o He must be an exporter of non-traditional manufacturing items;o The value added of these products could be 20% except in the case

of garments where it has to be 30% and above;o The loan should be utilized in the case of importing raw-material for

manufacturing the exportable products;o The exporter must have an export L/C;o He must create a back to back L/C for importing raw-materials;o The period of loan is 180 days;o The exporter can borrow as many times as he likes in a year;o The interest rate pays is LIBOR+1%;o An exporter can borrow an amount not exceeding $10,000,000;o He has to have Export Credit insurance through E.C.G.S.

Back to Back Letter of CreditA back to back credit is essentially a secondary or ancillary credit opened by a bank on behalf of the beneficiary of the original credit, in favor of a supplier located inside or outside the original beneficiary’s country.

The following points may be kept in mind by the bank while opening a back to

back credit:-o The terms and conditions of back to back credit should be exactly as

that of the original letter of credit except for curtailment in;o The amount of the credit: This would have margin of profit for the

exporter.o The validity and the shipment dates: This would have sufficient time

for the exporter to prepare & substitute his documents to importer if the goods are supplied by the supplier to him.

o Though is not necessary only an intermediary bank under the original credit should open a back to back credit, it would be better than such credits are opened only where the bank is also a negotiating bank. This would avoid the risk of the documents substituted by the exporter being rejected by the negotiating bank as not fulfilling the conditions of the credit.

o The original credit should be an irrevocable credit

Back to Back Letter of Credit (contd.)Papers/ documents required for submission to the bank for opening of Back to Back L/C are:o Master LC;o Valid Import Registration Certificate (IRC) & Export Registration

Certificate (ERC);o LC application and LCA form dully filled in & signed;o Proforma Invoice or Indent;o Insurance Cover Note with Money Receipt;o IMP Form duly signed;In addition to the above the following papers/ documents are also required for export oriented garment industries wile requesting for opening of back to

back LC:-o Textile permission;o Valid Bonded Warehouse License;o Quota allocation letter issued by EPB in favor of the applicant in case

of quota items;o In case the Factory premises is a rented one, Letter of Disclaimer duly

executed by the owner of the house/ premises to be submitted;

Back to Back Letter of Credit (contd.)Eligibility: Only recognized export oriented industrial units operating under bonded warehouse system will be allowed the back to back LC facility .

Validity: The master export LC (against which opening of back to back LC is requested) should have validity period adequate to cover the time needed for importation of inputs, manufacture of merchandise and shipment to consignee.

Value of the LC: The back to back LC value shall not exceeded the admissible percentage of net FOB value of the relative master export LC (as per prescribed value addition requirement) and the price of goods to be imported must be competitive.

Usance LC: The back to back import LCs shall be opened on usance basis for a period not exceeding 180 days. Interest for the usance period shall not exceed LIBOR of the equivalent interest rate of the currency of settlement. Back to Back LCs opened against (a) Export Development Fund (EDF) administered by Bangladesh Bank and/ or against (b) balance of Non-Resident Foreig Currency Deposit (NFCD) Accounts may be on sight basis subject to immediately be replenished on realization of respective export proceeds.

Back to Back Letter of Credit (contd.)Amendment: All amendments of the master LC should be noted down carefully to rule out chances of excess obligation under the back to back import LC.

Inland BTB LC: Inland Back to Back LCs denominated in foreign exchange may be opened in favour of local manufacturer-cum-suppliers of input, against master export LCs received by export oriented manufacturing units operating under the bonded warehouse system, up to value limits applicable as per prescribed value addition requirement/ utilization permit.

Payment of BTB LC: Payment abroad in settlement of usance bill against the back to back import LCs shall made at maturity, out of proceeds of the relative export repatriated in foreign exchange; the required foreign exchange; the required foreign exchange will be set aside, out of the export proceeds, in a separate foreign currency account in the subsidiary ledger of the AD. Before making remittance against the back to back import bill, the AD should see that the authenticated copy of bill of entry for bond in evidence of actual arrival of the relative import has been submitted.

Back to Back Letter of Credit (contd.)Single Pool: On encashment of export proceeds equivalent to the portion of value addition, residual portion of export proceeds against different export bills of the same export unit operating under bonded warehouse system may be maintained in foreign currency in a single pool by the ADs. Funds from this pool may be used for different back to back import payments of the same exporting unit on maturity basis to keep minimum involvement of ADs own fund under the exchange position as well as to keep exporter free from debt burden.

Back to Back Letter of Credit (contd.)Steps for handling Back to Back Letter of Credito LC issuing bank will open the Back to Back LC against the Master

Export LC.o Receive the Back to Back LC by the advising bank;o Advise the LC to the beneficiary;o Advise the subsequent amendment if any, to the beneficiary;o Submit the documents by the beneficiary after export of goods;o Scrutiny the documents by the negotiating bank;o Forward the documents to the LC issuing bank;o LC issuing bank will inform the applicant about the documents and

arrange to take the acceptance of the documents;o Receive the acceptance with maturity from the Issuing bank;o If required the negotiating bank negotiate the documents and giving

the admissible amount (i.e maximum 90% of the LC value) to the beneficiary;

o On maturity the LC issuing bank will remit the export proceeds to the negotiating bank after receiving the original export proceeds;

o Negotiating bank will adjust the liability of the beneficiary and rest of the amount will credit the exporters account.

Back to Back Letter of Credit (contd.)Defective points/ clause appeared in the master LCs (Export LCs):o Issuing bank is not reputed;o Advising credit by the advising bank without authentication;o Port of destination absent;o Inspection clause;o Nomination of specific shipping/ Air line of nomination of specified

vessel by subsequent amendment;o B/L to blank endorse, to endorse to 3rd bank, to be endorse to

buyer or 3rd party;o No specific reimbursement clause;o UCP clause not mentioned;o Shipment/ presentation period is not sufficient;o Original documents to be sent to buyer of nominated agent;o “Shipper’s load and count is not acceptable” clause;o LC shall expire in the country of the issuing bank;o Negotiation is restricted.

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