Basics of International Basics of International Trade & Trade & DocumentationDocumentationDiscussion ContentsDiscussion Contents

Basics of International TradeBasics of International Trade Sales ContractSales Contract The Exchange of GoodsThe Exchange of Goods Transfer of FundsTransfer of Funds

Trade DocumentationTrade Documentation Common DocumentsCommon Documents BL, CO & GSPBL, CO & GSP DiscrepanciesDiscrepanciesUnderstanding International TradeUnderstanding International Trade

Import and ExportImport and Export

GlobalizationGlobalization

DocumentationDocumentation

Customs Import, Export procedureCustoms Import, Export procedure

IncotermsIncoterms

International Transport and LogisticsInternational Transport and Logistics

International contractsInternational contracts

Methods of PaymentsMethods of Payments

Finance of International TradeFinance of International TradeBasics of International TradeBasics of International Trade

International TradeInternational Tradeis the movement of goods is the movement of goods and services that develop from a business and services that develop from a business transaction between a buyer in one country transaction between a buyer in one country and a seller in another countryand a seller in another country

If you walk into a supermarket and are able to If you walk into a supermarket and are able to buy South American bananas, Brazilian coffee buy South American bananas, Brazilian coffee and a bottle of South African wine, you are and a bottle of South African wine, you are experiencing the effects of international trade. experiencing the effects of international trade. Some important benefits of Some important benefits of International TradeInternational Trade

Enhances the domestic competitivenessEnhances the domestic competitiveness

Takes advantage of international trade technologyTakes advantage of international trade technology

Increase sales and profitsIncrease sales and profits

Extend sales potential of the existing productsExtend sales potential of the existing products

Maintain cost competitiveness in your domestic Maintain cost competitiveness in your domestic marketmarket

Enhance potential for expansion of your businessEnhance potential for expansion of your business

Gains a global market shareGains a global market share

Reduce dependence on existing marketsReduce dependence on existing markets

Stabilize seasonal market fluctuationsStabilize seasonal market fluctuations

Export RegulationsExport RegulationsExportDocumentsExportDocuments--ConsignorConsignor--Land/Sea/AirLand/Sea/Air

Export of goods from Bangladesh (excepting export from Type A i Export of goods from Bangladesh (excepting export from Type A industrialndustrial units located in theunits located in the EPZs EPZs) to foreign countries by land route or by sea/air, the) to foreign countries by land route or by sea/air, the Railway Receipts, Bills of Lading/AWB and any other documents of Railway Receipts, Bills of Lading/AWB and any other documents of title totitle to cargoshouldbedrawnonlytotheorderofabankdesignatedfor cargoshouldbedrawnonlytotheorderofabankdesignatedfor thisthis purpose by the respective exporters. purpose by the respective exporters.

However, in case of export of goods, full payment for which val However, in case of export of goods, full payment for which value has beenue has been received by the exporter in advance through the bank, the Bill o received by the exporter in advance through the bank, the Bill of Lading andf Lading and other documents may be endorsed by the bank in favor of foreignother documents may be endorsed by the bank in favor of foreign importersimporters and the same may be sent directly to the importers abroad by the and the same may be sent directly to the importers abroad by the bank.bank. Negotiation of Export Bills Negotiation of Export Bills generally take place against: Bill of Lading Airway Bills Negotiation can also take place against ForwardersCargo Receipts (FCR) and House Airway Bills (HAWB) provided: The export L/C and the export sales contract specifically provide for negotiation of export bill against FCR/HAWB issued by a freight forwarder The freight forwarder is operating in Bangladesh with necessary approvals to act as agent of non-resident principal along with authorization of Bangladesh BankEndorsement of Shipping Documents by BanksEndorsement of Shipping Documents by BanksThe banks to whose order the relative Railway Receipts, Bills o The banks to whose order the relative Railway Receipts, Bills of Ladingf Lading etc.aredrawnshallendorsethesametotheorderoftheirfore etc.aredrawnshallendorsethesametotheorderoftheirforeignign correspondents but in no case they shall make any blank endorsem correspondents but in no case they shall make any blank endorsement orent or endorse it to the order of the consignee unless they have obtain endorse it to the order of the consignee unless they have obtained specificed specific or general approval of the Bangladesh Bank therefore. or general approval of the Bangladesh Bank therefore.However, in the cases of export from Type A industrial units l However, in the cases of export from Type A industrial units located inocated in EPZ, Bill of Lading/Airway Bill /other documents of title to car EPZ, Bill of Lading/Airway Bill /other documents of title to cargo drawn togo drawn to the order of the bank may be blank endorsed or endorsed in favor the order of the bank may be blank endorsed or endorsed in favor of theof the consignees as per terms of the export LC /export contract. consignees as per terms of the export LC /export contract.Deduction of Commission, Brokerage and Other Deduction of Commission, Brokerage and Other Trade ChargesTrade ChargesCommission, brokerage or other trade charges due to be paid toCommission, brokerage or other trade charges due to be paid to foreign importers orforeign importers or agentsbyexportersinBangladeshrelatingtotheparticularshi agentsbyexportersinBangladeshrelatingtotheparticularshipmentmaybepmentmaybe deducted from the relative bill amount or the amount of the sale deducted from the relative bill amount or the amount of the sale proceeds or remittedproceeds or remitted from Bangladesh after the full proceeds have been realized onlyfrom Bangladesh after the full proceeds have been realized only upto upto a maximum ofa maximum of 5% of the value of the goods. 5% of the value of the goods.Inexceptionalcasesorwhereitiscustomaryinanyparticul Inexceptionalcasesorwhereitiscustomaryinanyparticulartradetopayartradetopay commissioninexcessof5%bydeductionfromtheinvoicevalueo commissioninexcessof5%bydeductionfromtheinvoicevalueofexports,thefexports,the Bangladesh Bank may consider applications by exporters through t Bangladesh Bank may consider applications by exporters through their bankers andheir bankers and may grant a standing authority to permit payment of commission i may grant a standing authority to permit payment of commission in excess of 5% ofn excess of 5% of theinvoicevalue.Productionofdocumentaryevidenceindicating theinvoicevalue.Productionofdocumentaryevidenceindicating thearrangementthearrangement necessitating the payment of commission in this manner will be n necessitating the payment of commission in this manner will be necessary. ecessary.Export Without L/CExport Without L/C Exports without L/C can be done through:Exports without L/C can be done through:--buying contractbuying contractoror- -agreementagreementoror- -purchase order purchase order (upon the submission of EXP Form and Shipping Bill)(upon the submission of EXP Form and Shipping Bill) - -But in all cases documents of title to cargo should But in all cases documents of title to cargo should be drawn only to the order of a bank designated be drawn only to the order of a bank designated for this purpose by the respective exporters for this purpose by the respective exporters (excepting exports from Type A industrial units (excepting exports from Type A industrial units located in the located in the EPZsEPZs))

Are you ready for export?Are you ready for export? Understand the challengesUnderstand the challenges Manage export contracts and logisticsManage export contracts and logistics Secured Payment issuesSecured Payment issuesChallenges;Challenges;

Planning and StrategyPlanning and Strategy Resources like Finances, personnel, productionResources like Finances, personnel, production Well defined strategyWell defined strategy

MarketingMarketing Target Market researchTarget Market research Local regulations and customer requirementsLocal regulations and customer requirements Pricing and packagingPricing and packaging

Export proceduresExport procedures Negotiation process, payment termsNegotiation process, payment terms Distribution networkDistribution network Insurance, duties and taxesInsurance, duties and taxes

Import RegulationsImport RegulationsEligibility for Opening Import L/CEligibility for Opening Import L/C

Valid Import Registration Certificate (IRC) issued from competen Valid Import Registration Certificate (IRC) issued from competent authority. However,t authority. However, IRC is not required if the purpose of import is own consumption. IRC is not required if the purpose of import is own consumption.

Valid Trade License issued from the City Corporation/Municipalit Valid Trade License issued from the City Corporation/Municipality y

Valid membership certificate from Chamber of Commerce & Industry Valid membership certificate from Chamber of Commerce & Industry oranyTradeoranyTrade Association recognized by CCI & E Association recognized by CCI & E

Proof of Tax Identification Number (TIN) issued from income taxProof of Tax Identification Number (TIN) issued from income tax authority authority

Value added Tax (VAT) certificate issued by National Board of Re Value added Tax (VAT) certificate issued by National Board of Revenue venue

AdeclarationthattheimporterpaidIncomeTaxorsubmittedtax AdeclarationthattheimporterpaidIncomeTaxorsubmittedtax returnforthereturnforthe preceding year preceding year

Board resolution in case of LimitedCompany. Board resolution in case of LimitedCompany.

NOC ofBill of Entry from Previous Banks NOC ofBill of Entry from Previous BanksRequired Documents/papers for opening L/CRequired Documents/papers for opening L/C

Letter of Credit Authorization Form (LCAF) duly signed by the Letter of Credit Authorization Form (LCAF) duly signed by the Importer.Importer.

Letter of Credit Application Form (Stamped form) duly signedLetter of Credit Application Form (Stamped form) duly signed

IMP FormIMP Form

InsuranceCoverNotecovering110percentvalueoftheL/C InsuranceCoverNotecovering110percentvalueoftheL/C amountamount

Money Receipt of the Insurance Cover Note (Proof of payment, Money Receipt of the Insurance Cover Note (Proof of payment, i.e. pay order, credit advice)i.e. pay order, credit advice)

ProformaProformaInvoice/ Indent (Indenter's valid permission from BBK Invoice/ Indent (Indenter's valid permission from BBK for respective suppliers)for respective suppliers)

CreditReportoftheExporterifvalueexceedsBDT200M CreditReportoftheExporterifvalueexceedsBDT200M approximately USD 2900 for approximately USD 2900 for ProformaProformaInvoice andBDT 500M Invoice andBDT 500MapproximatelyUSD 7,200 for Indent.approximatelyUSD 7,200 for Indent.Types of ImportersTypes of ImportersIndustrial Importer (Manufacturing Company)Industrial Importer (Manufacturing Company)Commercial Importer (Trading House/Company)Commercial Importer (Trading House/Company)Own consumptionOwn consumptionLetter of Credit Authorization FormLetter of Credit Authorization Form::Letter of Credit Authorization (LCA) form is a form, which is Letter of Credit Authorization (LCA) form is a form, which is prescribed by the C.C.I.E in lieu of Import Permit/License prescribed by the C.C.I.E in lieu of Import Permit/License for opening L/C.for opening L/C.Types of LCAFTypes of LCAF IndustrialIndustrial CommercialCommercialSales ContractSales Contract

Legally, there are four basic elements of a Legally, there are four basic elements of a sales contract.sales contract. What is being sold.What is being sold.Description of each item.Description of each item. At what price.At what price.Unit and total price.Unit and total price.Clearly specify the currency.Clearly specify the currency. In what quantity.In what quantity. Of what quality.Of what quality.New, used, premium, standard, etc.New, used, premium, standard, etc.

You may write up a formal contract of sale, You may write up a formal contract of sale, or you may use:or you may use: A purchase order signed by the buyer.A purchase order signed by the buyer. An order acknowledgmentAn order acknowledgmentcountersigned by countersigned by the buyer.the buyer. A pro forma invoice.A pro forma invoice. International trade law governing sales contracts is International trade law governing sales contracts is under the auspices of the UNITED NATIONS under the auspices of the UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW.COMMISSION ON INTERNATIONAL TRADE LAW.

An order acknowledgement should An order acknowledgement should supplement a purchase order by:supplement a purchase order by:Confirming terms and conditions of the Confirming terms and conditions of the sale not covered by the purchase order.sale not covered by the purchase order. Delivery scheduleDelivery schedule Product warrantyProduct warranty Payment schedulePayment schedule

A pro forma invoice is a document prepared in A pro forma invoice is a document prepared in advance of a sale to provide evidence of the advance of a sale to provide evidence of the final form and amount of invoice.final form and amount of invoice. It is a form of a quotation.It is a form of a quotation. Specify a time limit for the validity of the offer. Specify a time limit for the validity of the offer. A pro forma invoice should be printed on letterhead A pro forma invoice should be printed on letterhead stationery.stationery. A pro forma invoice should contain:A pro forma invoice should contain: Description of each item Description of each item Quantity of each item Quantity of each item Unit and total price Unit and total price Terms of sale Terms of sale Shipping and packing charges Shipping and packing charges Net and gross weight Net and gross weight

A pro forma invoice should contain enough A pro forma invoice should contain enough detail to help the buyer to:detail to help the buyer to: Open a letter of credit.Open a letter of credit. Obtain an import permit.Obtain an import permit. Calculate the DUTYCalculate the DUTYon the items.on the items.International commercial termsInternational commercial terms

TRANSFER OF FUNDSTRANSFER OF FUNDSTrade payment methodsTrade payment methodsWhat is an L/C ?What is an L/C ?

An L/C can be thought of as a letter from an An L/C can be thought of as a letter from an importerimporters bank informing an exporter that they s bank informing an exporter that they will be paid for a shipment upon presentation of will be paid for a shipment upon presentation of the specified documentation. the specified documentation.

All communication takes place within banking All communication takes place within banking channels and documentation must not contain channels and documentation must not contain discrepancies.discrepancies.What is an L/CWhat is an L/C

In summary, an L/C is:In summary, an L/C is: A formal document of paymentA formal document of payment Opened by a party wishing to importOpened by a party wishing to import Communicated through banking channelsCommunicated through banking channels Paid by the opening bank within a specified timeframe Paid by the opening bank within a specified timeframe upon presentation of stipulated documentationupon presentation of stipulated documentationL/C flow diagramL/C flow diagramParties involved in LC transaction:Parties involved in LC transaction:The The Applicant Applicant is the party that arranges for the letter of credit to be issued is the party that arranges for the letter of credit to be issued. .The The Beneficiary Beneficiary is the party named in the letter of credit in whose favor theis the party named in the letter of credit in whose favor the letter of credit is issued. letter of credit is issued.The The Issuing or Opening Bank Issuing or Opening Bank is the applicant is the applicant s bank that issues or openss bank that issues or opens the letter of credit in favor of the beneficiary and substitutes the letter of credit in favor of the beneficiary and substitutes itsits creditworthiness for that of the applicant. creditworthiness for that of the applicant.An An Advising Bank Advising Bank may be named in the letter of credit to advise themay be named in the letter of credit to advise the beneficiary that the letter of credit was issued. The role of th beneficiary that the letter of credit was issued. The role of the Advising Banke Advising Bank is limited to establish apparent authenticity of the credit, whi is limited to establish apparent authenticity of the credit, which it advises. ch it advises.The The Paying Bank Paying Bank is the bank nominated in the letter of credit that makesis the bank nominated in the letter of credit that makes payment to the beneficiary, after determining that documents con payment to the beneficiary, after determining that documents conform, andform, and upon receipt of funds from the issuing bank or another intermedi upon receipt of funds from the issuing bank or another intermediary bankary bank nominated by the issuing bank. nominated by the issuing bank.The The Confirming Bank Confirming Bank is the bank, which, under instruction from the issuingis the bank, which, under instruction from the issuing bank, substitutes its creditworthiness for that of the issuing b bank, substitutes its creditworthiness for that of the issuing bank. It ultimatelyank. It ultimately assumes the issuing bank assumes the issuing bank s commitment to pay. s commitment to pay.Settlements Under a Letter of CreditSettlements Under a Letter of CreditAll commercial letters of credit must clearly indicate whether t All commercial letters of credit must clearly indicate whether they are payablehey are payable by sight payment, by deferred payment, by acceptance, or by nego by sight payment, by deferred payment, by acceptance, or by negotiation.tiation. These are noted as formal demands under the terms of the commerc These are noted as formal demands under the terms of the commercial letterial letter of credit. of credit.In a In a sight payment sight payment , the commercial letter of credit is payable when the, the commercial letter of credit is payable when the beneficiary presents the complying documents and if the presenta beneficiary presents the complying documents and if the presentation takestion takes place on or before the expiration of the commercial letter of cr place on or before the expiration of the commercial letter of credit. edit.In a In a deferred payment deferred payment , the commercial letter of credit is payable on a, the commercial letter of credit is payable on a specified future date. The beneficiary may present the complying specified future date. The beneficiary may present the complying documentsdocuments at an earlier date, but the commercial letter of credit is payab at an earlier date, but the commercial letter of credit is payable only on thele only on the specified future date. specified future date.An An acceptance acceptance is a time draft drawn on, and accepted by, a bankingis a time draft drawn on, and accepted by, a banking institution, which promises to honor the draft at a specified fu institution, which promises to honor the draft at a specified future date. Theture date. The act of acceptance is without recourse as it is a commitment to p act of acceptance is without recourse as it is a commitment to pay the faceay the face amount of the accepted draft. amount of the accepted draft.Under negotiation Under negotiation, the , the negotiating bank negotiating bank, a third party negotiator, expedites, a third party negotiator, expedites payment to the beneficiary upon the beneficiary payment to the beneficiary upon the beneficiary s presentation of thes presentation of the complying documents to the negotiating bank. The bank pays the b complying documents to the negotiating bank. The bank pays the beneficiary,eneficiary, normally at a discount of the face amount of the value of the do normally at a discount of the face amount of the value of the documents, andcuments, and then presents the complying documents, including a sight or time then presents the complying documents, including a sight or time draft, to thedraft, to the issuing bank to receive full payment at sight or at a specifiedissuing bank to receive full payment at sight or at a specified future date. future date.Types of L/CsTypes of L/CsThere are various kinds of letter of credit. The types of There are various kinds of letter of credit. The types of them are irrevocable credit, revocable credit, them are irrevocable credit, revocable credit, confirmed credit, unconfirmed credit documentary confirmed credit, unconfirmed credit documentary credit, clean letter credit, fixed credit and revolving credit, clean letter credit, fixed credit and revolving credit.credit.Irrevocable letter of creditIrrevocable letter of credit: Irrevocable letter of credit is : Irrevocable letter of credit is one in which the issuing bank gives a lasting one in which the issuing bank gives a lasting understanding to accept and in due course to pay bills understanding to accept and in due course to pay bills drawn upon it. The only condition is that the exporter drawn upon it. The only condition is that the exporter fulfills the terms and conditions stipulated in the letter fulfills the terms and conditions stipulated in the letter relating to documents. The irrevocable letter of credit relating to documents. The irrevocable letter of credit gives a complete protection to the exporter as it is gives a complete protection to the exporter as it is guaranteed not by a foreign bank.guaranteed not by a foreign bank. Revocable letter of creditRevocable letter of credit: Revocable letter of credit as : Revocable letter of credit as the same signifies is one which can be modified or the same signifies is one which can be modified or cancelled by the issuing bank at any time without any cancelled by the issuing bank at any time without any obligation on its part. As revocable letters of credit are obligation on its part. As revocable letters of credit are subject to cancellation without notification therefore they subject to cancellation without notification therefore they are not usually acceptable to the businessmen.are not usually acceptable to the businessmen.Confirmed letter of creditConfirmed letter of credit: The confirmed letter of credit is : The confirmed letter of credit is that which has the protection of the credit standing of the that which has the protection of the credit standing of the importer's as well as the exporter's bank. The exporter's importer's as well as the exporter's bank. The exporter's bank which confirms the letter of credit takes the liability bank which confirms the letter of credit takes the liability of paying agents in case the issuing bank falls to make of paying agents in case the issuing bank falls to make payment to the exporter. The confirmed letter of credit is payment to the exporter. The confirmed letter of credit is useful when the financial strength and standing of the useful when the financial strength and standing of the issuing bank in the foreign country is known to the issuing bank in the foreign country is known to the exporter. The issuing bank does not enjoy a good exporter. The issuing bank does not enjoy a good reputation. The issuing bank is not well reputed. The reputation. The issuing bank is not well reputed. The political conditions in the issuing bank's country are political conditions in the issuing bank's country are unsettledunsettled

Transferable Letter of CreditTransferable Letter of Credit: Letter of Credit : Letter of Credit that allows all or a portion of the proceeds to that allows all or a portion of the proceeds to bebetransferred from the original beneficiary to transferred from the original beneficiary to one or more additionalone or more additionalbeneficiaries.beneficiaries.

Documentary CreditDocumentary Credit: Commercial Letter of : Commercial Letter of Credit providing for payment by a bank to Credit providing for payment by a bank to thethename beneficiary, usually the seller of name beneficiary, usually the seller of merchandise, against deliverymerchandise, against deliveryof documents of documents specified in the credit.specified in the credit.Import without L/CImport without L/C

Governed by Bangladesh Bank FE Circular No 9, Governed by Bangladesh Bank FE Circular No 9,Dtd Dtd 9 J uly, 1997 and FE Circular No2,9 J uly, 1997 and FE Circular No2, Dtd Dtd11 J uly, 2007. 11 J uly, 2007.

Items allowed forItems allowed for Import Without LC Import Without LC Perishable Food Items, up to $5000 per shipment by land Perishable Food Items, up to $5000 per shipment by landIndustrial Raw Materials & Capital Machinery, without limit Industrial Raw Materials & Capital Machinery, without limit

Documentation required Documentation requiredFull Set LCA Form Full Set LCA FormFull Set IMP Form (required for import payment) Full Set IMP Form (required for import payment)Importer Importer s Application as per format in Attachments Application as per format in Attachment KA KA Accepted Pro forma Invoice / Indent Accepted Pro forma Invoice / IndentValid Import Registration Certificate (Industrial) Valid Import Registration Certificate (Industrial)

LCA registration to be done within 3 business days from date of LCA registration to be done within 3 business days from date of issuance of Pro issuance of Pro- -forma Invoiceforma Invoice / Indent / Indent

Payment can only be settled through the Authorized Dealer withPayment can only be settled through the Authorized Dealer with which LCA Registration haswhich LCA Registration has been done. been done.

Exchange Control Copy of Bill of Entry to be submitted to bankExchange Control Copy of Bill of Entry to be submitted to bank within 30 days of Payment. within 30 days of Payment.Import without L/C contd.Import without L/C contd.

Once an LCA is registered the same cannot be amended. In Once an LCA is registered the same cannot be amended. In case of value increase/decrease, original LCA to be cancelled case of value increase/decrease, original LCA to be cancelled and fresh registration to be done.and fresh registration to be done.

In case of DA payment, In case of DA payment, usanceusanceperiod interest should not be a period interest should not be a rate higher than LIBOR for the relative period or the equivalentrate higher than LIBOR for the relative period or the equivalentrate prevailing in the currency of the country of the supplier.rate prevailing in the currency of the country of the supplier.

Capital Machinery can be imported on 360 days Capital Machinery can be imported on 360 days usanceusancebasis.basis.

Industrial Raw Materials import (for own use) on 180 days Industrial Raw Materials import (for own use) on 180 days usanceusancebasis.basis.Advance Payment against ImportAdvance Payment against ImportAdvance remittance for permissible imports of goods and services into Bangladesh may be effected by the banks without prior approval of the Bangladesh Bank, against applications from the importers submitted with signed undertaking provided that: The purchase contract with supplier specifically required advance payment The supplier furnishes repayment guarantee acceptable to the bank from a bank abroad, to be revoked for refund of the amount paid in advance in the event of the suppliers default in delivering the goods or services as per contract. Such guarantee need not be insisted upon incases ofadvance payment up to USD 2500 for books, journal or life-saving medicines Requests for advance remittance where the suppliers are unwilling or unable to furnish the repayment bank guarantee, may be forwarded by the banks, along with their recommendations, for specific decision of the Bangladesh Bank on merit of each case. Banks shall report to BB the cases where the goods/services against advance payments are not received in Bangladesh in due time.Back to Back LCBack to Back LC

The back to back import The back to back import LCsLCsshall be opened on up to shall be opened on up to 180 days 180 days usanceusancebasis basis

Except in case of those opened against Export Except in case of those opened against Export Development Fund (EDF) administered by the Development Fund (EDF) administered by the Department of Banking Operation and Development of Department of Banking Operation and Development of Bangladesh Bank in which case the back to back LC will Bangladesh Bank in which case the back to back LC will be opened on sightbasis. be opened on sightbasis.

Interest for the Interest for the usanceusanceperiod shall not exceed LIBOR, or period shall not exceed LIBOR, or the equivalent interest rate in the currency of settlement.the equivalent interest rate in the currency of settlement.Transfer of fundsTransfer of funds--popular payment methodspopular payment methodsPaymentDetailsAllocation of RisksT/T orCash Advance T/T is the easiest payment from and is typically used when samples or small quantity shipments are transported by air. T/T is also used between buyers and sellers who have already established a mutual trust, as this negates the risks associated with this, the fastest and cheapest form of payment. Documents like air waybills, commercial invoices and packing lists will be sent to you along with the shipment in the same aircraft. As soon as the shipment arrives, you, with documentation, can clear the customs and pick up the goods. Shipping happens only after money is safely in seller's bank account. It usually takes 3-4 days for such a wire transfer anywhere in the world.100% buyer's riskTransfer of fundsTransfer of funds--popular payment methodspopular payment methodsPaymentDetailsAllocation of RisksLetter of Credit (L/C) The L/C is a guarantee, given by the buyer's bank, that they will pay for the goods exported, provided that the exporter can provide a given set of documents in accordance with clauses specified in the L/C and in a timely manner. The technical term for letter of credit is "Documentary Credit." Letters of credit deal in documents, not goods. Thus, the process works both in favor of both the buyer and the seller. Simply put, a letter of credit is a letter written by the importer's bank to the exporter. It verifies that the payment will be guaranteed when the bank is presented with concrete documents (bills of lading and freight documents). Most letters of credit are "irrevocable" once the importer has had them sent, which means it cannot be changed unless both the buyer and seller agreeEvenly sharedTransfer of fundsTransfer of funds--popular payment methodspopular payment methodsPayment DetailsAllocation of RisksEscrow Escrow is a legal arrangement (and most commonly a payment arrangement) whereby money is delivered to a third party (called an escrow agent) to be held in trust (in escrow) pending the fulfillment of condition(s) in a contract, whereupon the escrow agent will deliver the payment to the proper recipient. Typically, escrow is used when the Buyer and Seller are unknown to each other. In an international trade context, after the Buyer and Seller have agreed to the transaction, the buyer puts the payment in escrow by paying the escrow agent, which both parties have agreed to use. The seller sends the shipment and upon acceptance by the buyer, the escrow agent releases the payment to the sellerEvenly sharedTransfer of fundsTransfer of funds--popular payment methodspopular payment methodsPaymentDetailsAllocation of RisksDocument Against Payment/Bill of Exchange (D/P) The exporter ships the goods, and then gives the documents (including the bill of lading necessary to claim the goods at the foreign port) to his bank, which will forward them to a bank in the buyer's country, along with instructions on how to collect the money from the buyer. When the foreign bank receives the documents, they will contact the buyer and provide documents to the buyer only when the buyer pays.Mainly with supplierTransfer of fundsTransfer of funds--popular payment methodspopular payment methodsPaymentDetailsAllocation of RisksOpen Account(O/A) Opposite situation to T/T: The exporter receives payment only after the buyer has received and inspected the goods.100% seller riskDocuments that required in Documents that required in International TradeInternational TradeStandard form of documentsStandard form of documents When making payment for product on behalf of its When making payment for product on behalf of its customer, the issuing bank must verify that all customer, the issuing bank must verify that all documents and drafts conform precisely to the terms and documents and drafts conform precisely to the terms and conditions of the letter of credit. Although the credit can conditions of the letter of credit. Although the credit can require an array of documents, the most common require an array of documents, the most common documents that must accompany the draft include:documents that must accompany the draft include: Commercial InvoiceCommercial Invoice Bill of LadingBill of Lading Warranty of TitleWarranty of Title Letter of Indemnity, etcLetter of Indemnity, etcRequired documents;Required documents;--Import export documents. Import export documents. --Documents of Origin.Documents of Origin.--Commercial Documents.Commercial Documents.--Transport documents.Transport documents.--Administrative Documents.Administrative Documents.--Other Documents. Other Documents. Functions of Shipping DocumentsFunctions of Shipping DocumentsA complete set of Shipping Documents A complete set of Shipping Documents containing different documents, and each containing different documents, and each document has its different purpose, but the document has its different purpose, but the major functions of the complete set Shipping major functions of the complete set Shipping documents can be defined as following:documents can be defined as following:--

For Transportation handling.For Transportation handling.

For cargoes delivery and receiving.For cargoes delivery and receiving.

For Customs clearance.For Customs clearance.

For payment.For payment.

For legal supporting For legal supporting Examples of Shipping DocumentsExamples of Shipping Documents

Commercial InvoiceCommercial Invoice

Packing ListPacking List

Transportation Documents [Bills of Lading, Air Transportation Documents [Bills of Lading, Air Waybill (AWB), Forwarder Cargo Receipt (FCR)]Waybill (AWB), Forwarder Cargo Receipt (FCR)]

Certificate of OriginCertificate of Origin

Export License (Visa)Export License (Visa)

Customs InvoiceCustoms Invoice

DeclarationDeclaration

CertificateCertificate

Letter of Indemnity / Letter of GuaranteeLetter of Indemnity / Letter of Guarantee

DraftsDrafts

Bank Collection OrderBank Collection OrderCommon documents;Common documents; Commercial InvoiceCommercial Invoice--The billing for the goods and services. The billing for the goods and services. --It includes a description of merchandise, price, FOB It includes a description of merchandise, price, FOB origin, and name and address of buyer and seller. origin, and name and address of buyer and seller. --The buyer and seller information must correspond The buyer and seller information must correspond exactly to the description in the letter of credit. exactly to the description in the letter of credit. Unless the letter of credit specifically states otherwise, a Unless the letter of credit specifically states otherwise, a generic description of the merchandise is usually generic description of the merchandise is usually acceptable in the other accompanying documents.acceptable in the other accompanying documents.Information to be included in the Commercial Invoice Description and sale price of the goods. Actual shipped quantities of the goods. Name and addresses of shipper, recipient, and buyer (if not the recipient). Reference numbers such as P.O., etc. Separate pricing for shipping and insurance. Country of origin of the goods. Payment terms. Trade terms of the price. Declarations. Harmonized Tariff Schedule number. Quota Cat. Number. Ports of shipment and entry. Shipment date. Invoice date.

Bill of LadingBill of LadingAAbillbillofofladingladingis a type of document that is is a type of document that is used to acknowledge the receipt of a used to acknowledge the receipt of a shipment of goods. A transportation shipment of goods. A transportation company or carrier issues this document company or carrier issues this document to a shipper. In addition to acknowledging to a shipper. In addition to acknowledging the receipt of goods, athe receipt of goods, abillbillofoflading lading indicates the particular vessel on which indicates the particular vessel on which the goods have been placed, their the goods have been placed, their intended destination, and the terms for intended destination, and the terms for transporting the shipment to its final transporting the shipment to its final destination destination Purpose of B/LPurpose of B/LA documentA documentsupplied to the exporter by the shipping supplied to the exporter by the shipping company that is transporting the goods to their foreign company that is transporting the goods to their foreign destination, listing, item by item, the goods being destination, listing, item by item, the goods being shipped. It serves three basic purpose shipped. It serves three basic purpose 1.1.To acknowledge receipt by the carrier of the To acknowledge receipt by the carrier of the exporter's goods.exporter's goods.2.2.To indicate the carrier's contractual obligation to To indicate the carrier's contractual obligation to transport the goods to their destination in exchange for transport the goods to their destination in exchange for payment.payment.3.3.To record transfer of title (or ownership) from the To record transfer of title (or ownership) from the seller to the buyer when payment for the goods takes seller to the buyer when payment for the goods takes place. place. There are two basic types of B/LThere are two basic types of B/Lthethestraight billstraight billand theand theorder bill.order bill.1. A straight bill1. A straight billof lading is a nonof lading is a non--negotiable negotiable document, made out to a specifically named document, made out to a specifically named consignee, from which the steamship company consignee, from which the steamship company acknowledges receipt of the freight and agrees to acknowledges receipt of the freight and agrees to move it to its destination.move it to its destination.UnlikeUnlikean order bill,an order bill,the straight bill does not have to the straight bill does not have to be surrendered to the carrier in order for the importer be surrendered to the carrier in order for the importer to obtain possession of the goods.to obtain possession of the goods.2. An Order bill2. An Order billof lading is a document that is made out to of lading is a document that is made out to the order of the foreign importer or its bank, or the order the order of the foreign importer or its bank, or the order of the export firm, its bank, or another designated party.of the export firm, its bank, or another designated party.Title to goodsTitle to goodsbeing shipped is given by possession of being shipped is given by possession of the bill of lading that bears the exporter's endorsement. the bill of lading that bears the exporter's endorsement. Often, thisOften, thisendorsement is in blankendorsement is in blank, thus giving , thus giving ownership of the goods to the person possessing the bill, ownership of the goods to the person possessing the bill, and therefore making the billand therefore making the billhighlyhighlynegotiablenegotiable..The order billThe order billof ladingof ladingis handed over only when the is handed over only when the foreign importer has paid for the goods or made foreign importer has paid for the goods or made acceptable credit arrangements.acceptable credit arrangements.Number of B/L copiesNumber of B/L copies

CustomsCustomsregulations of most countries specify regulations of most countries specify the number of copies, either negotiable or nonthe number of copies, either negotiable or non--negotiable, of the bill of lading that must be negotiable, of the bill of lading that must be supplied for customs purposes.supplied for customs purposes.

Some Latin AmericanSome Latin Americancountries prohibit or countries prohibit or otherwise discourage the use of order bills of otherwise discourage the use of order bills of lading. Therefore the export firm should first lading. Therefore the export firm should first check as to the type of bill that is acceptable in check as to the type of bill that is acceptable in the country to which it is planning to ship its the country to which it is planning to ship its goods.goods.

For each shipment,For each shipment,two or three negotiable or two or three negotiable or signed bills of lading are usually issued, plus as signed bills of lading are usually issued, plus as many more nonmany more non--negotiable copies as may be negotiable copies as may be required. The latter are clearly marked nonrequired. The latter are clearly marked non--negotiable.negotiable.

Where these billsWhere these billshave to be presented in have to be presented in duplicate or triplicate at the Customs of the duplicate or triplicate at the Customs of the foreign country, it is usual to supply one foreign country, it is usual to supply one negotiable copy with each set of documents, negotiable copy with each set of documents, plus as many nonplus as many non--negotiable copies of the bill of negotiable copies of the bill of lading as are required.lading as are required.What is a F C R ?What is a F C R ?It is basically a transport document issued It is basically a transport document issued by a freight forwarder and acts as a receipt by a freight forwarder and acts as a receipt for the cargo, and evidence of a contract for the cargo, and evidence of a contract between the shipper and the forwarder. It between the shipper and the forwarder. It is not a document of title.is not a document of title.The forwarder assumes responsibility for The forwarder assumes responsibility for the cargo by issuing the FCR. the cargo by issuing the FCR.

Warranty of TitleWarranty of Title--A warranty given by a seller to a buyer of A warranty given by a seller to a buyer of goods that states that the title being goods that states that the title being conveyed is good and that the transfer is conveyed is good and that the transfer is rightful. rightful. --This is a method of certifying clear title to This is a method of certifying clear title to product transfer. It is generally issued to the product transfer. It is generally issued to the purchaser and issuing bank expressing an purchaser and issuing bank expressing an agreement to indemnify and hold both agreement to indemnify and hold both parties harmless.parties harmless.

Letter of IndemnityLetter of IndemnitySpecifically indemnifies the purchaser Specifically indemnifies the purchaser against a certain stated circumstance. against a certain stated circumstance. Indemnification is generally used to Indemnification is generally used to guaranty that shipping documents will be guaranty that shipping documents will be provided in good order when available.provided in good order when available.

Packing ListPacking ListA document prepared by the shipper that A document prepared by the shipper that lists the kinds and quantities of lists the kinds and quantities of merchandise in a particular shipment. A merchandise in a particular shipment. A copy is generally sent to the consignee to copy is generally sent to the consignee to aid in checking the shipment when aid in checking the shipment when received.received.The 3 major functions of Packing ListThe 3 major functions of Packing List The exporter, customs broker, and the freight forwarder refer to it for the gross weight and the measurement. Customs uses the packing list as a check-list to verify the cargo. The importer uses the packing list to inventory the incoming consignment.Information to be included in the Packing ListInformation to be included in the Packing List Invoice number. Actual shipped quantity of the goods. Description of the goods. Package / Carton numbers. Weight (NNW, NW, GW) and Carton Measurement per carton. Quantity breakdown per package per size assortment and color assortment. How many assortments per carton. Summary and total of quantity per PO, assortment, etc. Summary and total of Weight per PO, assortment, etc. Vendors name and address. Marks & Nos. Manufacturer's company chop and authorised signature.When shipping products from one country to another, the products When shipping products from one country to another, the products may havemay have to be marked with country of origin, and the country of origin w to be marked with country of origin, and the country of origin will generally beill generally be required to be indicated in the export/import documents and gove required to be indicated in the export/import documents and governmentalrnmental submissions. Country of origin will affect its admissibility, th submissions. Country of origin will affect its admissibility, the rate of duty, itse rate of duty, its entitlement to special duty or trade preference programs, antidu entitlement to special duty or trade preference programs, antidumping, andmping, and govern procurement. govern procurement.Today, many products are an outcome of a large number of parts a Today, many products are an outcome of a large number of parts and piecesnd pieces that come from many different countries, and that may then be as that come from many different countries, and that may then be assembledsembled together in a third country. In these cases, it's hard to know e together in a third country. In these cases, it's hard to know exactly what isxactly what is the country of origin, and different rules apply as to how to de the country of origin, and different rules apply as to how to determine theirtermine their "correct" country of origin."correct" country of origin. Generally, articles only change their country of origin if the w Generally, articles only change their country of origin if the work or materialork or material added to an article in the second country constitutes a substant added to an article in the second country constitutes a substantialial transformation, or, the article changes its name, tariff code, c transformation, or, the article changes its name, tariff code, character or useharacter or use (for instance from wheel to car). Value added in the second coun (for instance from wheel to car). Value added in the second country maytry may also be an issue. also be an issue.Issue of country of originIssue of country of originDescription of the country of origin principleDescription of the country of origin principle

The country of origin principle states that, where The country of origin principle states that, where an action or service is performed in one country an action or service is performed in one country but received in another, the applicable law is the but received in another, the applicable law is the law of the country where the action or service is law of the country where the action or service is performed. The opposing principle is the country performed. The opposing principle is the country of reception principle. of reception principle.

For example, if a sale of goods is made over the For example, if a sale of goods is made over the Internet from a website in France to a purchaser Internet from a website in France to a purchaser in Italy, the country of origin principle would be in Italy, the country of origin principle would be said to apply if French law applied to the said to apply if French law applied to the transaction, and the country of reception transaction, and the country of reception principle if Italian law prevailed.principle if Italian law prevailed.GSPGSP

TheTheGeneralized System of PreferencesGeneralized System of Preferences, , ororGSPGSP, is a formal system of exemption from , is a formal system of exemption from the more general rules of the world Trade the more general rules of the world Trade OrganizationOrganization(WTO), (formerly, the General (WTO), (formerly, the General Agreement on Tariffs and TradeAgreement on Tariffs and Tradeor GATT). or GATT).

Specifically, it's a system of exemption from the Specifically, it's a system of exemption from the Most Favored NationMost Favored Nationprinciple (MFN) that principle (MFN) that obligates WTO member countries to treat the obligates WTO member countries to treat the imports of all other WTO member countries. imports of all other WTO member countries. Objective of GSPObjective of GSP..""the objectives of the generalized, nonthe objectives of the generalized, non--reciprocal, reciprocal, nonnon--discriminatory system of preferences in favor of discriminatory system of preferences in favor of the developing countries, including special measures the developing countries, including special measures in favor of the least advanced among the developing in favor of the least advanced among the developing countries, should be:countries, should be:(a)(a)to increase their export earnings;to increase their export earnings;(b)(b)to promote their industrialization; andto promote their industrialization; and(c)(c)to accelerate their rates of economic growth." to accelerate their rates of economic growth." Common defects in documentationCommon defects in documentation Letter of Credit has expired prior to presentation of draft.Letter of Credit has expired prior to presentation of draft. Bill of Lading evidences delivery prior to or after the date ranBill of Lading evidences delivery prior to or after the date range ge stated in the credit.stated in the credit. Stale dated documents.Stale dated documents. Changes included in the invoice not authorized in the credit.Changes included in the invoice not authorized in the credit. Inconsistent description of goods.Inconsistent description of goods. Insurance document errors.Insurance document errors. Invoice amount not equal to draft amount.Invoice amount not equal to draft amount. Ports of loading and destination not as specified in the credit.Ports of loading and destination not as specified in the credit. Description of merchandise is not as stated in credit.Description of merchandise is not as stated in credit. A document required by the credit is not presented.A document required by the credit is not presented. Documents are inconsistent as to general information such as Documents are inconsistent as to general information such as volume, quality, etc.volume, quality, etc. Names of documents not exact as described in the credit. Names of documents not exact as described in the credit. Beneficiary information must be exact.Beneficiary information must be exact. Invoice or statement is not signed as stipulated in the letter oInvoice or statement is not signed as stipulated in the letter of f credit.credit.Q & AQ & A