Introduction on paper industry

The new millennium is going to be the millennium of the knowledge. So demand for paper would go on increasing in times to come. In view of paper industryts strategic role for the society and also for the

overall industrial growth it is necessary that the paper industry perform well.

Government has completely delicensed the paper industry with effect from 17th July, 1997.the entrepreneurs are now required to file an Industrial Entrepreneur Memorandum with the secretariat for industrial assistance for setting up new paper mill or substantial expansion of the existing mill is permissible locations.

The paper industry is a priority sector for foreign collaboration and foreign equity participation up to 100% receives automatic approval by Reserve Bank of India. Several fiscal incentives have also been provided to the paper industry, particularly to those mills which are based on non-conventional raw material. The demand for upstream market of paper products, like , tissue paper, tea bags , filter paper ,light weight online coated paper, medical grade coated paper ,etc.,is growing up. These developments are expected to give fillip.

Indian Paper Industry

Paper industry in India is the 15th largest paper industry in the world. It provides employment to nearly 1.5 million people and contributes Rs
2

25 billion to the government`s kitty. The government regards the paper industry as one of the 35 high priority industries of the country. Paper industry is primarily dependent upon forest based raw materials. The first paper mill in India was set up at Sreerammpur, West Bengal, in the year 1812. It was based on grasses and jute as raw material. Large scale mechanized technology of papermaking was introduced in India in early 1905. Since the raw material for paper industry underwent number of changes and over a period of time, besides wood and bamboo, other non-conventional raw materials has been developed for use in paper making. The Indian pulp and paper industry at present is very well developed and established. Now the paper industry is categorized as forest based, agro-based and others (waste paper, secondary fibre, bast fibre and market pulp). In 1951, there were 17 paper mills, and today there are about 515 units engaged in the manufacture of paper and paperboards and newsprint in India. The pulp and paper industries in India have been categorized into large scale and small scale. Those paper industries, which have capacity above24, 000 tonns per annum, are designated as large-scale paper industries. India is self sufficient in manufacture of most varieties of paper and paper boards. Import is confined only to certain specialty papers. To meet part of its raw material needs the industry has to rely on imported wood pulp and waste paper. Indian
3

paper

industry

has

been

delicensed

under

the

industries

(Development and regulation) Act, 1951 with effect from 17th july, 1997. The interested entrepreneur are now required to file an industrial entrepreneur`s memorandum (IEM) with the secretariat for industrial assistance (SIA) for setting up a new paper unit or substantial expansion of the existing unit in permissible locations. Foreign Direct Investment (FDI) up to 100% is allowed on automatic route on all activities except those requiring industrial licensest where prior government approval is required. Growth of paper industry in India has been constrained due to high cost of production caused by inadequate availability and high cost of raw material, power cost and conc. Of mills in one particular area. Government has taken several policy measures to remove the bottlenecks of availability of raw materials and infrastructure

development. For example, to overcome short supply of raw materials, duty on pulp and waste paper and wood logs/chips has been reduced. Following measures need to be taken to make Indian paper industry more competitive: y Improvement of key ports, roads and railways and

communication facilities.

y Revision of forest policy is for wood based paper industry so that plantation can be raised by industry, cooperatives of farmers, and state government. Degraded forest land should be made available to the industry for raising plantation. y Import duty on waste paper should be reduced. y Duty free imports of new & second hand machinery/equipment should be allowed for technology up gradation. y Sustained availability of good quality of raw materials (forest based) and bulk import of waste paper to supplement the availability of raw materials. y Adequate modernisation of the manufacturing assets. y Improvement of the infrastructure. y Quality improvement and reduction in cost of production. y Import policy and conducive for import of material, equipments, instruments, raw materials and technologies which are the bearing of the quality and environment.

y Based on the recommendation made in the report and in consultant with the industry associations, action plans are being finalised in consultation with others ministries/departments concerned.

Introduction of the company

Yash Papers (located in Faizabad, India) is synonymous with machine-glazed varieties of paper. Our brand revolves around the manufacture of the best wrapping grades of papers in India. The
6

Company manufactures MG wrapping papers in both brown and white varieties.

Established in 1981, by entrepreneur-promoter KK Jhunjhunwala - with an installed capacity of 1940 MT per annum in 1983, Yash Papers started production of low grammage Kraft grades. Once this first paper machine became stable, additional capacity of about 2000 MTPA was created on this machine.

In the year 1991, the Company set up its Paper Machine II, with a capacity of up to 6000 MTPA, taking the overall capacity to 10,000 MTPA. This machine also specialized in low grammage Kraft varieties. This new machine, along with the enhanced capacity of the old one, helped to create dominance over the low grammage Kraft market for the Company.

In the year 1995, Yash Papers set up its own 2.5 MW Power Plant, with an Extraction-cum-Condensation Turbine. This was a
7

revolutionary step for a mill of its size at that time. This lower cost of power gave it an added advantage over other mills, and further helped brand Yash to become established in the market. At the same time, the Company set up further capacity enhancements to its Paper Machine II, and boosted total production to 16,000 MTPA.

In 2007, Yash Papers, grew to more than double of its capacity, by installing a totally new integrated plant, setting up a pulp mill, producing 130 TPD, Paper Machine III, to produce bleached MG grades of papers with a total capacity of 70 TPD, a chemical recovery unit, and a 6 MW Power Plant. This plant is running at full capacity from 2008.

At the present time, Yash Papers has grown into the largest manufacturer of wrapping grades in India, with a present installed capacity of 39,100 MT per annum. Yash Papers practices a singular discipline, focus on specialty products and quality and has a culture of ploughing back surpluses into additional capacity.
8

The consistent feature of our business strategy has been valueaddition. We invested periodically in the manufacture of specialized grades a distinctive preference for the value approach over a

volume one.

This preference for the value-approach is reflected in the Company s produc mix - hard issue, wrapping grades, packaging, and s a ionery grades. These varie ies are used in specialized downs ream

applica ions like soap wrapping, food wrapping, pharmaceu ical covers, in erleaving shee s, lamina ing shee s, paper bag, bidi wrapping, gum ape, no ebook covering paper, PE coa ing in ma ress, ube ligh packaging among o hers.

So even as hey are based in India, our produc s find loyal cus omers in coun ries across he globe.

Products

1. UN-BLEACHED KRAFT PAPER

Generic
DEP - Deluxe Plain DER - Deluxe Ribbed
10

SDP - Super Deluxe Plain SDR - Super Deluxe Ribbed

Specialized
MSP - Malpani Super Deluxe Plain KGT - Kraft Gum Tape Base KBP - Kraft Bag Plain LSR - Light Shade Ribbed KFR - Kraft Firework Ribbed

2. BLEACHED KRAFT PAPER

Generic
REP - Regular Poster RPR - Regular Poster Ribbed NSP - Natural Shade Poster
11

NSR - Natural Shade Ribbed

Specialized
PFB- Poster Foil Base PCB - Poster Chromo Base PTB - Poster Thermal Base SWB - Soap Wrapper Base PBP - Poster Bag Plain

3. COLOURED KRAFT PAPER

POR - Poster Orange Ribbed PYR - Poster Yellow Ribbed PYP - Poster Yellow Plain PPP - Poster Pista Plain PPR - Poster Pista Ribbed GDP - Golden Deluxe Plain GSP - Golden Super Deluxe Plain GDR - Golden Deluxe Ribbed
12

GSR - Golden Super Deluxe Ribbed

4. PULP

UAP BAP

Unbleached Agro Pulp Bleached Agro Pulp

BLA - Bleachable Agro Pulp

SWOT ANALYSIS OF YASH PAPER LIMITED

On the basis of market survey the major strengths, weakness, opportunities and threats of Yash paper limited are as follows:-

S-STRENGTHS W-WEAKNESSES

13

O-OPPURTUNITIES T-THREATS

STREGHTS:y Yash have a brand name which is popular world wide. y Yash have faith of millions of peoples. y Own captive power plant 8.5MW based on extraction cum condensing turbine. y Reduction in power & fuel cost. y Having niche market of lower GSM Kraft paper. Market leaders in this segment in India and Bangladesh. y Dedicated distributor network all over India. y Duly engaged in exporting paper. y Dedicated efforts for quality improvement, established brand in the market.

14

y Production based incentives scheme covering all employees including managers. y Cordial relation in the organisation, open communication

channels, no hierarchy, no strike since inception, dedicated and skilled employees. y Knowledge updating by regular training programmes, by

arranging visit of Indian as well as foreign consultants and participation in seminars. y Location advantages, as baggase and rice husk is available in plenty. y Pioneer in many fields like power project, acceptance of order through online automation of plant, technology adaptation, computer, internet, website in spite of being in uB backward district class

WEAKNESSES:y Distribution channel is not so effective.

15

y It gives emphasis on national and international market, does not give more attention on local market. y Aggressive promotional activities are not undertaken. y Less personal contacts with retailers. y Services are not good. y Company officials do not visits outlet regularly. y Less advertisement channels. y Bad and delay in claim settlements

OPPURTUNITIES:y Being a big organisation Yash paper has ample of opportunities in the field of kraft paper, y Poster paper, and thermal paper and release paper. y Yash paper can be major player in the paper industry of India among Star paper mill,

16

y The Mysore paper mills limited, Rajalakshmi paper mills limited, and Deoria paper mills because of their world class service. y Yash paper becoming the major player in paper industry it covers all remote all remote areas of state. y Yash paper will be entering in businesses like Thermal paper and Release paper. y Investors of Yash Papers rely on organisation so they will provide finance whenever they want to expand their businesses this is a unique opportunity with Yash papers.

THREATS:y High growth of competitorts products. y Better facilities provided y the competitor to their distribution this might lead to switch over to slice distribution towards

competitors. y Indifference among distributor and fat dealers.

17

y Different effective promotion schemes of competitors. y The entry of new competitors in paper industry may be hurdles. y Like Star paper mill, Working at high fixed costs and unable to utilize the economy of scale.

Vision
y w We will create the largest Specialty Paper Manufacturing Company in the World by 2025.

Mission

18

y Ensure higher profitability than industry average year on year for continuous growth. y Create working environment for freedom of thought and Innovations. Hire and cultivate the best people and provide work conditions that energies. y Find solutions for customers and add value to their process. y Create a dedicated customer base. y Work as partners with vendors. Ensure integrity and create processes that provide them with ease in dealing with us. y Provide optimum ROI to our stakeholders and ensure continuous support. y Invest Time, effort and resources to improve the environment continuously Ensure s Clean and Green fu ure genera ion . y Develop the community around us by encouraging entrepreneurship. y Spread the goodwill of our nation around the world. urrounding for he

19

EXPORT

India has a mission to capture 2% of the global share of trade by 2012, up from the present level of less than 1%. Export is one of the lucrative business activities in India. The government also provides various promotional schemes to the exporters for earning valuable foreign exchange for the country and for meeting their requirements for importing modern technology and essential inputs. Besides, the income from export business is also exempted to the specified extent under the Income Tax Act, 1961, Refund of Central Excise and Custom Duty on export is also made under the Duty Drawback Scheme of the Government. There is no Sales Tax on products meant for exports. Exports can be of goods which can be moved physically from one country to another or can be of service rendered. Detailed list of services are given in the Foreign Trade Policy covering more than 160 items e.g. Insurance, Hospital, Postal and Telecommunication etc.
20

TWO CLASSES OF EXPORTS:

Physical Exports: If the goods physically go out of the country or services are rendered outside the country then it is called as physical export. Deemed Exports: Where the goods do not go out of the country physically they can be termed as deemed exports. This will be subject to certain conditions as prescribed by the DGFT. Under Deemed Exports, the goods may be supplied to the manufacturer exporter who ultimately export a finished product of which this supply forms a part and ultimately go out of the country. E.g. Supply of fabrics to the garment exporter who exports the garments made out of the said fabric. The government may announce from time to time the types of supplies that may be considered as deemed export. The Foreign Trade Policy gives the list of supplies considered under the Deemed Export Category. The policies and procedures are different for Physical Exports and Deemed Exports as also the benefits available. In a nutshell, Deemed Exports do not enjoy all the benefits that are available under Physical Export. The Foreign Trade defines exports as taking out of India any goods by land, sea, air. Although the act does not term them as uPhysical Exports , we ha e to p t phrase to
21

distinguish it from uDeemed Exports

which is sales in India but

considered as exports for limited purpose.\

TYPES OF EXPORTERS:
Exporters can be basically classified into two groups y Manufacturer Exporter: As the exporter has the facility to manufacturer the product he intends to export and hence he exports the products manufactured by him. y Merchant Exporter: An exporter who does not have the facility to manufacture an item. But, he procures the same from other manufacturers or from the market and exports the same. An exporter can be both a manufacturer exporter as well as a merchant exporter, he can export product manufactured by him or he can export items bought from the market. Once it is decided to export, it is mandatory on your part to follow certain procedures, rules and regulations as prescribed by various regulatory authorities such as DGFT, RBI, and Customs. These
22

procedures, rules and regulations are laid down in the Exim Policy 2004-09, Exchange Control Manual, Customs Act etc. Accordingly Export documents are required to be prepared keeping in view of the requirement of the foreign buyers and our regulatory authorities.

EXPORT PROCEDURE
Obtaining IEC Number

23

Processing an export order

To examine the export contract

Instruction to the factor/ supplier

24

Proof of offsetting to CAPEXIL,

Certificate of origin

Preparation of various sets of documents

Shipment advice to the importer

Presentation of document to bank

At the bank, these documents are processed in the following manner

Rebate of central excise duty and duty 25 drawback

Summation of an dosed documents

COMPLETE EXPORT PROCESS AND DOCUMENTATION IN YASH PAPER LIMITED

26

FLOW DIAGRAM - EXPORT SALE

Customer identification & finalization of deal

Feedback

Complaints

Letter of Credit/ advance payment

Post dispatch documentation

Monthly Returns

Packing Credit

Dispatch

Direct Export Promotion Benefits

Placement of order to production through Sales dept.

Pre-shipment documentation

Payment of commission & Maintenance of Records

27

Customer identification & finalization of deal

c Start

Negotiation Identify prospective customers through business magazines, B2B portals and other sources.

NO

Price Approved

Quote Price

YES

Finalise Order Sign MOU Database of customers Send samples/ Sample Reels Appoint Agents/ Customers

End

Sample Approved YES

NO

Provide Technical specifications

LC and Advance Payment

Start
Study original LC again

Issue Proforma Invoice Advance Copy of LC/amendments

NO

LC okay as per PI YES

Amendments Acceptance of LC

Study LC Copy Avail packing credit against LC/PO Approved YES Receipt of Original LC NO Cover LC for all risks With ECGC

End

28

Placement of Order to Sales Deptt.

Start
Compile orders by 25 TH of every month NO Calculate no. of reels and weight Check stock status YES Draw sample of product

End
Prepare container loading drawing and decide container size

Prepare order with clear instructions

29

Pre shipment documentation

Start

Get Stock as per order

Prepare weight list, invoice, packing list as per LC/order

Send invoice, packing list along with related documents to CHA

End

30

Dispatch of Goods
Start
Inform local excise authority for export Container sealed by excise authority

Float freight enquiry to forwarders/shipping lines

Preparation of lables & excise documents, commercial invoice

End

Receipt of freight quotation

Container loading

Confirm container booking to lowest bidder

Shut certificate/ third party inspection, if, required Fumigation of container, if, required

Container movement to factory from nearest ICD

Post dispatch documentation

Start
Dispatch intimation to customer/agent Preparation of final export documents as per LC/PO Send invoice and packing list to the customer/agent Submit documents to bank as per LC/PO Prepare and send B/L instruction to shipping line Ensure payment of LC from bank Check draft B/L Yes NO Advice for final B/L

End

31

DEPB
Start

Prepare Bank Realization Certificate (BRC)

Submit BRC, EP copy of S/B to DGFT

Get Certificate of DEPB issued

Utilize DEPB certificate for import or sell the same

End

Payment of Commission to Agent

Start

Prepare documents for commission payment

Submit documents to Bank

Get copy of payment advise

Send copy of payment advise to agent

End

32

Monthly Return and Maintenance of Records

Start
Send monthly export data to CAPEXIL

Send monthly shipment data to ECGC

Maintain consignment wise copy of export documents along with Bank advises Maintain consignment wise realization register

End

33

34

SET UP OF AN EXPORT ORGANISATION

The proper selection of organization depends upon y Ability to raise finance. y Capacity to bear the risk. y Desire to exercise control over the business. y Nature of regulatory framework applicable to anyone If the size of the business is small, it would be advantageous to form a sole proprietary business organization. It can be set up easily without much expenses and legal formalities. It is subjected to only few governmental regulations. However, the biggest disadvantage of

35

sole proprietorship business is limited ability to raise funds which restricts the growth. Besides the owner has unlimited personal liabilities. In order to avoid this disadvantage, it is advisable to form a partnership firm. The partnership firm can also be set up with ease and economy. Business can take benefit of the varied experiences and expertise of the partners. The liability of the partners though joint and several, is practically distributed amongst the various partners, despite the fact that the personal liability of the partner is unlimited. The major disadvantage of partnership firm of business organization is that conflict amongst the partners is a potential threat to the business. It will not be out of place to mention here that partnership firms are governed by the Indian Partnership Act, 1932 and, therefore they should be formed within the parameters laid down by the Act. Company is another form of business organization, which has the advantage of distinct legal identity and limited liability to the share holders.

36

It can be a private limited company or a public limited company. A private limited can be formed by just two persons subscribing to its share capital. However, the number of its shareholders cannot exceed 50, public cannot be invited to subscribe to its capital and the members right to transfer their share is restricted. On the other hand, a pubic limited company has a minimum of seven members. There is no limit on the maximum number of its members. It can invite the public to subscribe to its capital and permit the transfer of share. A public limited company offers enormous potential for growth because of access to substantial funds. The liquidity of investment is high because of easiness of transfer of shares. However its formation can be recommended only when the size of the business is large. For small business, a sole proprietary concern or a partnership firm will be the most suitable form of business organization. In case it is decided to incorporate a private limited company, the same is to be registered with the Registrar of Companies.

CHOOSING APPROPRIATE MODE OF OPERATIONS:

37

You can choose any of the following modes of operations y Merchant Exporter i.e. buying the goods from the market or from the manufacturer and then selling it to foreign buyers. y Manufacturer Exporter i.e. manufacturing the goods yourself for export. y Sales Agent / Commission Agent / Indenting Agent i.e. acting on behalf of the seller and charging the Commission. y Buying Agent i.e. acting on behalf of the buyer and charging Commission. y Service provider i.e. providing service from India to another country.

NAMING THE BUSINESS Whatever form of business organization has been finally decided, naming the business is an essential task for every exporter. The name and style should be soft, attractive, short and meaningful. Open a current account in the name of the organisation in whose name you
38

intend to export. It is advisable to open the account with a bank which is authorised to deal in Foreign Exchange.

STRUCTURE OF AN EXPORT ORGANISATION y Marketing manager for generating sales y Commercial manager for looking activities of the execution of the orders. y Staff personnel for carrying out the day-to-day activities namely y Preparation of pre - shipment documents. y Co-ordinating with clearing agents on the progress of the shipment to be made. y Co-ordinating with the ware house\C. excise department

regarding packing and clearance of the goods for export. y Preparation of post shipment documents foe banks. y Follow-up with the bank on dispatch of documents, receipt of payment, availment of bank loans etc.

39

y To look into the requirement of licenses, claiming of export benefits fiiling of documents with the Government Authorities in Discharge of Export Obligations, if any, filing of returns to the various Government Agencies which are mandatory, prepare and keep an information bank of various transaction of the company, their domestic as well as international competitors. y An office boy for doing leg work. y A clearing and forwarding agent to handle the documents and the goods in the customs premises\ in the ports of lading.

Depending upon the size of the business the numbers of personnel under each category may increase. For example if a company is transacting substantial volume of business in more than one product. Then it is necessary to have marketing manager for each product so that the person can concentrate on a particular trade to enhance the business.

40

IMPORTER EXPORTER CODE (IEC) NUMBER.

The Customs Authorities will now allow the exporter to export or import goods into or from India unless he holds a valid IEC number. Before applying for IEC number it is necessary to open a bank account in the name of the company with any commercial bank authorized to deal in foreign exchange. The duly signed application form should be supported by the following documents.

y Bank receipt ( in duplicate ) / Demand Draft for payment of the fees of Rs. 1000/y Certificate from the banker of the applicant firm as per Annexure 1 to the form given. y One copy of PAN number issued by Income Tax Authorities duty attested by the applicant. y One copy of Passport Size photographs of the applicant duly attested by the banker to the applicant.
41

y Declaration by the applicant that the proprietor/partners/directors as the case may be of the applicant company, are not associated as proprietor/partners/directors in any other firm, which has been caution, listed by the RBI. Where the applicant declares that they are associated as proprietor/partners/directors in any other firm, which has been caution, listed by the RBI, they will be allotted IEC No. but with an additional condition that they can export only with RBIts prior approval and they should approach RBI for the purpose. y Each importer/exporter shall be required to file importer/exporter profile once with the licensing authority shall enter the information furnished in Appendix 2 in their database so as to dispense with changes in the information given in Appendix-2, importer/exporter shall intimate the same to the licensing authority.

42

IEC EXEMPT CATEGORIES.

The following importer exporter is exempted from the requirement of IEC code number. y Ministries \ Department of Central or State Government. y Person importing or exporting goods for their personal use not connected with trade or manufacture or agriculture. y Persons importing\exporting goods from\to Nepal & Myanmar provided the CIF value of single consignment does exceed Indian Rs. 25000\-.

43

RCMC (Registration-Cum-Membership Certificate) x REGISTRATION WITH EXPORT PROMOTION COUNCILS x

In order to enable the exporter to obtain benefits/concessions under the Foreign Trade Policy, the exporter is required to register himself with an appropriate export promotion agency by obtaining registrationcum-membership certificate. (RCMC). If the export product is that it is not covered by any EPC, RCMC in respect thereof may be issued by FIEO. An application for registration should be accompanied by a self
44

certified copy of the Importer-Exporter Code number issued by the regional licensing authority concerned and bank certificate in support of the applicants financial soundness. The RCMC shall be valid for 5 years ending 31st March of the licensing year.

REGISTRATION WITH SALES TAX AUTHORITIES:

Goods that are to be shipped out of the country for export are eligible for exemptions from both Sales Tax and Central Sales Tax. For this purpose, exporter should get himself registered with the Sale Tax Authority of is state after following the procedures prescribed under the Sales Tax Act applicable to his state.

HOW ONE BEGINS TO DO EXPORT:

Before entering into the venture of exports, one must look for the product to be exported and the market where he intends to export. In case of a manufacturer, obviously he would like to export the product he manufactures as is or with possible modification as may be required by the market. However, in case of a merchant exporter or a trader, one has to identity the product to export. If the exporter is already in the trade in the domestic market and is familiar with the

45

product it would be an advantage to export the said product of which he has reasonable knowledge. Before selecting a product, one must simultaneously made a study and find out the prospective market. For finding out the market for the selected product, the following methods will help. y Get statistical information as to imports of the product by various countries and their growth prospects in the respective countries y Approach the chamber of commerce for their guidance to find out the market. y Approach the Export Promotion Council dealing in the product of selection to get more information.

The Preliminary
Once you are ready with the product you wish to export and have found the market for the same, you are ready to proceed further. Following sequences can be followed:

46

y Any one, who wishes to export, must first of all get an Importer Exporter Code Number (IE Code).This can be obtained by making a formal application to the office of the Regional Directorate General of Foreign Trade (DGFT). y Get yourself registered with the related Export Promotion Council and become a member. Also arrange to obtain Registration-Cum-Membership Certificate (RCMC) from the council. This has twin objectives: y Under the Foreign Trade Policy, it is mandatory that an exporter gets him registered with the Export Promotion Council to avail of various export facilities. y Being a member, you will have access to all the information relating to the product that could be made available by the council y Many foreign buyers send their enquiries for the imports to the Export Promotion Council. Hence you will have few customers interested in your product.

47

y If you are a manufacturer, find out the provisions under the EXIM Policy of getting the raw materials duty free. y Get familiar with the excise formalities as goods meant for export can be cleared without payment of C. Excise duty on the finished product subject to compliance of certain formalities. y Understand the local government regulations in relations to the export of the product. y Get information of the governmentts regulations of the importing country as to restrictions on the quantity, product specification, packing regulations, customs regulations, requirement of specific documents/information etc. y Availability of Vessels/Airlines, the transport charges, frequency of operation etc., y To look for a Custom House Agent (CHA) (also know as freight forwarders or clearing agents) for handling the documents/cargo in the customs.

48

y If the product is covered under any quota regulation, find out the agency/council who are handling the quota distribution for the product and the availability of quota for exports.

49

FINDING THE CUSTOMER

Once you have selected the market, the next step is to find a prospective customer. This you can get y From the directory of importers of the country y Identify customers through business magazines, B2B portals and other sources. y By writing to the Embassy of India in that country for assistance y By writing to the chamber of commerce of that country y By means of participation in a Fair/Exhibition abroad either directly or through the Export Promotion Council y By participating in international fair if organized locally y Through the personal contacts in that country. By these processes one can only have the list of customers. One has to dialogue or correspond with these customers by sending samples, getting feedback from the customers etc. to ultimately select the customer with whom to deal with. It is necessary to
50

know the financial standing of the company which can be obtained through the bank channel or through the office of ECGC.

NEGOTIATING CONTRACT:
y Once the prospective customer is found, the business deal has to be concluded. The following aspects may be considered before entering into a final contract with the buyer. y Credit Worthiness of the Customer. y Availability of the Steamer/Airlines and the frequency

51

y The freight charges y The full product specification y The quantity, Price y Terms of Payment y Type of packing and markings on the packages y Mode of shipment & Shipment schedule y Tolerance of quantity to be shipped y Documentation requirement for the customer y Documentation requirement of the government of importing country y Compliance of the local governmental rules and regulations Before entering into contract one should take note of the above factors. While these are indicative, the requirements will vary from country to country, product to product and buyer to buyer.

52

EXPORT SALES & CONTRACT TERMS & CONDITIONS

Very often exporters do not enter into any formal contract and finalize the trade deal through the exchange of letters, cable, telex etc. It is, however, expedient that the parties (exporters & importers) incorporate all important terms & conditions of their trade deal in a separate document or contract that will avoid disputes arising out of uncertainty or ambiguity. Export contract may be sent in duplicate along with the Proforma Invoice to the overseas buyer.

NATURE OF INTERNATIONAL TRADE CONTRACTS.

53

There are certain, peculiar characteristics of international trade contract which are not present in those for sales of goods in the domestic market Whereas the parties to a domestic trace contract normally needs only agree on the elements which are necessary for their particular trade transactions like price, description, quality and quantity of goods, delivery terms etc the situation will be quite different when the buyer and the seller to sale/purchase contract belong to different countries. The parties to all international trade contracts provide all their relative rights and obligations in several ways For example, they may agree to adopt either the Law of the country of the buyer or that of the seller. The traders are normally reluctant to leave the determination of the rights and obligations by implications under the legal system of eitherts country. They prefer to make explicit provisions regarding the rights and obligations by including a set of detailed and precise terms and conditions in their contract.

EXPORT OF SAMPLES\GIFTS.
In Yash Paper sample reels and sheets are being sent to the enquiry of prospective buyers. Exports of bonafide trade and technical samples of freely exportable items shall be allowed without any limit.

54

STANDARD CONTRACT FORMS:

Notwithstanding the efforts made by various national/international organizations like the United Nations Commission on the International Trade Law, there is still no perfection or a device which would give the parties an accurate and complete idea of each others understanding of various trade terms, the commercial practices and the rights and the obligations vis--vis each other so that the misunderstandings are practically eliminated. Nevertheless, the Indian Council of Arbitration published in 1966 a booklet on uStandard Contract Forms and Model Arbitration Cla se for se in Foreign Trade Contracts . It was re ised and reprinted in 1969 and 1977. It can be referred to by exporter for ario s cla se to be incorporated in the Export Contract.

ENTERING INTO AN EXPORT CONTRACT:

In order to a oid disp tes, it is necessary to enter into an export contract with the o erseas b yer. For this p rpose, export contract

55

should be carefully drafted incorporating comprehensive but in precise terms, all relevant and important conditions of the trade deal. There should not be any ambiguity regarding the exact specifications of goods and terms of sale including export price, mode of payment, storage and distribution methods, type of packaging, port of shipment, delivery schedule etc. The different aspects of an export contract are enumerated as under: Product, Standards and Specifications Quantity Inspection Total Value of Contract Terms of Delivery Taxes, Duties and Charges Period of Delivery/Shipment Packing, Labeling and Marking Terms of Payment-- Amount/Mode & Currency Discounts and Commissions Licenses and Permits
56

Insurance Documentary Requirements Guarantee Force Majeure of Excuse for Non-performance of contract Remedies Arbitration clause

It will not be out of place to mention here the importance of arbitration clause in an export contract Court proceedings do not offer a satisfactory method for settlement of commercial disputes, as they involve inevitable delays, costs and technicalities. On the other hand, arbitration provides an economic, expeditious and informal remedy for settlement of commercial disputes. Arbitration proceedings are conducted in privacy and the awards are kept confidential. The Arbitrator is usually an expert in the subject matter of the dispute. The dates for arbitration meetings are fixed with the convenience of all concerned. Thus, arbitration is the most suitable way for settlements

57

of commercial disputes and it may invariably be used by businessmen in their commercial dealings.

ARBITRATION:
Arbitration clause recommended by the Indian Council of

Arbitration:vAll disputes or differences whatsoever arising between the parties out of / relating to the meaning, construction and operation or effect of this contract or the breach thereof shall be settled by arbitration in accordance with the rules of Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties (or any other arbitration clause that may be agreed upon between the parties).

TERMS OF SHIPMENTS x INCOTERMS

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The INCOTERMS (International Commercial Terms) is a universally recognized set of definition of international trade terms, such as FOB, CFR & CIF, developed by the International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on a commercial terms like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance and other costs and risks. The purpose of Incoterms is to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree. The scope of Incoterms is limited to matters relating to the rights and obligations of the parties to the contract of sale with respect to the delivery of goods. Incoterms deal with the number of identified obligations imposed on the parties and the distribution of risk between the parties. In international trade, it would be best for exporters to refrain, wherever possible, from dealing in trade terms that would hold the seller responsible for the import customs clearance and/or payment of
59

import customs duties and taxes and/or other costs and risks at the buyerts end, for example the trade terms DEO (Delivery Ex Quay) and DDP (Delivered Du y Paid) Qui e of en, he charges and expenses a he buyer s end may cos

more o he seller han an icipa ed. To overcome losses, hire a reliable cus oms broker or freigh forwarder in he impor ing coun ry o handle he impor rou ines. Similarly, i would be bes for impor ers no o deal in EXW (Ex Works) which would hold he buyer responsible for he expor cus oms

clearance, paymen of expor cus oms charges and axes, and o her cos s and risks a he seller s end.

MORE CLARIFICATION ON INCOTERMS:

EXW {+the named place}

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Ex Works: Ex means from. Works means factory, mill or warehouse, which are the sellerts premises. EXW applies to goods available only at the sellerts premises. Buyer is responsible for loading the goods on truck or container at the sellers premises and for the subsequent costs and risks. In practice, it is not uncommon that the seller loads sthe goods on truck or container at the sellers pre4mises wi hou charging loading fee. N he quo a ion, indica e he named place (sellers premises) af er he acronym EXW for example EXW Kobe and EXW San An onio. The erm EXW is commonly used be ween he manufac urer (seller) and expor - rader(buyer), and he expor - rader resells on o her rade erms o he foreign buyers. Some manufac urers may use he erm Ex Fac ory, which means he same as Ex Works.

FCA {+the named point of departure}

Free Carrier: The delivery of goods on ruck, rail car or con ainer a he specified poin (depo ) of depar ure, which is usually he sellers premises, or a named railroad s a ion or a named cargo erminal or in o he cus ody of he carrier, a sellers expense. The poin (depo ) a origin may or may no be a cus oms clearance cen re. Buyer is

61

responsible for the main carriage/freight, cargo insurance and other costs and risks. In the air shipment, technically speaking, goods placed in the custody of an air carrier are considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment. The term FCA is also used in the RO/RO (roll on/roll off) services In the export quotation, indicate the point of departure (loading) after the acronym FCA, for example FCA Hong Kong and FCA Seattle. Some manufacturers may use the former terms FOT (Free on Trucks) and FOR (Free on Rail) in selling to export-traders.

FAS {+the named port of origin}

Free Alongside Ship: Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at sellerts expense. Buyer is responsible for the loading fee, main

carriage/freight, cargo insurance, and other costs and risks In the export quotation, indicate the port of origin(loading)after the acronym FAS, for example FAS New York and FAS Bremen. The FAS erm is

62

popular in the break-bulk shipments and with the importing countries using their own vessels.

FOB {+the named port of origin)

Free on Board: The delivery of goods on the board the vessel at the named port of origin (Loading) at sellerts expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the export quotation, indicate the port of origin (loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai. Under the rules of the INCOTERMS 1990, he erm FOB is used for ocean freigh only. However, in prac ice, many impor ers and

expor ers s ill use he erm FOB in he air freigh . In Nor h America, he erm FOB has o her applica ions. Many buyers and sellers in Canada and he USA dealing on he open accoun and consignmen basis are accus omed o using he shipping erms FOB Origin and FOB des ina ion. FOB Origin means he buyer is responsible for he freigh and o her cos s and risks. FOB Des ina ion means he seller is responsible for he freigh and o her cos s and risks un il he

63

goods are delivered to the buyerts premises which may include the import custom clearance and payment of import customs duties and taxes at the buyerts country, depending on the agreement between the buyer and seller. In international trade, avoid using the shipping terms FOB Origin and FOB Destination, which are not part of the INCOTERMS (In erna ional Commercial Terms).

CFR {+the named port of destination}

Cost and Freight: The delivery of goods to the named port of destination (discharge) at the sellers expenses. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F. Many importers and exporters worldwide still use the term C&F. In the export quotation, indicate the port of destination (discharge) after the acronym CFR, for example CFR Nahava sheva (Mumbai) and CFR Cat Lai (Ho Chi Minh). Under the rules of the INCOTERMS 1990, the term Cost and Freight is used for ocean freight only.

64

However, in practice, the term Cost and Freight (C&F) is still commonly used in the air freight.

CIF {+named port of destination}

Cost, Insurance and Freight: The cargo insurance and delivery of goods to the named port of destination (discharge) at the sellerts expense. Buyer is responsible for the import customs clearance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for example CIF Mumbai and CIF Singapore. Under he rules of he INCOTERMS 1990, he erm CIFI is used for ocean freigh only. However, in prac ice, many impor ers and

expor ers s ill use he erm CIF in he air freigh .

CPT {+the named place of destination}

Carriage Paid To: The delivery of goods des ina ion (discharge) a o he named por of

he sellers expenses. Buyer assumes he

cargo insurance, impor cus om clearance, paymen of cus om du ies and axes, and o her cos s and risks. In he expor quo a ion, indica e he por of des ina ion (discharge) af er he acronym CPT, for example CPT Los Angeles and CPT Osaka.
65

CIP {+ the named place of destination)

Carriage and Insurance Paid To: The delivery of goods and the cargo insurance to the named place of destination (discharge) at sellerts expense. Buyer assumes the importer customs clearance, payment of customs duties and texes, and other costs and risks. In the export quotation, indicate the place of destination (discharge) after the acronym CIP, for example CIP Paris and CIP A hens.

DAF {+ the names point at frontier}

Deli ered At Frontier: The delivery of goods o he specified poin a he fron ier a sellers expense. Buyer is responsible for he impor cus om clearance, paymen of cus om du ies and axes, and o her cos s and risks. In he expor quo a ion, indica e he poin a fron ier (discharge) af er he acronym DAF, for example DAF Buffalo and DAF Welland.

DES {+named port of destination}

Deli ered Ex Ship: The delivery of goods on board he vessel a named por of des ina ion (discharge) a he

sellers expense. Buyer

assumes he unloading free, impor cus oms clearance, paymen of cus oms du ies and axes, cargo insurance, and o her cos s and risks.
66

In the export quotation, indicate the Port of destination (discharge) after the acronym DES, for example DES Helsinki and DES Stockholm.

DEQ {+ the named port of destination

Deli ered Ex Quay: The delivery of goods to the Quay (the port) at the destination at buyers expense. Seller is responsible for the importer customs clearance, payment of customs duties and taxes, at the buyers end. Buyer assumes the cargo insurance and other costs and risks. In the export quotation, indicate the Port of destination (discharge) after the acronym DEQ, for example DEQ Libreville and DEQ Maputo.

DDU {+ the named point of destination}

Deli ered Duty Unpaid: The delivery of goods and the cargo insurance to the final point at destination, which is often the project site or

buyers premises at sellers expense. Buyer assumes the import customs clearance, payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks. In the export quotation, indicate the point of destination (discharge) after the acronym DDU for example DDU La Paz and DDU N djamena.

67

DDP {+ the named point of destination)

Deli ered Duty Paid: The seller is responsible for most of the expenses which include the cargo insurance, import custom clearance, and payment of custom duties, and taxes at the buyers end, and the delivery of goods to the final point of destination, which is often the project site or buyers premise. The seller may opt not to insure the goods at his/her own risk. In the export quotation, indicate the point of destination (discharge) after the acronym DDP, for example DDP Bujumbura and DDP Mbabane uEv-term,vFv-term, uCv-term &vDv-term: Incoterms 2000, like its immediate predecessor, groups the term in four categories denoted by the first letter in the three-letter abbreviation.

y Under the uEv-TERM (EXW), the seller only makes the goods available to the buyer at the sellerts own premises. It is the only one of that category. y Under the uFv-TERM (FCA, FAS, &FOB), the seller is called upon to deliver the goods to a carrier appointed by the buyer.

68

y Under the uCv-TERM (CFR, CIF, CPT, & CIP), the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional cost due to events occurring after shipment or discharge. y Under the uDv-TERM (DAF, DEQ, DES, DDU & DDP), the seller has to bear all costs and risks needed to bring the goods to the place of destination. All terms list the sellerts and buyerts obligations. The respective obligations of both parties have been grouped under up to 10 headings where each heading on the sellerts side umirrorsv the equivalent position of the buyer. Examples are Delivery, Transfer of risks, and Division of costs. This layout helps the user to compare the parties respective obligations under each Incoterms.

PROCESSING AN EXPORT ORDER

69

You should not be happy merely on receiving an export order. You should first acknowledge the export order, and then proceed to examine carefully in respect of y Items y Specification y Application for Packing credit y Pre-shipment inspection y Payment conditions y Special packaging y Labeling and marketing requirements y Shipment and delivery date y Marine insurance y Documentation requirement etc. If you are satisfied on these aspects, a formal confirmation should be sent to the buyer, otherwise clarification should be sought from the buyer before confirming the order. After confirmation of the export order immediate steps should be taken for procurement/manufacture of the export goods. In the meanwhile, you should proceed to enter into a formal export contract with the overseas buyer. Before accepting any order necessary homework should have been done as to availability of the production capacity, raw material e.t.c. It would be in the interest of the exporter to look into entering into forward contract to safeguard against exchange rate fluctuations. Ensure that the mode of payment is also agreed upon. In case of

70

shipment against letter of credit, the buyer should be advised to open the credit well in advance before effecting the shipment.

EXPORT DOCUMENTS

Any export shipment involved various documents required by various authorities such as customs, excise, RBI, Inspection and according depending upon the requirements, there are categorized into 2 categories, namely commercial documents and regulatory documents.

A. Commercial Documents. : -

Commercial

documents are required for effecting physical transfer of goods and their title from the exporter to the importer and the realisation of export sale proceeds. Out of the 16 commercial documents in the export
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documentation framework as many as 14 have been standardised and aligned to one another. These are proforma invoice, commercial invoice, packing list, shipping instructions, intimation for inspection, certificate, of inspection of quality control, insurance declaration, certificate' of insurance, mate's receipt, bill of lading or combined transport document, application for certificate origin, certificate of origin, shipment advice and letter to the bank for collection or negotiation of documents. However, shipping order and bill of exchange could not be brought within the fold of the Aligned Documentation System.

1. Commercial In oice:

Commercial invoice is an important

and basic export document. It is also known as a 'Document of Contents' as it contains all the information required for the preparation of other documents. It is actually a seller's bill of merchandise. It is prepared by the exporter after the execution of export order giving details about the goods shipped. It is essential that the invoice is prepared in the name of the buyer or the consignee mentioned in the letter of credit. It is a prima facie evidence of the contract of sale or purchase and therefore, must be prepared strictly in accordance with the contract of sale.

Contents of Commercial In oice

72

y Name and address of the exporter. y Name and address of the consignee. y Name and the number of Vessel or Flight. y Name of the port of loading. y Name of the port of discharge and final destination. y Invoice number and date. y Exporter's reference number. y Buyer's reference number and date. y Name of the country of origin of goods. y Name of the country of final destination. y Terms of delivery and payment. y Marks and container number. y Number and packing description. y Description of goods giving details of quantity, rate and total amount in terms of internationally accepted price quotation. y Signature of the exporter with date.

Significance of Commercial In oice

y It is the basic document useful in preparation of various other shipping documents. y It is used in various export formalities such as quality and preShipment inspection excise and customs procedures etc. y It is also useful in negotiation of documents for collection and claim of incentives.
73

y It is useful for accounting purposes to both exporters as well as importers.

2. Inspection Certificate:

The certificate is issued by the

inspection authority such as the export inspection agency. This certificate states that the goods have been inspected before shipment, and that they confirm to accepted quality standards.

3. Marine insurance policy:

Goods in transit are subject to

risk of loss of goods arising due to fire on ship, perils of sea, theft etc. marine insurance protects losses incidental to voyages and in land transportation. Marine insurance policy is one of the most important document used as collateral security because it protects the interest of all those who have insurable interest at the time of loss. The exporter is bound to insure the goods in case of CIF quotation, but he can also insure the goods in case of FOB contract, at the request of the importer, but the premium payment will be made by the exporter. There are different types of policies such as

74

y Specific Policy: This policy is taken to cover different risks for a single shipment. For a regular exporter, this policy is not advisable as he will have to take a separate policy every time a shipment is made, so this policy is taken when exports are in frequent. y Floating Policy: This is taken to cover all shipments for some months. There is no time limit, but there is a limit on the value of goods and once this value is crossed by several shipments, then it has to be renewed. y Open Policy: This policy remains in force until cancelled by either party i.e. insurance company or the exporter. y Open Co er Policy: This policy is generally issued for 12 months period, for all shipments to one or more destinations. The open cover may specify the maximum value of consignment that may be sent per ship and if the value exceeded, the insurance company must be informed by the exporter. y Insurance Premium: Differs upon product to product and a number of such other factors, such as, distance of voyage, type and condition of packing, etc. Premium for air consignments are lowered as compared to consignments by sea.

4.

Consular In oice:

Consular invoice is a document required

mainly by the Latin American countries like Kenya, Uganda, Tanzania, Mauritius, New Zealand, Myanmar, Iraq, Australia, Fiji, Cyprus, Nigeria, Ghana, Guinea, Zanzibar, etc. This invoice is the most important document, which needs to be submitted for certification to the Embassy of the importing country concerned. The main purpose of
75

the consular invoice is to enable the authorities of the importing country to collect accurate information about the volume, value, quality, grade, source, etc., of the goods imported for the purpose of assessing import duties and also for statistical purposes. In order to obtain consular invoice, the exporter is required to submit three copies of invoice to the Consulate of the importing country concerned. The Consulate of the importing country certifies them in return for fees. One copy of the invoice is given to the exporter while the other two are dispatched to the customs office of the importer's country for the calculation of the import duty. The exporter negotiates a copy of the consular invoice to the importer along with other shipping documents.

Significance of Consular In oice for the Exporter

y It facilitates quick clearance of goods from the customs in exporter's as well as importer's country. y Certification' of goods by the Consulate of the importing country indicarer that the importer has fulfilled all procedural and licensing formalities for import of goods.
76

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

Significance of Consular In oice for the Importer

y It facilitates quick clearance of goods from the customs at the port destination and therefore, the importer gets quick delivery of goods. y The importer is assured that the goods imported are not banned for imported in his country.

Significance of Consular In oice for the Customs Office

y It makes the task of the customs authorities easy. y It facilitates quick calculation of duties as the value of goods as determine by the Consulate is considered for the purpose.

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5. Certificate of Origin:

The importers in several countries

require a certificate of origin without which clearance to import is refused. The certificate of origin states that the goods exported are originally manufactured in the country whose name is mentioned in the certificate. Certificate of origin is required when:-

y The goods produced in a particular country are subject tot preferential tariff rates in the foreign market at the time importation.

y The goods produced in a particular country are banned for

import in the foreign market.

Contents of Certificate of Origin

y Name and logo of chamber of commerce. y Name and address of the exporter. y Name and address of the consignee. y Name and the number of Vessel of Flight y Name of the port of loading. y Name of the port of discharge and place of delivery. y Marks and container number.
78

y Packing and container description. y Total number of containers and packages. y Description of goods in terms of quantity. y Signature and initials of the concerned officer of the issuing authority. y Seal of the issuing authority.

Significance of the Certificate of Origin

y Certificate of origin is required for availing of concessions under Generalised System of Preferences (GSP) as well as under Commonwealth Preferences (CWP). y It is to be submitted to the customs for the assessment of duty clearance of goods with concessional duty. y It is required when the goods produced in a particular country are banned for import in the foreign market. y It helps the buyer in adhering to the import regulations of the country.
79

y Sometimes, in order to ensures that goods bought from some other country have not been reshipped by a seller, a certificate of origin IS required.

6. Bill of Lading: The bill of lading is a document issued by the

shipping company or its agent acknowledging the receipt of goods on board the vessel, and undertaking to deliver the goods in the like order and condition as received, to the consignee or his order, provided the freight and other charges as specified in the bill have been duly paid. It is also a document of title to the goods and as such, is freely transferable by endorsement and delivery.

Bill of Lading ser es three main purposes:

y As a document of title to the goods; y As a receipt from the shipping company; and y As a contract for the transportation of goods.

Types of Bill of Lading

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y Clean Bill of Lading: - A bill of lading acknowledging receipt of the goods apparently in good order and condition and without any qualification is termed as a clean bill of lading. y Claused Bill of Lading: - A bill of lading qualified with certain adversere marks such as, "goods insufficiently packed in accordance with the Carriage of Goods by Sea Act," is termed as a claused bill of lading. y Transhipment or Through Bill of Lading: - When the carrier uses other transport facilities, such as rail, road, or another steamship company in addition to his own, the carrier issues a through or transhipment bill of lading. y Stale Bill of Lading: - A bill of lading that has been held too long before it is passed on to a bank for negotiation or to the consignee is called a stale bill of lading. y Freight Paid Bill of Lading: - When freight is paid at the time of shipment or in advance, the bill of landing is marked, freight paid. Such bill of lading is known as freight bill of lading.

81

y Freight Collect Bill of lading :- When the freight is not paid and is to be collected from the consignee on the arrival of the goods, the bill of lading is marked, freight collect and is known as freight collect bill of lading.

Contents of Bill of Lading

y Name and logo of the shipping line. y Name and address of the shipper. y Name and the number of vessel. y Name of the port of loading. y Name of the port of discharge and place of delivery. y Marks and container number. y Packing and container description. y Total number of containers and packages, y Description of goods in terms of quantity. y Container status and seal number. y Gross weight in kg. and volume in terms of cubic meters. y Amount of freight paid or payable.
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y Shipping bill number and date.

Significance of Bill of Lading for Exporters

y It is a contract between the shipper and the shipping company for carriage of the goods to the port of destination. y It is an acknowledgement indicating that the goods mentioned in the document have been received on board for the Purpose of shipment. y A clean bill of lading certifies that the goods received on board the ship are in order and good condition. y It is useful for claiming incentives offered by the government to exporters y The exporter can claim damages from the shipping company if the goods are lost or damaged after the issue of a clean bill of lading.

Significance of Bill of Lading for Importers

83

y It acts as a document of title to goods, which is transferable endorsement and delivery. y The exporter sends the bill of lading to the bank of the importer so as to enable him to take the delivery of goods. y The exporter can give an advance intimation to the foreign buyer about the shipment of goods by sending him a non-negotiable copy of bill of lading.

Significance Company

of

Bill

of

Lading

for

Shipping

y It is useful to the shipping company for collection of transport charges from the importer, if not collected from the exporter. Shipment Ad ice 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.

7. Packing List:

The exporter prepares the packing list to

facilitate the buyer to check the shipment. It contains the detailed description of the goods packed in each case, their gross and net weight, etc. The difference between a packing note and a packing list is that the packing note contains the particulars of the contents of an

84

individual pack, while the packing list is a consolidated statement of the contents of a number of cases or packs.

8. Bill of Exchange:

The instrument is used in receiving

payment from the importer. The importer may prefer Bill of Exchange to LC as it does not involve blocking of funds. A bill of exchange is drawn by the exporter on the importer, to make payment on demand at sight or after a certain period of time. y B/E is a means to collect payment. y B/E is a means to demand payment. y B/E is a means to extent the credit.

y B/E is a means to promise the payment. y B/E is an official acknowledgement of receipt of payment. y Financial documents perform the function of obtaining the finance collection of payment etc.

y 2 sets. Each one bearing the exclusion clause making the other part of the draft invalid. y Sight B/E. y Usance B/E.

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y It is known as draft. y Immediate payment Sight draft.

y There are two copies of draft. Each one bears reference to the other part A&B. when any one of the draft is paid, the second draft becomes null and void.

Parties to bill of exchange.

1. The drawer: The exporter / person who draws the bill. 2. The drawee: The importer / person on whom the bill is drawn for payment. 3. The payee: The person to whom payment is made, generally, the exporter / supplier of the goods.

B. Auxiliary Documents:

These documents generally

form the basic documents based on which the commercial and or regulatory documents are prepared. These documents also do not have any fixed formats and the number of such documents will wary according to individual requirements.

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1. Proforma In oice:

The starting point of the export

contract is in the form of offer made by the exporter to the foreign customer. The offer made by the exporter is in the form of a proforma invoice. It is a quotation given as a reply to an inquiry. It normally forms the basis of all trade transactions.

Contents of Proforma In oice

y Name and address of the exporter. y Name and address of the importer. y Mode of transportation, such as Sea or Air or Multimodal transport. y Name of the port of loading. y Name of the port of discharge and final destination. y Provisional invoice number and date. y Exporter's reference number. y Buyer's reference number and date. y Name of the country of origin of goods. y Name of the country of final destination. y Marks and container number.
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y Number and packing description. y Description of goods giving details of quantity, rate and total amount in terms of internationally accepted price quotation.

y Signature of the exporter with date.

Intimation for Inspection:

Whenever the consignment

requires the pre-shipment inspection, necessary application is to be made to the concerned inspection agency for conducting the inspection and issue of certificate thereof.

2. Declaration of Insurance: Where the contract terms

require that the insurance to be covered by the exporter, the shipper has to give details of the shipment to the insurance company for necessary insurance cover. The detailed declaration will cover: y Name of the shipper \ exporter. y Name & address of buyer. y Details of goods such as packages, quantity, value in foreign currency as well as in Indian Rs. Etc. y Name of the Vessel \ Aircraft.
88

y Value for which insurance to be covered.

3. Application of the Certificate Origin:

In case the

exporter has to obtain Certificate of Origin from the concerned authorities, an application has to be made to the concerned authority with required documents. While the simple invoice copy will do for getting C\O from the chamber of commerce, in respect of obtained the same from the office of the Textile Committee or Export Promotion Council, the documents requirement are different.

4. Mate's Receipt:

Mate's receipt is a receipt issued by the

Commanding Officer of the ship when the cargo is loaded on the ship. The mate's receipt is a prima facie evidence that goods are loaded in the vessel. 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. The mate's receipt is freely transferable. It must be handed over to the shipping company in order to get the bill of lading. Bill of lading is prepared on the basis of the mate's receipt.

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Types of Mate's Receipts

y 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. y Qualified Mate's Receipt: - The Commanding Officer of the ship issues 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

y y y y Name and logo of the shipping line. Name and address of the shipper. Name and the number of vessel. Name of the port of loading.
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y y y y y y y y y

Name of the port of discharge and place of delivery. Marks and container number. Packing and container description. Total number of containers and packages. Description of goods in terms of quantity. Container status and seal number. Gross weight in kg. and volume in terms of cubic meters. Shipping bill number and date. Signature and initials of the Chief Officer.

Significance of Mate's Receipt

y It is an acknowledgement of goods received for export on board the ship. y It is a transferable document. It must be handed over to the shipping company in order to get the bill of lading. y Bill of lading, which is the title of goods, is prepared on the basis of the mate's receipt.
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y It enables the exporter to clear port trust dues to the Port Trust Author

Obtaining Mate's Receipt

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.

5. Shipping order:

it is issued by the Shipping/Conference

Line intimating the exporter about the reservation of space for shipment of cargo which the exporter intends to ship. Details of the vessel, poet of the shipment, and the date on which the goods are to be shipped are mentioned. This order enables the exporter to make necessary arrangements for customs clearance and loading of the goods.

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6. Shipping Instructions:

at the pre-shipment stage,

when the documents are to sent to the CHA for customs clearance, necessary instructions are to be give with relevance to y The export promotion scheme under which goods are to be exported. y Name of the specific vessel on which the goods are to be loaded. y If goods are to be FCL or LCL. y If freight amount are to be paid / collected. y If shipment are covered under A.R.E.-1 procedure. y Instructions for obtaining Bill of Lading etc.

7. Bank letter for negotiation of documents:

at the post shipment stage, the exporter has to submit the documents to a bank for negotiation or discounting or collection for forwarding the same to the customer and also for realization of export proceeds. The bank letter is the set of instruction for the bank as to how to handle the documents by them and by the bank at the buyerts country which may include y Name and address of the buyer.
93

y Details of various documents being sent and the number of the copies thereof. y Name and address of the buyerts bank if available. y If the documents are sent L/C or on open terms. y If the proceeds are to adjusted against any pre-shipment packing credit loan. y If the bill amount is to be adjusted against any forward exchange cover. y In case of credit bill who has to bear the interest, either exporter or if the same is to be collected from the buyer. y Instructions in case non-acceptance/non-payment by the buyer.

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C. Regulatory Document:

Regulatory pre-shipment

export documents are prescribed by the different government departments and bodies in order to comply with various rules and regulations under the relevant laws governing export trade such as export inspection, foreign exchange regulation, export trade control, customs, etc. Out of 9 regulatory documents four have been standardised and aligned. These are

shipping bill or bill of export, exchange control declaration (GR from), export application dock challan or port trust copy of shipping bill and receipt for payment of port charges.

1. Shipping Bill:

Shipping

bill

is

the

main

customs

document, required by the customs authorities for granting permission for the shipment of goods. The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e. certified by the customs. Shipping bill is normally prepared in five copies :y Customs copy. y Drawback copy.
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y Export promotion copy. y Port trust copy. y Exporter's copy.

Types of Shipping Bill

Based on the incentives offered by the government, customs authorities have introduced three types of shipping bills:y Drawback Shipping Bill: - Drawback shipping bill is useful for claiming the customs drawback against goods exported. y Dutiable Shipping Bill: - Dutiable shipping bill is required for goods which are subject to export duty. y Duty-free Shipping Bill: - Duty-free shipping bill is useful for exporting goods on which there is no export duty.

In order to facilitate easy recognition and quick processing, following colours have been provided to different kinds of shipping bills :

Types of goods

By Sea
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By Air

Drawback shipping Green bill Dutiable bill Duty-Free shipping White bill shipping Yellow

Green

Pink

Pink

Contents of Shipping Bill

y Name and address of the exporter. y Name and address of the importer. y Name of the vessel, master or agents and flag. y Name of the port at which goods are to be discharged. y Country of final destination. y Details about packages, description of goods, marks and numbers, quantity and details of each case. y FOB price and real value of goods as defined in the Sea Customs Act.

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y Whether Indian or foreign merchandise to be re-exported y Total number of packages with total weight and value.

2. A.R.E. 1 form (Central excise): this form ARE-1

is prescribed under Central Excise rules for export of goods. In case goods meant for export are cleared directly from the premises of a manufacturer, the exporter can avail the facility of exemption from payment of terminal excise duty. The goods may be cleared for export either under claim for rebate of duty paid or under bond without payment of duty. In both the events the goods are to be cleared under form A.R.E-1 which will show the details of the goods being exported, the relevant duty involved and if the duty is paid or goods being cleared under bond, details of goods being sealed either by the exporter or Central Excise officials etc.

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3. Exchange

Control

declaration

Form

(GR/PP/SOFTEX):

under the exchange control regulations

all exporters must declare the details of shipment for monitoring by the Reserve Bank of India. For this purpose, RBI has prescribed different forms for different types of shipments like GRI, PP forms etc. These declaration forms must be presented to the customs officials at the time of passing of export documentation. Under the EDI processing of shipping bill in the customs, these forms have been dispensed with and a new form SDF has to be submitted to the customs in the place of above forms.

4. Export Application:

this is the application to be made

to the customs officials before shipment of goods. The prescribed form of the application is the Shipping Bill/Bill of Export. Different types are required for shipment like ex-bond, duty free goods, and dutiable

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goods and for export under different export promotion schemes such as claims for duty drawback etc.

5. Vehicle Ticket/Gate Pass etc: before the goods

are being taken inside the port for loading, necessary permission has to be obtained for moving the vehicle into the customs area. This permission is granted by the Port Trust Authority. This document will contain the detail of the export cargo, name and address of the shippers, lorry number, marks and number of the packages, driverts licence details etc.

6. Bank Certificate of Realisation:

this is the form

prescribed under the Foreign Trade Policy, wherein the negotiating bank declares the fob value of exports and for the date of realisation
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of the export proceeds. This certificate is required fore obtaining the benefit under various schemes and this value of fob is reckoned as fob value of exports.

D. Other Document:
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1. Black List Certificate:

it certifies that the ship/aircraft

carrying the cargo has not touched the particular country on its journey or that the goods are not from the particular country. This is required by certain nations who have strained political and economical relations with the so called uBlack Listed Co ntries .

2. Language Certificate:

Importers

in

the

European

Community require a language certificate along with the GSP certificate in respect of handloom cotton fabrics classifiable under NAMEX code 55.09. Generally four copies of language certificate are prepared by the concerned authority who issues GSP certificate. Three copies are handed over to the exporter. A copy is sent along with the other documents for realisation of export proceeds.

3. Freight Payment Certificate: in most of the cases, the

B/L or AWB will mention the transportation and other related charges. However if the exporter does not want these details to be disclosed to the buyer, the shipping company may issue a separate certificate for
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payment of the freight charges instead of declaring on the main transport documents. This document showing the freight payment is called the freight certificate.

4. Insurance Premium Certificate:

this is the

certificate issued by the Insurance Company as acknowledgement of the amount of premium paid for the insurance cover. This certificate is required by the bank for arriving at the fob value of the goods to be declared in the bank certificate of realisation.

5. Combined Certificate of Origin and Value:

this certificate is required bythe Commonwealth Countries. This certificate is printed in a special way by the Commonwealth Countries. This certificate should contain special details as to the origin and value of goods, which are useful for determining import duty. All other details are generally the same as that of Commercial Invoice, such as name of the exporter and the importer, quality and quantity of the goods etc.

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6. Customs In oice:

this is required by the countries like

Canada, USA for imposing preferential tariff rates.

7. Legalized In oice:

this is required by the certain Latin

American Countries like Mexico. It is just like consular invoice, which requires certification from Consulate or authorised mission, stationed in the exporterts country.

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Pre-Shipment Documents:

y y y y y y y y y

Shipping bill. Export order/Sales contract/Purchase order. Letter of Credit Commercial invoice. Packing list. Certificate of origin. Guaranteed Remittance (G.R/SDF/PP/SOFTEX),or SDF. Certificate of Inspection. Various declarations required as per custom procedure.

Exchange Control Declaration Form:

all exports to which

the requirement of declaration apply must be declared on appropriate forms as indicated below unless the consignment is of samples and of s No Commercial Value

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y GR FORM: to be completed in duplicate for exports otherwise than by post including export of software in physical form i.e. magnetic tape/discs and paper media. y SDF FORM: to be completed in duplicate and appended to the Shipping Bill for export declare to the customs offices notified by the Central Government which have introduced EDI system for processing Shipping Bill. y PP FORM: to be completed in duplicate for export by post. y SOFTX: to be completed in triplicate for export of software otherwise than in the physical form i.e. magnetic tapes/discs and paper media. Export declaration forms have utmost importance and are binding on the exporters. It is, therefore, necessary that enough care is taken while declaring exports on these forms, with special reference on the following points. y Name and address of the authorised dealer through whom proceeds of exports have been or will be realized should be specified in the relevant column of the form.
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y Details of commission and discount due to foreign agent or buyer should be correctly declared otherwise difficulties may arise at the time of remittance of such commission. y It should be clearly indicated in the form whether the export is on s outright sale basist or s consignment basist and irrelevant on clauses must be stuck out y Under the term analy i of full export valuet a break up of full export value of good under F.O.B value, freight and in urance hould be furni hed in all ca e , irre pective of the term contract. y All documents relating to the export of goods from India must pass through the medium of an authorised dealer in foreign exchange in India within 21 days of shipment. y The amount representing the full export value of goods must be realized within six months from date of shipment. of

Disposal of Copies of Export Documentation Form

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GR forms covering export of goods other than jewellery should be completed by the exporter in duplicate and both the copies should be submitted to customs at the port of Shipment. Customs will give their running serial number on both the copies of the GR forms after verifying the particulars and admitting the corresponding shipping bill. The value declared by the exporter will also be verified by the customs and they will also record the assessed value. Duplicate copy will be returned to the exporter and the original will be remained by the customs for onward submission to the Reserve Bank. Duplicate form of the GR form will again be presented to the customs at the time of actual shipment. After examination of goods and certifying the quantity passed for shipment the duplicate copy will again be returned to exporter for submission to an authorised dealer. However, an exception to submission of GR forms to the Customs authorities have been made in case of deep sea fishing.

(a) PP forms are to be first presented to an authorised dealer for countersignature. The form will be countersigned by the authorised dealer only if the post parcel is addressed to his branch or correspondent bank in the country or import. The concerned overseas branch or correspondent is to be instructed to deliver the post parcel against payment or acceptance of relevant bill, as the case may be.
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For post parcel addressed directly to the consignee, the authorised dealer will countersign the form, provided y (i) an irrevocable letter of credit for the full value of export has been opened in favour of exporter and has been advised through authorised dealer concerned; or (ii)the full value of shipment has been received in advance by the exporter through an authorised dealer; or (iii) On receipt of full value of shipment declared on this

form the authorised dealer will forward to RBI the duplicate copy along with the certified copy of shipperts invoice. (i ) The authorised is satisfied on the basis of standing and

track record of the exporter and arrangements made for realisation of the export proceed that he cold do so. If the authorised dealer is not satisfied about standing etc. of the exporter, the application is rejected. No reference is entertained by the Reserve Bank in such cases. The original PP form countersignature will be returned

(b)

to the exporter by the authorised dealer and the duplicate will be

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retained by him. Original PP form should then be submitted to the post office along with the parcel. The post office through the goods have been dispatched will forward the original to RBI. The export of computer software may be undertaken in physical form i.e. software prepared on magnetic tape and paper media as well as in non-physical form by direct data transmission through dedicated earth stations/satellite links. The export of computer software in physical form is subject to normal declaration on GR/PP form and regulations applicable there to will also be applicable to such exports. However, export of nonphysical form should be declared on SOFTEX Form. Besides computer software, export of video / T.V. Software and all other types of software products / packages should also be declared on the SOFTEX forms. Since export of software is fraught with many risks and special guidelines have been framed for handling such exports.

MARINE INSURANCE POLICY

Goods in transit are subject to risks of loss of goods arising due to fire on the ship, perils of sea, thefts etc. Marine insurance protects losses incidental to voyages and in land transportation.

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Marine Insurance Policy is one of the most important document used as collateral security because it protects the interest of all those who have insurable interest at the time of loss. The exporter is bound to insure the goods in case of CIF quotation, but he can also insure the goods in case of FOB contract, at the request of the importer, but the premium payment will be made by the exporter. There are different types of policies such as

Specific Policy: This policy is taken to cover different risks for a

single shipment. For a regular exporter, this policy is not advisable as he will have to take a separate policy every time the shipment is made, so this policy is taken when exports are infrequent.

Floating Policy:

This policy is taken to cover all shipments for

same months. There is no time limit, but there is a limit on the value of goods and once this value is crossed by several shipments, then it has to be renewed.

Open Policy: This policy remains in force until cancelled by either

party, i.e. insurance company or the exporter.

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Open Co er Policy: This policy is generally issued for 12 months

period, for all shipments to one or all destinations. The open cover may specify the maximum value of consignment that may be sent pre ship and if the value exceeded, the insurance company must be informed by the exporter.

Insurance Premium: Differs upon from product to product and a

number of other such factors, such as, distance of voyage, type and condition of packing etc. Premium for air consignments are lower as compared to consignments by sea.

QUALITY CONTROL AND PRE-SHIPMENT INSPECTION

Realizing the importance of the need
for supplying quality goods as

per international standards, the Government of India has introduced Compulsory Quality Control and Pre-Shipment Inspection of over 1050 items of export under Export (Quality Control and Pre-Shipment Inspection) Act 1963.

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At present, the export items that are subjected to compulsory inspection includes food and agricultural products, chemicals,

engineering, coir, jute and footwear.

Systems of Quality Control:

For the purpose of pre-shipment inspection, EIC has recognized three systems of inspection namely: y Self-Certification y In-Process Quality Control y Consignment Wise Inspection

Self-Certification:
Under this system, complete authority is given to the manufacturing units to certify their own products and issue certificates for export. The manufacturing units which have been recognized under this scheme have to pay a nominal yearly fee at the rate of 0.1% of FOB price subject to minimum of Rs.2,500/- and maximum of Rs.1 lakh in a year to the concerned EIA

In-Process Quality Control (IPQC):

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In this system, companies/units adjusted as having adequate level of quality control right from raw material stage to the finished product stage including packaging are eligible to get the inspection certificate on a formal request by the exporter. Over 800 units all over India are operating under this system. Constant vigil and surveillance are kept on units approved under IPQC and self-certification system. Units approved under the above two systems are often known as uExport worth Unitsv, because of their consistent standards of quality.

Consignment wise Inspection:

Under this system, each and every consignment is subject to compulsory inspection. The exporter has to follow a certain procedure such as: y He has to make an application to Export Inspection Agency with certain documents. y The EIA deputes inspector to inspect the goods y After the inspection, the goods are repacked with EIA seal y The inspector then makes a report to Deputy Director of EIA

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y The Dy. Director of EIA then issues Inspection Certificate in triplicate if the inspection report is favorable y If the inspection report is not favorable, a rejection note is issued. y It is to be noted that 9000 goods are not marked required to with be

ISI/AGMARK/BIS14000/ISO inspected by any agency

y Overseas buyer may depute his own inspection team to inspect the goods

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SHIPPING AND CUSTOMS FORMALITIES

(As per the Pre ailing Law i.e., ICA 62)

The shipment of export cargo has to be made with prior permission of, and under the close supervision of the custom authorities. The goods cannot be loaded on board the ship unless a formal permission is obtained from the custom authorities. The custom authorities grant this permission only when it is being satisfied that the goods being exported are of the same type and value as have been declared by the exporter or his C&F agent, and that the duty has been properly determined and paid, if any. The custom procedure can be briefly explained as follows:

Submission of Documents:
Custom House. The documents include: o o ARE-1 (Original and duplicate)

The exporter or his agent

submits the necessary documents along with the shipping bill to the

Excise gate pass (Original and duplicate transporterst copy

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o o o o o o o o o o o o

Proforma Invoice Packing List GRI form (Original and duplicate) Customs Invoice (where required in the importing country) Original letter of credit/contract Declaration form in triplicate Quality Certificate Purchase memo Labels Licence (if any required) including advance licence copy Railway receipt/lorry way bill Inspection Certificate by Export Inspection Agency.

Verification of Documents:
makes an endorsement of

The Customs Appraiser

verifies the documents and appraises the value of goods. He then Examination Order on the d plicate copy of shipping bill regarding the extent of physical examination of

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the goods at the docks. All documents are returned back to the agent or exporter, except o Original Copy of GR to be forwarded to RBI o Original copy of shipping bill o One copy of commercial invoice

Carting Order:

The exporterts agent has to obtain the carting Trus Au hori ies. Car ing Order is he

order from the Por

permission o bring he goods inside he docks. The car ing order is issued by he superin enden of Por Trus . Car ing Order is issued only af er verifying he endorsemen on he duplica e copy of shipping bill. The Car ing Order enables he expor er s agen o car goods inside he docks and s ore hem in proper sheds.

Storing the Goods in the Sheds:

are then stored in the sheds at the docks.

After securing the

carting order, the goods are moved inside the docks. The goods

Examination of Goods:

The exporterts agent then

approaches the customs examiner to examine the goods. The customs examiner examines the cargo and records his report on the duplicate copy of the shipping bill. The customs examiner then sings the uLet Export Order

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Let Export Order:

The Let Export Order is then shown to

the Customs Preventive Officer, along with other documents. The CPO is in charge of supervision of loading operations on the vessel. If CPO finds everything in order, he endorses the duplicate copy of shipping bill with the uLet Ship Orderv This order helps the exporter/shipper to load the goods on the ship.

Loading Goods:

The goods are then loaded on the ship.

The CPO supervises the loading operations. After loading is completed, the Chief Mate (Cargo Officer) of the ship issues the uMatets Receipt . The Matets Receipt is sent to the Por Tr s Office. The C&F agen pays he por ma e s receip . The C&F agen doc men s r s d es and collec s he hen approaches he CPO and

ge s he cer ifica ion of shipmen of goods on AR Forms and o her

Obtaining Bill of Lading:

The Matets Receipt is then

handed over to the shipping company (on whose vessel the goods are loaded). The shipping company issues bill of lading. The Bill of Lading is issued in: o 3 negotiable copies of Bill of Lading o 10 to 12 Non-negotiable copies of Bill of Lading.

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The negotiable copies have title to goods; whereas non-negotiable copies do not have title to goods but are used for record purpose.

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PROCEDURE OF EXCISE CLEARANCE:

The common procedure of excise clearance under ubond and under urebate is discussed as follows:

Preparing of In oice:

The export goods have to be

cleared from the factory under invoice. The invoice contains details like name of the exporter, value of goods, excise duty chargeable, etc. The invoice is to be prepared in triplicate. In case of export under Bond, the invoice should be marked as uFor Export without payment of dutyv. In addition to the invoice, a prescribed for ARE 1 has to be filed in by exporter.

Filling up of ARE-1 form:

The ARE-1 form needs to

be filled in four copies. A fifth (Optional) may be filled in by the exporter, which can be used at the time of claiming other export

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incentives. The ARE-1 copies have distinct color for the purpose of verification and processing.

Application to Assistant Commissioner of Central Excise (ACCE):

The exporter has to make an

application to ACCE regarding the removal of goods from the factory/warehouse for export purpose.

Information

to

Range

Superintendent

of

Central Excise (RSCE):

The ACCE will inform the

RSCE under whose jurisdiction the goods are intended to be cleared for export.

Deputation of Inspector:

The RSCE will then depute

an inspector to clear the goods, either at the factory or warehouse, or in certain cases at the port.

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Processing

of

ARE-1

Form:

The

Excise

Officer/Inspector will make endorsement on all copies of ARE-1. The handling of ARE-1 Form is done as follows: o The inspector returns the original and duplicate copies to the exporter o The triplicate copy is sent to officer (ACCE or Maritime Commissioner (MCCE) to whom bond was executed or letter of undertaking (LUT) was given. This copy can also be handed over to the exporter in a tamper proof sealed cover to be submitted to ACCE/MCCE. o The 4th copy will be retained by the excise inspector. o The 5th copy is also handed over to the exporter. o At the time of export, original, duplicate and the 5th copy (optional) will be submitted to customs officer. The customs officer will examine these copies and then export will be allowed.

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o The customs officer will then make endorsement of export on all copies of ARE-1. He will cite shipping bill number and date and other particulars of export on ARE-1.

y The original copy and quintuplicate (optional) will be returned to the exporter. The duplicate copy will be sent directly to the ACCE\MCCE i.e. excise officer with whom bond was executed will get 2 copies, one from RSCE (or excise inspector) when goods are cleared from factory and other Custom Officer after export. This will enable him to keep track to ensure that all goods cleared from factory or warehouse without payment of duty are actually exported. In case of export after payment of duty, under claim of rebate, the basic procedure is same as above, except that the triplicate copy (by excise inspector) and duplicate copy(by customs officer)will be sent to the officer to whom rebate claim is filed. If claim of rebate is by electronic

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submission, these copies well be sent to excise rebate audit section at the place of export.

Refund or Release of Bond: The exporter should

make an application to the excise officer for refund or release of bond. The application must be supported by original copy of ARE-1 form. The excise officer crosschecks the original copy of ARE-1 form and the duplicate and triplicate copies of ARE-1 form, which he had received earlier. If the copies match, then refund is given or the bond is released.

FACTORY STUFFING OF CARGO

Clearance of goods to docks: If the goods meant for export is of a small quantity which may not be sufficient to make one full container, the cargo is said to be less than container load (LCL) cargo. Such cargo has to be taken to the docks where the goods will be consolidated (combining the cargo of other exporters to make up

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quantity for a full container) by the agent and loaded into a container. Here the examination of the cargo is done at the docks.(There are also inland container depots approved by the customs where the goods can be consolidated and stuffed into the container by the agent under the supervision of the customs officer) If the goods meant for export is of sufficient quantity to make up a full container, the exporter has the option to take the goods to the docks and get them examined and stuffed into a separate container. An exporter gets the benefit on the freight amount for a full container. (Generally called box rate) Alternatively, he can have a container allotted to him and get the same to his Mills Premises. The goods meant for exports can be stuffed into the container under the supervision of the regional Central Excise Authority. Here the exporter has to

126

y Obtain permission from the Customs for getting the container to his mills premises for stuffing (House Stuffing) y Inform the C.Excise Authorities at least 24 hours before bringing the container for loading. The C.Excise Authority will supervise the loading, seal the container and certify the invoice as directed in the permission given by the custom authorities. A special Lock is used to lock the doors of the container. Samples from the goods will be drawn, if necessary, as

required under the customs permission. Such samples will be sealed and forwarded along with the container. The examiner in the docks may arrange to send the sample for testing. Then the container is moved to the dock for loading. Generally, such containerized goods are not subject to further examination in the customs. They will be directly taken for loading.

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PACKING CREDIT

Export Packing Credit are of 2 forms

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1. Pre-shipment Credit (Packing Credit)

2. Post-Shipment Credit These are available to the exporters, for financing purchase, processing, manufacturing or packing of goods prior to shipment. This would mean any loan or advance extended to you by the bank on the basis of: Letter of Credit opened in your favor or in favor of some other overseas buyer;

person, by an y India; y

a confirmed and irrevocable order for the export of goods from

any other evidence of an order or export from India having been exporter or some other person, unless lodgment of

placed on the

export order or Letter of Credit with the bank has been waived.

Packing Credit is granted for a period depending upon the circumstances of the individual case, such as the time required for procuring, manufacturing or processing (where necessary) and
129

shipping the relative goods. Packing credit is released in one lump sum or in stages, as per the requirement for executing the orders/LC.

The pre-shipment / packing credit granted has to be liquidated out of the proceeds of the bill dawn for the exported commodities, once the bill is purchased/discounted etc., thereby converting pre-shipment credit into post-shipment credit.

Post Shipment Packing Credit

It runs from the date of extending credit, after shipment of goods to the date of realization of export proceeds and includes any loan / advance granted on the security of any duty drawback allowed by the Govt. from time to time. Post-shipment credit has to be liquidated by the proceeds of export bills received from abroad in respect of goods exported. The exporter has the following options at post-shipment stage: i. to get export bills purchased /discounted / negotiated; ii. To get advances against bills for collection;

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iii. To receive advances against duty drawback receivable from Govt. The exporter has the option to avail of pre-shipment and postshipment credit either in rupee or in foreign currency. However, if the pre-shipment credit has been availed in foreign currency, the postshipment credit has necessarily to be under EBR Scheme since foreign currency pre-shipment credit has to be liquidated in foreign currency. The details of pre-shipment and post-shipment credit in foreign currency are mentioned below.

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METHODS OF RECEIVING PAYMENT AGAINST EXPORTS

Before we proceed to understand the concept of Letter of Credit, let us understand the various types of payment methods available against export.

METHODS OF PAYMENT
There are three methods of payment depending upon the terms of payment, and each method of payment involves varying degrees of risks for the exporter. The methods are: y Payment in advance y Documentary Bills

y Letter of Credit

A. PAYMENT IN ADVANCE
y This method does not involve any risk of bad debts, provided entire amount has been received in advance. At times, a certain

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per cent is paid in advance, say 50% and the rest on delivery. This method of payment is desirable when: y The financial position of the buyer is weak or credit worthiness of the buyer is not known. y The economic/ political conditions in the buyerts country are unstable. y The seller is not willing to assume credit risk, as un the case of open account method. y However, this is the most unpopular methods as a foreign buyer would not be willing to pay advance of shipment unless: y The goods are specifically designed for the customer, and y There is heavy demand for the goods (a sellerts market situation).

B. DOCUMENTARY BILLS:

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Under this method, the exporter agrees to submit the documents to his bank along with the bill of exchange. The minimum documents required are y full set of bill of lading y commercial Invoice y Marine Insurance policy and other document, if required. There are two main types of documentary bills: y Documents against Payment, y Documents against Acceptance. Documents against payment (D/P): The documents are released to the importer against payment. This method indicates that the payment is made against Sight Draft. Necessary arrangements will have to be made to store the goods, if a delay in payment occurs. The risk involved that the importer may refuse to accept the documents and to pay against them. The reason for non-acceptance may be political or commercial ones. In India, ECGC covers losses arising out of such risks. Under this system, as compared to D/A, the exporter has certain advantages:

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y The document remain in the hands of the bank and the exporter does not lose possession or the ownership of goods till payment is made, y Other reason may include that the exporter may not be able to allow credit and wait for payment. Documents Against acceptance (D/A): The document are released against acceptance of the Time Draft i.e. credit allowed for a certain period, say 90 days. However, the exporter need not wait for payment till bill is met on due date, as he can discount the bill with the negotiating bank and can avail of funds immediately after shipment of goods. In case of D/A as compared to D/P bills, the risk involved is much grater, as the importer has already taken possession of goods which may or may not be in his custody on the maturity date of the bill. If the importer fails to pay on due date, the exporter, will have to start civil proceedings to receive his payment, if all other alternatives fails. The risk involved can be insured with ECGC.
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C. LETTER OF CREDIT (L/C):

This method of payment has become the most popular form in recent times, it is more secured as company to other methods of payment (other than advance payment). A letter of credit can be defined as u an undertaking by importerts bank stating that payment will be made to the exporter if the required documents are presented to the bank within the variety of the L/Cv.

136

THE LETTER OF CREDIT

Introduction
The cycle of a business transaction can be said to be complete prima facie when the buyer has received the product he desires to buy and the seller gets his payment in due consideration of the product supplied. While the seller is keen to receive the payment for his supplies, the buyer is equally keen that he gets what he wants by the paying for the same. Tough there are many merit and demerits in each of the different mode of payments we have discussed earlier, in relation either to the buyer or to the seller, we shall now deal in detail about the mode of payment under the Documentary Credit.

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Generally, though exporters are complacent once they get the letter of Credit on hand feeling that their payment is secured, let me say it is as much a dubious instrument as is a safe instrument. If one does not understand the implications of the terms and condition of a letter of credit, the provisions under UCP 500, how co-operative are the exporterts bank and how good are the L/C opening bank and he reimbursemen bank, he is sure o land in rouble a once s age or ano her. There are ample cases of frauds under he Le er of Credi . More and more ingenious me hods are adop ed o circumven he provisions of UPC 500 by fair or foul means. Hence, even he safe y and securi y under he Le ers of Credi may prove o be no be er han a mirage for a man in he deser . Hence, sufficien care is o be aken by he expor er o ensure ha ins rumen is received in order and he condi ions of he L/C can be well complied wi h, and here are no clauses of ambigui y.

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What is a Documentary Credit?

To say in simple language, this is an Undertaking by a Bank associated with the buyer to make the payment for the supply of goods by a seller subject to compliance of various requirements that may be specified in the document of undertaking by the Bank. This document is known as Documentary Credit. A Documentary Credit is also called a Letter of Credit (L/C).

CONTENTS OF A LETTER OF CREDIT

A letter of credit is an important instrument in realizing the payment against exports. So, needless to mention that the letter of credit when established by the importer must contain all necessary details which should take care of the interest of Importer as well as Exporter. Let us see shat a letter of credit should contain in the interest of the exporter. This is only an illustrative list. o Name and address of the bank establishing the letter of credit o letter of credit number and date o The letter of credit is irrevocable o Date of expiry and place of expiry
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o Value of the credit o Product details to be shipped o Port of loading and discharge o Mode of transport o Final date of shipment o Details of goods to be exported like description of the product, quantity, unit rate, terms of shipment like CIF, FOB etc. o Type of packing o Documents to be submitted to the bank upon shipment o Tolerance level for both quantity and value o If L/C is restricted for negotiation o Reimbursement clause

PROCEDURE INVOLVED IN THE LETTER OF CREDIT

The following are the step in the process of opening a letter of credit:

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Exporterts Request: The exporter requests the importer to issue LC in his favor. LC is he mos secured form of paymen in foreign rade.

Importerts Request to his Bank: The importer requests his bank to open a L/C. He May ei her pay he amoun of credi in his curren accoun wi h he bank.

Issue of LC: The issuing bank issues the L/C and forwards it to its correspondent bank with also request to inform the beneficiary that the L/C has been opened. The issuing bank may also request the advising bank to add its confirmation to the L/C, if so required by the beneficiary.

Receipt of LC: the exporter takes in his possession the L/C. He should see it that the L/C is confirmed.

Shipment of Goods: Then exporter supplies the goods and presents the full set of documents along with the draft to the negotiating bank.

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Scrutiny of Documents: The negotiating bank then scrutinizes the documents and if they are in order makes the payment to the exporter.

Negotiation: The exporterts bank negotiates the document against the letter of credit and forwards the export documents to the L/C opening bank or as per heir ins ruc ions.

Realization of payment: The issuing bank will reimburse the amount (which is paid to the exporter) to the negotiating bank.

Document to Importer: the issuing in turn presents the documents to the importer and debits his account for the corresponding amount.

In order to have uniformity and to avoid disputes, the ICC Paris has evolved uniform customs and practices of documentary credit (UCPDC), in short known as UCP 500 effective from 1-1-96. These are rules have been adopted by more than 150 countries. They provide the comprehensive and practical working aid to banker, lawyer, importers, exporters, involved in international trade. Exporters, transporters, executives

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Note: as soon as an L/C is received ensure that the same is authenticated. Meaning that the genuineness of the L/C is certified by the Advising Bank by an endorsement with the marking

s AUTHENTICATED OR ELSE THE L/C IS OF NO USE.

Different Type of Documentary Credits.

There are various types of Documentary Credit opened by a bank in favour of itts customer depending upon the requirement. Let us talk about few types of Documentary Credi which are in common use. y Revocable / Irrevocable Documentary Credit : y Restricted/ Unrestricted Documentary Credit: y Confirmed/Unconfirmed Documentary Credit: y Transferable/Non-transferable Documentary Credit: y Revolving Documentary Credit: y Assignable Documentary Credit y Stand by Letter of Credit:

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Documentary Credit is generally common on open account trading where the seller may expect some security for getting his payment. This is not permitted in India. y Red Clause LC: y Green Clause LC: y Back LC:

Documentary LC:

Most of the L\C is documentary L\C.

Payment is being made by the bank against delivery of the full set of documents as laid down by the terms of credit. The important documents required to be submitted by the exporter under documentary LC includes the following: o o o o o o o o Bill of Lading /Airway Bill or any other transport document Commercial Invoice Insurance Policy Shipping Bill Certificate of Origin Combined Invoice and Certificate of Value and Origin GSP/CWP certificate Packing List
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o o o

Certificate of Quality Inspection Bill of Exchange Any other document if required.

A letter of credit may call for some or most of the above documents and may also call for some other documents specific to the shipment.

Tra eler s LC:

Traveler s LC is issued to the person who

intends to make a journey abroad. The correspondent/ agent of the bank honors all the cheques drawn on this credit by its holder up to the amount mentioned in LC. Travelerts LC has more advantages as compared to travelerts cheques. In case of cheque, the holder can withdraw up to the amount of the cheque. Again, he has to carry a number of cheque. In case of travelerts LC, the holder can draw any amount up to the limit mentioned in the LC, and he need to carry only one paper of LC.

Types of Payments under a Documentary Credit

Payment under a documentary credit can be of the following types:

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Payment at Sight: In this mode, the payment is made by

the L/C opening bank or its nominated bank or by a confirming bank on presentation of the documents in full conformity with the L/C. The L/C may or may not call for draft at sight for the full value of the documents.

Deferred Payment Scheme:

In this case the payment

is to be made at a future date as stipulated in the L/C. Here, generally NO draft is required as the due date of payment is defined in the L/C. In case of a confirmed L/C, the final payment is made by the confirmed bank on due date and by the issuing bank or its nominated bank if the L/C is not confirmed.

Acceptance Credit :

This type of credit requires a

usance draft to be drawn on a nominated or accepting bank. The payment is made by the nominated/accepting bank on the due date as per instructions of the negotiating bank. In case of a confirmed L/C the payment on due date is made by the negotiating bank (confirming bank).
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Negotiation Credit:

Here the payment is made by the

negotiating bank upon negotiation of the documents if it prepares to take the risk and will recourse to the beneficiary. If the credit is confirmed, then the negotiation bank is obliged to make the payment upon submission of a clean document by the beneficiary. Expect in the case of confirmed L/C there is always a time lag between the date of negotiation of the document and the date of receipt of the payment. This is a grey area. If the bank acts swiftly and without prejudice, one gets payment within a weekts time. If the payment is delayed beyond this time, though an exporter has every right to ask for compensation, in actual practice, no justice is done to the exporter for the delayed payment. Very rarely, on persistent approach by the exporter/their banker, does a defaulting bank comes forward to compensate for the delayed payment. Generally the exporter has to forego lot of money in correspondence through the

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negotiating bank because every communication of the bank is charged to the exporter. It is no surprise many exporter suffer this loss silently.

Feature of a Documentary Credit

A documentary credit is a document in writing issue by the bank on behalf of its customer (The Buyer). Documentary Credit must stipulate the Type of Credit as detailed above and inter alia will also stipulate the Following details : y The name of the Bank issuing the Documentary Credit.(The L/C Opening Bank) y The name and address of the buyer on whose behalf the credit is Issued.(The Applicant)

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y The name and address of a bank in the country of the seller the credit through Whom the L/C is to be advised to the seller. y The name and address of the Seller (Beneficiary) y The Maximum Value the opening bank undertakes to pay to the Beneficiary. y The date of issue of the credit. y The Expiry Date of the L/C y The Validity Date for shipment. y The Details of the product to be shipped.(Description) y Details of document required for claiming the payment from the Opening bank. y The name and address of the bank authorized to negotiate the documents. y The Reimbursement Clause. As soon as an L/C is received ensure that the L/C is authenticated. If the L/C received in mail the signatures are got to be verified by the advising bank. In case of telex/swift the bank should endorse on the document authenticated and then only the L/C is a valid document.
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While the above details are the minimum that a Documentary Credit may have in actual practice there can be other stipulations mutually agreeable to the buyer, seller and the opening bank as also the negotiating bank.

AMENDMENTS TO THE CREDIT

On scrutiny of the letter of credit, if the exporter finds that some change are required to be made in the credit, he should immediately request the buyer to make necessary change in the letter of credit and the opening bank issued necessary amendment in this respect. Any oral and written agreement by the importer about change in the credit directly to the exporter should not be accepted as it is not valid under the credit. Any change must be advised by the importer through the opening bank only as a sort of amendment to the original credit.

PARTIES TO LETTER OF CREDIT

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y Applicant: the buyer or importer of goods. y Issuing Bank: importerts bank who issues the L/C. y Beneficiary: the party to whom the L/C is addressed. The seller or supplier of goods. y Advising Bank: issuing bank s branch or corresponden bank in he expor er s coun ry o which he L/C is sent for onward transmission to the beneficiary. y Confirming Bank: the bank in beneficiaryts country which guarantees the credit on the request of the issuing bank. (Many a times the advising bank and confirming bank are one and the same). y Negotiation Bank: the bank to whom the beneficiary present his documents for Payment u Under L/C. y Reimbursing Bank: the bank which will reimburse the negotiating bank for the value of the credit.

Where an L/C stipulates that the Negotiation is restricted to a specific bank which is not the Advising Bank or Where the L/C is not
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restricted, and the seller desires to negotiate the document which is not the advising bank, then we have a separate Negotiating Bank. Where the opening bank prefers to advise the L/C through its own branch in the beneficiary country or through another bank of its choice, then the L/C may be advised to the beneficiary directly by this bank or if it instructed to advise the L/C through the buyerts nominated bank then it does so. Here, we have wo advising bank. As far as possible, one should res ric he involvemen of he number of he banks o he minimum. More he number of he banks, more he ime in he ransmission of he L/C, in addi ion o mul iplici y of bank charges.

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TOTAL OPERATION UNDER THE LETTER OF CREDIT.

The Unconfirmed L/C.

y The Buyer makes an application to his bank to open an L/C. y Opening bank establishes the L/C. y Opening bank advises the L/C through his associate or through the bank. Nominated by the beneficiary.

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y The Bank in the beneficiary country which receives the L/C sends the Original L/C to the customer either directly or through the bank Specified in the L/C. y The buyer complies with the L/C requirements and submits the relevant documents. To the bank for claiming reimbursement. y The negotiating bank negotiates and sends the documents to the opening bank or as Directed. Meantime pays the beneficiary. y Advises the opening bank or the reimbursement bank the details of his Accounts and the nominated bank where the proceeds are to be credited. y Once the credit is received, the nominated bank advises the negotiating bank of the credit. Thus the negotiating bank gets the credit for the L/C documents.

The Confirmed L/C.

All the steps from 1to6 as far as the beneficiary are concerned since the payment is made to the beneficiary without recourse. However,

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the negotiating bank may have to follow the subsequent steps since he has to receive his money from the opening bank.

PREPARATION AND SUBMISSION OF DOCUMENTS FOR BANK NEGOTTIATION

Document against exports should normally be realized through an authorized dealer foreign exchange. However payment of export can be received directly from the overseas buyer in the form of bank draft, pay order, bankerts cheque, personal cheque foreign currency notes, foreign currency travelerts cheque, etc. Without any monetary limit provided the exporterts track record is good, he is a customer of the authorized dealers through whom documents are to be negotiated and prima facie the instrument of payment represents export proceeds realization. Take care to submit various documents in a proper manner and within the prescribed time schedule. Apply to the Reserve Bank for extension of time in case you feel there is likely to be a delay in realizing export proceeds.

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The following are the steps in realizing export proceeds:

y Approaching a Bank: After dispatch of the goods, either by sea, or by air, the exporter should approach his bank (authorized dealer) with a formal request to realize sale proceeds from the foreign buyer. It is obligatory to submit the shipping documents to an authorized dealer within 21 days of the date of shipment (subject to certain exceptions). In India, the exporters have to realize the full value of exports within 180 days from the date of shipment, (unless the payment terms offered are udeferred payment termsv). Where it is not possible to realize the sale proceeds within the prescribed period, the exporter sho ld apply for extension in prescribed form ETX (in d plicate) to RBI. y Submission of Documents to the Bank: The exporter should submit the following documents o Bill of Exchange o Full set of Bill of Lading o Commercial Invoice Copies o Certificate of Origin o Insurance Policy o Inspection Certificate

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o Packing List o GR (duplicate copy to forward it to RBI) o Bank Certificate o Other relevant documents. The above documents need to be submitted in two complete sets, because it is customary to dispatch two sets of documents, one after the other. This is because, if one set is misplaced or delayed in transit, the importer can get at least the other set and clear the goods.

y Verification of Documents: The bank will verify the documents to find o Whether the required documents are in order. o Whether the required documents are attested by customs and other authorities.

y Letter of Indemnity: If the exporter wants immediate payment from his bankers, then his bankers may provide advance payment only when the exporter signs an indemnity letter. The implications of an indemnity letter is that in the event of refusal of payment by the issuing bank in respect of LC, then the negotiating bank can ask
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the exporter to pay back the money advanced along with necessary charges.

Common Document Discrepancies

o Credit Expired o Late shipment o Presented after permitted time from date of issue of shipping documents o Short Shipment
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o Credit Amount Exceeded o Underinsured o Description of goods on invoice differ from that of credit o Mark and numbers differ between documents o Bill of lading, Insurance documents, Bill of Exchange not endorsed correctly o Absence of Documents called for under credit. o Insurance certificate submitted instead of policy. o Weight in different document differs. o Class of Bill of lading no acceptable-charter party or House B/L. o Insurance cover expressed in currency other than that of credit. o Absence of signature, where required on documents. o Bill of exchange not drawn as per tenor stated in credit. o Bill of exchange drawn on wrong party. o Insurance risks covered not being those specified in credit. o Absence of freight paid statement on B/L in CFR of CIF shipment. o Bill of lading doses not carry shipped on broad stamp.
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o Amount shown on invoice and bill of exchange differ. o Shipment not make to port specified. o Transshipment/part forbidden. shipment undertaken where expressly

y Discounting of bills: the bank may discount or negotiate the bills drawn against LC, and make immediate payment to the exporter, if so required.

y Dispatch of documents: before the submission of documents for negotiation/collection, the bank examines them thoroughly with reference to the terms and conditions of the buyerts order. Letter of credit and the laws relating to foreign exchange control. If any scrutiny, the documents are in order, the bank dispatches them to its overseas branch/correspondent branch as early as possible. The overseas branch of the bank then submits the document to the importerts bank, and the importerts bank hands it over to the importer.

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FINANCIAL

RISKS

INVOLVED

IN

FOREIGN TRADE

As an exporter while selling goods abroad, you encounter various types of risks. The major risks which you have to undergo are as follows: y Credit Risk y Currency Risk
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y Carriage Risk y Country Risk You can protect yourself against the above risks by initiating appropriate steps. Credit Risks : You can cover your credit risk against the foreign buyer by insisting upon opening a letter of credit in your favour. Alternatively one can avail of the facility offered by various credit risk agencies. A specific insurance cover can also be obtained from ECGC (Exports Credit & Guarantee Corporation) to cover your country risk besides covering credit risk. Currency Risks: As regards covering the currency risk, due to the exchange rate fluctuations, you can request your banker to book a forward contract. Carriage Risk: The carriage risk can be covered by taking an appropriate general insurance policy. Country Risk:

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ECGC provides cover to protect the exporter from country risks. A detailed procedure how an exporter can get himself protected against the above risks are given in separate chapters later.

CUSTOM PROCEDURE FOR EXPORT UNDER EDI SYSTEM

It is brought to the notice of all exporters, importers, CHAs, Trade and General Public that the computerized processing of Shipping Bills under the Indian Customs EDI (Electronic Data Interchange) System (E ports), will commence w.e.f.1`5-09-2004. The computerized

processing of shipping bills would be in respect of the following categories: y EPCG Shipping Bills y DEPB Shipping Bills y PROCESSING OF SHIPPING BILLS The S/B shall be processed by the system on the basis of

declaration made by the exporter. However, the following S/B shall require clearance of the Assistant Commissioner/Dy. Commissioner (AC/DC Exports):
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y Duty free S/B for FOB value above Rs.10 lakh y Free Trade Sample S/B for FOB value above Rs.25,000 y Drawback S/B where the drawback exceeds Rs. One lakh Subject to the provisions of para 20.3 of this PN the following categories of S/Bills shall be processed buy the Appraiser (Export Assessment) first and then by the Asstt/Dy. Commissioner: y DEEC y DEPB y DFRC y EOU

1. CUSTOMS EXAMINATION OF EXPORT CARGO

On receipt of the goods in the Export Shed in the CFS, the exporter will contact the system examining officer (SEO)and present the checklist with the endorsement of CONCOR on the declaration, along with all original documents such as Invoice, Packing List, ARE-1(AR4)etc. He will also present additional particulars in the prescribed form. SEO will verify the quantity of the goods actually received against that entered in the system. He will enter the particulars in the system. The system would identify the Examining Officer (if more than one are available)who would be carrying out physical examination of goods.
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The system would also indicate the packages(the quantity and the serial numbers) to be subjected to examination. SEO would write this information on the checklist and hand it over to the exporter. He would hand over the original documents to the Examining Officer. No examination order shall be given unless the goods have been physically received in the Export Shed. It may, however, be clarified that Customs may examine all the packages/goods in case of any discrepancy. The Examining Officer may inspect and/or examine the shipment, as per instructions contained in the checklist and enter the examination report in the system. There will be no written examination report. He will then mark the Electronic S/B and forward the checklist along with the original documents to the Appraiser/Supdt. in Charge. If the

Appraiser/Supdt. is satisfied that the particulars entered in the system conform to the description given in the original documents (including AEPC quota and other certifications) and the ;physical examination, he will proceed to give u:Let Exportv order for the shipment and inform the exporter. The Appraiser/S pdt. wo ld retain the checklist, the declaration and all original doc ments with him. In case of any variation between the declaration in S/B and the doc ments or physical examination report, the Appraiser/S pdt. will mark the electronic S/B to AC/DC Exports. He will also forward the
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documents to AC/DC and advise the exporters to meet the AC/DC for further action regarding settlement of dispute. In case the Exporter

agrees with the views of the Department, the S/B would be processed finally. Where the exporter disputes the views of the Department, the case would be adjudicated following the principles of natural justice.

2. GENERATION OF SHIPPING BILLS

As soon as the Shed Appraiser/Supdt.gives uLet Exportv order, the system wo ld print 6 copies of the S/B in case of Free and scheme S/B. In case of DEPB there are 7 S/B. If the S/B (DEPB) is

assessed provisionally, then EP copy will be generated only after AC/DC finalises the assessment. On the examination report the Appraiser/Shed S pt.will sign. On all the copies, the Appraiser/Shed S pdt., Examination Offer as well as exporterts representative/CHA will sign. Name and ID Card n mber of he Expor ers

represen a ive/CHA sho ld be clearly men ioned below his signa re. The dis rib ion of S/Bills is as follows:

DEPB Scheme S/Bills S/Bills

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Other

Scheme

1. 2. copy 3.

Exporterts copy Cus om s Copy

1.

Exporters copy 2. Cus oms

Exchange Con rol Copy ExchangeCon rol Copy

3.

4. 5.

Scheme Bill Copy E.P.Copy TR-1, TR-2 Copies 5.

4.

E.P.Copy

TR-1. TR-2 Copies

The original AEPC quo a and o her cer ifica es will be re ained wi h he S/Bills and recorded in he Expor Shed.

3. DRAWAL OF SAMPLES
Where he Appraiser of Cus oms orders for samples o be drawn and es ed, he Examining Officers will proceed o draw wo samples from he consignmen and en er he par iculars here of along wi h name of he es ing agency in he sys em. No regis ers will be main ained for recording da es of samples drawn. Three copies of he es memo will be speared and signed by he Examining Officer, he Appraiser and Expor er. The disposal of he hree copies would be as follows:
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y Original to be sent along with the sample to the testing agency y Duplicate copy to be retained with the second sample y Triplicate to be handed over to the exporter. AC/DC may, if he deems necessary, order for sample to be drawn for purposes other than testing such as visual inspection and verification of description, market value enquiry etc.

EXPORT OF GOODS UNDER DEPB

While filing information as per the format, exporters are required to ensure that correct Group Code No. of the goods being exported and the item No. of relevant Group is clearly mentioned (item-wise details). The exporters/CHAs are advised to fill Item No, in the same manner as given in the Public Notices issued by DGFT.

EXPORT OF GOODS UNDER EPCG SCHEME

All the exporters intending to file shipping bills under the EPCG scheme should first get their EPCG licence registered with the Export section. For registration of EPCG licence, the exporter/CHA shall produce the Xerox copy of EPCG licence to the service centre for data entry. A printout of the relevant particulars entered will be given to the exporter/CHA for his confirmation.
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After

verifying

the

correctness of the particulars entered, the said printout will be signed by the exporter. Thereafter, the original EPCG licence along with the attested copy of the licence and the signed printout of the particulars shall be presented to the Appraiser/Supt (EPCG Cell)The

Appraiser/Supdt. (EPCG Cell) would verify the particulars entered in the computer with original licence and register the same in EDI system. The registration number of the EPCG Licence would be furnished to the exporters/CHA, who shall note the same carefully for future reference. The said registration number would need to be mentioned against respective item on the declaration form filed for data entry of the s/bill, at the time of export of goods. All the EPCG S/Bill would be processed on screen by the Appraiser/Supdt.(EPCG Cell) and the AC/DC (Export). After processing of the EPCG S/Bill by the Appraiser EPCG Cell and AC/DC Export, the goods can be presented at the Customs warehouse for registration, examination and uLet Exportv as in the case of other export goods. After train s mmary is s bmitted to CONCOR, the S/Bill will be p t to Appraiser q e e for logging/printing of ledger. After logging/printing of ledger, the EPCG bill will be moved to history tables.

GRIEVANCE HANDLING

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The Asstt. Commissioner/ Dy. Commissioner of Customs, CFS-Mulund may be approached by exporters or their CHAs for settlement of any problems faced at any stage of the export clearance.

THE ECGC COVER

The abbreviated form for Export Credit and Guarantee Corporation is ECGC. As the name indicates this is a sort of guarantee or a sort of cover for the exporter. Let us now see what this is all about. Needless to say that an exporter before entering into a contract with the overseas buyer for making any supply, takes care to ensure that the customer with whom he is dealing have some credit worthiness. This he may be able to do either through the local agent who is in a better position to know about the customer or through a bank or through any of the exporterts associates if happens to be in the area of the customer etc., But, in a business things may change. The financial status of a customer may take drastic turn and an established customer may go bankrupt within a short period of time.

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Moreover, the buyer may be willing to make the payment, but there are other environment which prevents him from effecting the transfer of funds through the bank. For e.g., there could be break out of war, the balance of payment position of the country may become unfavourable, there may be some coup of the government etc., and all transactions could be sealed. These are the risk factors for the exporters. What is the guarantee that he will get paid for the supplies he has made? With a view to provide support to Indian exporters, the Govt. of India set up the Export Risk Insurance Corporation (ERIC) in 1957. This was transformed into Export Credit & Guarantee Corporation Ltd. in 1964. In order to give the Indian identity a sharper focus the name was again changed to Export Credit & Guarantee Corporation of India Ltd., in 1983. This is a company wholly owned by the Govt. of India and functions under the administrative control of the Ministry of Commerce and managed by the Board of Directors representing Government, Banking, Insurance, Trade, Industry etc. Though one may insist for a Letter of Credit, still there could be some elements of risk which we will study later here. Except getting an advance payment for the full value of the supplies, any other mode of payment will have some risk.

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Take the case of an exporter who has made supplies and before the payment is received the buyer goes bankrupt or there comes some new provision or policy of Government of the importing country preventing repatriation of the funds to other countries what recourse the exporter has to recover his dues. The litigation procedure might be time consuming and the exporter can never be sure of getting his full payment. An ECGC cover a safeguard his interest to a great extent. An exporter can either agree for sight payment or can made shipment on credit terms for say 60 days, 90 days etc., In project exports the period of payment may extend to some years. Longer the period of cre3dit given to the customer, more will be the risk factor for the exporter. In respect of sight bill, there is almost no risk because the customer has to make payment first before he retires the documents. Therefore, before the title of the goods is passed on to the customer, the importer makes the3 payment. However, in respect of usance bill (credit bills) the buyer retires the documents by accepting the usance draft and takes delivery of the goods. In case the customer goes bankrupt or become insolvent, before the due date of payment, the exporter is totally at a loss. While big units may be able to absorb the one time loss, small exporters will get broke even with one such transaction. Here the ECGC comes into picture. It takes up the
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responsibility of paying the funds to the exporter and makes all efforts including legal proceedings to recover the dues from the customer, provided the exporter has taken an ECGC cover.

WHAT ECGC OFFERS FOR PROTECTION OF EXPORTER S INTEREST ?

ECGC offers various types of insurance cover to protect the exporterts interest. For each type of cover an exporter has to take Policy specific o he respec ive requiremen s. The Policy ha is mos commonly aken by he expor ers is he S andard Policy or o herwise called he Shipmen s (Comprehensive Risks) Policy.

SHIPMENTS (COMPREHENSIVE RISKS) POLICY ALSO CALLED STANDARD POLICY

For expor ers wi h an annual expor urnover in excess of Rs.50 lakhs, he Shipmen s (Comprehensive Risks) Policy is he one in ended for covering shipmen s on cash basis or on shor - erm credi basis. (Credi s no exceeding 180 days)

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The risks covered this Policy is as follows effective from the date of shipment.

Commercial Risks
y Insolvency of the buyer
y Failure of the buyer to make payment within a specified period.

y Buyer s failure o accep he goods subjec o cer ain condi ions.

Political Risks
y Imposition of restrictions by the Govt. of the buyerts country or any government action which may block or delay the transfer of payment made by the buyer. y War, civil war, revolution or civil disturbances in the buyerts country y New import restrictions or cancellation of a valid import licence y Interruption or diversion of voyage outside India resulting in payment of additional freight or insurance charges which cannot be recovered from the buyer.
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y Any other cause of loss neither occurring outside India nor normally insured by general insurers and beyond the control of both the e porters and the buyer.

Risks not co ered under the Policy

The Standard Policy does not co er losses on account of following risks: y Commercial disputes including quality disputes raised by the buyer unless the exporter obtains a decree from a competent court of law in the buyerts country in his favour y Causes inherent in the nature of the goods y Buyer s failure o ob ain necessary impor or exchange con rol clearance from au hori ies concerned y Insolvency or default of the agent of the exporter or of the collecting bank y Loss or damage to goods which can be covered by general insurers.
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y Exchange rate fluctuations y Failure of the exporter to fulfill the terms of the export contract or negligence on his part.

Shipments Co ered
The Standard Policy is meant to cover all the shipments that may be made by an exporter during a period of 24 months ahead. The policy cannot be issued for selected shipments, selected buyer or selected markets. For specific requirements an exporter can opt for different policy from the various services offered by the corporation

Exclusions:
Shipments made against advance payments received or shipments against confirmed letters of credit which has the confirmation from the bank in India may be excluded.

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However, shipments against confirmed L/C may be covered for political risks only. The premium for cover under political risks will be less than that under the comprehensive policy. ECGC may also agree to exclude certain items if the exporter is dealing in different distinct products.

CAPEXIL

CAPEXIL, a non-profit making organization, was setup in March 1958 by the Ministry of Commerce, Government of India to promote export
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of Chemical and Allied Products from India. CAPEXIL is an ardent advocate of exporters to the Government and the primary focus is to provide export assistance to its member exporters.

CAPEXIL sends trade delegation to all major and developing markets around the world, showcases Indian exports all over the world through exhibitions, fairs.

Capexil can help the sourcing needs of an importer anywhere in the world, and also the selling needs of Indian exporters.

CAPEXIL is an ISO 9001 : 2000 certified organization.

Ser ices Offered:

y Indispensable information gateway and helping hand for exporters. y An interface between the government and the members regarding trade and policy related matters such as DEPB, Duty Drawback, Banking etc.

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y Organizing Buyer Contact Programmes y Participation in National and International Trade Fairs and Exhibitions y Financial Assistance to members through Market Development Assistance (MDA) Scheme and Market Access Initiative (MAI) Scheme for participation in international exhibitions, buyer-seller meets y Organizing export awareness programmes, seminars and workshops y Excellent liaison with government and quasi government agencies including Indian diplomatic missions abroad y Dissemination of trade contacts and enquiries

Promotional Acti ities:

CAPEXIL in its continuous endeavor to promote the business activities of its members, undertake the following activities throughout the year:
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y Participates in general and product specific international trade fairs y Organizes Buyer Seller Meets and Trade Delegations abroad y Organizes buyer contact programmes in India popularly termed as Reverse buyer Seller Meets y Awareness Programmes, Seminars and other activities in India to build awareness and to boost entrepreneurs in the area of exports y Acts as a forum for representation of the trade related issues and acts as a liaison between the exporting community and the government, policy planners, quasi government organizations y Liaisons with Indian Diplomatic Missions abroad and Foreign Diplomatic Missions in India for promotion of business events and other activities y Facilitates short term training courses on International Marketing

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Flow Chart Showing Documents Required for Export

IMPORTER
PURCHASES ORDER / L/C

EXPORTER CERTIFICATE INVOICE PACKING OF INSPECTION POLICY LIST GR FORM ARE1 MARINE

FORM INSURANCE

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CUSTOMS SHIPPING FULL ATTESTED INVOICE BILLS

COPY DUPLICATE DUPLICATE

SET OF OF L/C COPY ARE COPY GR ON BOARD BILL OF LADING C & F AGENT FORM FORM

EXPORTER

COMMERC PACKIN DUPLICA NEGOTIAB ORIGI CERTIFICATE BILL OF IAL INVOICE G LIST TE COPY GR FORM LE COPIES OF B/L NAL L/C OF ORIGIN EXCHANG E

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NEGOTIATING BANK

L/C AMOUNT

SHIPPING DOCUMENT

EXPORTER

IMPORTER

Bibliography

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Reference Site

http://www.yash-papers.com as retrieved on June 31, 2010 http://www.exim.com as retrieved on July 5, 2010 http:// www.capexil.com as retrieved on July 5, 2010

Reference book
Puri, V. K., Exporterst Guidelines, A Basic Book on How o Expor as per Gov . Policy & Procedures, 2nd Edi ion, JBA Publishers, 2008-09. Paul, Jus in & Aserkar, Rajiv, Expor Impor Managemen , 2nd Edi ion, Oxford Universi y Press, 2009, Chap er 17-29. 2, pp.

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ANNEXURE

185