Unit-III

• Export and Import order, contract, pricing,

• Payment terms and methods of payment.
• Parties involved in EXIM and their functions.
• Quality Control and Pre-shipment Inspection.

• Export Order
• Import order, Procedure
 Nature and Format of Export Order
 Examination and Confirmation of Export Order
 Manufacturing or Procuring Goods
 Central Excise Clearance
 Pre- Shipment Inspection
 Appointment of Clearing and Forwarding Agents
 Transportation of Goods to Port of Shipment
 Port Formalities and Customs Clearance
 Dispatch of Documents by Forwarding Agent to the Exporter
 Certificate of Origin and Shipment Advice
 Presentation of Documents to Bank
 Claiming Export Incentives
o Excise Rebate
o Duty Drawback
 Export and Import order
• Processing of an export order starts with the receipt of an
export order. An export order may be either in the form of
export sales contract, which is concluded and incorporated
in the form of a document or in the form of evidence or an
instrument evidencing the conclusion of a contract.
• Simply stated, it means that there should be an agreement,
which is mostly reduced in a documentary form, between
the exporter and the importer before the exporter can
start making arrangements for production or procurement
of goods and their shipment.
• Generally an export order may take the following forms:
i) Proforma Invoice accepted and signed by the importer
ii) Purchase Order accepted and signed by the exporter
iii) Letter of Credit opened by the importer in favour of the
exporter.
• A proforma Invoice is prepared and sent by the exporter to
the importer. After accepting the terms and conditions
given in it as given in a documented contract, if any, the
importer returns a copy of this invoice to the exporter.
• Such a process helps in accepting the offer of the exporter
by the importer and, thus the conclusion of an export
contract. In the case of long- term contract, the exporter
may be required to send proforma invoice for any intended
'shipment.
• Alternatively, the export contract may require a purchase
order to be sent by the importer to the exporter. If the
purchase order is in accordance with the terms and
conditions of the contract, the exporter will duly accept it.
Opening of a letter of credit is also a common method of
receiving the export order.
• Although an instrument of payment, the letter of credit
states major terms and conditions of shipment and enables
the exporter to start processing of the export order.
EXAMINATION AND CONFIRMATION OF EXPORT ORDER
• As soon as an export order has been received, the exporter must first
acknowledge its receipt by intimating the importer through telephone, telex,
fax, etc. Though not legally necessary, this step is helpful in creating business
goodwill for the exporter.
• The exporter must carefully examine the contents of the order to see that there
is no discrepancy between the export order and export contract (verbal or
written). Thus, the accepted proforma invoice, buyers purchase order or the
letter of credit opened in favour of the exporter must be examined. Items to be
examined particularly are:
i) Product description, including specification, style, colour, packing conditions, etc.
ii) Marking and labelling requirements, if any.
iii) Terms of payment, including currency, nature of letter of credit (revocable.
irrevocable, confirmed, unconfirmed, restricted, unrestricted, etc.), credit
period, if any.
iv) Terms of shipment including choice of carrier, mode of carriage, place of
delivery, date of shipment! delivery, port of shipment, Transhipment, etc
v) Inspection requirement including type of inspection and inspecting agency.
vi) Insurance requirements including risk being covered and insurable value.
vii) Documents for realising payment including the nature and number of invoices.
certificate of origin, certificate of inspection, certificate of value, bill of
exchange, insurance policy, transport document and document of title, etc.
viii) Last date of negotiation of document with the bank.
• A new exporter who is very keen to get into the business may
tend to ignore certain aspects of the export order. It is not
uncommon that he encounters difficulties while complying with
the contracted obligations.
• In the process, he may suffer a loss. For example, the importer
may specify inspection to be undertaken by an agency, which
does not operate from India. Such a problem will be discovered
only after the goods have been manufactured.
• At this stage. it may be difficult to persuade the importer to
change this condition. Consequently, the exporter may suffer a
loss. If there are any discrepancies in the export order, the
importer must be immediately informed for its amendment.
• It is only after the amended order has been received and
confirmed by the exporter that he becomes liable to fulfil his
contractual obligations. It is commercially prudent to confirm
the order by sending a documentary confirmation. In certain
contracts it may also be the legal requirement.
• There is no specific format of this confirmatory letter 'and an
ordinary letter would serve the purpose. Although some
exporters have printed the letter with suitable blank spaces..
Summary
• Processing of an export order starts with the receipt
of an export order, generally in the form of either the
proforma Invoice, Purchase Order or Letter of Credit.
• On its receipt, the exporter must first acknowledge
its receipt and then process to examine it. The
examination should be done with reference to terms
and conditions of the contract, particularly product
specifications, terms of shipment and payment and
submission of documents to the bank.
• If any discrepancy is found, the importer must be
immediately informed for amendment of the order.
The exporter should then confirm the order with the
importer.
• For production/procurement and transportation
of goods to the port for shipment, a number of
activities are to be undertaken by the production/
procurement department of the export firm. The
first activity is to apply for pre-shipment credit
(packing credit) to the Bank.
• The bank takes into account a number of factors
and grants credit to the extent determined by the
value of the confirmed export order. The credit
amount is used for manufacturing! procuring and
packing goods
• The clearance from the central Excise authorities is needed
so that the exporter can get rebate in the central excise
duty paid/payable on the exported goods. For this purpose,
AR4/ AR5 Form and Invoice are to be completed. Clearance
is completed when the certified AR 4/ AR 5 (Original and
Duplicate) is given to the production department.
• The production department also applies to the Inspection
Agency for obtaining inspection certificate. This certificate
is issued when the inspector visits the factory/ warehouse
and examines the goods. The original Inspection certificate
will be required to be submitted to the customs authority
for obtaining permission to ship goods.
• Export goods are sent to the port town either by road or by
rail. The Indian Railways accord priority in allotment of
wagons needed for moving export consignments, for which
the essential requirements is to first reserve space on the
ship. Space reservation may be done either through the
freight broker or the clearing and forwarding agent. The
proof of space reservation is the shipping order.
• At the port two formalities are to be completed. The first is to
obtain permission from the port authority to bring cargo inside
the shipment shed. The second formality is to obtain
permission from the customs authority to export the goods.
• The customs permission is granted at three stages-
documentary declarations, physical examination of goods and
permission from the Customs Preventive Officer. For these
purposes, the Clearing and forwarding agent of the exporter
files the necessary shipping bill (a customs document) and the
supporting documents with the Customs House.
• After appraising the value of the goods, the concerned customs
officer notes down instructions for physical examination of
goods in the shipment shed on shipping Bill (Duplicate copy).
• After obtaining permission from the port authority, the
exporter's agent brings goods in the shipment shed. But before
shipment process can start, the customs officer first physically
examines goods and then finally the Customs Preventive Officer
gives permission to load.
• Once the shipment process is over. The master of the
carrier issues Mate's Receipt. This receipt is then
exchanged with the Bill of Lading issued by the
shipping company.
• The exporter's agent obtains shipment certificate on
different documents, which will enable the exporter
to claim various incentives.
• As soon as shipment is completed, the exporter
should send shipment. Advice to the importer mainly
in the form of non-negotiable copy of Bill of Lading.
• Thereupon, documentation formalities are
undertaken for getting rebate in Excise Duty and
Duty Drawback.
• At the same time the exporter submits shipping
documents as per the export order to the bank for
securing the sale amount.
• IMPORT PROCEDURE
• PRE- IMPORT PROCEDURE
• STAGES IN AN IMPORT TRANSACTION
IMPORT PROCEDURE
• Importing refers to the purchase of foreign products
for use or sale in the home market.
• It involves searching foreign markets for acceptable
products and sources of supply providing for transfer
of the product to home market, arranging financing
negotiating the import documentation and customs
procedure and developing plans for use or resale of
the item or service.
• Thus successful importing depends on more than
goods buying, it requires planning for acceptance of
the product and delivery of the promised benefits.
• The importing firm has the responsibility to
determine whether the foreign product or service
meet the needs of the home market.
• Important issues related to Importing:
i) various aspects related to import process,
ii) major importing institutions,
iii) probation confronting Indian importers.
iv) the custom law and procedure and
v) close relationship to customs arrangements.
THE IMPORT PROCESS:-
Essentially the import process comprises the
following five stages:
i) determining market demand and purchase
motivation.
ii) Locating and negotiating with sources of supply.
iii) Securing physical distribution.
iv) Preparing documentation and customs
processing to facilitate movement among
countries and organization.
v) Developing and implementation of plan for resale
or use.
1. Determining Market Demand And Purchase Motivation:-
• Importers can have a distinct advantage over foreigners in the home
market, because often they know or can more easily learn the
requirements and nuances of the market.
• They are closer to the market, may live there and may be native to the
market.
• They are familiar with information sources and institutions. This
knowledge can however be a disadvantage when familiarity leads to
carelessness and individuals assume a level of knowledge that does not
really exist.
• Enthusiastic exclamations of family and friends over souvenirs from
aboard are no substitute for careful market analysis.
• Home country manufacturers in fabricating their own final products
import raw material and component parts for use.
• The potential for such materials and parts is determined by the expected
sales of the manufacturers who use them. A careful analysis of trade
report
• and business conditions will and importers in determining the market
potential for both final products and components. Manufacturers may
not only buy crude materials from abroad but operate mines and
processing plants abroad from which they import to meet their
requirements.
2. Locating and Negotiating with sources of supply:-
• Importer must develop dependable supply sources in order
to assure customers and themselves of their ability to
deliver promised goods at the negotiated time and place
and in the correct quantity and quality.
• Various negotiated time and place and in the correct
quantity from a constant scouring of the foreign market by
the importer, resident buyer, or middlemen to the
worshiped control of supplying firms.
• The choice among the various options is dependent on
supply market characteristics, the product involved. And
the importer’s ability to finance and manage the operation.
• The importer and the importer’s customers are interested
in supply sources that are capable of producing the
quantities and the quality levels possible, sources should
be operating in an environment that is conducive to
satisfactory future performance if the relationship is
expected to continue.
• Product quality is partly a technical matter of specifications
or conformance to samples or description.
• It also has another dimension Foreign products may be
perceived differently than local ones. Some foreign
products from some countries may be seen as being of
higher quality than local products 9 (e.g. cars) while other
foreign products may find it difficult to overcome an image
of poor quality.
• The quality perception can change over time, but importers
should at least, be aware of the potential differences
perceived by their customers.
• Price financial arrangements, terms of trade, and
promotional aids are among other factors for negotiation.
• Even among parent companies and their subsidiaries
negotiation may be needed to establish policy transfer
pricing, priorities, product line, and deliveries.
3. Physical Distribution:-
• The logistics of supply, including delivery dates,
transportation modes, inventory policy and
claims servicing, may be the responsibility of
either the buyer or seller or both-and may be
subject to negotiation.
• These considerations affect the ability of a
exporter to deliver goods to customers or the
assembly line on time and they the final cost. Risk
management policies will vary with the
negotiated results.
4. Documentation:-
• Documentation is important in international trade. The
distances between trading partners and the sovereign rights of
nations require more elaborate systems than those in domestic
trade.
• Each business person desires to protects a personal interest and
each nation wishes to be certain its laws are upheld, its
revenues protected, and its sovereignty maintained its laws are
upheld, its revenues protected, and its sovereignty maintained
Previous chapters have indicated some of the documents
needed to support these systems.
• The individual importer has little choice but to conform at least
in the short-run Failure to carry out the documents needed to
support these systems. The individual importer has little choice
but to conform at least in the short-run. Failure to carry out
documentation procedures can be costly and result in no
delivery.
• Exporters who require irrevocable confirmed letters of credit
will not ship merchandise on revocable unconfirmed letters.
Customs procedures are especially relevant.
5. Developing a Plan for Restate or Reuse :
• Importers need to have a plan for resale or use of
the goods they buy Otherwise, they may find
themselves stuck with a product that doesn’t
appeal to the local people or does not necessary
fit the production and use systems of specific
business or institution.
• It is advantageous, then, for the importer to have
a plan for convincing others of the merits of a
product or service.
PRE- IMPORT PROCEDURE
(a)Selecting the Commodity :-
• An importer should select the commodity for import after
considering various commercial factors as well as legal
considerations including the regulations contained in the EXIM
Policy. Imports may be made freely except to the extent they
are regulated by the provisions of the EXIM Policy..
• Prohibited goods cannot be imported at all. Import of restricted
items is permitted through licensing only while canalised items
can be canalised through specified State Trading Enterprises
(STEs).
(b)Selecting the Overseas Supplier :-
• Imports can be made from any country of the world except
otherwise restricted, or where the prior approval of the
concerned sanction committee of the UN Security Council is
required to be obtained.
• The information regarding overseas suppliers can be obtained
from various trade directories, consulate generals, international
trade fairs and exhibitions and chamber of commerce.
(c) Capability and Creditworthiness of Overseas Supplier :-
• Successful completion of an import transaction mainly depends
upon the capability of the overseas supplier to fulfil his
contract.
• Therefore, it is advisable to verify the creditworthiness of the
overseas supplier and his capacity to fulfil the contract through
confidential 'reports about him from the banks and Indian
embassies abroad.
• It is advisable to finalise contract through indenting agents of
overseas suppliers situated in India.
(d) Role of Overseas Suppliers' Agents in India :-
• Some reputed overseas suppliers have their indenting agents
stationed in India.
• These agents procure orders from the Indian parties and
arrange for the supply of goods from their principal abroad. It is
advisable to import through such agents as they can be
• readily contacted in case there is any dispute regarding quality
or quantity of goods imported, receipt of payment,
documentation formalities, etc.
(d)Inquiry; Offer and Counter-offer :-
• It is advisable that before finalising the terms of
import order, one should call for the samples or
catalogue and other relevant literature and the
specifications of the items to be imported.
• Import of samples of goods is exempted from
import duties under 'Geneva' Convention of 7th
November 1952.
• After satisfying- himself with the samples and the
creditworthiness of the overseas supplier, the
importer should proceed to fmalise the terms of
the contract to be entered into.
STAGES IN AN IMPORT TRANSACTION
• The following stages mark the various steps involved in
importing goods into India under an import licence and
quota:
1. Placing the Indent:-
• The importer places order for the goods he requires and
for which he holds an import licence. The order is called
indent and may be placed either directly or through
specialized intermediaries called indent house.
• The word indent is used for import of goods according to
which two or three copies of the order are prepared and
indented is one which does not specify the price and other
details of the goods ordered but leaves them to the
discretion of the buyer in the exporting country.
• If an indent specifies the price at which goods are sought
to be imported it may give rise to negotiations between
the parties. In such a case the indent incorporating the
price finally settled is called a confirmatory indent.
2.Obtaining Foreign Exchange:-
• The foreign exchange reserves of any country are
controlled by the Government and are released
through the central bank. In India, the exchange
Control Department of the Reserve Bank of India
deals with applications for the release of foreign
currency.
• However an importer is able to get the foreign
exchange only from an exchange bank approved and
recognized by the Reserve Bank of India for dealings
in foreign exchange. The importer has to produce the
import licence along with the prescribed form for
securing foreign exchange required to pay for the
goods ordered from another country.
• The exchange back through which the payment is
proposed to be routed puts its endorsement on the
application form. On the strength of the application
and the licence and the exchange policy of the
government of India in force at the time of
application the Reserve Bank of India sanction the
release of a certain amount of the desired foreign
currency.
• This paves the way for the importer to go ached with
the other formalities in connection with an import
transaction. It must be noted that while licence is
issued by the Government for all imports during the
period of its validity exchange made available only
for a specific transaction for which an order has been
placed.
3.Arrangement for Payment :-
• After the importer has succeeded in securing the
requisite amount of foreign exchange from the
Reserve Bank of India, he has to make arrangements
for paying for the goods ordered.
• This may be done through an L/C where it is intended
to enable the shipper to obtain payment for the
goods immediately on surrendering a documentary
bill to a bank in his own country.
• Another method will be to request the exporter to
forward the documentary bill through his banker to
the importer for being delivered to him either against
acceptance of the bill of exchange or against its
payment.
• In such cases, when the shipper (exporter) has
shipped the goods and the an advice note to the
importer stating the date of shipment the goods and
the probable date when the ship is expected to reach
its destination. At the same time he draws a bill of
exchange on the importer (also called indentor) for
the full invoice value of the goods. Various
documents like master document, insurance policy,
bill of lading and certificate of origin are attached to
this bill.
• That is way it is called the ‘Documentary Bill’ A
Documentary Bill may either be D/A or D/P i.e. the
banker through which it is sent may be instructed to
deliver the document against the acceptance of the
bill by the importer or against the payment by him..
(D/A=Documents against Acceptance: D/P =
Documents against payment)
• The bank’s branch in the importing country, or its
agent thee, arranges for the bill to be presented
to the drawee (importer).
• The attached documents are handed over to him
immediately thereafter if it is a D/A bill in case of
a D/P bill, the bank delivers the documents only
after the importer pays the amount of the bill on
maturity. Generally, indent house is mentioned as
the ‘Referee in case of need’ on the bill.
• In case, the importer cannot comply with the
requirements regarding acceptance or payment
the indent house does so on his behalf.
4.Clearing the Goods:-
• Assuming that the importer has taken possession of the
various documents relating to the goods shipped, he will
have to comply with the formalities prescribed for clearing
the goods. When the ship carrying the goods touches at a
port, it is notified in the newspapers and the importer has
to secure the release of cargo from the custody of the
customs authorities.
• The first thing for him to do is to obtain the ‘Endorsement
for Delivery’ delivery or order on the back of the bill of
Lading which is the document of title of goods.
• The shipping campus of the such endorsement only if it is
satisfied that the freight has been paid it freight has not
already been paid by the shipper or exporter, the importer
will have to make the payment on this score before he can
be given a given a green signal by the shipping company.
• The importer then presents two copies of the
Port Trust Dues Receipt and three copies of the
Bill of Entry to the Port Trust Office to obtain
clearance regarding dock dues, etc. Thereafter,
one copy of the first form and two copies of the
second are presented to the Customs office.
• Bill of Entry. The Bill of Entry, drown in triplicates,
attests the fact that goods of specified quantity,
value and description are entering the bounds of
the country. Separate forms of the Bill of Entry
are used used for each one of the three classes of
good: (i) free goods which are exempted from
customs duty, (ii) goods for home consumption,
and (iii) bonded goods.
5.Payment of Customs Duties:-
• If the goods are free, no import duty is to be paid at the Customs Office.
On dutiable goods, the importer or his agent will pay the import duty
which may be specified, i.e. based on weight measurements etc. It may
be advalorem, i.e according to the tariff or the market value of the
commodity or its invoice value.
• Payment of customs duty can also be made under the system called the
“Permanent Deposit System” Under this system, an importer may
maintain a running account with the Customs Office and make deposits
from time to time. The duty payable on a particular consignment of
goods received at the customs is charged to the account and the
importer is informed of this.
• In case the importer is not in a position to pay the customs duty on the
whole of imported goods, he may apply to the customs authorities to
get when placed in the ‘Bonded Warehouse’. He can then pay the duty
on each installment of goods that he withdraws from time to time.
• To save themselves from the botheration of going through all the above
mentioned formalities, the importers may entrust the hob to clearing
and forwarding agents. In such a case, these agents will take it upon
themselves to deliver the goods at the exporter’s warehouse. Clearing
agents charge commission for their services.
LEGAL DIMENSIONS OF IMPORT PROCEDURE:-
(a)Finalisation of the Terms of Contract :-
• The import contract should be carefully and comprehensively
drafted incorporating therein, precise terms as well as all
relevant conditions of the trade deal.
• There should not be any ambiguity regarding the exact
specifications of the goods and terms of the purchase including
import price, mode of payment, type of packaging, port of
shipment, delivery schedule, licence and permits, discount and
commission, insurance, arbitration, etc.
(b) Mode of Pricing and INCO TERMS :-
• While finalising terms of import contract, the importer should,
inter-alia, be fully conversant with the mode of pricing and the
manner of payment for the imports.
• As regards mode of pricing, the overseas supplier should quote
the terms prevailing in international trade. International
Chamber of Commerce (ICC), Paris, has given detailed definition
of a few standard terms popularly known as 'INCO TERMS'.
These terms have almost universal acceptance.
Mode of Settlement of Payment :-
• There are mainly three modes of settling international
transactions depending upon the creditworthiness of the
importer or exporter,. demand for the commodity in the
international market, exchange control regulations prevailing in
the importer or exporter countries and other relevant factors :
• Advance Payment.
• Payment or Acceptance against Documentary Collections.
• Payment under Letter of Credit.
(d) Obtaining lEC Number :-
• In India, it is obligatory for every importer and exporter to
register themselves with the Director General of Foreign Trade
(DGFT) and obtain Import-Export Code (lEC) Number.
• The application form' for obtaining IEC number should be
accompanied by a fee of Rs. 1000 and two copies of passport
size photographs of the applicant duly attested by the banker of
the applicant and other relevant documents.
(e) Obtaining Import Licence :-
• If the item to be imported falls in the . prohibited list, then
such item cannot be imported at all. However, if it falls in
restricted list then the necessary clearance must be
obtained from appropriate licensing authority.
• Similarly, if it is subject to the canalisation through State
Trading Enterprises (STEs), then the necessary formalities
are to be completed pertaining to the same.
(f) Obtaining Foreign Exchange :-
• In India, all foreign exchange transactions are regulated by
the Exchange Control Department of the Reserve Bank of
India (RBI). Therefore, every importer is required to make
an application to the Reserve Bank of India (RBI) for
getting. sanction for making overseas payments.
• The Exchange Control Department scrutinises the
application and if satisfied, sanctions necessary foreign
exchange for the import transaction.
(g) Arranging Finance for Import :-
• It is advisable that the financial planning for imports should be done in advance
in order to avoid huge demurrages on the imported goods lying uncleared for
want of payment.
• Banks normally do not extend any fund based assistance to importers. However,
they enable industrial units and others to have access to imported inputs and
machinery by establishing letters of credit in favour of the overseas suppliers.
(h) Obtaining Import L/C Limit:-
• Import L/C limits are sanctioned by the banks on submission of complete loan
proposal as in the case of other types of credit facilities. This requires advance
financial planning so as to retire import bills under L/C on time.
• Any delay in retirement of bills not only strains the relations is of the importer
with his bank but also results in additional costs by way of extra commission,
penal interest, demurrage charges, etc.
(i) Dispatching Letter of Credit :-
• If the' term of payment agreed between the importer and the overseas supplier
is a letter of credit then the importer should obtain the letter of credit from his
bank and forward it to the overseas supplier well within the time agreed for the
same.
• The importer must see to it that the letter of credit has been prepared in the
strict conformity of the import contract entered between them.