EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
EXPORT IMPOR T PROCEDURE AND DOCUMENTATION
COURSE OVERVIEW
The world is forever changing, but the events that have taken
place since1989 have been particularly dramatic. There have been
border changes, in the name of country changes and technologi-
cal innovations all of which have contributed to, altering the
traditional depiction of countries in both shape and size. Our
trading environment in terms of market structure and so we
need new tools to deal with these new market dynamics.
In this changing environment instead of just developing
managers, executives, exporters and importers we need to
develop them, to become good competitors. I am trying to
provide a simple, verbiage-free and, above all, holistic compen-
dium of principles and concepts pertaining to one of the most
important areas of International Business.
This course pack is designed in accordance with the requirement
of this area, which is practically applicable in the organizations
of the country. The main features of this course pack are:
1. In-depth analysis of the latest EXIM policy
2. Simplified explanation of the export-import Procedures.
3. Explanation of all the export-import Documentation.
Export-import documentation and procedures is an important
area of International Trade. Documentation and policy
formalities are required to protect the interests of the buyer and
the seller. This course pack has been divided into four parts,
each part has its own importance in each of the organizations
and countries. The explanations are given below:
Part-I This part is related with the Introduction of Interna-
tional Marketing and Exim Policy, which tells about the modes
of entry into the foreign market and about the dynamics of
Import and export market.
11.675.1
Part II Under this part export finance plays very important
role in export- import business. Adequate availability of export
credit and attractive terms of payments followed by favourable
exchange regulations facilitate the export import business.
Shipment of export cargo is also a important area. Exporters
are supposed to pack, mark and label the consignment in
accordance with the requirements of the buyers. Apart from the
selection of proper modes of transport, exporters are also
required to comply with the legal aspects of the export busi-
ness.
Part III Government of India have setup several institutions
for export promotion. At the same time, various incentives
have been provided to the exporters to boost the export
business. This part deals with the role of institutional infra-
structure for export promotion and various export incentives
and procedures for claiming export incentives.
PART IV Import plays very important role in the economy of
every country, rich and poor alike. Rich countries need to import
capital goods, raw materials and technology to ensure an
optimum utilization of their production capacity. Poor
countries need to import technology and capital equipment to
develop industries for accelerating pace of their development.
For importing the goods various types of policies and
documentations have been discussed in this part. The impact
of liberal trade policy has also been highlighted in this part.
I hope this study material will be helpful to all whether you are
a student, entrepreneur, exporter, importer or marketers.
Constructive suggestions for the qualitative improvement of
the course pack, if any, will be received and honoured with deep
sense of gratitude.
i
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
SYLLABUS
Description of Unit
This unit focuses on effective and efficient planning and
management of various EXIM processes and Documentations
thereof. It provides students with the knowledge and skills to
manage the export Import documents and consignments for
optimal result. At the end of module, the student will have a
general appreciation of Export - Import Markets enabling them
to integrate human and technological skills for achieving
optimal solutions suited to the changing global business order.
Summary
To achieve this unit student must
• Examine concepts of Export Import Policy
• Explore the procedures and how to make documents
relating to Import-Export
• Practical applications of all theoretical aspects for the benefits
of the organisation.
Content
1. Introduction of International Marketing
Concepts of self Reliance: Introduction, Meaning, Impor-
tance & achievements Towards Self reliance.
International Marketing & Policy of international Trade :
Definition, Process, scope and Globlisation, Trade Barriers in
International Marketing, Objectives, functions and Urgency
Ground of WTO,GATT, and trading blocks Etc.
Regulation of international trade and foreign trade in
India: Introduction, Major laws Governing Export Import
trade and FEMA act. ,Trends in Exports, trends in India’s
Imports, Main Features of World trade in 1998, The Indian
Textile Industry etc.
Profit of the European Countries and Trade Agreement:
Introduction, Objectives, trade policy of European Union., new
generation Regulation etc. Programs on trade and economic
operation, International Conferences.etc.
Labelling, packaging of Export Consignment: Introduc-
tion, what is Labelling and packaging , Marking and New
packaging rules.
ii
2. Exporting & Export Procedures
Legal aspect to Export Contract:- Meaning, Elements of
Export contract, Meaning and Elements of Export Agency
Agreement
Export import policy of India: Objectives, Implications and
short notes on EXIM Policy, Letter of Credit & Industrial
dispute, Exemption of sales tax and Excise Clearance.
What is Exporting: Introduction, hoe it is benefits to the
country, why should a business export, special exporting
problems, assessing export potential
Export Processing order: Introduction, Objectives, Duty
Drawback scheme, Refund of Central Excise and Tax Exemp-
tion, project export, Govt. support to project export, etc.
Export Procedure: Meaning, Types and Procedure for
settlement of Claim of Marine Insurance etc. Quality Control
and preshipment Inspection etc.
3. Export Documents & Export Promotion
Organization
Export Credit Insurance & Overseas agents: objective,
Introduction, Organisation Covering credit risk Basic principle
of ECGC, Small exporters policy etc, Finding of an Agents,
Methods of paying agents and relationship with the agents etc.
Export Documentation: Explain all documentations like
Commercial bills, shipping bills, airway Bill, Bill Of Lading Etc
Export Finance: Introduction, Pre-Shipment Finance, Post-
Shipment Finance, Role of Export Import Bank of India,
Recent Developments in Export Finance etc..
Export assistance and incentives: Introduction, Export
promotion Measure in India, expansion of product Base for
exports, Rendering export price Competitive etc..
Export Promotion Organisation : Explain in short all
promotional organisations.
4. State Trading &Import Trade Procedure
State Trading Corporation: Introduction, Functions,
Performance, Weakness and future plans, state Trading in India.
State trading Organisation: Introduction, Discuss the Major
State Trading Organisations like-HHEC,PEC, MMTC, etc.
11.675.1
 EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Import Trade Procedure: Introduction of Import, Liberaliza-
tion of Import, Types of Import, Special schemes, Import
procedure.
Import documentation: Introduction, Capital Goods, Import
Documents, Custom Clearance procedure for import goods ,
Retirement of Import Documents, Bill of Entry.
Import Finance: Introduction, Objectives, Regulatory
framework, Methods of import Finance

Suggested Leading and Links

• www.export911.com
• Sak Onkvisit & John J.shaw- International marketing
(prentice-hall of india 1992)
• Gupta & Varshing International Marketing Sultan Chand &
Sons
• D.C. Kapoor-Export Management -Vikas Publishing House
• Khurana: Export management- Galgotia Publishing House
• Export –Import Procedures and Documentation- Acharaya
& Jain-Himalaya Publishing House.
• IGNOU Study materials.

11.675.1 iii
T IMPORT PROCEDURE AND DOCUMENTATION

EXPORT IMPOR T PROCEDURE AND DOCUMENTATION

CONTENT
Unit No. Lesson No. Topic Page No.
Lesson Pla n vi
Course Requirements xi
1
Lesson 1 National Economic Self-reliance 1
Lesson 2 Introduction To International Marketing 8
Lesson 3 Globalisation of Indian Economy
Lesson 4 International Marketing Environment 20
Lesson 5 International Marketing Environment
Lesson 6 WTO, GATT and Trading Blocs 33
Lesson 7 Regulations for International Trade 41
Lesson 8 Legal Aspect of Export Contract 49
Lesson 9 57
Lesson 10
Lesson 11 Law Relating to Settlement of International trade disputes 71
Lesson 12 Export- Import Policy of India 78
Lesson 13 Terms Used in EXIM Policy 86
Lesson 14 Export Procedure 93
Lesson 15 Procedures For Claiming Export Incentives 105
Lesson 16 Marine Insurance 113
Lesson 17 Export Documentation 119
Lesson 18 Export Finance 137
Lesson 19 Processing of An Export Order 144
Lesson 20 Export Assistance In India 150
Lesson 21 Export Promotion Organisations 156
Lesson 22 State Trading in India 164
Lesson 23 State Trading Organisation in India 172
Lesson 24 Import Trade Procedures 178
Lesson 25 Import Trade Documentation 185
Lesson 26 Import Finance 190
Lesson 27 Locating and Selecting Overseas Agents 196
Lesson 28 Export Documentation - I 200
Lesson 29 Export Documentation - II 209

iv 11.675.1
 EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
EXPORT IMPOR T PROCEDURE AND DOCUMENTATION

CONTENT
Unit No. Lesson No. Topic Page No.
Lesson 30 Export Assistance In India 218
Lesson 31 Export Finance 224
Lesson 32 Export Promotion Organisations 232
Lessom 33 State Trading in India 240
Lesson 34 State Trading Organisation in India 248
Lesson 35 CASE- 18 - Mmtc Keeps Exports to
S. Korea Intact Through Novel Tieups 255
Lesson 36 Import Trade Procedures 256
Lesson 37 Import Trade Documentation 263
Lesson 38 Import Finance 268
Lesson 39 274

1 v

COURSE REQUIREMENTS
Class Participation
It forms the backbone of the system of Continuous evalua-
tion. The students are expected to have gone through the
pre-study material and come prepared for discussion. We
visualize that the quantum and quality of learning through
discussion would be much superior to simple delivery of the
course material in the classroom. The process is intended to
identify the following aspects in a student:
a. Commitment to learning.
b. Regularity to attend classes.
c. Desire to studiously go through the study material and
research books, Net, etc. to gain significant knowledge.
d. Ability to present his point view systematically/logically.
e. Ability to take criticism.
f. Approach adopted to find solution to a given problem.
g. Communication skills.
Syndicate
It refers to the group of students who are assigned same tasks
to be performed. In our system the assignments are executed
by the Syndicates. This helps in inculcating the culture of team
work. It also helps those who are not as good in the subject as
some of their other colleagues are. The Syndicate accomplishes
the assignment as under:
a. Initial discussion to identify the job description.
Completion of the assigned job within the allocated time
frame.
b. Integration of the inputs to an unified Syndicate solution
Assignments
Each student is expected to submit two assignments per
subject during the semester. The system of assignment follows
the procedure given below:
a. Different assignment is given to different Syndicate.
b. Each member of the Syndicate is expected to participate
equally to solve the given problem.
c. All students of the syndicate are expected to submit the
assignment individually. While they are expected to present
common solution, they have the opportunity to express
themselves as individuals and demonstrate their exceptional
ability. They may recommend deletion/modification/
addition to the syndicate solution.
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
d. Students may furnish additional data/information
downloaded from the Internet/other literature and put up
diverse views away from to syndicate solution.
e. Each student is required to make self and peer evaluation in
accordance with a format. This is a confidential document
between the students submitting the assignment and the
faculty member.
Group Presentation
Most professional courses train their students in developing
presentation skills. All the members of the syndicate are
expected to share the presentation of the assignment executed
by them. They shall be prepared to answer queries raised by the
students as well as the faculty members. The students may
correct the error committed by them while submitting the
assignment at the presentation stage.
Group Project
This activity is also aimed at developing the culture of team-
work. The team members shall get together to decide at the
share of the work. Each member of the team gathers the
desired data, which is integrated together to form the project.
The project report is evaluated for the following:
a. Statement of the problem/issues (correctness/quality).
b. Research on existing practices, if any, and their critical analysis,
highlighting their advantages and defects.
c. Suggested Solutions, analysis, correctness, practicability, use
of technology and application of statistical tools.
d. Presentation, clarity of concept, quality of presentation (Slide
/Power point presentation/OHP Film), ability to respond
to queries, etc.
e. Recommendation.
The evaluation is made on the basis of the project report and
presentation.
End Semester Examination
These examinations are conducted in the usual manner. Each
student is expected to meet the attendance requirement of 75%
in aggregate.
xi

LESSON 1:
NATIONAL ECONOMIC SELF-RELIANCE
Introduction
Meaning of Self-reliance
Self-reliance and Indian Economy
• Importance.
• Achievements
Self-reliance is the only road to true freedom, and being one’s
own person is its ultimate Reward.” — Patricia Sampson
Never wear your best trousers when you go out to fight for
freedom and truth.”
—Henrik Ibsen (1828 - 1906)
Introduction
Dear Friends- Good Morning
This is our first session with “National Economic Self-reliance.
Lets be active and make this lecture interactive and interesting
with the discussion of self reliance and self sufficient, first of
all we will discuss what is self-reliance? My tomatoes need heat
and sun and the weather is giving me grey and cool. We get a
day of two of wonderful growing weather and then, blam, it’s
Fall. Fortunately, I am not yet counting on my garden to meet
all my food needs, if I was I’d be concerned right now. See, I
know what the weather can do and anticipate poor seasons by
keeping a larder stocked with enough food so that if I have a
bad growing year, we will not go hungry. I also start seeds
indoors six to eight weeks in advance (tomatoes) so that they
can handle the cool temperatures when they are transplanted.
This knowledge of my local conditions comes from paying
attention to the daily weather. This knowledge can enable me to
plan my food production so that it suits the weather it encoun-
ters
Knowledge is the essence of being self-reliant. Self-reliance
requires confidence and knowledge builds that confidence. You
need to become, not an info-junky, but someone who has an
active curiosity and constantly strives to enhance their knowl-
edge base. You have to learn to value the little tidbits of data
that float your way and to do so while swimming in an
information stream. You may find it difficult to understand
what it is you need to know and be tempted to try and collect
everything. You may drown while doing so. You avoid
drowning by having a clear vision of where you are going. If
you live within a community you do not need to know how to
do everything yourself, you merely need to know who can assist
and have something to trade. Even where the required skills are
beyond those possessed by the individual, a more direct
involvement with the production process or service, can result
in greater self-reliance, because the individual has enhanced his
or her knowledge base and reduced his or her dependence upon
someone else to achieve the desired goal. This increases
confidence. Self-reliance paves the path towards self-sufficiency.
11.675.1
UNIT I
A major goal of self-sufficiency is to enable the individual to
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
directly produce. If you are a homesteader living far beyond the
sidewalks then this may need to be your goal. Communities
may be self-sufficient unto themselves as they can produce all
they need. A community, even though self-sufficient, may still
want to engage in social exchange with other communities, just
as individuals, often seek the company of other like-minded
people.
Most of the newly independent countries, including India,
adopted a policy of protectionism for bringing about all round
development of their economies. However, this strategy not
only failed to boost up the stagnant traditional economies of
such countries but also kept them aloof from the latest
developments in the technological and-scientific fields in most
of the developed countries of the world.
However, the attitude of such countries changed radically in
recent past. Many developing countries adopted programmers
of import liberalisation and export promotion in the 1960’s
and achieved remarkable success. Such countries including
Japan, Singapore, Hong Kong, South Korea and Taiwan. The
success of these countries has prompted many economists and
international agencies, such as the IMF and the World Bank, to
advocate import liberalisation and export promotion as a
panacea for many economic ills, facing developing countries like
India. Following the footsteps of such countries, the Govern-
ment of India adopted the policy of the trade liberalisation in
1991. The trade policy of 1991 introduced many reforms to
open up the Indian economy to foreign trade and to integrate it
with the global economy in the new international economic
order that taking shape with the setting up the WTO (world
trade Organisation) in 1995.
Meaning of Self-Reliance
Self-reliance is being independent, which is being able to depend
on yourself alone and to do things by yourself without
assistance from others. Self-reliance is what you do using your
mind, body and soul.
I believe that self-reliance is just being your own person and not
always following behind one person and not to be influenced
by negative things from negative people. This is why you
should be your own person.
We accomplished self-reliance as a group because we were alone
a lot doing things as a group without the counselors. We hiked,
cooked, and found camp alone at times. That is an example of
the Outlawz using self reliance.
The term self-reliance is often confused with self-sufficiency
though they are not one and the same. Self-sufficiency can be
interpreted in both a general as well as a partial sense. In general
sense, self-sufficiency implies that a country is in a position to
fulfil all its requirements of goods and services from domestic
sources and is not at all dependent on import. In such a
1
 situation the possibility as exports can also be ruled out as, if
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
the country is not dependent on imports, foreign, exchange
earned through exports has no relevance for such country. In
fact, self-sufficiency in general sense is an unrealistic situation.
However, self-sufficiency in partial sense implies that a country
is in a position to fulfil all its requirements of goods and
services either from domestic sources or has adequate foreign
exchange to import goods and services it requires from abroad.
Self-reliance implies self-sufficiency in partial sense, i.e., a country
is capable of meeting all its requirements either from domestic
sources or has an ability to import them from abroad. There-
fore, it can be said that to be self-reliant a country need not be
self-sufficient.
Importance of Self-reliance
India won independence after about two centuries of colonial
exploitation. At this juncture, the world politics as whole was
undergoing a revolutionary change but the developed countries,
were not prepared to abandon their imperialistic pursuit.
Hence, India, like many other newly liberated countries, could
not risk its freedom again by opening up its economy to the
western world. However, Indian economy at that time was
afflicted by severe problems like shortage of foodgrains,
underdevelopment of agricultural as well as industrial sector,
scarcity of capital and technological obsolescence. We need to
analyse these aspects of Indian economy in order to understand
why economically backward country like India should become
self reliant in these key areas of development.
a. Shortage of Foodgrains:- At the time of independence,
India was purely an agrarian economy and this character of
Indian economy has not changed over the past five decades.
At the time of independence, the production of foodgrains
in India was much less than its demand. Shortage of
foodgrains in the country often led to mass unrest and
therefore India entered into the PL-480 agreement with the
USA for the import of foodgrains. Though this benefited
consumers in the short run but it had many adverse
repercussions such as threat of political blackmailing from
major foodgrains suppliers, bad impact on domestic
producers, etc. However, with the withdrawal of PL-480
programme by the US and subsequent launch of the Green
Revolution strategy by India has removed obstacles to the
development of agricultural sector in India and today we are
self sufficient in the production of foodgrains.
b. Underdevelopment of Industrial Structure:- on the eve
of independence, the industrial development in the India
was confined to traditional indigenous industries producing
handful of consumer goods such as cotton textile, sugar,
paper and leather goods. Industries manufacturing
intermediate good like iron and steel, cement, etc., had a
capacity much below the requirements. Capital goods
industries were almost non-existent. In short, industrial
development in India after independence manifested all the
signs of underdevelopment. The government, thus,
accorded a top priority to the programmes of industrial
development as soon as planning process began in India.
As a part of planned efforts, a number of industries were
setup in public sector. The second Five Year Plan was
2 11.675.1
referred to as industrial plan and number of basic and heavy
industries, including iron and steel, non-ferrous metal, coal,
cement, heavy chemicals and others were set up.
c. Scarcity of Capital: - Accounting to the Central Statistical
Organisation (CSO) the Gross Domestic Saving (GDS) rate
was just 8.95 in 1950-51. This rate was much below
standard. The GDS rate did not show much increase
during the planning period in the initial phase. As a result,
India had to depend on external foreign aid for meeting its
import requirements. The country, however, failed to raise
adequate funds from foreign sources on account of certain
political constraints. Besides the low rate of saving, the
other factor which compelled the government to seek
foreign aid, was the persistent deficit in balance of
payments. The problem with foreign aid is that while
giving loans, donor countries taking advantage of the weak
bargaining position of the capital recipient country impose
highly objectionable conditions which can affect the
autonomy of the decision making processes in the recipient
country.
d. Obsolete Technology:- India is an overpopulated country
with ready availability of efficient and cheap labor at hand.
Unemployment is the major problem, which country is
facing even today, and as a result capital-intensive methods
of production are not suitable for our economy Therefore,
a very little attention was paid to the development of
modern technology at home. At the same time, whatever
technologies are being utilized presently are obsolete and
outdated technologies, are being utilized presently are
obsolete and outdated technologies, absorbed form foreign
economies, which hardly contribute to the economic
development of the country. As a result, in order to keep
pace with world economy, India had to import technology
from outside. Some of which are not at all suitable for
Indian conditions. Taking this into consideration India
needs to develop its own technology, which can fulfill the
needs of providing job opportunities as well as help the
economy in keeping with the modern world.
India’s Achievements Towards Self-reliance
So far India is not a completely self-reliant economy, though its
progress towards self-reliance in foodgrains, capital equipment,
science and technology and capital formation is quite significant.
The balance of payments situation right now is not precarious,
but the country’s dependence on MNCS for setting up power
projects and large oil imports raise serious doubts about India’s
capability to become completely self-reliant in near future.
a. Self Sufficiency in Foodgrains :- Self sufficiency in
foodgrains has always been considered and essential
condition for India’s self reliance. Consequent to the
Withdrawal of PL-480 programme by the US and
subsequent launch of the Green Revolution strategy by
India, agricultural sector received a boost and due to
assiduous efforts of more than a decade India achieved the
dream of self-sufficiency in the production of foodgrains
by 1977-78. During the 1980s the imports of food grins in
India reduced considerably. The reason not being a sudden
rise in production of foodgrains, but because the country
 had been able to build up large buffer stocks of foodgrains
from which supplies could be released in the years of bad
harvests to match the demand. In 1986-87 and 1987-88 the
country experienced serious droughts. And yet the country
successfully handled the food problem without recourse to
large imports. In January 2002, buffer stocks of foodgrains
were more than 50 million tones. This level of buffer
stocks was much larger than that was required to sustain
public distribution system and stabilize prices of
foodgrains in the open markets.
b. Self-Reliance in Capital Equipment:- The second Five
Year plan laid the foundation of industrial development in
India. Since initially the private sector did not come forth
due to high investment and long gestation period, majority
of basic and heavy industries such as heavy engineering,
machine tools, iron and steel and some other capital goods
industries were set up in public sector. As a result of boost
given by the public sector and active participation of private
sector later on, India marched on the path of industrial
development. Today, we are self-sufficient in the
production machinery, plant and other capital equipments.
Today, engineering goods constitute one of the biggest
export items. This shows that India’s capital base is
reasonably strong. India is capable of setting up big
industrial units with indigenous machines and technical
know-how. This undoubtedly is a big achievement of
economic planning.
c. Self-Reliance in Science and Technology:- Development
of science and technology plays a crucial role in the
economic development of a country. However, given the
political environment at the international level, it is not
always possible to acquire the necessary technology on
commercial terms. Hence, there is a strong case for self-
reliance in science and technology. In fact, the country
realized this quite early and as a result, the country has make
a considerable headway in various areas of science and
technology. Over the years agricultural research has played a
crucial role in raising the production of foodgrains and
today we are self-sufficient in the production of foodgrains.
India’s competence in industrial technology has grown so
much that it has now emerged as a leading Third World
exporter of industrial know-how, technical consultancy and
turnkey projects. Even n the atomic energy programme, a
high degree of self-reliance has been attained in terms of
design, fabrication and commissioning of nuclear power
reactors and all associated elements. In the space
programme, capabilities relating to design and fabrication
of satellites and of satellite launch vehicles have been
developed which should lead in a few years to the
possibility of launching and utilizing operational satellite
on an indigenous basis.
d. Self-Reliance in Capital Formation:- When India
launched the programme of planned economic
development in 1951, the saving rate (Gross Domestic
Saving as the percentage of Gross Domestic Product) was as
low as 8.9% Since then it has risen to over 20% and was
24.4% in 2000-01. At this level of saving not much external
11.675.1
assistance is required for realizing a modest rate of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
economic growth of around 5.5% per annum. Over the
years dependence on external assistance has declined. For
the Seventh Plan 8.8% resources were mobilized through
external assistance as against 26.3% for the Third Plan and
26.4% for the three Annual Plans of the latter half of the
1960s. This fact clearly shows that the country has make a
significant advance towards self-reliance in the realm of
capital formation. The planning Commission has hoped
that the country’s dependence on external assistance would
decrease further during the Eight Plan period. However,
these expectations were belied as 9.9% resources had to be
mobilized through external assistance. This because
necessary because of the presence of large black income in
the economy, which is channeled to conspicuous
consumption and thus play no role in the development of
the economy. With appropriate fiscal measures if this black
income is canalised for the development of the country, the
economy would reach a still higher level of saving and its
dependence on foreign aid would be reduced significantly.
e. Balance of Payments Deficit and Self-reliance:-
Although India’s balance of payment position has always
remained unfavourable, there is no doubt that the
conditions since 1993-94 have been distinctly favourable in
comparison to the conditions prevailing in the period 1980-
81 to 1992-93. In 1993-94 the current account deficit was
only 0.4% of GDP. The foreign exchange reserves were
equal to eight and a half month’s imports. In this year
while imports increased at a rate of 10.0%, exports rose at
an impressive rate of 20.2%. In 1996-97, the current
account deficit was 1.2% of GDP. Over the whole of the
Eighth Plan period (1992-93 to 1996-97), the current
account deficit declined to an annual average of 1.2% of
GDP from 1.8% of GDP during the Seventh Plan. In
addition of these significant developments, a noteworthy
feature in India’s balance of payments in recent years has
been improvements in the invisible account due to mainly a
spurt in tourism earnings and shift of private transfers
from illegal channels to banking channels. In 2000-01
India’s current account deficit declined to 0.5% of GDP as
against 1.1% in 1999-2000.
f. Energy Crisis and Self Reliance:- At present India is
facing a serious energy crisis and until it is solved the
country cannot hope to become self-reliant. There is an
acute shortage of power and energy resources in the country.
At the same time, transmissions and distribution losses are
high. The agricultural consumers are supplied power at very
subsidized prices, which has led to inefficient use of
electricity. The State Electricity Boards are grossly overstaffed
and are plagued with rampant corruption. Under these
circumstance India has to depend on foreign MNCs for
setting up power projects. These MNCss insist on
exceptional rights and privileges for making investments in
India.
Domestic production of oil has stagnated for the last few years
and our index of self-reliance in oil has come down from 70%
in 1984-85 to 32.5% in 2000-01. As a result, imports of
petroleum products in 2000-01 were as large as Rs. 71,497 crore.
3
 As far as the power sector is concerned the problem is far more
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
serious. In this sector, until the State Electricity Boards are
made autonomous, the pricing policy is rationalized, inefficien-
cies in the use of created capabilities are removed and rampant
corruption is checked, energy sector units will not be financially
viable and the power sector will remain starved of ingestible
resources. Under these circumstances, the country has no choice
but to depend on MNCs for expanding the capacity in the
energy and power sector.
To sum up, over the years the goal of overall self-reliance has
proved to be elusive because of the balance of payments
problems created largely by oil imports and the serious crisis in
the power sector which has lately gripped the to attain this
objective. Indications are that debt service on borrowings will
increase in the years ahead. Recently export growth has acceler-
ated, but imports have also increased. These trends are expected
to persist for some time at least. Hence, India’s advance
towards the goal of self-reliance in the near future is somewhat
doubtful.
Article - 1
Making our nation strong and self-reliant
(Rashtra Samartha Aur Sashakta Kaise Bane?)
Individuals make the families; families constitute the societies;
and societies together form the nations, an ensemble of which
is seen as the world…. This relationship is not hierarchical in
nature, rather, it naturally persists and expands like the mutually
supportive motion of the waves in an ocean. Disturbance in the
natural order of any component, though implicitly, affects the
others in corresponding proportions…. Social anarchy acceler-
ates the law and order problems at national level… Moral
degradation and instability of the family institution is reflected
in similar negative trends at the social levels too….
Harmony of all musical nodes is necessary for the melody of a
tune. Analogously, when we talk of all round peace, progress
and prosperity of the nation, we will have to ensure harmoni-
ous endowment of these prospects in its constituent social,
familial and personal domains too.
The present scenario at global level depicts an arbitrary mélange
of bright and gorgeous as well as dark and dull colors of
positive and negative progress. The national picture – especially
in the Indian context, is equally blurred. After 50 years of
political independence, it is not clear where the nation is really
headed? There certainly has been significant progress in some
fields of science and technology. Self-reliance in agriculture,
decrease in mortality rate, increase in literacy, are also counted as
positive signs of progress. But, the explosive growth of
population, rapidly declining cultural values, unequal economic
progress, social disparity, rising corruption in almost every walk
of national life, decreasing morality and reduced sense of
responsibility in the personal, familial and social spheres of
common man’s life, ….etc, show the depressing sides.
Excellent constitutional provisions have not been implemented
to the extent as might have been planned by the architects of
sovereign Indian democracy. Social status of women has not
been ameliorated much as compared to that in the pre indepen-
dence period. Similar is the case of the economic exploitation of
4 11.675.1
the weaker and the poor ones. Wealth of the nation, its
economic growth and industrialization, seem to have made the
rich men richer… ; the poor ones continue to increase in
number. The condition is more pathetic on other facets of
social development.
Castism, religious misconceptions, blind faith, superstitions,
the curse of dowry and similar absurdities of the customs and
convictions born out of the pernicious era of ignorance and
slavery – continue to dominate the Indian mind. The political
and economic systems too are infected by these social evils in
one form or the other…. The large number of literacy cam-
paigns, healthcare projects, social welfare schemes, etc, appear to
have little effect in diverting the wrong trends.
The egotistic and selfish attitudes of the learned and elite ones
– including many of the journalists, writers, artists, scientists,
philosophers, bureaucrats, industrialists, planners, policy
makers and managers, etc, and, the ambitions and aspirations
of the majority for luxuries and aplomb…, have added to the
complications of the challenging problems associated with
national development.
It is surprising to note that even the awareness generated during
the great movement of India’s independence could not be
channelized for similar revolution on the social front. Despite
significant progress in agriculture, economy, science and
technology, the social and religious systems have remained the
areas of lesser attention.
It is indeed unfortunate that after over 2500 years of slavery,
when we finally got the opportunity to breath in free India, we,
rather than resurrecting our original glory, chose to remain
culturally enslaved and confused. We became the followers of
single tracked materialistic development without bothering
about what could be essential for elevating the status of a
diversified and illiterate society like ours. We hardly cared about
the inherent nature, culture, convictions, and attitudes of our
masses, without whose compatible response, efficient coopera-
tion and justified sharing in the national progress, our dreams
of prosperous development were bound to be shattered in the
long run….
Our democracy and our constitution are indeed the best in the
world, and we have the right to crown ourselves with the pride
of the dignified values these stand for… But, have we ever
thought, whether or how much, do we deserve them?
How can a democracy be healthy and strong unless the voters,
who design its political edifice, are made aware of their rights
and responsibilities? How would we prevent biased voting
influenced by caste, bribery, personal favors or threats and fears
in a society, where, the majority of voters are uneducated,
ignorant and deprived of even the basic necessities of human
life? How could we expect efficient, honest and responsible
representatives to be elected from a society, where, “might is
right”; where, social injustice prevails in almost every family –
depriving its female members of the fundament human rights;
where, the impact of ‘religion’ has been confined to emotional
excitation, blind faith and backward traditions?
Some of us might think that this is not our duty to answer the
above or to search, our level best, for the solutions to accelerate
righteous progress of our beloved nation. But then, we might
be either selfish, coward, irresponsible or cynical in some respect,
or, might be unaware of our duties and ignorant about the
facts of – where our true welfare and ultimate interest would
lie? Many of us think that the best we could do is to improve
ourselves, increase our own integrity and efficiency in order to
fulfill our immediate duties…; because, after all we are not
leaders, politicians or activists, who could initiate revolutionary
movements. We don’t even believe in the purpose and success
of any such movement these days….
We might be correct, but that is neither the end of our duties,
nor, do we get to try best use of the limitless potentials of our
lives because of the above attitude. We may not generate
movements, but we can certainly expand the peripheries of our
immediate duties to inspire all others in our contact to educe
greater faith in moral values, righteous thinking, self-confidence
and sense of responsibilities in them too. Some of us do want
to contribute in this direction; we do care for altruist service of
the nation, but do not know how to proceed?
This volume brings motivating guidance, detailed information
and feasible and creative programmes for each one of us to help
ameliorate our personal, familial and social lives by means of
thoughtful orientation and collective contribution of our own
potentials and talents. The volume also elucidates what is
necessary in terms of policy decisions and planned reformative
activities at national level towards righteous implementation of
our constitution and prestigious progress of our democracy.
Guidelines for viable economic techniques for progress of
agricultural sector and small-scale industries are also presented
here along with details on creative programmes of effective
control of population growth, considering the psychological
makeup of Indian public.
Acharya Sharma was a dedicated freedom fighter, who had
sincerely participated in the movement of India’s independence.
He was trained under the noble guidance of Pt. Madan Mohan
Malviya, Mahatma Gandhi, Dr. S. Radhakrishnan, (Maharshi)
Arvindo Ghosh, and other revered national heroes of India.
Right since he was a young volunteer in the non-violent
freedom-struggle, this great patriot, saint, spiritual master,
social reformer, and sagacious scholar had envisaged that – “an
absolute revolution would be necessary on the cultural front
too, if India were to be independent and progressive in the
truest sense of the words…”. The state of the nation today –
after 50 years of political independence, evinces that his vision
was indeed real.
What Acharya Sharma had warned 50 years ago, has now
become a reality. His trenchant views concerning the present
state of the nation and its cultural and social system should
open the eyes of the leaders, policy makers, planners and the
intellectuals of today…. His guidance for the future develop-
ment is realistic and takes into account the multifarious
problems and impedance existing in the present system.
After India’s independence, he had, unlike many other freedom-
fighters, chosen to dedicate his life for social and cultural
reformation from the religious rather than political platform.
He knew the psychology of Indian mind and the depth of its
religious spirit….. His definition, philosophy, and realisations
11.675.1
of religion (refer volume nos. 36, 53 of this series) are scientific
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
and universal as they emanate from absolute understanding of
human mind and realisation of the inner self. His sagacious
deliberations would convince us that it is religion, which
separates animals from humans; which can eliminate the smog
of animal instincts and unethical passions, and illuminate the
intrinsic world by the nitid glow of pure intellect and divine
piety….
Religion is an integral and intimate component of human life.
Then, how could it be separated from the social and national
domains? In fact, cultural and moral rise of a nation becomes
possible only when religion – ideal philosophy of life, is given
due place in the lives of its people. Political anarchy, corruption
and autocracy can be controlled by the righteous disciplines
(ethics) of religion. Acharya Sharma therefore emphasizes the
need of compatible conjugation of religion, culture and politics.
He critically warns those who propagate communalism,
superstitions and prejudiced principles and traditions in the
name of religion.
His deliberations on the role of religion in national develop-
ment should be analyzed by all those who discard religion from
the “prudent modes” of life and who are dead against the
collaboration between the religious and political systems. His
trenchant views should also be read by all those, who try to
politicize the concept of religion, or who exploit people’s faith
for their vested political interests. Misconceptions and hypocrisy
have no place in Acharya Sharma’s perspicuous explanations.
His thorough discussions encompass comprehensive reviews
of other authentic experts of the concerned topics. With
reference to the reformation of political system, he describes the
qualities essential for a good leader. The leader should be some
one who knows the enormous problems of the socioeconomic
system of his nation; who has the will and experience of
solving people’s problems and also has vision to guide viable
solutions. A leader has to be an efficient manager – of the
national system, who is wise, innovative, creative and deter-
mined. Integrity of character, altruist attitude and stability of
mind are fundamental requirements in public service. It is in the
context of establishing such virtuous tendencies, that the
linkage of religion with politics is advocated here.
The author also reminds each voter of the latter’s duties and
rights, and, at the same time, inspires courage and motivation
to enable the voters come forward and strengthen the demo-
cratic system. He has specially called the awaken talents to feel
the pains of the nation and share the collective responsibility of
national development.
Acharya Sharma’s mission of cultural and religious revolution
and social reformation and welfare is based on the fundamental
elements and principles of the original Indian culture – the
culture, which had bestowed divine glory on this nation. In his
words – “the enlightened development of a nation progresses
on the strong foundation of the prudence, piety of sentiments
and strength of character of its citizens….” It is this class of
ideal citizens, which has come forward to contribute in the
constructive programmes and reformative activities of his
mission.
5
 Acharya Sharma’s mission and its dedicated volunteers stand
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
before us as guiding light and live evidences of how awaken
talents would design the bright future of the nation. It is by
our collective endeavors and confidence that, as assured by
Acharya Sharma, this country will regain its lost prestige and set
shining example before the world in the forthcoming century.
Article - 2
Self reliance goal for now millenium
In a couple of days from now we shall be in the Y2K – year
two thousand. And within hours of entering the now
millenium we would know whether or not the “bug” which
worried the work, was real or imaginary will the computer fail or
accept the change of the century. Several MPs repeatedly asked
the government during the just-conclude winter session of
parliament as to what steps had been taken to meet the
situation if the computers stop. The issue is of as much worry
to the armed forces as it is for others. Most of the latest,
sophisticated military machines and weapon systems are
computerized and for a common man. What would happen if
the enemy attacks India on the now year’s day?
No cause of alarm at all. India has already made giant strides in
the software technology, thanks to the Defense scientists,
especialy those in the Bharat Electronical Ltd. (BEL) at Banga-
lore. They are competent enough to meet the Y2K bug. The
public sector enterprise was the brainchild of Krishna Menon
who as the Defense minister in the 1960’s has predicted the
need for such an organization to design, develop and produce
electronics systems for the future armament industry. This and
allied enterprises have developed consistently over a period of
time under the Defense Research and Development Organiza-
tion (DRDO), and grown into an envy of the work. The
organization had designed and developed for indigenous
production most modern sophisticated machines and lethal
weapon systems, like the missiles, raiders and pilotless aircraft,
to name a very few.
The indigenisation of military machines is the need for the now
millennium, keeping in view the present strategic compulsions.
The efforts to do that have no so far not progressed
satisfgactorily for various reasons. Actually, the problem for the
situation is not the DRDO. It is at the production level. How
fast to produce equipment designed and developed by our
scientists and considered the best in the worked even by those
who are leaders of defense industry in millitary advanced
countries. Such items are many which have been tried and
produced by the DRDO, but have not gone into full produc-
tion stream for either lack of funds or availability of foreign
exchange to import some crucial components which are not
produced indigenously.
The most glaring example of such a situation is the production
of gas turbine engines for warships, a field in which India’s ship
building industry has gone quite far. In this context, a question
is relevantly raised about the civil industry cooperation in
import substitution efforts in defense production. This arised
following a feeling – and rightly too that the components which
the defense-production units import at high costs should be
indigenously produced by the private sector industry in
adjoining areas of the Defense production units. Thus, the
6 11.675.1
production plans halted for want of funds or foreign exchange
problems can continue and the state-of the-art machinery
supplied to the forces fully indigenously produced.
This is something, which cannot be achieved and is not done by
any production unit anywhere in the work. No special facility for
the production of a small component of machinery can be
raised, particularly when its demand is limited to a barely few
pieces in an ear. Suppose, for example, a few specially designed
nuts and bolts are required for, say, a gas turbine engine. It will
be totally unwise to produce them indigenously, whether in
private or public sector, because it will evidently be not eco-
nomically feasible to do that. The components have to be
procured from wherever it is produced in bulk. Even if abroad.
In case of Indian, incidentally, it is invariably abroad, with the
result that production activist is halted for long spells, at times
forever.
This has happened with several projects. The low level radars
which incorporate the latest and most sophisticated technology
in electronics and communications, where not being produced,
because the costs have escalated for the indigenous production
of the components, as well as the imports which constitute
between 25 and 30 per cent of the components used in its
production. But the user have no funds to buy them and hence
they cannot have the radar’s, despite the fact that the country has
a potential to produce them.
The IAF is facing a similar situation on the jet trainer front. The
Force has been asking for an advanced jet trainer since the
mideighties. Their requirement should have been met at top
priority basis, because in the absence of an advanced jet, the
fighter pilots training is suffering.
They must be trained on a fast machine of an advanced jet
before going in for a “Conversation” for supersonic fitter planes
like the Jaguars and Mirages. At the moment, we are denied that
and the denial is considered as one of the main cause for the
high rate of accidents in the IAF. It has been variously esti-
mated at 3.8 and 2.4 per 1,000 flying hours. This compares
poorly with 1.2 per 1,000 hours in Pakistan, 0.65 in the USA
and 0.8 in the UK.
There are several reasons for high rate of accidents in the IAF,
like the fact that an IAF fighter pilot many , many times more
has the flying, say, in the UK and the USA . however, most
accidents are attributed to pilot error and of course, lack or
training on there right type of aircraft. Remember. The chief of
the Air Staff way back in 1991, Air Chief Marshal S.K.Mahara
had asserted that if we did not commit ourselves to
indigenisation, “the IAF would cease to exist after the turn of
the century”. Few days earlier during a visit to Bangalore, he told
me “if we do not indigenously produce our own jet trainer, we
will have to import one”.
The light combat aircraft (LCA) project of the Hindustan
Aeronautics Ltd., has been hanging fire for over a decade now ,
and there are no signs yet of its completion this is not due to
HAL’s failure to complete the project in time. It is only because
of the Union Government’s failure to give the project ht
priority it needed. Instead efforts are on importantly , of their
interest! The result? Till today the IAF’s young fighter pilots do
not have either an imported or an indigenously produced

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

trainer.
The delay in the implementation of the AJT project is just one
example to show how indigenous production efforts of the
public sector defense industry are halted and last minute rush
takes place to purchase from abroad off-the-shelf machinery at
high costs. This tendency is required t be changed and efforts
made to put all the emphasis on self-reliance in defense
production.
This, as pointed out earlier, requires cooperation of the civil
industry, which can e achieved only if there is the political will to
make self-reliance a goal for the next millenium.
Question Bank
Q1. What do you mean by self-reliance? What role does it play
in the development of the developing economy like
India?
Q2. What are the achievements of Indian economy in the
field of self-reliance?

11.675.1 7
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 2 & 3:
INTRODUCTION TO INTERNATIONAL MARKETING AND
GLOBALISATION OF INDIAN ECONOMY
Introduction
International Marketing
• Definition.
• Process
• Features.
• Importance.
• Special Problems.
Multinational Corporations (MNCs)
Globalise or Perish
• Meaning.
• Globalisation of the Indian Economy.
Distinguish Between
• Export Marketing and Domestic Marketing.
Case Study
Question Bank
Dear students, Today’s topic is “Introduction Of International
Marketing” .Before Discussing the International Marketing We
will discuss “What is Marketing”? Marketing is the process by
which the demand structure for products and services is
anticipated or enlarged and satisfied. This process involves
analyzing whether a marketing opportunity exist for the firm,
developing suitable products and services to meet this opportu-
nity, securing distribution of the product, designing
promotional strategy to persuade potential consumer of the
desirability of the offering and transferring control over the use
of the product from vendor to user so that the user may enjoy
the benefits.
Introduction of International Marketing
International marketing is a broader concept and includes
export marketing. Export marketing is concerned with the
production of goods in one country and marketing them in
different countries of the world while international marketing is
a broader concept and includes globalisation, MNCs and TNCs
joint ventures and foreign collaborations.
Definitions of International Marketing
“International marketing is a process of planning and executing
the conception, pricing, promotion and distribution of ideas,
goods and services to create exchanges between nations that
satisfy individual and organizational objectives”.
American Marketing Association
“The performance of business activities designed to plan, price,
promote and direct the company’s flow of goods and services
to consumers or users in more than one nation for a profit” (4
P’s)
8 11.675.1
Process of International Marketing
A study of international marketing should begin with an
understanding of what mar-keting is and how it operates in an
international context. Because of the large num-ber of market-
ing textbooks, a variety of definitions of marketing are currently
in use. Yet most of these definitions are .convergent in the
sense that they all describe the basics of marketing in much the
same way. Any definition is acceptable as long as it captures the
essential idea and as long as the strengths and limitations
associated with the defIniti9n are acknowledged.
A definition adopted by the AMA (American Marketing
Association) is used as a basis for the definition of international
marketing given here: international marketing is the multina-
tional process of planning and executing the conception,
pric-ing, promotion, and distribution of ideas, goods, and
services to create exchanges that satisfy individual and organiza-
tional objectives. Only the word multinational has been added
to the definition adopted by the AMA. That word implies that
marketing activities are undertaken in several countries and that
such activities should somehow be coordinated across nations.
This definition is not completely free of limitations. By placing
individual ob-jectives at one end of the definition and organiza-
tional objectives at the other, the definition stresses a
relationship between a consumer and an organization. In effect,
it excludes industrial marketing, which involves a transaction
between’ two organiza-tions. In the world of international
marketing, governments, quasi-government agen-cies, and
profit-seeking and nonprofit entities are frequently buyers.
Companies such as Boeing and Bechtel, for example, have
nothing to do with consumer products. The definition thus
fails to do justice to the significance of industrial purchases.
Nonetheless, the definition does offer several advantages. It
closely resembles the AMA’s widely accepted and easily under-
stood definition. In several ways, it care-fully describes the
essential characteristics of international marketing. First, it
makes it clear that what is to be’ exchanged is not restricted to
tangible products (goods) but can include concepts and services
as well.- When the United Nations promotes such concepts as
birth control and breast feeding, this should be viewed as
international marketing.
Religion is also a big business, tl1?ugh most people prefer not
to view it that way. Religion has been marketed internationally
for centuries. Billy Graham, in par-ticular, is a well-known
exporter of religion. His television programs have been shown
in many countries. In 1995 he staged the most ambitious
crusade of his fifty-year ministry by using thirty satellites to
beam his evangelical message, translated into 102 languages,
across twenty-nine time zones to ten million people in 195
countries.
Third, the definition recognizes that it is improper for a firm to
create a prod-uct first and then look for a place to sell it. Rather
than seeking consumers for a firm’s existing product, it is often
more logical to determine consumer needs before creat-ing a
product. For overseas markets, the process may call for a
modified product. In some cases, following this approach may
result in foreign needs being satisfied in a new way (i.e., a brand
new product is created specifically for overseas markets). Mazda,
for example, understands that it is no longer adequate to simply
adapt a Japan-ese car to the U.S. market, and its product strategy
involves designing a car to meet U.S. buyers’ desires. Mazda’s
widely acclaimed Miata was conceived and styled in Southern
California and was engineered and built in Japan.
Fourth, the definition acknowledges that “place” (distribution)
is just part of the marketing mix, and that the distance between
markets makes it neither more nor less important than the
other parts of the mix. Thus, it is improper’ for any firms to
regard their international function as simply to export (i.e.,
move) available products from one country to another.
Finally, the “multinational process” implies that the interna-
tional marketing process is not a mere repetition of using
identical strategies abroad. The four Ps of marketing (product,
place, promotion, and price) must be integrated and coordi-
nated across countries in order to bring about the most effective
marketing mix. In some cases the mix may have to be adjusted
for a particular market for better impact. Pep-siCo Inc.’s Frito
Lay Division, for chip for the British market, and the chip
differs in both taste and texture from the American ver-sion. In
other cases, however, a multinational marketer may find it more
desirable to use a certain degree of standardization if the
existing market differences are some what artificial and can be
overcome. As in the case of wshers, although Italian consum-
ers once preferred front-loading machines while French
consumers insisted on top-loading models, Whirlpool Corp.
has been able to use the more standardized models to break
down national traditions,
Features of International Marketing
The features of international marketing are as under:-
a. Large Scale Operations: - Price is an important factor that
determines the success of an exporter in the highly
competitive international market large-scale operations, full
utilization of installed capacity and transactions in bulk
reduce overall cost of production and thereby price of the
product.
b. Dominance of MNCs / TNCs from Developed
Countries: - The international trade is dominated by
MNCs and TNCs originating from developed countries
especially form USA, Japan and European countries. These
companies have huge financial and physical resources and
operate throughout the world
c. Trade Barriers:- Trade barriers are the artificial restrictions
on the free movement of good from one country to other.
These barriers are of two types, viz., tariff and non-tariff.
Tariff barriers are in the form of taxes and customs duties.
Non-tariff barriers are in the form of quotas and licences.
d. Trading Blocs: - Trading blocs are the associations of
countries situated in a particular region whereby they come
11.675.1
on to a common understanding regarding rules and
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
regulations to be followed while exporting and importing
goods among them. For example, European Union (EU).
e. International Marketing Research:- The needs and
requirements of individuals differ from region to region.
Therefore, an effective marketing research technique should
be applied in order to understand the needs and
requirements of consumers in different parts of the world.
f. Importance of Advanced Technology:- Technology plays
an important role in building competitive strength. MNCs
originating from countries like USE, Japan and Germany
dominate the world trade due to continuous research,
innovations and inventions.
g. Foreign Exchange Regulations:- Different countries have
different currencies and conversion rates, which are subjects
to fluctuation. Therefore, each country has a separate set of
rules for collection of export proceeds and payment for
imports. For example, In India, all foreign Exchange
Regulation Act, 1973 (FERA).
h. Three-faced Competition:- International market is highly
competitive. An exporter faces competition from three
angles: -
• Exporters from his own country.
• Exporters from other countries.
• Local suppliers in importing country.
i. International Organisations: - International trade is
subject to the rules and regulations framed by the
international organisantions such as the World Trade
Organization (WTO) and the United Nations Conference
an Trade and Development (UNCTAD). These
organizations have been formed in order to promote world
trade by removing unnecessary trade barriers and help
underdeveloped countries to develop their export
potentials.
Importance of International Marketing
No country in the world is self-sufficient in all its domestic
requirements. The slogan “Export or Perish” by Shri Jawaharlal
Nehru is applicable to all the countries of the world, developed
as well as developing. There are various factors which give rise to
interdependence among countries. Therefore, international
trade plays an important role in the economic development of a
country.
a. Division of Labour and Specialisation: -Certain countries
enjoy comparative cost advantage in the production of
specific commodities due to favourable climatic conditions,
technical know-how easy access produce commodities in
excess of their requirements and exchange surplus
production with other countries for the commodities they
are deficient in.
b. Increases National Income and Per-capita Income: -
Due to division of labour and specialization, each country
produces commodities for which it is best suited and
exports surplus production. Similarly, each country imports
commodities for which it has comparative cost
disadvantage. This generates additional income and saves
9
 real income by making available imported articles at
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
competitive rates.
c. Facilitates Transfer of Technology: - Some countries like
Japan, USE, UK and Germany are highly developed in
terms of technology while most of the Afro-Asian and
South American countries are backward in technology. This
directs the flow of technology from technically advanced
countries to technically backward countries of the world.
d. Resolves Balance of Payments Crisis:- Balance of
payments may be defined as the difference between the
monetary value of exports and imports of a country. When
the outflow of foreign currency exceeds the inflow, a
country suffers from an unfavourable balance of payments.
In order to solve such imbalance a country of the world.
e. Global Peace: - In the age of nuclear weapons, there is a
greater need of promoting dialogue between various
countries of the world. International trade may be a
medium for promoting exchange of ideas and thoughts
and thereby help promoting international peace and friendly
relations among the countries of the world.
f. Optimum Utilizations of Resources: - A country can
make optimum utilization of its natural and human
resource by promoting exports, if the resources remain
unutilized or underutilized due to the want of demand in
the domestic market, the same can be well utilized by
promoting exports of surplus production.
g. Employment Opportunities:- Development of exports
brings about multiple increase in employment
opportunities. It not only creates employment
opportunities in the export sector sector but also in other
related service sectors such as banking, insurance,
advertising, transport, etc. This helps overpopulated
countries in soling their unemployment problem.
h. Research and Development :- International market is
highly competitive. In order to survive cut-throat
competition at international level, every firm operating at
the global level needs to undertake continuous research and
development. This leads to development of technology in
backward and developing countries of the world.
Special Problems of International Marketing
International marketing is a very complex and time-consuming
process as it is subject to rules and regulations of both export-
ing as well as importing county. At the same time, there are
other problems such as long distance, currency fluctuations and
high degree of competition. Some of the common problems
of international marketing have been analysed below:-
a. Long Distance:- International trade is spread over the
world and therefore, goods are to be transported over a
considerable distance. During transportation goods are
exposed to risk and uncertainties of transportation and
perils of sea. Again delay is coursed due to lengthy customs
formalities. However, risk during transportation can be
insured by taking suitable marine insurance policies.
b. High Risks and Uncertainties:- International trade is
subject to political as well as commercial risks. Political risks
arise due to the political actions of the government(s). For
10
example, war and internal aggression. Commercial risks
arise due to insolvency of buyer or buyer’s failure to accept
goods. However, there risks can be insured by taking
suitable policies from the export Credit and Guarantee
Corporation of India(ECGC).
c. Customs Formalities: - Customs formalities are different
in different countries. Again, these formalities are very
lengthy, time consuming and trade between countries of the
world.
In order to solve the difficulties created by customs
formalities, an exporter can obtain assistance of the Clearing
and Forwarding (C&F) agents.
d. Trade Barriers: - Trade barriers are the artificial restrictions
on the free movement of goods from one country to other.
These barriers are of two types, viz., tariff and non-tariff
barriers are in the form of taxes and customs duties. Non-
tariff barriers are in the form of taxes and customs duties.
Non-tariff barriers are in the form of quotas and licences.
However, efforts are being made by the World Trade
Organization(WTO) to eliminate and simplify trade
barriers.
e. Three-faced Competition :- An exporter faces competition
from three angles:-
• Exporters from his own country
• Exporters from other countries.
• Local suppliers in importing country.
However, an exporter can sustain international competition
by upgrading the quality of product, innovations and
inventions and cost reduction.
f. Payment Difficulties: -Different countries have different
currencies and conversion rates. These rates are subject of
fluctuations. Thus, an exporter may suffer a loss if there is a
change in the exchange rate after entering into a contract
with a foreign buyer.
Losses on account of fluctuations in the exchange rates can
be eliminated by entering into forward contracts.
g. Documentation Formalities:- There are a number of
documents to be filed with various authorities while
exporting goods. For example in India, an exporter is
required to prepare and file as many as 25 documents of
which 16 are commercial and l9 are regulatory.
h. Diverse Languages, Customs and Traditions: -
Languages, customs and traditions are very sensitive issues
and must be taken into consideration while exporting
goods to foreign countries. An exporter should try to get
first hand information about such issues before exporting
goods.
i. Hug foreign indebtedness. Many countries of the world
that would otherwise be attractive markets have
accumulated such high foreign indebtedness that they
cannot even pay the interest on their foreign debt. Among
these countries are Mexico, Brazil, Poland and Romania.
India’s present balance of payment position was real bad,
though now It is looking up.
11.675.1
j. Unstable governments. High indebtedness, high
inflation, and high unemployment in countries have
resulted in highly unstable governments that expose foreign
firms to the risks of expropria-tion, nationalisation, limits
to profit repatriation, and so on.
k. Exchange instability. High indebtedness and political
instability force a country’s currency to depreciate, or at least
add a lot of volatility to the currency’s value. The result is
that foreign I investors hesitate to hold much of the
foreign currency, and this limits trade.
l. Foreign government entry requirements. Governments
are placing more regulations on foreign firms, such as
requiring joint ownership with the majority share going to
the domestic partner, a high level of nationals hired for
management; technological transfer of trade secrets; and
limits on profit repatriation.
m. Tariffs and other trade barriers. Governments often
impose unreasonably high tariffs against imports in order
to “subsidies” or protect their own industries. They also
resort to invisible trade barriers such as withholding or
slowing down import approval and requiring adjustments
in imported products to meet their standards.
n. Corruption. Officials in several countries require bribes in
order to co-operate. They often award business to the
highest briber rather than the best bidder. Kickbacks
received by parties in Indian governments’ gun deal again is
an example.
o. Technological pirating. A company locating its plant
abroad worries about foreign managers learning how to
make its product and breaking away to compete openly.
This has happened in such diverse areas as machinery,
electronics, chemicals, phar-maceuticals.
p. High cost of product and communication adaptation.
A com-pany going abroad must study each foreign market
carefully, become sensitive to its economics, politics, and
culture and make some adaptations in its products and
communications to suit foreign tastes otherwise it might
make some serious blunders.
q. International code of conduct for product to be traded
or marketed in a particular country by UNCTAD and
World Trade Organisation as per Dunkel proposals.
A rapid increase in foreign exchange earnings through exports is
vital for the success of our government’s programmes. To
intensify the drive for export development, it is not sufficient to
explore new markets for non-traditional products alone. Just as
the export potential of primary commodities is limited, so is
the growth potential of “non-traditional” items marketed in
the traditional manner. A major breakthrough resulting in
sizable additions to foreign exchange earnings is possible only
if we:
a. Identify new non-traditional products/services for export;
b. Develop new ways of marketing them in new markets; and:
c. Explore new marketing strategies for securing a fairly
consistent and long term foothold in these areas.
11.675.1
India has already started moving in” this direction. Construc-
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
tion contracts, turnkey contracts,’ joint ventures in middle
eastem Arab countries and African countries are indicators of
this trend. The capital investment made by our country,
especially during the last 40 years, in building a sophisticated
industrial base and in training a very large number of people in
the development and application of modern technology is likely
to pay rich dividends in the near future. We should link our
future efforts in this direction to a well defined international
marketing programme for export development. It, therefore,
becomes necessary to focus attention, on some of the more
important emerging opportunities for international marketing
development in the non-traditional sector so that we may gain
insights into the types of integrated action needed at the
corporate and national levels to convert these opportunities into
viable business propo-sitions.
International marketing is of growing importance to Indian
business. It is the duty of an international marketer to support
the economic deve-lopment of our country. One should try to
sell a portion of one’s output abroad. Benefits are gained in the
obtaining of quotas for imported materials in exchange of
proof of the export of finished goods.
Multinational Corporations (MNCs)
A multinational corporation is an enterprise whose ownership
and activities are spread in more than one country and its
various branches function independently. It is a giant firm with
its headquarter located in one country but conducts a variety of
business operations like manufacturing, marketing, servicing,
etc, in several other countries.
For some, the multinational companies are an invaluable
dynamic force and instrument for wider distribution of capital,
technology and employment; for other they are monsters which
our present institutions, national or international, cannot
adequately control.
Characteristics of Multinational Corrporations
(MNCS)
Multinational corporations (MNCS) are major actors in the
world of international business. As shown by the GE case, it is
desirable for companies to become more internationally
inclined. Therefore, it is appropriscuss what an MNC is and the
role it plays.
The mentions of MNCs usually elicits mixed reactions. On the
one hand. MNCs are associated with exploitation and ruthless-
ness. They are often criticized for moving resources in and out
of a country as they strive for profit without much regard for
the country’s social welfare. Varity Corp., a Canadian multina-
tional firm, was criticized for its action in 1991 to relocate its
headquarters from Toronto to the United States (Buffalo) in
order to take advantage of the U.S –Canadian Free Trade
Agreement. For a long time, Indian referred to MNCs as
“agents of neocolonialism.” It was not until 1991 that socialist
Indian began wooing multinational companies. Yet several
years later, multinationals are still not so welcome. To many
Indians, such MNCs as Pepsi Co, KFC. And Enron Corp. all
are” foreign devils”
11
 In defense of MNCs, more and more of them have been trying
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
to be responsible members of the society. According to a
number of studies involving MNCs in Ivory Coast, Mexico,
Morocco, and Venezuela, there is no evidence of MNCs being
drawn to pollution havens, Furthermore, multinational
enterprises have raised local wages. However only those joint
ventures which receive foreign equity participation have ben-
efited from technology transfer, while domestic competitors
may be harmed by foreign entry.
On the other hand, MNCs have power and prestige; addition-
ally they create social benefit by facilitating economic balance. As
explained by Miller, “with resources, capital, food, and technol-
ogy unevenly distributed around the planet, and all in short
supply, an efficient instrument of quick and effective production
and distribution of a complex of goods and services is first
essential. This instrument is, of course, the MNC.
Regardless of whether MNCs are viewed positively or nega-
tively, they are here to stay, and the important point is to
understand when a company becomes a member of this elite
group. MNC is not a one-dimensional concept. Similarly,
globalization does not have a single definition. There is no
single criterion that proves satisfactory at all times in identifying
an MNC. Varying explanations have been used to define a
multinational corporation, but these definitions are not
necessarily convergent. As a result, whether a company is
classified as an MNC or not depends in part on what set of
criteria is used.
Definitions
a. By Size
b. By Structure:-
c. By Performance
d. By Behaviour
Definition by Size
The term MNC implies bigness. But bigness also has a
number of dimensions. Such factors as market value, sales
profits, and return on equity, when used to identify the largest
multinationals, will yield varying results. As an example,
although General Motors is number thirty-six in terms of
market value, it is number one in terms of sales and number
two based on profits.
It is not unusual for corporate size in terms of sales to be used
as a primary requirement for judging whether or not a company
is multinational. As a matter of fact, according to the United
Nations Department of Economic and Social Affairs, compa-
nies “with less than $100 million sales can safely be ignored.
Based on this definition, some 300,000 small and midsize
German companies do not qualify even though these firms
(called the Mittelstand, or midranking) contribute mightily, to
Germany’s export success. These midsize firms account for
two-thirds of the country’s gross national product and four-
fifths of all workers.
Many multinational corporations are indeed large. According to
the World Investment Report of the United Conference on
Trade and Development (UNC-TAD) there are some 40,000
transnational corporations (TNCs) with more than 250,000
foreign affiliates, altogether generating more than $5 trillion in
12
annual sales. TNCs control one-third of the world’s private
sector productive assets. Ownership of foreign assets is highly
concentrated since half of the total is owned by just 1 percent
of TNCs Interestingly multinationals overseas investment has
progressed to the point
Definition by Structure
According to Aharoni, an MNC has at least three significant
dimensions: structural, performance, and behavioral. Structural
requirements for definition as an MNC include the member of
countries in which the firm does business and the citizenship
of corporate owners and top managers. Singers corporation,
for instance, sells its sewing machines in 181 countries, thus
satisfying the requirement with regard to the number of
countries.
Citicorp satisfies the requirement for multinationalism through
the citizenship of members of its top management. The
company has done as much as other major American MNCs to
diversify its management. In Asia, a notice of Pakistan is in
charge of the firm’s $800 million finance business for all of Asia
except Japan. His colleague, an Indian national, heads the
consumer business. They are two of the eight non-Americans
in the elite group of fifteen executive vice presidents.
Definition by Performance
Definition by performance depends on such characteristics as
earnings, sales, and assets. These performance characteristics
indicate the extent of the commitment of corporate resources
to foreign operations and the amount of rewards from that
com-mitment. The greater the commitment and reward, the
greater the degree of interna-tionalization. Parker Pens, with 80
percent of its sales coming from overseas, is more multina-
tional (at least on the basis of foreign sales) than A.T. Cross,
whose overseas sales account for only about 20 percent of
overall sales.
Japanese multinationals have shown willingness to commit
their corporate re-sources to overseas assets. NEC has twenty-
five manufacturing and forty-four mar-keting and service
subsidiaries overseas, which employ 22,000 people. Half of Ri-
coh’s cameras are made outside Japan, whereas nearly 100
percent pf the firm’s copiers sold in North America and Europe
are made there as well. Hitachi, a worldwide gi-ant, has forty-
seven manufacturing subsidiaries and 130 sales and service
companies worldwide. Hitachi makes TV s, automobile parts,
PBXs, computer products, and large-capacity magnetic disks in
the United States; TV tub’s in Singapore; CD play-ers and room
air conditioners in Taiwan; refrigerators in Thailand; and parts
for tur-bine generators in Canada.
‘Human resources or overseas employees are customarily
considered as part of the performance requirements rather than
as part of the structural requirements, though the desirability of
separating lower-level employees from top management is
ques-tionable. A preferable analysis would be to treat the total
extent of the employment of personnel in other countries as
another indicator of the structure of the company. In any case,
the willingness of a company to use overseas personnel
satisfied a significant criterion for multinationalism. Avon, for
example, employs 370,000 Japan-ese women to sell its products
house to house across Japan. Siemens, well-known worldwide
11.675.1
for its consumer and industrial products, has some 300,000
employees in124 countries.
By Behavior is somewhat more abstract as a measure of
multinationalism than either structure or peiforml;1nce, though
it is no less important. This requirements concerns the behav-
ioral characteristics of top management. Thus, a company
becomes more multinational as its management thinks more
internationally. Such thinking, known as geocentricity, must be
distinguished from two other attitudes or orientations, known
as ethnocentricity and polycentricity.
Ethnocentricity is a strong orientation toward the home
country. Markets and consumers abroad are viewed as unfamil-
iar and even inferior in taste, sophistication, and opportunity.
The usual practice is to use the home base for the production
of stan-dardized products for export in order to gain some
marginal business. Centralization of decision making is thus a
necessity. Caterpillar Inc.’ s chairman recalled that, while making
sales calls in Africa in his younger days, pricing decisions were
often forced upon him from headquarters even though those
decisions did not fit the local market.18
Polycentricity, ~e opposite of ethnocentricity, is a strong
orientation to the host country. The attitude places emphasis on
differences between markets that are caused by variations within,
such as in income, culture, laws, and politics. The assumption is
that each market is unique and consequently difficult for
outsiders to understand. Thus, managers from the host
country should be employed and allowed to have a great deal of
discretion in market decisions. A significant degree of decentrali-
zation is thus common across the overseas divisions.
A drawback of polycentricity is that it often results in duplica-
tion of effort among overseas subsidiaries. Similarities among
countries might well permit the develop-ment of efficient and
uniform strategies.
Geocentricity is a compromise between the two extremes of
ethnocentricity and polycentricity. It could be argued that this
attitude is the most important of the three. Geocentricity is an
orientation that considers the whole world rather than any
partic-ular country as the target market. A geocentric company
might be thought of as denationalized. or supranational. As
such, “international” or “foreign” departments or markets do
not exist because the company does not designate anything
international or foreign about a market. Corporate resources are
allocated without regard to na-tional frontiers, and there is no
hesitation in making direct investment abroad when warranted.
There is a high likelihood that a geocentric company does not
identify itself with a particular country. Therefore, it is often
difficult to determine the firm’s home country except through
the location of its headquarters and its corporate registration.
According to Ohmae, business is “nationality less,” and
companies should attempt to lose their national identity. As
such, a corporation should not mind moving its head-quarters
to a more hospitable environment. 19 The chairman of
Japanese retail giant Yaohan International Group, for example,
moved the firm’s headquarters as well as his family and personal
assets to Hong Kong to take advantage of Hong Kong’s low
taxes and hub location in Asia. To reward his faith in China, the
11.675.1
Chinese government permitted Yaohan to build shopping
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
malls in China.2o
Geocentric firms take the view that, even though countries may
differ, differ-ences can be understood and managed. In
coordinating and controlling the global mar-keting effort, the
company adapts its marketing program to meet local needs
within the broader framework of its total strategy. The ap-
proach combines aspects of cen-tralization and decentralization
in a synthesis that allows some degree of flexibility. The firm
may designate one country subsidiary as its research and
development cen-ter while appointing another subsidiary in
another country to specialize in manufac-turing certain products.
Although the corporation provides overall guidance so as to
achieve maximum efficiency of its global system, the various
aspects of the local op-erations mayor may not be centralized as
long as they meet local market needs. Geo-centric firms compete
with each other on a worldwide basis rather than a local level.
Another study found evidence to support the hypothesis that
there are four iden-tifiable stage in a firm’s internationalization.
The four stages are: (1) Non-exporters. (2) Export intenders, (3)
Sporadic Exporters, and (4) Regular Exports. The process
shows how firms were initially constrained by resource limita-
tions and a lack of ex-port commitment and how they can
become more and more internationalized as more resources are
allocated to international activity.26
At present, there is no conclusive evidence to show that,
domestic firms have generally indeed progressed from one stage
to another as prescribed on their way to become more interna-
tionally oriented. Likewise. No empirical evidence has been
pro-vided so far to support a competing hypothesis that some
firms are “born global” in the sense that their mission from the
outset is to become MNCs.
Types of MNCs: - Main three types of MNCs are given below: -
a. Transnational Corp.: - Incorporated or Unincorporated
enterprises comprising parent enterprises and their foreign
affiliates.
b. Parent enterprise: - controls assets of other entities in
countries other than its home country, usually by owning a
certain equity capital state (usually 10% or more)
c. Foreign Affiliate: - Is an incorporated or unincorporated
enterprise in which an investor, who is resident in another
economy, owns a stake that permits a lasting interest in the
management of that enterprise, A subsidiary, associate, and
branches are all referred to as foreign affiliates.
I. Subsidiary: - Is an incorporated enterprise in the host
country in which another entity directly owns more
than half of the shareholding voting power and has
the right to appoint or remove a majority of the
members of the administrative, management, or
supervisory body.
II. Associate: - Is enterprise in the host country in which
an investor owns at least 10% but not more than half
of the shareholders voting power.
III. Branch: - Is a wholly or jointly owned unincorporated
enterprise in the host country.
13
 Host Country Related Issues
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Technology Transfer and LDCs
There has been a significant controversy over the effects of
technology transfer on the less developed countries. The
supporters of MNCs claim that the developing countries derive
general economic benefits from the technology transfer. On the
other hand, the opponents accuse the MNCs of charging
excessive prices on technology exports. Manipulation of transfer
prices, the provision of technology that is too sophisticated and
inappropriate for the best possible use of local resources, the
provision of technology that is obsolete and only capable of
producing inferior products, and not providing foreign capital.
As we enter the 90s, there is a widespread belief among the
developing countries that unless there is proper technology
transfer, there may, in general, be inadequate industrial and
economic development.
Regulatory Measures
Over the years, and following some bitter and costly experiences
in the less developed countries, it became clear that technology
was a particular kind of commodity which did not obey the
same rules as those found in the markets of other commodities
and which classical economic theory managed to embody
sometimes into neat and appealing models and processes. The
Kind of investment. Required, the way it is produced, and its
various types of ownership imposed new rules and regulations
on the trade of technology throughout the world, particularly
when this transaction occurs between the developed and the less
developed countries. It is the responsibility of the less
developed countries to import appropriate technologies and
develop their technological capabilities, and this development
process needs proper regulatory effort.
The technology regulation measures adopted by the developing
countries in the 70s were significantly modified in the latter half
of the 70s and 80s. Although fairly strict control over the
process for technology acquisition has continued in certain
countries, as in Brazil, the regulatory measures have been relaxed
in other countries (India). In some countries, the inflow of
foreign technology has been promoted by various incentives
(China). The trend towards liberalisation in technology
regulation has been accompanied by differentiation’s for
different kinds of industrial technology. During the 80s, two
ma or trends have become manifest in the developing countries:
(1) in countries where the acquisition of foreign technology has
not been regulated by the government or where its scope has
been very limited, the governments are paying increasing
attention to foreign technology and the conditions of acquisi-
tions, and (2) where fairly rigorous regulatory norms were
introduced in the 70s, there is an increasing relaxation and
liberalisation for the acquisition of more advanced technologies.
This trend Is continuing in the early 90s.
Technological Needs
The technology needs of the developing countries are great and
diverse, mostly in the sector of agriculture, infrastructure,
import substitution, and export stimulation. Because of the
relatively low technological capability, the assimilation of foreign
technology and its adjustment to different factor endowments
14
and conditions is also a far greater task for the developing
countries. However, the trend has been that the developing
countries since early 80s acquiring high technologies. Not all of
them are eager to receive high technology transferred from the
developed countries. The patterns of consumption and main
trading orientation are similar in the developed countries in that
they have a greater need to use high technology in their modem
sectors. Many developing countries are in the process of
moving from import substituting industrial development to
export promotion strategies. These nations are attempting to
pursue the Japanese model of technological development, with
mixed results. ‘Me export promotion orientation has led many
of them to seek ever higher levels of technology if export
promotion strategies are to succeed. They should realise that
the Japanese industry did not suddenly develop the ability to
reap the advantages associated with vigorous export market
penetration. Even though export specilisation was pursued as a
deliberate goal early on in Japan, the policy makers realised that a
prolonged period of protectionism (include exclusion of
foreign goods and foreign direct investment wherever possible)
would be necessary to build a strong home market before the
domestic industry could reach internationally competitive
production volumes and become effective in exporting.
The question of appropriateness of technology has been
considered in terms of economic development strategy and,
second in terms of the choice of techniques in a firm of
industry. From a practical stand point, the most important
lesson that has emerged from the literature over the past two
decades is that even the simplest o f theoretical constructions
are much too opaque to enable one to assess what technology is
appropriate for a specific set of circumstances. In recent years, it
has become clear that it is dangerous to discuss appropriate
technology in technical terms only. The issue of technology
cannot be discussed in isolation of the problems of society,
ends focusing only on technological problems without
considering the social conditions existing in the country may
produce infeasible or inappropriate technology. Hence the social,
political, and economic factors existing in a country are crucial
determinants of the type of technology that may be adopted in
that country. It is up to each individual government to formu-
late and implement public policies to import appropriate
technologies to suit the needs.
Advantage of MNCs to the Host Country
a. MNCs bring about increase in the national income and per-
capita income of the host country.
b. They bring about increase in the level of investment,
employment and income in the host country.
c. They help the host country to solve the problem of trade
deficit through export promotion and import substitution.
d. They create employment opportunities in manufacturing as
well as allied service sectors.
e. They break protectionalism, create competition among
domestic companies and thus enhance their
competitiveness.
f. The marketing skills of the MNCs are impressive
particularly in providing marketing infrastructure.
11.675.1
g. They help rapid industrialisation and improve general
standard of living in the host country.
Home Country Related Issues
MNCs and ITT
The primary “agent” of technology transfer from the home
country is the multinational corporation (MNC). In the last
two decades, there has been a rapid increase In the international
technology transfer (ITT) agreements between firms in different
countries. The commercialisation of technology, mostly in the
form of royalties and licence fees for technical know-how and
services, has increased considerably. For instance, receipts from
the export of technology by the US MNCs increased from $5.2
billion in 1980 to $1 1.1 billion in 1988.
These ITT trends have been the results of the profound
changes in MNC’s corporate philosophy on the management of
technology assets. MNCs are shifting their emphasis from
being competitive in the domestic economy to maintaining
global market positions. Besides, mounting costs of R & D.
and in some cases, the difficulties in obtaining venture capital
have contributed further to the release of competitive technol-
ogy for foreign firms, the build-up of competitive production
capabilities abroad, and the narrowing of international gaps in
high technology industries. Thus, it appears that MNCs,
especially the US MNCs, are (a) accelerating their technology
transfer, and (b) transferring abroad their most sophisticated
technology either as part of a global strategy or in an effort to
safeguard their competitive position. Historically, most MNCs
have restricted their ITT efforts to opportunities in the
developed countries. After the 50s, dramatic changes took place
In the less developed countries, and these markets opened up
considerably. This development, along with the simultaneous
partial saturation of some of the markets In the developed
countries, has turned the attention of the multinationals
towards the less developed countries. Recent research has
pointed towards an Increased interest being exhibited by MNCs
In transferring technology.
ITT and Government Policy
There is a considerable controversy over the effects of ITT on
the home country. One group of people argue that ITT affects
the home country’s economy negatively in terms of overall
benefits, employment, and technological lead. Transferring
current, state-of-the-art technology to the less developed
countries raises serious concerns about the rates of return and
guarantees of confidentiality. In some circumstances, govern-
ment restrictions from the developed countries on technologies
deemed militarily strategic, Impose an added barrier. Propo-
nents of ITT, however, have gained a growing support for their
notion that lIT benefits the home country economically and
technically. They argue that there are circumstances wherein
transfers of cur-rent technologies make good business sense,
and firms posses, or have access to, much useful technology that
is non-competitive in nature and which, in the hands of others,
could in no way threaten home countries economic interests.
The recent trend of accelerated outflow of technologies has
heightened some developed countries’ policy makers’ concerns
about the negative Impact of technology transfer on their
countries. However, these policy makers are more concerned
11.675.1
with the type of technology being transferred. In the past,
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
technology transferred by MNCs to the developing countries
was mature, standardised and of a type available from other
sources as well. However, MNCs in the developed countries are
increasingly transferring high technology to some developing
countries in the recent years under the terms that assure rapid
and efficient implantation of an internationally competitive
production capability. For example, a growing proportion of R
& D expenditure in automobile industry by MNCs is located in
the labs of the less developed countries. This trend, some
people believe, is one of the primary reasons responsible for the
decline in the international competitive position of the
developed countries.
Advantage of MNCs to the Home Coutry
a) MNCs create opportunities for domestic firms to market
their products throughout the world.
b) They create employment opportunities for the people of
home country, both at home and abroad.
c) They earn valuable foreign exchange for the country and
therefore, strengthen the balance of payments condition of
the home country.
Articles
Multinational Corporations and Global Production
Networks
The Implications for Trade Policy
The objective of this report is to understand the role of
multinational enterprises (MNEs) and production networks in
economic activity, and to investigate their implications for the
design of trade policies. The focus of the report is the Euro-
pean Union. MNEs account for a significant share of economic
activities in Europe. 18 % of EU employees in manufacturing
work in foreign owned subsidiaries and 8.6 % in subsidiaries
owned by non-EU residents. The report also devotes particular
attention to the activities of US subsidiaries in Europe and of
EU subsidiaries in the US, the only ones for which comprehen-
sive data are available.
The empirical analysis in the report reveals a positive correlation
between sectors with relatively high protection and a high
presence of US FDI. This indicates that a substantial propor-
tion of any rents created by restrictive trade policy is transferred
to foreign firms. European trade policy is protecting those
industries where subsidiaries’ sales dominate over imports
from the US and where the US subsidiaries’ share in EU
employment is large. The phenomenal increase of European
networking in the CEECs following the Europe Agreements or
between the US and Mexico after the implementation of
NAFTA are good examples of how trade liberalisation,
proximity and differences in factor costs jointly provide strong
incentives for firms to split geographically their production
processes.
There are some strong arguments in favour of international co-
ordination of foreign investment policies. A new investment
agreement could take care of this need for co-ordination;
however, extending existing trade agreements could also do at
least part of the job.
15
 Globalise or Perish –Meaning
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Globalisation of business has become a subject of very serious
discussions in the national economic policies and corporate
sector. The subject has assumed a great significance in the light
of recent changes in the global business environment and the
national economic policy. In fact, the very first objective of the
Export-Import Policy is to establish the framework for
globalisation of India’s foreign trade.
Globalisation means integration of the national economy of
the country with rest of the world and opening up of the
economy for foreign direct investment by liberalizing the rules
and regulations and by creating favorable socioeconomic and
political climate for global business.
Globalise or Perish
In the wake of recent developments in the international
environment, the slogan ‘Export or Perish’, coined by Shri
Pandit Jawaharlal Nehru, needs to be replaced by the
slogan’Globalise or Perish’. Globalisation has become the need
of hour and India must keep pace with the changing interna-
tional scenario.
Globalisation
The world has a new buzzword - globalisation. The Yanks,
through Ted Levitt, created it, the Brits mouth it, the exerts
wave it like a flag - even India is flirting with this concept. Is
globalisation the first step to economic colonisation? Is this the
way the rich nations are hoping to ensure their continued
domination of the world economic scene? Or is it the panacea,
the new religion, something different, which will result in a truly
better life for the citizens of those countries that practice it?
How is globalisation different to exports? Are these two
concepts in conflict? Or are they two sides of the same coin? If
exports are going strong, why should one talk or bother about
globalisation? Is there a conflict between the domestic and the
global (non domestic) market?
Concepts of Globalisation
1. World is the Market
Fundamental to this concept is the nature of wants across the
globe and the means of satisfying these wants. There appears
to be greater cornmonalty in “wants” or “needs” across the
globe than had been imagined. It would appear that the
differences in “wants” or “needs” were merely hypotheses,
which have not stood the test on the ground. So, we have the
need for, say, “status” across the world. Only, in the US, a
Porsche car satisfied this need while in India, it is probably a
Maruti 1000. Through globalisation, a firm is offering similar
means of satisfying these wants across the globe. Global TV is
a prime example of this phenomenon. Among the manufac-
tured goods, Sony consumer electronics, Toshiba products,
IBM, Marlboro, Phillips, etc., are examples of catering for a
world market.
It has been generally hypothesised that the concept of the world
being the market can only be actualised by island economies like
Japan, Korea, Singapore, etc. Continental economies like India,
the US, are better off advised to catering for their domestic
economies which provide all the required economic benefits
because of the size of the market.
16
The argument in favour of globalisation is not predicted on
size of the nation but on various other factors including
earning of competitive advantage on a global scale as a key
theme. We are not yet a seamless world though there is a
presumption that tariff and non-tariff (traditional) barriers
would be less important. This is already happening with the
creation of economic blocs. In these blocs, competition is
increasingly dependent upon the consumer/customer pull
rather than on political determinants! Consumer pull becomes
even more powerful as the technology content of the product
increases. The notebook computer, the Japanese consumer
electronics, the German high performance cars, are examples of
products that have jumped tariff and non-tariff barriers very
successfully.
2. Communications are Common Across the Globe
The role of communications in fuelling globalisation is
significant in that the awareness of products and product
promises across the globe has increased. This, in turn, has led
to a consumer upthrust, which is the engine of globalisation.
Communication themes are, increasingly becoming common
across the globe. True, the idiom may have to change some-
what, but the core theme is the same. Some classic examples are
the Honda motorbike, Marlboro cigarettes, Canon and Xerox
copiers, etc.
3. Competition is also International
By competition, we are referring to alternate means of satisfying
a given set of wants. We can already observe this phenomenon
of global competition in India. Witness the entry, in ready-
made garments, of a large number of foreign manufacturers,
such as Pierre Cardin, LaCoste, Louis Philipe, etc. There will be
more, and in diverse product fields. The benefit of global
competition is manifold. The general price line will drop, there
will be immense improvement in the quality of goods available
to the consumer, new products will become available, etc. Take
the case of Doordarshan (DD). DD has had to become far
more user-friendly because of competition from Star TV, Zee
TV, Jain TV, etc. It seems to be taking various other decisions
like showing daily movies, changing the news format, etc. It
will have to, or lose advertising revenue. MRF, a large advertiser
is using Star in preference to DD to advertise its tyres. More
companies will follow suit if DD is unable to retain its
viewership. The advent of the Maruti has already
revolutionised the automobile industry in India. Who would
buy an Ambassador car when he can get a more sophisticated
car?
4. World Class
a. Manufacturing Scale: This does not mean sacrificing
customisation, which is the new consumer revolution that
is taking place around the world, aided by technology. But,
in the Indian context, it does mean some of our industries
may well have to close down. The pressures are already
being felt. The petrochemical industry in India operates on
a scale that is minuscule, compared to global competitors.
This places a burden on the costs of production, which, in
turn, pushes up prices to the end-user. For example, India
sells the most expensive fertiliser in the world because of
diseconomies.
11.675.1
b. Productivity: Going global is only possible when
productivity is comparable on a global scale (Fig 1). This
refers not only to labour productivity but also all other
resources, such as energy, space, and time. This is what is
meant by the statement that every activity of the firm has to
add value to the customer/consumer.
Quality: By quality, one is referring to standards, and adherence
to them. Going global would require a firm to ensure that its
standards for the product are globally comparable. It is a fallacy
that we can dilute standards, sell the product cheap, and hope to
secure global market share.
5. Factors of Production Sourced Internationally
One of the strategies of firms that are global in outlook is that
they are willing to shift manufacture to areas where value
addition is the greatest. Hence, as in the earlier example,
Malaysia is the world’s largest manufacturer of the Japanese air
conditioners. This would be a case of manufacturer shifting to
areas where factors of production are better, cheaper or both.
Globalisation of the Indian Economy
Why an Indian Firm should Globalise?
a. Profit Advantage: - Though the margin of profit in the
international market is low due to intense competition, it
certainly increases the overall profitability of the
orgainisation due to economies of scale.
b. Growth Opportunities: - Global market is spread all over
the world. The enormous growth potential of many
foreign markets is a very strong attraction for domestic
companies to globalise.
c. Domestic Market Constraints: - Some companies may
globalise in order the avoid constraints in the domestic
market. For example, saturation of the domestic market.
d. Competition:- Liberalisation and globalisation of Indian
economy has increased competition from foreign MNCs.
Hence, in order to survive intense competition, Indian
companies will have to globalise.
e. Government Policies and Regulations :- The incentives
and assistance provided by the government and encouraging
EXIM policy for internationalization may also initiate
globalisation.
f. Spin-off Benefits: - Globalisation provides certain spin-off
benefits, viz., greater market share, economies of scale, easy
access to imported capital goods, etc.
Why should India Globalise?
Although India has several handicaps, there are also a number
of favouable factors for globalisation of Indian business.
a. Human Resources:- Though labour productivity in India
is low, given the right environment Indian labour can
perform excellently. While several countries are facing labour
shortage, India has ample and cheap labour.
b. Wide Base: - India has a variety of other natural resources,
which provide a wide base for development of industrial
units in India. For example, minerals, forest resource,
animal manpower resource.
11.675.1
c. Growing Entrepreneurship: - In the recent years, there has
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
been a considerable growth in the number of new and
dynamic entrepreneurs who could make significant
contribution to the globalisation of Indian business.
d. Growing Domestic Market: - The growing domestic
market enables the Indian companies to consolidate their
position and to gain more strength to make entry into
foreign markets or to expand their foreign markets or to
expand their foreign business.
e. Niche Markets:- A market niche is small segment of the
market which is ignored or overlooked by the major players.
Such niches are particularly attractive for small companies.
f. Expanding Markets: - The growing population and
disposable income and the resultant expanding
international market provide enormous business
opportunities to Indian manufactures.
g. Transnationalisation of the World Economy: -
Transnationalisation of the world economy due to the
growing interdependence and globalisation of markets is an
external factor encouraging globalisation of Indian
business.
h. NRIs: - The large number of non-resident Indians, who
are resourceful in terms of l capital, skill, experience,
exposure and ideas, are assets which can contribute to the
globalisation of Indian business.
i. Competition: - The growing competition both from
within the country and aboard, provokes many Indian
companies to look to foreign markets seriously to improve
their competitive position and to increase the business.
j. Economics Liberalisation: - The economic liberatlisation
such as delicensing of industries, removal of trade
restrictions, privatization, import liberalization, etc., would
encourage globalisation of Indian business.
Distinction between –Domestic Marketing and
Export Marketing
Domestic Marketing Export Marketing
1.Meaning
Domestic marketing is the process of planning, Export marketing is the process of planning,
organizing, directing and controlling activities organizing, directing and controlling activities
related to exchange of goods between the
different regions of a same country.
related to exchange of goods between the
different countries of the world.
2. Scope
The scope of domestic marketing is narrow and is The scope of export marketing is wider as the
restricted to the political boundaries of a country. whole world constitutes a market.
3. Trade Barriers
In domestic markets, artificial restriction in the In export markets, server barriers in the form
form of tariff and quota are negligible or the not of tariff and quota are present in order to
present at all. restrict excessive inflow of foreign goods.
4. Government Control
The government exercises less control over The international trade is subject to strict
domestic trade. government controls and restrictions.
5. Product Strategy
Due to similar socio-economic environment, a Since the socio-eco environment in different
single product (Product Standardisation Strategy) countries is different, the goods of different
can be marketed throughout the country. quality standards (Product Adaptation Strategy)
are required to be manufactured for different
countries.
6. Competition
The degree of competition in domestic market is An exporter faces an intense competition from
low as the domestic markets are generally his own country, from other countries and local
protected by the government from external suppliers in the importing country.
competit ion.
7. Scale of Operations
Since the degree of competition in the domestic In order to compete at the international level, a
market is low, a firm can afford to operate on a
smaller scale.
firm has to operate at the optimum level in
order to reduce its cost of production.
8. Mobility of Factors of Production
Factors of production such as land, labour and There are strict restrictions on the mobility of
capital are freely mobile in the domestic market. factors of production in the international
market.
17
 Case Study No.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
1. A Case Study on Spices Export Marketing
Government of India has made special efforts through
macroeco-nomic reforms in industrial, financial and trade sector
to boost export business. Fiscal and financial incentives are
provided to our corporate sector engaged in export business. It
is a controversy among the economists that there will be
growth-led export or export-led growth in India due to
economic reform process in India. Inspite of either of the
phenomenon, ever increasing domestic market is also consid-
ered as one of the significant factors for slow rate of growth of
Indian exports. There is one school of thought believing that
Indian trade has been essentially inward looking largely due to
its size and ever expanding internal market. Economic
liberalisation and reforms opened new avenues for export
growth in general and specific commodities in particular as
policy measures like simplification of excise and custom
procedures, deregulation of licensing, formation of special
focus group of commodity exports and a host of other
incentives directed at the export front.
This case study examines the pattern of export growth in
general and export of spices in particular with a view to suggest
action plan to boost the exports up to the target of 2000 A.D.
An attempt is also made for projection of production and
growth of spices exports in Indian case.
The case study is divided into 3 papers: the first one reviews
literature that has grown in the recent past in area of exports of
spices so as to sort our issues, the second one examines trends
and of production and exports of spices among overall export
of India, whereas, the third one offers action plan to reach the
target of 2000 A.D.
Retrospect
Considerable amount of literature has grown to know export
market-ing and diversification of export business by Indian
economists. These include Pendse, Attri2, PNB3, Saxena4,
Kameshwar Raos, Deolanker6, Debroy7, Government of
India8, Singh and Madhavan9. All these studies attempt to
measure growth rate of exports in general or showing policy
measures for diversification of Indian export business.
Commodity-wise and country-wise studies also highlight
behaviour of world export market and share of Indian exports.
However, authors like Siddharthan10 and Sharmall attempted
to throw light on implifications of economic reforms and
liberalisation policy for possible solution of problems arising in
export management. Decontrol and deregulation policy is
welcomed by all exporters inclusive of exporters of spices.
In the case of export business of spices, there are studies
undertaken by Gargl2, Sandhu 13, UNCT AD, 14 Murlidhar
Rao1s and by others with a view to know strategy of produc-
tion and diversification of exports of species as well as
expansion of multilateral trade of spices. Most of the studies
have shown projections of production and export. Commodity
wise and country-
Major Issues
1. Growth-led exports for India in the case of production of
spices draw attention of growers, processors and exporters.
18
2. Problems faced in getting high yielding varieties and their
use with technological change in production, processing,
packing and forwarding of spices.
3. What kind of role can be played by Kerala Market
Federation in order to achieve targets of exports in 2000
A.D.?
4. Role of banks and financial institutions to fund production
technology and special export finance as pre-shipment and
post- shipment credit of spices.
5. Conservation, protection and storage of spices to stop
wastage in export business.
6. Role of Spices Board, state government as well as central
government. In India to boost exports with brand and
specifica-tion of investment spices.
7. Relaxation in formalities of exports for new entrants in
export of spices in India apart from budget exercise.
8. What kind of action plan is necessary to achieve targets of
production and exports of spices about 300 million dollars
in 2000 A.D in Indian case?
This paper is not answering all the above issues but attempts to
touch the last one regarding action plan and related policies to
boost exports of spices in India.
Production and Exports of Spices
It is necessary to know the macro view of production and
exports scenario of spices. According to Bureau of Indian
Standards, there are 63 spices grown in India. These include
black papper, chillies, cardmom, gin-ger, turmeric, coriander,
cummin, garlic and others and leading both in production and
exports too. As the level of living of people goes up, consump-
tion of spices tends to increase. Spices are used worldwide to
enhance or to vary flavour of the food. They act as appetisers
and some of the spicies have anti-oxidant properties. Most of
the spices are used in food processing as well as pharmaceuticals
and perfumery and cosmetics industry .
Considering popular economic theory of growth-led exports
appear to be true in the case of production and export of
spices. Therefore, it is necessary to glance through macroeco-
nomic management of spices in India. Spices are grown in all
states of India but their production differs from state to state
largely due to climatic changes. It is reported by Bureau of
Indian Standards that there are 63 spices grown on two million
hectares and having production of about 16lakh tonnes per
annum. Exact figures about productions of the spices and
state-wise data is not available. However, estimates are available
from Ministry of Agriculture, Directorate of Econom-ics and
Statistics as well as state departments of trade.
By and large, spices are divided into annual and perennial. Price
fluctuation is affecting area under cultivation in different states
of India, whereas; in the case of perennial, the area does not
change significantly unless. exceptional change in price is found.
The weak mechanism of marketing, lack of appropriate price
policy has also hindered higher productivity in the case of
Indian spices. As corporate sector in India has” taken active
interest and. is playing a major role for production and exports
of spices, the production of spices needs to be on professional
11.675.1
basis. This is so as uneducated growers do not know about as to protect interest of growers as well as small producers in

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

high-yielding varieties in spices, ravages due to pest and particular in the case of spices and other items.
diseases, unscientific post-harvest technology of processing and 5. Corporate sector, export and process houses, will have to take
storage of spices reduces actual usable production. over the challenges to face in the process of globalisation of
It must be understood by the professionals in corporate sector market for spices. The eighth five-year plan of the Government
of India that a country which is committed to globalisation of India aims at a growth rate of 10% in production compared
needs to reproduce far more efficiently than it had been doing to 4% in the seventh plan. Investment strategy under the central
so far. At least, it must be made sure for that the growers get -sector scheme is Rs. 150 crores. All potential exporters of spices
reasonable return on their investment. The support price should take advantage of the scheme.
mechanism has to be worked efficiently in commodities where 6. Very recently researchers maintained that in the case of pre-
self-sufficiency is to be achieved. shipment credit by banks, 1 % increase in wholesale price, tends
The share of spices export in total exports in the fiscal year to increase the credit required by 0.7% and 1% increase in
ending 1952, 1960,1970,1980 and 1990 were 4.18, 2.87, 2.45, quantity of exports trends to increase the requirement by 1.7%.
2.55 and 2.42 respectively. The compound rates of growth of As against this in the case of postshipment credit, 1 % increase
exports of spices in percent per year were 4.2, 3.0, 2.5, and 2.9 in quantity of exports tends to increase the credit requirement
during fifties, sixties, seventies and eighties respectively. In the by 1.58% and 1 % increase in normal effective exchange rate
case of pepper, Indian had been exporting roughly about 79% tends. to increase the requirement by 1.06% considering the fact
of production to the world market. There are other competitors that banking sector will have to playa vital role to boost our
like Brazil, Indonesia, Malaysia, Srilanka and Spain. Quantity export business. After the nationalisation of banks export
exported by Indonesia is in big bulk considering her export credit as per concept of total credit has fallen from 9% in 1969
volume but there are quality differences. In India 95% of the to 5.5 % in 1990.
area under cultivation is in Kerala, where 82% of pepper
Question Bank
holdings are less than 3 hectares each and average holding is low
as 0.73 hectares. As a result productivity of pepper in India is as Q1. Define international marketing. Enumerate its features.
low as 230 kg per hectare consisting of 580 vines, 925 kg in Q2. What are the benefits of internationl marketing ?
Indonesia, 417 kg in Malaysia and 3333 kg per hectare in Brazil. Q3. Briefly explain the special problems of international
However, trend of exports of pepper is not steady but marketing.
fluctuating from year to year after 1988. Looking to direction of Q.4. Explain the role of MNCs in promoting exports.
trade of spices USA and European countries were dominating.
Nowadays USSR, East European countries, Canada, USA and Q5. Explain the slogan”Globalise or Perish” in the context of
Italy are major buyers provided that our prices come down to the new millennioum,
international parity. It is to be noted that export performance of Q6. Distinguish between internationa Marketing and
Indian spices remain very high subject to the world level growth Domestic Markeinng.
of output of spices. Elasticity of Indian exports of spices Q7. Exports are necessary only for underdeveloped
remained high with respect to world output of spices. In the countries.”Comment.
case of exports of pepper pimento in the world had resulted in
increase of per capita consumption in the importing countries.
Earnings from Spices
Trends of export earning both in terms of rupees as well as in
dollars is rising. However, export earning in terms of dollars is
not as high due to exchange rate policy and other technical
reasons. One can safely project as the basis of export earning of
Rs. 69,751 crores in 1993-94 to Rs. 2,20,000 crores in 2000 A.D.
for India. Similarly, in terms of dollars, it was 22239 million
dollars in 1993-94 which is likly to be 66,000 million dollars in
2000 A.D. considering overall growth pattern of Indian export
growth
2. Crop improvement devices of farm management on
professional base will pave a way for quality and quantity of
spices for more exportable surplus. Concentrated R & D efforts
for production and marketing is absolutely. necessary both at
farm level and corporate level.
3. Indian spices need brand and name to cope with competition
of global level through standards and specifications in the case
of all 63 import spices exported from India.
4. Role of the state would be vital for market intervention and
price mechanism in order to save prices from crashing down so

11.675.1 19
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 4 & 5:
INTERNATIONAL MARKETING ENVIRONMENT
International Marketing Environment
• Definition.
• Components.
Trade Barriers
• Definition.
• Objectives.
• Tariff Barriers.
• Non-tariff Barriers.
Distinguish Between
• Tariff Barriers and Non-tariff Barriers.
• Advalorem Duty and Specific Duty.
Question Bank
Definition of International Marketing Environment
International environment consists of internal and external
factors that may . influence nature and scope of business
organisations operating at the global : level. It is can described
as: -
a. Favourable or unfavourable.
b. Liberal or conservative.
e. Progressive or regressive.
International environment is a very important determinant of
the business strategy. The factors, which constitute international
business environment, can be classified as :
a. Endogenous Factors :- The endogenous factors consist of
internal factors which a business unit can control and
influence. For example, amount of labour and capital,
technology to be used and marketing mix.
b. Exogenous Factors :- The exogenous factors consist of
external factors which a business unit cannot control and
influence. The exogenous factors are constraints under
which a firm operates. For example, structure of industry,
market demand, supply conditions and government
policies.
Exogenous factors keep on changing and business
organisations have to adjust in order to survive. The business
unit, which cannot adjust to the changing environment,
becomes extinct in long run.
The analysis of internal environment factors indicates the
strengths and weaknesses of the business firm while the
analysis of external factors indicates the opportunities provided
and threats posed by the environment to the business.
Components of International Marketing
Environment
The various factors constituting the international marketing
environment are :
20
a. Social and Cultural Environment :- The biggest
environment is the social environment because business is
carried on by the people (businessmen), for the people
(consumers) ,and through the people (executives and
workers). Social and cultural factors in various countries of
the globe which affect the international business
environment are :-
• Attitude of the consumers and management;
• Changes in the population pattern.
• Influence of religion and tradition.
• Spread of education and its quality.
• Role of social and cultural institutions.
• General standard of living.
b. Technological Environment :- Nothing ever is permanent
except change. Technological improvement brings about
new techniques of production, new products, automation
and modernisation. Technology changes rapidly and the
firm, which cannot adjust to such a changing technological
environment, may not survive. The technological
environment consists of:-
• State of indigenous technology.
• Intermediate or appropriate technology.
• Transfer of technology.
• Technological collaborations.
• Policy and legal framework ‘for research and
development.
• Fiscal incentive for research and development.
These technological changes enabled international business’
to take the shape of multinational and transnational
business.
c. Economic Environment :- International business is
mainly affected by the economic policies adopted by the
governments of various countries. The global economic
environment has become favourable due to the
establishment of the WTO and emergence of the global
market. The changes in the international economic
environment have been revolutionary after 1990. The
following factors determine international economic
environment:-
• Type of economic system adopted by the country.
• Continuous growth in quality and quantity of industrial
output.
• Liberal and progressive policies of government.
• Rising levels of income and employment.
• Just and equitable distribution of wealth in the
economy.
• Check over monopolies.
11.675.1
d. Political Environment :- Change in the government
policies or government itself, many times bring about
practical difficulties in carrying on business operations.
Sometimes, the government takes over some key units in
the interest of the nation. Political environment in the
country is created by the following factors :--
• Political system accepted by the country, viz., capitalism or
socialism.
• Existence of political parties, i.e., dual party or multi party
system.
• Parties in power, i.e., ideologies and policies of the
government.
• Legislative and judiciary systems.
• External affairs and relationship.
e. International Environment :- International marketing
environment is also affected by the international
environment. The factors which make up the international
environment are :-
• International socio-economic and political changes.
• Contribution of foreign capital.
• Import and export trade.
• Functioning of multinationals and transnationals.
• International trade cycles.
• International relations and agreements.
• War and peace conditions.
f. Legal Environment :- In every economy, whether socialistic
or capitalistic, private sector is subject to government
control. Government controls the functioning of private
sector through its various policies and legislation. The
factors which determine regulatory environment are :-
• Industrial planning and policies.
• Tax structure and subsidies.
• Import controls, tariff and duties.
• Licensing system.
• Policy regarding Foreign Direct Investment (FDI).
• Policy decisions on joint ventures and foreign
collaborations
g. Ecological Environment :- Ecological degradation and its
protection have become a major issue in most of the
developed and developing countries of the world. In order
to protect our precious environment, series of acts and
regulations have .been made by the government. These acts
and regulations also affect the international marketing:
environment.
Definition of Trade Barriers
Trade barriers are the artificial restrictions imposed by the
governments on free flow of goods and services between
countries. Tariffs, quotas, taxes, duties, foreign exchange
restrictions, trade agreements. and trading blocs are the tech-
niques used for restricting free movement of goods from one
country to the other.
Trade barriers can be broadly classified into two categories
11.675.1
a. Tariff barriers or fiscal controls.
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
b. Non-tariff barriers or quantitative restrictions
Objectives of Trade Barriers
Trade barriers are imposed with different objectives under
different situations as under :-
a. To Protect Home Industries from Foreign
Competition:- In many of the developing countries,
majority of basic and heavy industries are still in the initial
stage of their development. The cost of production in such
industries is very high and quality is poor in comparison to
the international market. Therefore such industries need
protection from foreign competitors.
b. To Promote New Industries and Research and
Development :-Developing countries, like India, are
conducting research in various areas of technological
development. In order to motivate the efforts of scientists
and enable them to work with greater initiative such
potential areas of development need protection from
foreign giants.
c. To Conserve Foreign Exchange Reserves :- The
immediate solvency of any country depends upon its
foreign exchange reserves. Excessive imports may lead to
erosion of valuable foreign currency from the country.
Therefore, the government has to use quotas and tariffs as
instruments for controlling imports and conserve foreign
exchange.
d. To Maintain Favourable Balance of Payments :- Balance
of payments is defined as the difference between inflow and
outflow of foreign currency in the economy. A country,
having favourable balance of payments, commands
goodwill and reputation in the international market. Trade
barriers help in reducing imports and thereby improve
balance of payments situation.
e. To Protect National Economy from Dumping :-
Dumping is the situation whereby a big MNC tries to sell
its products at a price which is much below its cost of
production. As a result, the domestic manufacturers may
not be able to compete and will have to withdraw from the
market. To prevent this, the government may use tariffs to
increase the price of dumped goods.
f. To Curb Conspicuous Consumption :- Goods, like
diamonds and gold, have inelastic demand. Generally,
people buy such goods when their prices are high in order
to show off their wealth. Such consumptions are known as
conspicuous consumptions. These consumptions cannot
be curtailed by charging high duties and hence, quotas
should be fixed for their curtailment.
g. To Make Economy Self-reliant :- Initially, infant
industries need protection from the government. Gradually,
these protected industries develop competitive strength. At
that juncture, the domestic market can be thrown open to
foreign competitors to enable domestic companies to
improve further. This gradually makes the country self-
reliant.
h. To Mobilise Public Revenue :- In every economy, whether
capitalist or socialist, the government plays a key role in the
21
 economic development. The government undertakes about 30 percent for goods sold in noncash (barter) transac-
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

various developmental activities, which require enormous tions.

finance. Customs duties charged on import and export of
Purpose: Protective and Revenue Tariffs
goods can serve as a significant source of finance for such
Tariffs can be classified as protective tariffs and revenue tariffs.
purposes.
The distinction is based on purpose. The purpose of a
i. To Counteract Trade Barriers Imposed by Other protective tariff is to protect home industry, agri-culture, and
Countries :- Sometimes, in order to counteract trade labor against foreign competitors by trying to keep foreign
barriers imposed by other countries, a country may be goods out of the country. The South American markets, for
forced to impose trade restrictions. instance, have high import duties that hinder the import of
Types of Tariff Trade Barriers fully built cars. Brazil has a 50 percent import tax on imported
Tariffs are extensively used trade barriers. Tariffs’ are in the form “flyaway” planes.
of customs duties and taxes imposed on internationally traded The purpose of a revenue tariff, in contrast, is to generate tax
commodities when they cross the national boundaries. The aim revenues for the government. Compared to a protective tariff, a
of tariffs is to. Increase prices of imported goods and thereby revenue tariff is relatively low. When Japanese and other foreign
reduce their demand and discourage their consumption. cars are imported into the United States, there is a 3 per-cent
Direction
Import Tariffs duty. On the other hand, American cars exported to Japan are
Export Tariffs subject to a vari-ety of import taxes. Even the cost of shipping
Purpose
Protective Tariffs
is taxed, since Japan considers that the shipping cost adds value
Revenue Tariffs
to a car. As a result, a U.S. car sold in Japan can easily cost twice
Tariff Surcharge
Time length as much as its price in the United States. The U.S. tax is a
Countervailing Duties
Tariffs
Specific Duties
revenue tariff, whereas the Japanese tax is more of a protective
Tariff rate Ad Valorem duties
Combined rates
tariff.
Production,
Single - stage
Value - added Length: ‘Tariff Surcharge versus Countervailing
Distribution and
Consumption
Cascade
Excise Duty’
Turnover or equalization
Trade Protective tariffs can be further classified according to length of
Barriers
time. A tariff sur-charge is a temporary action, whereas a
Government Administrative Guidance
Participation Subsidies countervailing duty is a permanent Surcharge. When Harley
in Trade Government procurement
and stand trading Davidson claimed that it needed time to adjust to Japanese im-
Product Classification
Product valuation
ports, President Reagan felt that it was in the national interest to
Customs and entry Documentation provide import relief. To protect the local industry, a tariff
Procedures License or permit
Inspection
surcharge was used. The tariff on heavy motor-cycles jumped
Health & safety regulation from 4.4 percent to 45 percent for one year and then declined to
Product Standards 35 percent, 20 percent, 15 percent, and finally 10 percent in
Product Packaging, labeling & marking
Requirements Product testing subsequent years.
Product specifications
Nontariff
Barriers Export Countervailing duties are imposed on certain imports when
Quotes
Quotas Absolute products are subsi-dized by foreign governments. These duties
Import Tariff
Quotes Voluntary (OMA & VER) are thus assessed to offset a special ad-vantage or discount
Exchange & control
Multiple exchange rates
allowed by an exporter’s government. Usually, a government
Financial Control prior import deposit
Credit restriction pro-vides an export subsidy by rebating certain taxes if goods
Profit remittance restrictions
are exported.
Tariffs:- Tariff derived from a French word meaning rate, price, Rates: Specific, Ad Valorem, and Combined
or list of charges is a customs duty or tax on products that How are tax rates applied? To understand the computation,
move across borders. Tariff can be classified in several ways. The three kinds of tax rates must be distinguished: specific, ad
classification scheme used here is based on direction, purpose, valorem, and combined.
length, rate, and distribution point. These classifications’1reiiot Specific duties are a fixed or specified amount of money per
necessarily mutually exclusive. unit of weight, gauge, of other measure of quantity. Based on a
Direction: Import and Export Tariffs standard physical unit of a product, they are specific rates of so
Tariffs are often imposed on the basis of the direction of many dollars or cents for a given unit of measure (e.g., $l/
product movement, which is, on imports or exports, with the gallon, 25~/square yard, $2/ton, etc.) Product costs or prices are
latter being the less common one. When export tar-iffs are irrelevant in this case. Because the duties are constant for low-
levied, they usually apply to an exporting country’s scarce and high-priced products of the same kind, this method is
resources or raw materials (rather than finished manufactured discriminatory and effective for protection against cheap prod-
products). Companies exporting from Russia must pay an ucts because of their lower unit value. That is, there is a reverse
average export tariff of about 20 pe{cent on a number of relationship between product value and duty percentage. As
goods sold in cash transactions and an average export tariff of product price goes up, a duty when expressed as a percentage of
this price will fall. On the other hand, for a cheap product
whose value is low, the duty percentage will rise accordingly.

22 11.675.1
Ad valorem duties are duties “according to value.” They are
stated as a fixed percentage of the invoice value and are applied
as a percentage to the dutiable value of the imported goods.
Japan’s ad valorem tariffs on beef llnd processed cheese are 25
percent and 35 percent, respectively. This is the opposite of
specific duties since the percentage is fixed but the total duty is
not. Based on this method, there is a di-rect relationship
between the total duties collected and the prices of products.
That is, the absolute amount of total duties collected will
increase or decrease with the prices of imported products. The
strength of this method is that it provides a contin-uous and
relative protection against all price levels of a particular product.
Such pro-tection becomes even more critical when inflation
increases prices of imports. -If spe-cific duties were used, their
effect lessens with time because inflation reduces the propor-
tionate effect. Another advantage is that ad valorem duties
provide an easy comparison of rates across countries and across
products.
Combined rates (or compound duty) are a combination of the
specific and ad valorem duties on a single product. They are
duties based on both the specific rate and the ad valorem rate
that are applied to an imported product. For example, the tar- if
may be l0¢ per pound plus 5 percent ad valorem. Under this
system, both rates are used together, though in some countries
only the rate producing more revenue may apply.
Distribution Point: Distribution and Consumption
Taxes
Some taxes are collected at a particular point of distribution or
when purchases and consumption occur. These indirect taxes,
frequently adjusted at the border, are of four kinds: single-stage,
value-added, cascade, and excise.
Single-stage sales tax is a tax collected only at one point in the
manufacturing and distribution chain. This tax is perhaps most
common in the United States, where retailers and wholesalers
make purchases without paying any taxes simply by show-ing a
sales tax permit. The single-stage sales tax is not collected until
products are purchased by final consumers.
A value-added tax (VAT) is a multistage, noncumulative tax
on consumption. It is a national sales tax levied at each stage of
the production and distribution sys-tem, though only on the.
Value added at that stage. In other wants, each time a prod-uct
changes hands, even between middlemen, a tax must be paid.
But the tax col-lected at a certain stage is based on the added
value and not the total value of the product at that point.
Sellers in the chain collect the VAT from a buyer, deduct the
amount of VAT they have already paid on their purchase of the
product, and remit the balance to the government. European
Union customs officers collect the VAT upon importation of
goods based on the CIF (cost, insurance, and freight) value plus
the duty charged on the product. Table 3-2 on page 94 provides
the V AT rates through-out the world.
The VAT is supposed to be non-discriminatory because it
applies to both prod-ucts sold on the domestic market and
imported goods. The importance of the value--added tax is due
to the fact that GATT allows a producing country to rebate the
value-added tax when products are exported. Foreign firms
trying to get a refund from European governments have found
11.675.1
the refund process to be anything but easy (see Marketing
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Strategy 3 -1).
Since the tax applies to imports at the border but because it is
fully rebated on exports, the VAT may improve a country’s
trade balance. The evidence, however, of-fers a mixed picture. A
study in Europe showed no evidence that the VAT had any
material impact on the balance of trade.12 Regarding Korea and
the Philippines, the rebated VAT, by increasing profits from
exports compared with the previous tax regime, may have
encouraged exporting.
Cascade taxes are collected at each point in the manufacturing
and distribution chain and are levied on the total value of a
product, including taxes borne by the product at earlier stages.
Of the tax systems examined, this appears to be the most
severe of them all. For over thirty years a now-defunct cascade
tax system of taxation in Italy (the IGE) hurt the development
of large-scale wholesale business there.14 Since the IGE was
imposed each time the goods changed hands, Italian manufac-
turers min-imized transfers of goods by selling products
directly to retailers. The IGE was re-placed by a value-added tax
in 1973, and it. was hoped by foreign manufacturers that the
revival of wholesale organizations might facilitate imports of
foreign consumer goods. Table 3-3 shows how the tax varies
among the three systems.
An excise tax is a one-time charge levied on the sales of
specified products. Al-coholic beverages and cigarettes are good
examples. In the United States the federal government collects a
3 percent excise tax on telephone services and collects 161t for
each pack of cigarettes. State, county, and city governments may
have their own ex-cise taxes.
These four Kinds of indirect taxes are often adjusted at the
border. Border taxes can be used to raise prices of imports or
lower prices of exports. Prices of imports are raised by charging
imported goods with (in addition to customs duties) a tax usu-
ally borne by domestic products. For exported products, their
export prices become more competitive (i.e., lower) when such
products are relieved of the same tax that they are subject to
when produced, sold, and consumed domestically. The rebate
of this tax when the goods are exported, in effect, lowers their
export prices.
The United States also has border taxes. To protect bourbon,
for example, the United States imposes an average tax of $2.68
per fifth on Scotch whiskey, in addition to an import tariff to
pay federal, state, and local excise taxes. Canada replaces its
Federal Sales Tax (FST), which had been 13.5 percent for most
products. The FST was collected at the manufacturing stage of
production on ‘domestic goods. On im-ports, the tax was
collected by Canada Customs. Because” of the hidden nature of
the FST, many foreign marketers selling into the Canadian
market did not’ realize that Canadian manufacturers had already
built the 13.5 percent FST into their prices. As a result, foreign
firms found that they were not as price competitive as they had
as-sumed. The new tax is a more broadly based Goods and
Services Tax (GST); it is a value-added tax similar to those
found in most European countries. ‘The GST taxes both
goods and services and curbs exemptions. U.S. exporters
23
 should benefit from the more transparent nature of the new
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
GST and find it easier to plan export pricing.
Many countries have a turnover or equalization tax. This tax is
intended to compensate for similar taxes levied on domestic
products. Any critical examination of this would demonstrate
that the tax does not equalize prices at all. When the same tax
rate is applied to the imported and domestic products, the effect
is uneven. There is a greater impact on the import because the
tax is usually levied on the full ClF, duty-paid value, rather than
on the invoice value alone.
Nontariff Barriers
Tariffs, though generally undesirable, are at least straightforward
and obvious. Non-tariff barriers, in comparison, are more
elusive or nontransparent. Tariffs have de-clined in importance,
while nontariff barriers have become more prominent. Often
disguised, the impact of nontariff barriers can be just as
devastating, if not more, as the impact of tariffs. Laird and
Yeats have documented the spread of nontariff barri-ers from
1966 to 1988 that have been applied unevenly across countries
and indus-trial sectors. is Another study of the occurrence and
importance of nontariff barriers also found significant varia-
tions across selected Pacific Rim countries..
There are several hundred types of nontariff barriers. These
barriers can be grouped in five major categories. Each category
contains a number of different non-tariff barriers.
Government Participation in Trade
The degree of government involvement in trade varies from
passive to active. The types of participation include administra-
tive guidance, state trading and subsidies
Administrative Guidance Many governments routinely
provide trade consultation to private companies. Japan has been
doing this on a regular basis to help implement its industrial
policies. This systematic cooperation between the government
and busi-ness is labeled “Japan, Inc.” To get private firms to
conform to the Japanese gov-ernment’s guidance, the govern-
ment uses a carrot-and-stick approach by exerting the influence
through regulations, recommendations, encouragement,
discouragement, or prohibition. Japan’s government agencies’
administrative councils are influential enough to make import-
ers restrict ‘their purchases to an amount not exceeding a cer-tain
percentage of local demand. The Japanese government denies
that such a prac-tice exists, claiming that it merely seeks reports
on’ the amounts purchased by each firm.
Government Procurement and State Trading State trading is
the ultimate in gov-ernment participation, because the govern-
ment itself is now the customer or buyer who determines what,
when, where, how, and how much to buy. In this practice the
state engages in commercial operations, either directly or
indirectly, through the agencies under its control. Such business
activities are either in place of or in addition to private firms.
Although government involvement in business is most
common with the com-munist countries, whose governments
are responsible for the central planning of the whole economy,
the practice is definitely not restricted to those nations. The U.S.
government, as the largest buyer in the world, is required by the
24
Buy American Act to give a bidding edge to U.S. suppliers in
spite of their higher prices.
When the government is further involved in reselling imported
products, mat-ters become even more complicated. American
tobacco companies complained that Japan’s Tobacco and Salt
Agency kept prices of their products artificially high and that
sales representatives from this government tobacco monopoly
participated in dis-crediting the advertising of American
products.
The Government Procurement Code requires the signatory
nations to guarantee that they will provide suppliers from other
signatory countries treatment equal to that which they provide
their own suppliers. This guarantee of “national treatment”
means that a foreign government must choose the goods with
the lowest price that best meet. The specifications regardless of
the supplier’s nationality. The Code requires that tech-nical
specifications not be prepared, adopted, or applied with a view
to creating ob-stacles to international trade. The purchasing
agency must adopt specifications geared toward performance
rather than design and must base the specifications on interna-
tional standards, national technical regulations, or recognized
national standards, where appropriate.
Subsidies According to GATT, “subsidy is a “financial
contribution” provided di-rectly or indirectly by a government
and which confers a benefit.” Subsidies can take many forms
including. Cash interest rate, value-added tax, corporate income
tax, ‘sales tax, freight, insurance, and infrastructure. Subsidized
loans for priority sectors, preferential rediscount rates, and
budgetary subsidies are among the various subsidy policies of
several Asian countries.
There are several other kinds of subsidies that are not so
obvious. Brazil’s re-bates of the various taxes, coupled with
other forms of assistance, can be viewed as subsidies. Tennes-
see, Ohio, Michigan, and Illinois, in order to attract foreign
au-to makers to locate their plants in those states, provided
such services as highway con-struction, training of workers, and
tax breaks, which are simply subsidies in disguise.
Sheltered profit is another kind of subsidy. A country may
allow a corporation to shelter its profit from abroad. The
United States in 1971 allowed companies to form domestic
international sales corporations (DISCs) even though they cost
the U.S. treasury more than $1 billion a year in revenue. GATT,
the multilateral treaty, even-tually ruled that a DISC was an
illegal export subsidy. A new U.S. law allows com-panies that
meet more stringent requirements to form foreign sales
corporations (FSCs), which have the same purpose as DISCs.
The Subsidies Code, technically named the Agreement on
Interpretation and Application of Article VI, XVI and XXIII
of the General Agreement on Tariffs and Trade, recognizes that
government subsidies’ distort the competitive forces at work in
international trade. The rules of the international agreement
negotiated during the Tokyo Round of Multilateral Trade
Negotiations (MTN) differentiate between export subsidies and
domestic subsidies. The Code’s rules also differentiate between
subsi-dies paid on primary products (e.g., manufactures) and
those paid on nonprimary products and primary minerals. A
primary product is any product of farm, forest, or fishery in its
11.675.1
natural form or that has undergone such processing as is
customarily re-quired to prepare it for transportation and
marketing in substantial volume in inter-national trade (e.g.,
frozen and cured meat). The Code prohibits the use of export
sub-sidies on nonprimary products and primary mineral
products.
There is considerable debate over what should be considered
manufactured prod-ucts, since such products are not entitled to
any subsidies. For instance, according to the United States, the
EU’s export subsidies for such manufactured products as pasta
and wheat flour are banned by the international subsidies code.
The EU’s position is that pasta and wheat flour are not
manufactured products.
To combat subsidies, the United States has proposed the
adoption of the “traf-fic light” approach to provide a frame-
work for the classification of all subsidy pro-grams. Based on a
subsequent GATT agreement, there are three Lategories: (1)
pro-hibited (red light) subsidies, (2) permissible but actionable
(yellow light) subsidies, and (3) permissible but nonactionable
(green light) subsidies. The permissible but ac-tionable
subsidies are actionable multilaterally and countervailable
unilaterally if they cause adverse trade effects. Regarding
permissible but nonactionable subsidies, they are not
countervailable if provided according to criteria intended to
limit their po-tential for distortion.)
Customs and Entry Procedures
Customs and entry procedures can be employed as nontariff
barriers. These restric-tions involve classification, valuation,
documentation, license, inspection, and health and safety
regulations.
Classification How a product is classified can be arbitrary and
inconsistent and is often based on a customs officer’s judg-
ment, at least at the time of entry. The U.S. Customs reclassified
Nissan’s imported truck cabs and chassis from “parts” with 4
percent duty to “assembled vehicles” subject to 25 percent levies
instead.
Product classification is important because the way in which a
product is clas-sified determines its duty stams. A company can
sometimes take action to affect the classification of its product.
For example, a ruling of the U.S. Customs resulted in a 100
percent punitive tariff on certain Japanese computers. Toshiba
and NEC, how-ever, took advantage of the ruling’s loophole
by importing boards without micro-processor chips. The
boards were not classified as computers and were thus allowed
to enter the United States duty-free. The microchips were then
installed after entry.
In the United States, if an imported product is determined to
have the accept-able minimum percentage of materials pro-
duced in a designated country, it can be classified by a customs
officer as having duty-free status. Classification thus deter-mines
if certain product categories are qualified for a special treatment,
but it also de-termines whether some products should be
banned altogether. Most countries ban ob-scene, immoral, and
seditious materials, as well as imports of counterfeit coins, bills,
securities, postage stamps, and narcotics. In South Korea,
prohibited articles include books, printed matter, motion
pictures, phonograph records, sculptures, and other like articles
11.675.1
that are deemed subversive or injurious to national security or
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
detrimental to the public interest, as well as articles used for
espionage or intelligence activities.
Valuation Regardless of how products are classified, each
product must still be val-ued. The value affects the amount of
tariffs levied. A customs appraiser is the one who’ determines
the value. The process can be highly subjective, and the valua-
tion of a product can be interpreted in different ways,
depending on what value is used (e.g., foreign, export, import,
or manufacturing costs) and how this value is constructed. In
Japan a commodity tax of 15 percent is applied to the FOB
factory price of Japanese cars. Yet U.S. cars are valued on the ElF
basis, adding $1,000 more to the final re-tail price of these cars.
Documentation Documentation can present another problem
at entry because many documents and forms are often necessary,
and the documents required can be com-plicated. Japan held up
Givenchy’s import application because the company left out an
apostrophe for its I’Interdit perfume.
Documentation requirements vary from country to country.
Usually, the fol-lowing shipping documents are either required
or requested: commercial invoice, pro j(ml1(/ invoice, certificate
of origin, bill of lading, packing list, insurance certificate, import
license, and shipper’s export declarations. Without proper
documentation, goods may not be cleared through customs. At
the very least, such complicated and lengthy documents serve to
slow down product clearance. France, requiring customs
documentation to be in French, even held up, trucks from other
European countries for hours while looking for products’ non-
French instruction manuals, which were banned.
License or Permit Not all products can be freely imported;
controlled imports re-quire licenses or permits. For example,
importations of distilled spirits, wines, malt beverages, arms,
ammunition, and explosives into the United States require a
license issued by the Bureau of Alcohol, Tobacco, and Firearms.
India requires license for all imported goods. IS An article is
considered prohibited if not accompanied by a li-cense. It is not
always easy to obtain an import license, since many countries
will is-sue one only if goods can be certified as being necessary.
Japan simplified its licensing procedure in 1986. Previously, a
separate license application had been required for any new
cosmetic product, even when only a change in shade was
involved. The new requirements categorize cosmetics into
seventy-eight groups and list permitted ingredients. A marketer
simply notifies the government of any new product using
those ingredients.
Inspection Inspection is an integral part of product clearance.
Goods must be ex-amined to determine quality and quantity.
This step is highly related to other customs and entry proce-
dures. First, inspection classifies and values products for tariff
pur-poses. Second, inspection reveals whether imported items
are consistent with those specified in the accompanying
documents and whether such items require any li-censes. Third,
inspection determines whether products meet health and safety
regu-lations in order to make certain that food products are fit
for human consumption or that the products can be operated
safely. Fourth, inspection prevents the importation of prohib-
ited articles.
25
 Marketers should be careful in stating the amount and quality
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
of products, as well as in providing an accurate description of
products. Any deviation from the state-ments contained in
invoices necessitates further measurements and determination,
more delay, and more expenses.
Inspection can be used intentionally to discourage imports.
Metal baseball bats from the United States, for instance, have a
potential for selling very well in the Japan-ese market. But a
major obstacle is that every single bat must carry a stamp of
con-sumer safety, and this must be “ascertained” only after
expensive on-dock inspection.
Health and Safety Regulations Many products are subject to
health and safety reg-ulations, which are necessary to protect the
public health and environment. Health and safety regulations
are not restricted to agricultural products. The regulations also
apply to TV receivers, microwave ovens, X-ray devices, cosmet-
ics, chemical sub-stances, and wearing apparel.
Concern for safety was used by Japan against aluminum softball
bats from the United States. The manufacturing process leaves a
small hole in the top filled with a rubber stopper. Japan thus
bans the bats on the ground that the stopper might fly out and
hurt someone. According to U.S. manufacturers, this fear is
unfounded.
Quotas
Quotas are a quantity control on imported goods. Generally,
they are specific provi-sions limiting the amount of foreign
products imported in order to protect local firms and to
conserve foreign currency. Quotas can be used for export control
as well. An export quota is sometimes required by national
planning to preserve scarce resources. From a policy standpoint,
a quota is not as desirable as a tariff since a quota gener-ates no
revenues for a country. There are three kinds of quotas:
absolute, tariff, and voluntary. .
Absolute Quotas An absolute quota is the most restrictive of
all. It lilnits in ab-solute terms the amount imported during a
quota period. Once filled, further entries are prohibited. Some
quotas are global, but others are allocated to specific foreign
countries. Japan imposes strict quotas on oranges and beef. To
appease the EU, it has lifted quotas on skimmed milk powder
and tobaccos from Europe. The most extreme of the absolute
quota is an embargo, or a zero quota, as shown in the case of
the U.S. trade embargoes against Iraq and North Korea.
Tariff Quotas A tariff quota permits the entry of a limited
quantity of the quota product at a reduced rate of duty.
Quantities in excess of the quota can be imported but are
subject to a higher duty rate. Through the use of tariff quotas, a
combination of tariffs and quotas is applied with the primary
purpose of importing what is needed and discouraging
excessive quantities through higher tariffs. When the United
States increased tariffs on imported motorcycles in order to
protect the U.S. motorcycle in-dustry, it exempted from this tax
the first 6,000 big motorcycles from Japan and the first 4,000-
5,000 units from Europe. Exhibit 3-5 lists products that are
subject to tariff-rate and absolute quotas.
Voluntary Quotas A voluntary quota differs from the other
two kinds of quotas, which are unilaterally imposed. A
26
voluntary quota is a formal agreement between na-tions or
between a nation and an industry. This agreement usually
specifies the limit of supply by product, country, and volume.
Commodities Subject to Import Quotas Absolute Quotas
Administered by the Commissioner of Customs as
pro vided for in the Harmonized Tariff Schedule of the
• . Animal feeds, containing milk or milk derivatives.
• Butter substitutes, containg over 45% butterfat
United States (HTSUS).
Tariff-Rate Quotas
provided for in subheading 2106.90.15, HTSUS,
and butter oil.
•
•
Milk (whole) and cream.
Anchovies, satsuma mandarin oranges, and
• Buttermix, over 5.5% butnot over 45% by weight
of butterfat.
olives as described in Presidential Proclamation
5924.
• Cheese, natural cheddar, made from unpasteurized
milk and aged not less than nine months.
• Tuna fish, described in item 1604.14.20,
• Dried milk containing 5.5% or less butterfat.
HTSUS.
• . Whiskbrooms, wholly or in part of broom • Dried milk described in it em 9904.10.15, HTSUS.
corn • Chocolate crumb and other related articles
• . Other brooms, wholl y or in part of broom corn containing more than 5.5% by weight of butterfat.
• . Sugars, syrups, and molasses described in • Chocolate crumb containing 5.5% or less by
headings 9904.40.20 and 9904.40.60 HTSUS. . weight of butterfat.
NAFTA • Ethyl alcohal and mixtures there of for fuel use
• Presidential Proclamation 6411 implem8l1ted from the Caribbean and U.S, Insular Prossession
the North American Free Trade Agreement and under number 9901.00.50.
established trade preference levels on the • Meat (Australia and New Zealand)
foll owing qualifying imported goods' • Milk and cream, fluid or frozen, fresh or sour
Imported from Mexico (New Zealand).
Milk and cream,
Dried milk and dried cream
• . Malted milk and articles of milk or cream
described in item 9904.10.60, HTSUS.
Milk and cream,condensed and evaporated
Cheese
• . Ice cream.
• . Milk and cream, condensed or evaporated.
Tomatoes
Onions and shallots . Cotton having a staple length of under 1-1/18. or more
but under 1-3/8..
Eggplant
Chili peppers • . Cotton having a staple length of 1-3/8" or more.
• . Cotton card strips made from cotton having a
Squash
Watermelons staple length under 1- 3/16" and comber waste,
Peanuts
Sugars, syrups, and molasses
lap waste, sliver waste, and roving waste, whether
or not advanced
Sugars derived from sugar cane or sugar beets
Blended syrups
• . Fibers of cotton processed but not spun.
• . Upland cotton.
Orange juice
Raw cotton
• . Peanuts, shelled or not shelled, blanched, or
otherwise prepared or preserved (except peanut
Brooms
Cotton or man -made fiber apparel, wool apparel,
butter).
• . Sugar -containing products.
fiber fabrics and made - ups, and cotton or man made
fiber yarns
Textile Articles
The U.S. Customs Service administers import controls on
Imported from Canada:
certain cotton, wool, man- made fiber, silk blend and other
vegetable fiber articles manufactured or produced in
Cotton or man -made fiber apparel, wool apparel,
designated countries. The U.S. Customs Service ad -
cotton or Man-made fiber fabrics and make-ups, and ministers the Caribbean Basin Initiative (CBI) Special Ac-
cotton or man- made fiber yarns
cess Program on certain products which are made of U.S.
formed and cut fabric and accompanied by a properly
certified form ITA -370P. These controls are imposed on
the basis of directives issued to the Commissioner of
Customs by the Chairman of the Committee for the Im-
plementation of Textile Agreements
Two kinds of voluntary quotas can be legally distinguished:
VER (voluntary export restraint) and OMA (orderly marketing
agreement). Whereas an OMA in-volves a negotiation between
two governments to specify export management rules, the
monitoring of trade volumes, and consultation rights, a VER
is a direct agreement between an importing nation’s govern-
ment and a foreign exporting industry (i.e., a quota with
industry participation). Both enable the importing country to
circumvent the GATT’s rules (Article XIX) that require the
country to reciprocate for the quota received and to impose that
market safeguard on a most-favored-nation basis. Be-cause this
is a gray area, the OMA and VER can be applied in a discrimina-
tory man-ner to a certain country. In the case of a VER
involving private industries, a public disclosure is not necessary.
The largest voluntary quota is the Multi-Fiber Arrangement
(MFA) for forty-one export and import countries. This more
than two-decade-old international agree-ment on textiles allows
Western governments to set quotas on imports of low-priced
textiles from the Third World. The treaty has been criticized
because advanced na-tions are able to force the agreement on
poorer countries.
As implied, a country may negotiate to limit voluntarily its
export to a particu-lar market. This may sound peculiar because
the country appears to be acting against its own self-interest.
But a country’s unwillingness to accept these unfavorable terms
11.675.1
will eventually invite trade retaliation and tougher terms in the
form of forced quo-tas. It is thus voluntary only in the sense
that the exporting country tries to avoid al-ternative trade
barriers that are even less desirable. For instance, Japan agreed to
re-strict and reprice some exports within Great Britain.
Quotas are still quotas regardless of what they are called. They
always inhibit free trade, and frequently they fail to achieve the
desired goal. The example set by u.s. automakers is instructive.
After arguing for quotas and price increases to gain extra monies
to improve productivity and competitiveness, the automakers
ended up using record profits to pay big bonuses to their
executives.
Financial Control
Financial regulations can also function to restrict international
trade. These restrictive monetary policies are designed to control
capital flow so that currencies can be de-fended or imports
controlled. For example, to defend the weak Italian lira, Italy
im-posed a 7 percent tax on the purchase of foreign currencies.
There are several forms that financial restrictions can take.
Exchange controls also limit the length of time and amount
of money an ex-porter can hold for the goods sold. French
exporter, for example, must exchange the foreign currencies for
francs within one month. By regulating all types of the capital
outflows in foreign currencies, the government either makes it
difficult to get im-ported products or makes such items
available only at higher prices.
Multiple Exchange Rates Multiple exchange rates are another
form of exchange regulation or barrier. The objectives of
multiple exchange rates are twofold: to encourage exports and
imports of certain goods and to discourage exports and
imports of others. This means that there is no single rate for all
products or industries. But with the application of multiple
exchange rates, some products and industries will benefit and
some will not. Spain once used low exchange rates for goods
designated for ex-port and high rates for those it desired to
retain at home. Multiple exchange rates may also apply to
imports. The high rates may be used for imports of particular
goods with the government’s approval, whereas low rates may
be used for other imports.
Because multiple exchange rates are used to bring in hard
currencies (through exports) as well as to restrict imports, this
system is condemned by the International Monetary Fund
(IMF). According to the IMF, any unapproved multiple currency
prac-tices are a breach of obligations, and the member may
become ineligible to use the Fund’s resources. South Africa,
trying to stem capital outflows, started in 1985 to re-quire
nonresidents to transact capital transactions at a separately freely
floating ex-change rate (i.e., the financial rand). The financial
rand was much more depreciated than the commercial rand
exchange rate. In 1995, as political uncertainty declined, South
Africa unified the two exchange rates.
Prior Import Deposits and Credit Restrictions Financial
barriers can also include specific limitations or import restraints,
such as prior import deposits and credit re-strictions. Both of
these barriers operate by imposing—certain financial restrictions
on importers. A government can require prior import deposits
(forced deposits) that make imports difficult by tying up an
11.675.1
importer’s capital. In effect the importer is pay-ing interest for
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
money borrowed without being able to use the money or get
interest earnings on the money from the government. Import-
ers in Brazil and Italy must de-posit a large sum of money with
their central banks if they intend to buy foreign goods. To help
initiate an aircraft industry, the Brazilian government has
required an importer of “flyaway” planes to deposit the full
price of the imported aircraft for one year with no interest.
Credit restrictions apply only to imports; that is, exporters
may be able to get loans from the government, usually at very
favorable rates, but importers will not be able to receive any
credit or financing from the government. Importers must look
for loans in the private sector-very likely at significantly higher
rates, if such loans are available at all.
Profit Remittance Restrictions Another form of exchange
barrier is the profit re-mittance restriction. ASEAN countries
share a common philosophy in allowing un-restricted repatria-
tion of profits earned by foreign companies. Singapore, in
particu-lar, allows the unrestricted movement of capital. But
many countries regulate the remittance of profits earned in local
operations and sent to a parent organization lo-cated abroad.
Brazil uses progressive rates in taxing all profits remitted to a
parent company abroad, with such rates going up to 60 percent.
Other countries practice a form of profit remittance restriction
by simply having long delays in permission for profit expatria-
tion. To overcome these practices, MNCs have looked to legal
loop-holes. Many employ the various tactics such as
countertrading, currency swaps, and other parallel schemes. For
example, a multinational firm wanting to repatriate a cur-rency
may swap it with another firm that needs that currency. Or these
firms may lend to each other in the currency desired by each
party.
Distinction Between - Tariff Barriers and Non-tariff
Barriers
Tariff Barriers Non-tariff Barriers
1. Meaning:-
Tariff barriers are in the form of
Non-tariff barriers are quantitative
taxes and duties charged .on
restrictions on physical units of a
commodities imported and
commodity imported or exported.
exported.
2. Types:-
Tariff barriers. are classified on the Non-tariff barriers are in the form of
basis of origin, purpose, criteria and quotas, licensing, consular
relations between the trading formalities, foreign exchange
countries. restrictions, etc,
3. OBJECTIVES
The objective of tariff barriers is to The objective of non-tariff barriers is
increase the price of imported goods to restrict the quantity of import and
and thereby reduce their there by provide protection to
consumption and import. domestic industries.
4. Nature:-
It is an indirect method of curtailing It is a direct method of curtailing
imports by increasing the price of imports by imposing restrictions on
imported articles. the physical quantity of imports.
5. Effectiveness:-
As a method of controlling imports; As a method of controlling imports
tariffs may not be effective as non-tariff, barriers may be more
people may continue to buy effective as they directly control the
imported goods at a higher price. total volume of goods imported.
6. Revenue:-
Tariff barriers generate revenue for
Non-tariff barriers do not generate
the government in the form of taxes
any revenue for the government.
and duties.
27
 Distinction Between - Advalorem Duty and Specific
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Duty
Specific duty
1. Meaning
Specific duty is a duty imposed on each unit of a commodity
imported or exported.
2. Convenience
It is easy to calculate and administer as it can simply be calculated
by multiplying the rate of duty with number of units imported
or exported.
3. Nature of Goods
It is levied on such goods whose quantification in terms of
number of units is possible. For example, number of T. V. sets
and metres of cloth.
4. In spite of advantages over advalorem duty, specific duty is
not very popular as most of the countries use advalorem
duties
5. Main Considerations
In this case value of commodity is not taken into consideration.
For example, Rs.5 on each meter of cloth imported or Rs.500
on each T.V. set imported.
Advalorem Duty
1 Advalorem duty is a duty imposed on the total value of
commodity imported or exported
2 It is difficult to calculate as it requires a proper assessment of
the value of goods imported o* exported
3 It is levied on such goods whose quantification in terms of
number of units is not possible. For example,’ rare Paintine:s
and statues.
4 Generally most of the countries charge duties on the basis of
value of goods imported or exported, i.e., advalorem duties
5 In this case physical units of commodity are not taken into
consideration. For example, 5% of F.O.B. value of cloth im-
ported or 10% of C.I.F. value of T.V. sets imported.
Question Bank
Q1. Define International Marketing Environment. Explain its
components.
Q2. Define Trade Barriers. What are the objectives of trade
barriers?
Q3. What are Tariff Trade Barriers? How are they classified?
Q4. Define Non-tariff Barriers. What are the different types
of non*tariff barriers?
Q5. When and why was the GATT agreement signed?
Q6. What are the functions and objectives of the WTO ?
Q7. Explain the Uruguay Round of GATT negotiations with
special reference to India.
Q8. Explain the MFN clause of the GATT.
Q9. When and why was the UNCTAD constituted?
Q10. Explain the GSP under the UNCTAD.
Q11. “Trading Blocs create obstacles to international trade.”
Examine critically.
28
Q12. Define Trading Blocs. What are the different types of
trading blocs?
Q13. Distinguish between Tariff and Non-tariff barriers.
Q14. Distinguish between Specific Duty and Advalorem Duty.
Article-1
Non-Tariff Barriers
Given the firm commitment made by the Member Countries
on the programme of tariff reduction under the CEPT Scheme,
attention has now shifted to non-tariff barriers. Now Article 5
of the CEPT Agreement calls on Member States to “eliminate
other non-tariff barriers on a gradual basis within a period of
five years after the enjoyment of concessions”. Member
Countries are working to develop detained work programmes
on eliminating NTBs for endorsement by the ASEAN
Economic Ministers Meeting scheduled in September 1995.
Currently, the Preparatory work for NTB elimination is being
undertaken by the Interim Technical Working Group (ITWG)
on CEPT for AFTA, which reports directly to the ASEAN
Senior Economic Officials.
Significant progress has already been made in identifying those
NTBs that affect intra-regional trade the most. The identifica-
tion process involved a number of important steps. First, a
working definition of NTBs had to be agreed upon. This
working definition (see Table 3) adopted by the ITWG was
based on a classification developed by the United Nations
Conference on Trade and Development (UNCTAD). Second, it
was decided to focus on those NTBs that affect the most
widely-traded Products in the region. These products are those
in chapters 27 (minerals), 84 (electrical appliances) and 85
(machinery) of the Harmonised System classification. In 1994,
these products made up nearly 55% of Indonesia’s imports;
over 64% of Malaysia’s imports; over 50% of the Philippines’
imports; and nearly 70% of Thailand’s imports. Then the
ASEAN Secretariat began compiling information on NTBs
from a number of different sources, including submissions
made by Member Countries, the GATT Trade Policy Review,
submissions by the ASEAN Chambers of Commerce &
Industry (ASEAN-CCI) and the UNCTAD’s Trade Analysis
and Information System (TRAINS) database.
Major NTB’s Identified
Based on these various information sources, the following
measures have been identified as major NTBs affecting intra-
regional trade: customs surcharges, technical measures and
product characteristic requirements, and monopolistic measures.
Table 4 gives us an indication of the most widespread NTBs in
ASEAN. Customs surcharges are applied to about 2.683 tariff
lines. Technical measures and product characteristic requirements
come in second involving more than 975 tariff lines. Finally we
have monopolistic measures involving state-trading or the use
of a selected or limited group of importers.
Table 3
Working Definition of Non-tariff Measures for
Purposes of Implementing the Cept Agreement
This section presents working definitions for the trade control
measures adopted by the Interim Technical Working Group on
CEPT for AFTA. These measures are classified under broad
11.675.1
categories according to their nature. Within the broad categories,
the measures are further subdivided according to their character-
istics. Special mention should be made of the measures for
sensitive product categories and technical regulations, which are
subdivided according to their corresponding objectives, i.e. for
the protection of human health, animal health and life, plan
health, the environment and wildlife, to control drug abuse, to
ensure human safety and to ensure national security.
Para-tariff Measures
Other measures that increase the cost of imports in a manner
similar to tariff measures, i.e. by a fixed percentage or by a fixed
amount, calculated respectively on the basis of the value and the
quantity, are known as para-tariff measures. Four groups are
distinguished: customs surcharges; additional charges; internal
taxes and charges levied on imports; and decreed customs
valuation.
Customs surcharges/import surcharges
The customs surcharge, also called surtax or additional duty, is
an ad hoc trade policy instrument to raise fiscal revenue or to
protect domestic industry.
Additional charges
Additional charges, which are levied on imported goods in
addition to customs duties and surcharges and which have no
internal equivalent, comprise various taxes and fees. The
category of additional charges includes the tax on foreign
exchange transactions, stamp tax, airport license fee, consular
invoice fee, statistical tax, tax on transport facilities and charges
for sensitive product categories. Various other taxes. such as the
export promotion fund tax, taxes for the special funds, the
municipal tax, registration fee on imported motor vehicles,
customs formality tax, etc., are classified as additional charges,
n.e.s. It should be noted that Article VIII of GATT states that
fees and charges other than customs duties and internal taxes
shall be limited in amount to the approximate cost of services
rendered and shall not represent an indirect protection to
domestic products or a taxation of imports or exports for fiscal
purposes.
Decreed customs valuation
Customs duties and other charges on selected airports can be
levied on the basis of a decreed value of goods (the so called
“valeur mercuriale” in French). This practice is presented as a
means to avoid fraud or to protect domestic industry. The
decreed value de facto transforms an ad valorem duty into a
specific duty.
Price Control Measures
Measures intended to control the prices of imported articles for
the following reasons : (i) to sustain domestic prices of certain
products when the import price is inferior to the sustained
price; (ii) to establish the domestic price of certain products
because of price fluctuation in the domestic market or price
instability in the foreign market; and (iii) to counteract the
damage caused by the application of unfair practices of foreign
trade.
Most of these measures affect the cost of airports in a variable
amount calculated on the basis of the existing difference
11.675.1
between two prices of the same product. compared for control
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
purposes. The measures initially adopted can be administrative
fixing of prices and voluntary restriction of the minimum price
level of exports or investigation of prices, to subsequently
arrive at one of the following adjustment mechanisms;
suspension of airport licenses; application of variable charges,
anti-dumping measures or countervailing duties.
Administrative price fixing of import prices
By administrative price fixing, the authorities of the importing
country take into account the domestic prices of the producer or
consumer establish floor and ceiling price limits; or revert to
determined international market values. Various terms are used,
depending on the country or sector, to denominate the different
administrative price fixing methods, such as official prices,
minimum import prices or basic import prices.
Voluntary export price restraint
A restraint arrangement in which the exporter agrees to keep the
price of his goods above a certain level.
Variable charges
Variable charges bring the market prices of imported agricultural
and food products close to those of corresponding domestic
products, in advance, for a given period of time, and for a pre-
established price. These prices, are known as reference prices,
threshold prices or trigger prices. Primary commodities may be
charged per total weight, while charges on processed foodstuffs
can be levied in proportion to the primary product contents in
the final product. In the case of the EU, the charges applied to
primary products as such are called variable levies and those as
part of a processed product, variable components.
Finance Measures
Measures that regulate the access to and cost of foreign
exchange for imports and define the terms of payment. They
may increase the airport cost in a fashion similar to tariff
measures.
Advance payment requirements
Advance payment of the value of the import transaction an /or
related imported taxes, whichis required at the moment of the
application for, or the issuance of, the import license.
Advance import deposits
Obligation to deposit a percentage of the value of the import
transaction for a given time period in advance of the imports,
with no allowance for interest to be accrued on the deposit.
Cash margin requirement
Obligation to deposit the total amount corresponding to the
transaction value, or a specified part of it, in a commercial bank,
before the opening of a letter of credit; payment be required in
foreign currency.
Advance payment of customs duties
Advance payment of the totally or a part of customs duties,
with no allowance for interest to be accrued.
Refundable deposits for sensitive product categories
29
 The deposit refunds are charges which are refunded when the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
used products or its containers are returned to a collection
system.
Regulations Concerning Terms of Payment for Imports
Special regulations regarding the terms of payment of imports
and the obtaining and use of credit (foreign or domestic) to
finance imports.
Transfer Ddelays, Queuing
Minimum permitted delays between the date of delivery of
goods and that of final settlement of the import transaction
(usually 90, 180 or 360 days for consumer goods and industrial
inputs and two to five years for capital goods). Queuing takes
place when the prescribed delays cannot be observed because of
foreign exchange shortage, and transactions are settled succes-
sively after a longer waiting period.
Monopolistic Measures
Measures which create a monopolistic situation., by giving
exclusive rights to one or a limited group of economic opera-
tors. for earlier social, fiscal or economic reasons.
Single Channel for Imports
All imports or imports of selected commodities have to be
channelled through state-owned agencies or state-controlled
enterprises. Sometimes the private sector may also be granted
exclusive import rights.
Compulsory National Services
Government-sanctioned exclusive rights of national insurance
and shipping companies on all or a specified share of imports.
Technical Measures
Measures referring to product characteristics such as quality,
safety or dimensions, including the applicable administrative
provisions, terminology symbols, testing and test methods,
packaging, marking and labelling requirements as they apply to a
product. The implementation of these measures by sensitive
product categories can result in the application of one of the
measures listed under codes ending in 71 to 79.
Technical Regulations
Regulations that provide technical requirements, either directly
or by referring to or incorporating the content of a standard,
technical specification or code of practice, in order to protect
human life or health or to protect animal life or health (sanitary
regulation); to protect plant health (phytosanitary regulation); to
protect the environment and to protect wildlife; to ensure
human safety; to ensure national security; to prevent deceptive
practices.
The regulation may be supplemented by technical guidance that
outlines some means of compliance with the requirements of
the regulation, including administrative provisions for customs
clearance, such as prior registration of the importer or obliga-
tion to present a certificate issued by relevant governmental
services in the country of origin of the goods. In certain cases, a
prior recognition of the exporter or certificate issuing service by
the importing country is also required.
Product characteristics requirements
Technical specifications prescribing technical requirements to be
fulfilled by a product.
30
Marking Requirements
Measures defining the information for transport and customs,
that the packaging of goods should carry (country of origin,
weight, special symbols for dangerous substances, etc.)
Labelling Requirements
Measures regulating the kind and size of printing on packages
and labels and defining the information that may or should be
provided to the consumer.
Packaging Requirements
Measures regulating the mode in which goods must be or
cannot be packed, in conformity with the importing country
handling equipment or for other reasons, and defining the
packaging materpackaging materials to be used.
Testing, Inspection and Quarantine Requirements
Compulsory testing of product samples by a designated
laboratory in the importing country, inspection of goods by
health authorities prior to release from customs or a quarantine
requirement in respect of live animals and plants.
Pre-shipment Inspection
Compulsory quality, quantity and price control of goods prior
to shipment from the exporting country, effected by an
inspecting agency mandated by the authorities of the importing
country. Price control is intended to avoid under invoicing and
over invoicing, so that customs duties are not evaded or foreign
exchange is not being drained.
Special Customs Formalities
Formalities which are not clearly related to the administration of
any measure applied by the given importing country such as the
obligation to submit more detailed product information than
normally required on the basis of a customs declaration, the
requirement to use specific points of entry, etc.
Table 4
Most Prevalent NTBS, by number of Tariff Lines
(Preliminary)
Non-tariff Barrier Number of Tariff Line Affected
Customs surcharges 2,683
Additional Charges 126
Single Channel for Imports 65
State-trading Administration 10
Technical Measures 568
Product Characteristic Requirement 407
Marketing Requirements 3
Technical Regulations 3
Source: The ASEAN Secretariat
Modality for Eliminating NTBs
Since the measures that act as NTBs tend to vary greatly in their
nature, NTB-elimination will mean a different thing depending
on the measure concerned. In the case of surcharges this might
mean something as simple as doing away with these surcharges.
On the other hand, technical regulations cannot be done away
with because there are valid reasons for maintaining them, such
11.675.1
as public safety, environmental concern, or health reasons. In
which case, the elimination of these measures as NTBs might
mean harmonizing product standards or developing mutual
recognition of standards across Member Countries. The idea is
to limit the trade-hampering effects of technical regulations or
measures. In the case of monopolistic measures or state
monopoly, the process of NTB elimination might mean
creating a window for competition and market access by other
ASEAN Member Countries successively after a longer waiting
period.
Measures which create a monopolistic situation., by giving
exclusive rights to one or a limited group of economic opera-
tors. for earlier social, fiscal or economic reasons.
Single Channel for Imports
All imports or imports of selected commodities have to be
channelled through state-owned agencies or state-controlled
enterprises. Sometimes the private sector may also be granted
exclusive import rights.
Compulsory National Services
Government-sanctioned exclusive rights of national insurance
and shipping companies on all or a specified share of imports.
General Features of the Process for Eliminating NTBs
There has already been an agreement on the general features of
the process for eliminating NTBs in ASEAN. The process
Involves (a) verification of information on NTBs, (b)
prioritisation of products/NTBs, (c) developing specific work
programmes, and (d) obtaining a mandate from the ASEAN
Economic Ministers to implement the work programme.
Member Countries are now in the process of verifying the list
of NTBs and products covered by these measures compiled by
the ASEAN Secretariat. Several criteria have already been
considered by the Interim Technical Working Group on CEPT
for AFTA (ITWG) to identify which products/measures have
to be dealt with first. These criteria can be used singly or in
combination with each other to set priorities. These criteria are
in order of importance: (a) number of private sector com-
plaints, (b) difference between domestic and world prices, and
(c) trade value. The first criterion would rely on the private
sector’s or exporters’ complaints. Presumably, they are in a better
position to tell how different measures existing in the country
of destination acts as a trade barrier. The second criterion is the
price divergence between domestic and world prices. The price
wedge gives an indication of how much trade is hindered since
if there are no trade barriers presumably importation would
tend to wipe out this price difference. The difficulty with this
criterion is that it is difficult to find the price data to make this
sort of comparison. Finally, the trade value criterion would
prioritise those NTBs/products which is traded most widely
(both within and outside the region). The advantage of this
criterion is that the ASEAN Secretariat already has this informa-
tion. The disadvantage of this criterion is that it does not tell us
whether the NTB present in the sector hampers trade or not.
The fact that there is extensive trade in this product may indicate
that the NTB is not an important hindrance to trade. As
pointed out above, these criteria are not mutually exclusive.
They can be used jointly, and in fact, where all three criteria
11.675.1
converge, they should give a robust indicator of the degree to
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
which NTBs exist in that product or sector.
Other ASEAN-wide Activities Bearing on NTBs
Although, the work on NTB elimination is now currently
centered in the Interim Technical Working Group on CEPT for
AFTA (ITWG), it is recognized that expertise from different
ASEAN bodies will have to be tapped for carrying out this
work eventually. One of these bodies is the ASEAN Consulta-
tive Committee for Standards and Quality (ACCSQ) which has
already set up a Task Force to deal with NTB elimination. The
NTB elimination process, specially that bearing on technical
standards, will require the assistance of ACCSQ. It can convene
the expert panels or expert groups that will be involved in
assessing how far ASEAN can go in harmonising technical
standards or developing mutual recognition agreements. There
is also some work along these lines currently being done on
Sanitary and Phytosanitary (SPS) measures for agricultural
products. Under the Senior Officials of the ASEAN Ministers
of Agriculture and Forestry (SOM AMAF) is a Working Group
on SPS measures which have come up with action plans on
NTB elimination in the areas of crops, livestock and fisheries.
The action plans involve compiling information on technical
measures in ASEAN countries covering agricultural products,
and looking into how greater transparency, mutual recognition
and harmonisation of SPS standards can further liberalise intra-
ASEAN trade in agricultural products.
Decision of the Seventh AFTA Council
The Seventh AFTA Council has tasked these Working Groups
to finalise their Action Plans by November 1995 providing a
detailed timetable of all their activities.
Article-2
Trade Tariffs: The Next Generation
This week the authorities responsible for public safety in
Washington, D.C. have been on high alert. No one wants a
repeat performance of last year’s Seattle protests, looting, and
vandalism. At issue is a difficult-to-understand, but powerful,
fear of “globalization.”
The dominant thread in the protests against globalization is
America’s international trade relationships. Next month,
Congress is expected to vote on legislation to make our trade
relationship with China normal – to make it match our
relationship with other countries.
Normal trade status would have a direct and positive effect on
the high tech sector of our economy. Tariffs would be put on a
level playing field for telecommunications equipment. American
consumers who purchase telecommunications equipment
simply pay for the products. However, Chinese consumers who
buy American-made telecommunications equipment pay a tariff
– an unnecessary and unfair tax – on top of the price of the
product, which makes it difficult for American companies to sell
their products in China.
Critics maintain that China has a history of eliminating tariffs
only after they are no longer needed to keep American products
out, because either the product is obsolete or there is a superior
Chinese product available.
31
 However, every trade barrier and tariff removed on a type of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

product – like telecommunications equipment – is a trade

barrier and tariff that will no longer harm the next generation
of American-made products. Normal trade relations would
work to remove tariffs and trade barriers when they are a real
threat, not after the fact.
Continued growth demands new ideas and the innovation of
new products. American high-tech workers excel in this respect.
It is only sensible that a high rate of growth also demands a
larger marketplace for these new ideas and new products. There
is little doubt that China is the largest marketplace on Earth.
Let’s hope that Members of Congress understand that it is time
to eliminate barriers to trade and tariffs on American-made
high-tech products.

32 11.675.1

LESSON 6:
WTO,GATT AND TRADING BLOCS
World Trade Organisation (WTO)
• GATT - Background.
• Objectives.
• Functions.
• GATT Negotiation Rounds.
• Uruguay Round.
• Most Favoured Nations (MFN) Clause.
United Nations Conference on Trade and
Development (UNCTAD)
• Background.
• Functions.
• Generalised -System of Preference (GSP).
Trading Blocs
• Meaning.
• Types.
Opportunities and Threats.
World Trade Organisation (WTO) -
Objectives
The Uruguay Round negotiations concluded on 15th April
1994 at Marrakech, Morocco. According to the Marrakech
declaration - the results of the Uruguay Round would
strengthen the world economy and would lead to more trade,
investment, employment and income growth throughout the
world. In order to implement the final act of Uruguay Round
agreement of GAIT, the World Trade Organisation (WTO) was
established on 1st January 1995 with the following objectives :-
a. To raise the standards of living.
b. To ensure ,full employment and a large and steadily
growing volume of real income and effective demand.
c. To expand production of goods and services and
international trade.
d. To allow for the optimal use of the world’s resources in
accordance with the objective of sustainable development.
e. To protect and preserve the environment.
f. To ensure that developing countries secure a share in the
growth in international trade commensurate with the needs
of their economic development.
g. To effect substantial reduction in tariffs and other barriers to
trade and to eliminate the discriminatory treatment in
international trade relations and;
h. To develop an integrated, more viable and durable
multilateral trading system.
WTO – Functions
The WTO is the umbrella organisation responsible for
overseeing implementation of all agreement-multilateral
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
(signed by all WTO members) and plurilateral (signed by a
group of members for specific issue) that have been negotiated
under Uruguay Round or will be negotiated in future. It is to
provide a forum for further negotiations on matters covered by
the agreements as well as on new issue and responsible for
settlement of disputes among member nations.
The main functions of the WTO as set out in Article III are :
a. To facilitate the implementation, administration and
operation of the Multilateral Trade Agreement and the
Plurilateral Trade Agreements.
b. To secure implementation of the significant tariff cuts and
also reduction of non-tariff measures agreed in the trade
negotiations.
c. To provide for Dispute Settlement Mechanism in order to
adjudicate the trade’ disputes which could not be solved
through bilateral talks between the member countries.
d. To co-operate with other international institutions like the
International Monetary Fund (IMF) and the International
Bank for Reconstruction and Development (IBRD)and its
affiliated agencies to achieve greater coherence in global
economic policy making.,
e. To act as a watchdog of international trade:
f. To act as a management consultant for the promotion of
international trade.
g. Fourthly, it is responsible for periodic reviews of Trade
Policies of the member nations.
WTO- Principles
The Guiding principles of WTO (many inherited from GATT)
are
• Non-discrimination, which in practice means two things.
First: Most Favoured Nation (MFN) Treatment. Any Trade
concession offered by one member of WTO to another
member must be offered to all members. Second: National
Treatment. Imported goods should not be discriminated
against the domestic goods – same treatment to be accorded
to both.
• Freer trading system – with barriers coming down through
negotiations
• Predictable trading system-foreign companies, investors and
governments should be confident that trade barriers
(including tariffs, non-tariff barriers and other measures)
would not be raised arbitrarily; more and more tariff rates
are to be ‘bound’ against subsequent increases.
• More competitive trading system – by discouraging ‘unfair’
practices in the guise of export subsidies and dumping
products at below cost
• More beneficial to less developed countries – by giving
more time to adjust, greater flexibility and special privileges.
33
 WTO -The Uruguay Round U.S. and European Community (EC) on this issue left, the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

The VIIIth and the latest round of Multilateral Trade Negotia-
tions is known as Uruguay Round because it was held in
Pantadel Este in Uruguay in September 1986. Because of the
complexities of the issues involved and conf1ict of interests
.among the participating countries, ‘the Uruguay Round could
not be concluded in December 1990 as’ it was originally
scheduled: This round concluded in 1993.
The major highlights of the Uruguay Round are:-
a. Expansion in the Sphere of Activities :- The traditional
concerns of the GAIT were limited to international trade in
goods. The Uruguay Round, however, went much beyond
goods to services, ‘technology, investment and information.
b. Liberalisation of Trade in Agriculture and Textile
Goods :- These were the highly protected sectors in
developed as well as developing countries. Farmers were
patronised in various ways such as import of subsidised
inputs and export subsidies. Similarly, trade in textiles was
restricted by the Multi-fiber Agreement (MFA). The
Uruguay Round successfully brought about liberalisation of
both these sectors by dismantling the MFA and reducing
import barriers on agricultural goods.
c. Patents:- One of major areas of objection in India is about
TRIPs agreement. The TRIPs agreement includes seven
areas of intellectual property rights namely copyright,
trademark, trade secrets, industrial designs, geographical
appellations, integrated circuits and patents. It is important
to note that of these seven areas, it is only in the area of
patents that India’s present policy laws and regulations are
not in conformity with TRIPs agreement.
d. Farmers’ Interest :- Contrary to the wrong propaganda in
India, leading to farmers’ agitation, the Uruguay Round
agreement regarding patenting of seeds does not prevent
farmers from retaining seeds for their own use or exchange
of seeds. However, if should be noted that liberalisation of
agriculture by developed nations would benefit developing
countries more as there is no reciprocity on the part of
developing countries to liberalise agricultural sector in their
countries.
e. Subsidies:- Export subsidies to farmers to be cut by 13.3%
in developing countries and by 20% in developed countries
over a period of 6 years. Again direct subsidies to be cut by
:36% over the same period. All these are applicable provided
service sector largely unaffected.
h. Establishment of the WTO :- One of the major
achievements of the Uruguay round is the making of rules
and regulations more transparent which has made unilateral
actions more difficult. The results of Uruguay round are to
be implemented by the newly set up WTO, which has
replaced the GATT.
WTO-Most, Favoured Nations (MFN) Clause
Non-discrimination is one of the most important principles of
the WTO. The principle of non-discrimination requires that no
member country shall discriminate between the members’ of
WTO in the conduct of international trade. This principle is
known as the Most Favoured Nations (MFN) Clause.
According to this Clause, a member nation of the WTO must
give the same most favourable treatment with, respect to tariffs
and related matters to other members, which it gives to any
other member country. This non-discriminatory treatment
ensures that any tariff reduction or other trade concession is
automatically extended to all contracting parties of the WTO.
For example, if the USA gives ‘ a preferential treatment to
Pakistan in respect of tariff reduction then the USA must give
the same preferential treatment of tariff reduction to all the
members of WTO.
However, there are some exceptions ,to the MFN principle :-
a. Grandfather Clause :- Article 1 (2) permits contracting
parties to continue with the preferences received or granted
under different arrangements, which were in existence prior
to the formation of the GATT. But it prohibits any change
in the margin of preferences granted’ or received. For example
the United States preferences to Philippines fall under this
category, as also Common Wealth Preferences (CWP).
b. Customs Union and Free Trade Areas :- Article XXIV
provides for the formation of Customs Union and Free
Trade Areas. As per this clause, nations of the world are
allowed to form Customs Union and Free Trade Zones. For
example, member countries of the European Union are
allowed to freely import and export not only goods and
services but also factors of production such as capital and
labour between them.
Ministerial
Conference
General Secretariat
Council (Director General)

the value of subsidies is more than 10% of the value of Dispute

Settlement
Trade Policy
Review
Body Body
output. Agriculture subsidies in India are much below 10%
of the total value of output and therefore, India remains
unaffected by these provisions.
Council for
f. Tariff Cut:- While developing countries have to cut tariffs Council for
Trade in
Council for
Trade in
Tra de-Related
Aspects of
Intellectual Property
by 24% over the period of next 10 years, the developed Goods Services
Right (TRIPs)

countries are committed to effect tariff cut by 36% over a

period of 6 years. In industrial countries, tariffs would be
totally eliminated in several sectors like steel, pharmaceutical, Committee on
Trade and
Committee on
Balance- of-
Committee on
Budget,
Committee on
Trade and
Development Payments Finance, and Environment
wood and wood products, etc. Restrictions Administration

g. Trade in Services :- Developing countries were very

apprehensive about the proposal to liberalise trade in Committee on Committee on Committee on Committee on
services. However, the difference of opinion between the the Agreement
on Trade in Civil
the Agreement
on Government
the International
Dairy
the Arrangement
Regarding
Aircraft Procurement Arrangement Bovine Meat

34 11.675.1
WTO Organization Chart
General Agreement on Tariff and Trade (GATT) -
Background
Virtually all nations seek to pursue their own best interests in
international trade. The result is that sooner or later interna-
tional trade and marketing can be disrupted. To prevent or at
least alleviate any problems, there is a world organization in
Geneva known as the General Agreement on Tariffs and Trade
GATT). GATT is a mul-tilateral trade agreement with oversea,
and it has been labeled the locomotive that powers international
commerce.
Created in January 1948, GATT is intended to achieve a broad,
multilateral, and free worldwide system of trading. For
example, its code requires international bid-ding on major
projects. GATT provides the forum for tariff negotiations and
the elim-ination of trade discrimination. Its members account
for some 90 percent of world trade. Those who are not
GATT’s members include some Latin American and African
countries as well as many others in southern Asia and the
Middle East.
The four basic principles of. GATT are:
1. Member countries will consult each other concerning trade
problems.
2. The agreement provides a framework for negotiation and
embodies results of negotiations in a legal instrument.
3. Countries should protect domestic industries only through
tariffs, when needed and if permitted. There should be no
other restrictive devices such as quotas prohibiting imports.
4. Trade should be conducted on a nondiscriminatory basis.
Reductions of barriers should be mutual and reciprocal because
any country’s import increases caused by such reductions will be
offset by export increases caused by other countries’ reduction
of restrictions. This concept is the basis of the principle of the
most favored nation (MFN), which is the cornerstone of
GAIT. According to this principle, countries should grant one
another treatment as favorable as treatment given to their best
trading partners or any other country. For example, reductions
accorded France by the United States should be extended to
other countries with which the United States exchanges the
MFN agreement (e.g., to Brazil). Likewise, if a country decides
to ‘temporarily protect its local industry because that industry is
seriously threatened, then the newly erected barriers must apply
to all countries even though the threat to its industry might
only come from a single nation. The MFN principle thus moves
countries away from bilateral bargaining to multilateral (or
simultaneous bilateral) bargaining. Each country must be
concerned with the implications that its concessions for one
country would mean for other countries. The only exception is
that an advanced country should not expect reciprocity from
less-developed coun-tries.
The United States does not accord MFN status to communist
countries that re-strict emigration, but this requirement can be
waived by the President. After China first received MFN status
from the United States in 1980, mushroom imports from
China jumped from nothing to nearly 50 percent of all U.S.
mushroom imports. This increase owed much to the decline of
11.675.1
canned mushroom duties, from 45 percent to 10 percent. The
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
granting of MFN status to China was done largely for political
rea-sons. The Soviet Union, despite having traded with tl.1e
United States longer than China, remained unable to gain MFN
status and denounced the U.S. action. Russia, however, did
finally receive MFN status later on. On the other hand, the
continuing trade and political conflicts have led many politicians
and groups to demand that the United States stop renewing
MFN status for China. The Chinese, of course, have been quite
vocal with their unhappiness with this threat.
According to GATT, the only valid reason for tariffs in world
business is for the protection of an infant industry. Other
understandable reasons include defense or noneconomic
concerns, such as some revenue raising. The other noneconomic
rea-sons-improvements in terms of trade, income, and balance
of payments-are “beggar-thy-neighbor” policies which create
gains at the expense of others, and they are not considered by
GATT to be valid reasons for refusing to reduce tariffs.
Seven successive rounds of multilateral trade negotiations
under GAIT auspices produced a decline in average tariff on
industrial products in industrial countries from more than 40
percent in 1947 to about 5 percent in 198.8. In the meantime,
global trade greatly expanded as the volume of trade in
manufactured goods increased twenty--fold.
The preamble of the GATT mentions the following as its
important objectives :-
a. Raising the standard of living.
b. Ensuring full employment and a large and steadily growing
volume of real income and effective demand.
c. Better utilisation of the resources of the world.
d. Expansion of production of goods and services and
international trade.
The GAT T- Negotiation Rounds
So far, eight rounds of negotiations are over. Each round took
several years. .
a. The Geneva Round, 1947.
b. The Annecy Round, 1949.
c. The Torquay Round, 1950-51.
d. The Geneva Round 1956.
e. The Dillon Round 1960-61.
f. The Kennedy Round, 1964-67.
g. The Tokyo Round, 1973-79.
h. The Uruguay Round, 1986-1993.
The first six rounds of Multilateral Trade Negotiations were
concentrated almost exclusively on reducing tariffs.
The VIIth Round, the Tokyo Round, tackled non-tariff
barriers also.
The VIIIth Round, the Uruguay Round, tackled trade in
services, Trade Related Aspects of Intellectual Property Rights
(TRIPs) and Trade Related Investment Measures (TRIMs).
The Uruguay Round
The Uruguay Round of multilateral trade negotiations,
launched in Punta del Este, Uruguay, in September 1986, aimed
35
 to liberalize trade further, to strengthen GAIT’s role, to foster
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
cooperation, and to enhance the interrelationships between
trade and other economic policies that affect growth and
development. The Uruguay Round attempted to deal with new
areas such as services, intellectual property rights, and trade-
related investment. Developed nations offered to reduce trade
protection to their agriculture and textile industries in exchange
for less-developed countries’ greater imports of services and
greater respect for intellectual property. However; the vari-ous
countries’ varying interests repeatedly stalled the talk. France
wanted to veto the accord between the United States and the
EU which cut production supports, export subsidy payments,
and import tariffs. Japan and South Korea, on the other hand,
did not want to give up their ban on rice imports. The United
States, in contrast, wanted to keep import quotas for Third
World textile imports for 15 more years while de-manding the
EU to drop quotas on imported films and TV programs.
Agricultural disputes even led to violent protests by farmers in
France, Japan, South Korea, and others.
Inability to reach an agreement led to consecutive continuations
o f the Uruguay Round in 1990 and 1991. Not surprisingly, Lee
Kuan Yew o f Singapore once called GATT the General
Agreement to Talk and Talk. Fortunately, delegations from
more than 100 countries were finally able to conclude negotia-
tion at the end of 1993 after seven years of talks. The 109
nations signed the 22,000-page agreement in 1994. This most
ambitious and comprehensive global commercial agreement in
history provides for a phase-out of the Multifiber Arrangement
(MFA) over a 10-year period while re-forming trade in agricul-
tural goods. The agreement also lowers tariffs by greater than
one-third ($700 billion), writes new rules of trade for intellectual
property and ser-vices, and strengthens the dispute-settlement
process.
United Nations Conference on Trade and Development -
Background
It is true that the functioning of the WTO has mainly benefited
developed countries. That does not mean that the developing
countries like India are losing. The gains of these countries are
limited as compared to those of the developed countries. This
led to intense dissatisfaction among the developing countries
and a need was felt for the formation of an international
organization for the development of underdeveloped and
developing countries of the world.
Hence, the widening gap between the industrial and developing
countries, the general dissatisfaction of developing countries
with the GATT and the need for a new international economic
co-operation in the field of trade and aid encouraged the
establishment of the UNCTAD.
The Cairo Conference of developing nations, held in July 1962,
passed the “Cairo Declaration of Developing countries”
convening the United Nations Conference on Trade and
Development (UNCTAD). The UNCTAD was established by
the UN General Assembly in 1964. The main function of the
UNCTAD is to promote international trade with a view to
accelerate economic development.
UNCTAD:- Functions
The main functions of UNCTAD are :-
36
a. To promote international trade and economic development
of less developed and developing countries;
b. To promote trade ‘and economic co-operation particularly
between countries, at different stages of economic
development and having different economic and social
systems
c. To formulate the principles and policies for international
trade and problems related to. economic development;
d. To secure execution of the principles and policies framed for
international trade and solving problems related to
economic development.
e. To promote a more equitable international economic order;
f. To secure a larger voice for developing countries .in decision-
making.
Since 1964, the UNCTAD has conducted so far ten’ conference
at different, places, with an internal of four years.
UNCTAD - Generalised System of Preferences (GSP)
At the Second UNCTAD Conference, which was held at New
Delhi in 1968, it was strongly advocated that meager exports
from developing countries would reduce their importing
capacity and thereby would hamper the development of the
world trade as a whole. Thus; an immediate need for boosting
exports from developing countries was felt. As a result,
Generalised System of Preferences (GSP) was introduced.
The Generalised System of Preferences (GSP) is a. scheme
launched by the UNCTAD to encourage exports from develop-
ing countries to developed countries. Under this scheme, the
developed countries are expected to grant a special duty
concession on imports of specified manufacturers and semi
manufacturers from the developing countries.
Although the benefits derived from the creation of GAIT are
rarely disputed, LDCs do not necessarily embrace GAIT because
those countries believe the benefits are not evenly distributed.
Tariff reduction generally favors manufactured goods rather
than primary goods. LDCs rely mainly on exports of primary
products, which are then converted by advanced nations imo
manufactured products for export back to LDCs. As a result, an
LDC’s exports will usually be lower in value than its imports,
thus exacerbating the country’s poverty status.
In response to LDCs’ needs, the United Nations Conference on
Trade and De-velopment (UNCTAD) was created as a perma-
nent organ of the UN General As-sembly. Efforts by UNCT
AD led to the establishment of the New International Eco-
nomic Order (NIEO) program. The program seeks to assist
LDCs through the stabi-lization of prices of primary products,
the expansion of LDCs’ manufacturing capa-bilities, and the
acquisition by LDCs of advanced technology.
The goal of UNCTAD is to encourage development in Third
World countries and enhance their export positions. This goal
led to the establishment of a tariff pref-erence system for
LDCs’ manufactured products. In spite of GATT’s
nondiscrimina-tion principle, advanced nations agreed to grant
such preferences to LDCs’ goods. UNCT AD also played a key
role in the emergence of a maritime shipping code, spe-cial
international programs to help the least developed countries,
and international aid targets.
11.675.1
The European Economic Community (EEC) countries and a
number of other countries, such as the USA, the USSR, Japan,
Norway, New Zealand, Finland, Sweden, Czechoslovakia,
Hungary, Switzerland, Austria, Canada, Australia, Bulgaria and
Poland have introduced the GSP.
The GSP facility is subject to the following conditions:
a. The GSP facility is available only to the developing
countries.
b. It is available only on the products included in the GSP list.
c. The value added requirements and process criteria must be
complied with.
d. It is subject to certain stringent quantitative limitations.
e. It is applicable for a period of 10 years from its institution
by the preference granting countries.’
h. The preferential rates of duty under the scheme differ from
country to country.
Objectives of GSP
a. To promote exports from developing countries of the
world and thereby to promote their economic
development.
b. To improve competitiveness .of exporters from the
developing countries by giving them an exemption or
concession in duties.
c. To promote market accessibility of products from LDCs
and thereby help. Such countries in the process of
industrialisation.
Meaning of Trading Blocs
Trading Blocs are the associations of countries situated in a
particular region whereby they come on to a common under-
standing regarding rules and regulations to be followed while
exporting and importing goods among them. Such blocs have
liberal rules for member countries while a separate set of rules is
laid for non-members. For example, European Union (EU),
Association of South East Asian Nations (ASEAN).
Definition –Trading Blocs
The definition of a trading bloc varies widely. However, one
definition that encompasses the main attributes of trading
blocs and touches on the reasons that countries may have for
forming such an organization is that given by the United States
National Policy association. According to this definition, a
trading bloc is defined by four characteristics, it:
1. participates in a special trade relationship established by a
formal agreement that promotes and facilitates trade within
that group of countries in preference to trade with outside
nations by discriminating against nonmembers;
2. has attained or has as a stated goal the deepening of trade
liberalization or integration with the objective of
establishing a free trade area, customs union, or common
market;
3. strives to reach common positions in negotiations with
third countries, with other trade blocs, or in multilateral
forums; and
4. attempts to coordinate national economic policies to
minimize disruption to intrabloc economic transactions.
11.675.1
Trading blocs are created because according to the theory of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
comparative advantage, countries should specialize in producing
those goods in which they have a comparative advantage; that
is, those goods that they have a lower opportunity cost of
production than other nations. By specializing in the produc-
tion of these goods, a group of nations as a whole can
produce, and therefore consume, a greater quantity of each
product. However, as countries become more specialized in the
production of goods, it becomes necessary to trade with
countries that need these goods or that have resources that are
not available in that nation. Due to this factor, as nations
become more specialized, they also become increasingly
dependent on their trading partners. Furthermore, since smaller
countries with fewer resources and land are generally less
powerful than larger nations, the need arises to develop
economic alliances to gain buying and selling power. Hence,
trading blocs arise.
Trading blocs provide many economic benefits to their mem-
bers. These can be grouped in two categories: competition and
scale effects, and trade and location effects. Competition and
scale effects refer to the benefits that arise from the possible
increase in foreign direct investment, from the formation of
economies of scale, and from increased competition as separate
national markets become more integrated into a single market.
By creating larger markets, trading blocs may assist in attracting
foreign direct investment. When foreign firms want to supply a
product to a country, they have two options: to import it or to
build a local plant. Importing has the disadvantages created by
tariffs and by other trade barriers that may be used. However,
domestic production is riskier in that a certain amount of sales
have to be made for the initial investment to be profitable.
Therefore, a company may still choose to import the product
even with the disadvantages that this entails. However, by
increasing market size and making markets more competitive,
trading blocs favor the lower marginal costs of locally producing
products rather than importing them, and therefore often lead
to an increase in foreign direct investment. In fact, this was
observed to be the case in Mexico where foreign direct invest-
ment more than doubled the year after it joined NAFTA.
Similarly, following the formation of the European Union, the
EU’s share of worldwide inward foreign direct investment
flows increased from 28% to 33% during the period from 1982
to 1993.
Creating large markets not only serves an important function by
increasing the amount of foreign direct investment, it also
allows for economies of scale. Many nations are not large
enough to support the production of goods with large
economies of scale because they lack large enough markets in
which to sell their products or from which to obtain inputs.
Trading blocs can provide these and consequently allow for
economies of scale to be achieved. By allowing for bulk
production, economies of scale decrease the average cost of
production by making it more efficient. However, the develop-
ment of economies of scale may mean that there are only a few
producers of each product, which could lead to the establish-
ment of high monopoly prices. On the other hand, trading
blocs bring producers in member countries into closer contact,
thereby increasing competition among them. This leads to the
37
 erosion of monopoly positions and consequently promotes
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
efficiency gains within firms. This effect is not only felt by
producers in the member states; producers in nonmember
nations will also experience these changes and have to adapt
their pricing and the quality of their products to be able to
compete in a more efficient market. Therefore trading blocs
result in a more efficient market.1[4]
Trading blocs also result in trade and location effects. By
eliminating tariffs, imports from other member countries will
become cheaper, so demand patterns will change. Consumers
and firms will buy products from the cheapest source without
price distortions, thereby ensuring that production is allocated
to those firms with a comparative advantage in production.
This will increase the market’s efficiency by allowing a greater
quantity of products to be manufactured with the same
amount of resources and consequently result in higher levels of
consumption.
Types of Trading Blocs
Trading Blocs can be classified on the basis of the degree of
integration among different economies :-
• Free Trade Areas
• Customs Unions
• Common Market
• Political Unions
• Economic Union
a. Free Trade Area :- This is the simplest form of economic
integration whichprovides for internal free trade between
member countries. Each member is allowed to determine
its own commercial policy with respect to non-members. For
example, Latin American Free Trade Association (LAFTA),
North American Free Trade Area (NAFTA) between the
USA, Canada and Mexico; Asia Pacific Economic
Cooperation (APEC) and COMESA.
b. Customs Union :- A customs union is a more advanced
form of economic integration which not only provides for
internal free trade between the member countries but also
adopts a uniform commercial policy against the non-
members. The countries will be represented at trade
negotiations with organisations such as the World Trade
Organisation by supra-national organisations e.g. the
European Union. For example, European Economic
Community (EEC).
c. Common Market :- A common market allows free
movement of labour and capital within the common
market in addition to having free movement of goods
between the member countries and having common
commercial policy is respect to non-members.
d. Economic’ Union :- This is a common market where the
level of integration is more developed. The member states
may adopt common economic policies e.g. the Common
Agricultural Policy (CAP) of the European Union. They
may have a fixed exchange rate regime such as the ERM of
the EMU. Indeed, they may have integrated further and
have a single common currency. This will involve common
monetary policy. The ultimate act of integration is likely to
38
be some form of political integration where the national
sovereignty is replaced by some form of over-arching
political authority. For example, the European Union (EU)
has introduced a common currency Euro 2000.
e. Political Union :- Political union is the ultimate type of
economic integration whereby member countries achieve
not only monetary and fiscal integration but also political
integration. For example, the Europe Union (EU) is moving
towards a political union similar to one created by 52 states
of America.
Static Effects of a Country Joining a Trading Bloc
• Trade patterns change
• Trade creation: Joining bloc allows access to cheaper goods
from other members. The country can export to other
members goods in which it has comparative advantage.
• Trade diversion: consumption shifts from low-cost
producers outside bloc to higher cost, tariff-free production
inside bloc
Dynamic Advantages of Joining a Trading Bloc
• Access to larger markets leads to internal economies of scale.
• External economies of scale due to improved infrastructure
(e.g. transport and telecoms links)
• Greater international bargaining power.
• Increased competition between members.
• More rapid spread of technology
Dynamic Disadvantages of Joining a Trading Bloc
• Country may lose resources to more efficient members, or
to geographical centre, and become depressed region.
• Firms may co-operate, collude and merge, leading to greater
monopoly power.
• Diseconomies of scale if firms become very large.
• High administrative costs of trading bloc.
Trading Blocs - Opportunities and Threat
The prime objective of the Trading Blocs is to promote trade
between different regions of the world. Some people view
world trade as consisting broadly. of intra-regional trade and
inter-regional trade. The regionalism offers certain advantages
and poses certain threats.
Opportunities
a. Elimination of trade barriers within the region would
encourage the efficient firms to expand their business
activities in all countries within the region.
b. Healthy competition within the region would help the less
efficient firms in
c. acquiring competencies in order to challenge the efficient
firms.
d. The overall business performance in ‘terms of productivity,
quality, price,
e. delivery and customer service will improve.
f. Consumers get better quality goods and services at
competitive price.
11.675.1
g. Employment opportunities in the region increase.
Threats
a. The removal of trade barriers provides opportunities to the
efficient firms to enter the different markets within the
region. This endangers the survival of the less efficient
firms.
b. The resources of the less efficient countries are exploited by
the firms from the advanced countries of the region.
c. The less developed countries of the region mostly become
consumption centres while the advanced countries of the
region become the production centres.
d. The less developed countries become still poorer whereas
the advanced countries of the region become still richer.
e. It discourages trade with non-members as trade with non-
members is subject to strict rules and trade barriers.
Difference Between GATT and WTO
• GATT signified two things – GATT the body and GATT
– the agreements.
GATT – the body no longer exists, it was merged in WTO
on 1st Jan’95.
GATT – the agreement rests in WTO alongside other
agreements.
• WTO includes now GATT, GATS, TRIPS and Dispute
Settlement body. GATT covered Trade in goods only; WTO
covers Trade in Goods, Services and Intellectual property as
well.
• Throughout its life, from 1948 to 1994, GATT was ad hoc
and provisional; WTO and its agreements are permanent.
• GATT had contracting parties, WTO has member nations.
• WTO has two significant functions, which GATT did not
have; one, Trade Policy Review Mechanism – a periodic
process to examine a country’s trade policies and to note
changes. Second, its in-built Dispute Settlement
mechanism. Its ruling cannot be blocked.
• WTO is more democratic in character that GATT. If
decisions cannot be reached by consensus, the matter is
decided by voting; each WTO member having one vote.
WTO is inherently superior system than GATT having a sound
legal basis; even its agreements are ratified in Member’s parlia-
ments
Article- I
India and WTO – A New Paradigm
As the D’day draws close, with the skeptics painting their
pictures of gloom, and the self-proclaimed augurers predicting
chaos and disaster, India is on the threshold of a complete
metamorphosis. Come April, and the economy will be opened
up to foreign goods by the lifting of quantitative restrictions.
There is fear that Indian industry will be thrashed to oblivion
by the influx of imports, and the economy will be at the mercy
of foreign companies, who will squeeze the country to fill up
their coffers, just like their colonial counterparts did in the past.
It is believed that the foreign goods will beat the Indian
products in all parameters – price, quality, and of course, snob-
11.675.1
value. The arguments, I must agree, are tempting enough to
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
lead the gullible to believe that the future indeed is headed
towards a sad end. I would like to say a few things which
intentionally, or not, have been conveniently overlooked by the
harbingers of Rubicon Day.
India is historically a very resilient nation. Its history provides
ample evidence to substantiate this fact. The Mongols, Greeks,
rulers of Ghazni and Ghor, and even the British could not
destroy the country. Every time it sprung back, battered,
bruised, but with that never-say-die attitude. Every time it
sprung back, it had new self-confidence and inner strength to
propel it to a higher dimension. With the LPG factor coming
in, the domestic producers will have to spruce up their opera-
tions to match their foreign competitors. This will drive them
to conform to globally competitive standards and cutting edge
technologies in order to survive. Believe me, they will do this,
being the resourceful lot they are. In turn, this will help them
build global brands, which, thus far, have only been a chimera.
The argument about infant industry protection, though logical
to a certain extent, is, in my opinion, over-hyped. We must
realise that if we do not allow our “infants” to walk the world,
meet new challenges, face new adversities, taste the bitterness of
failure and acquire new experiences, they will never grow up into
the complete, mature individuals we would want them to
become. The triumph of success cannot be fully savoured
unless the bitterness of failure has been tasted. If we find that
in the process, our “infants” are being exposed to unfair or
unequal battles, there is always the option of exercising the
tariff barrier. But, we must ensure that this tariff is imposed on
a short-term basis, so that the “infants” realise that if they do
not “grow up” in a certain specified time frame, they will have
to face competition, because the tariffs will be removed after the
expiry of the specified period. This realisation will drive them to
strive towards excellence, and considering their enterprise and
resourcefulness, I am sure they will come out on top.
To sum up, WTO should be viewed as an ally and not an
adversary. It will help India get stronger. It will make India what
each one of us dream it will, during our lifetimes, become. So,
my humble advice to the soothsayers of doom is – do not crib
and cry about the pitfalls. Convert them into your strengths, as
that is the only way the nation will survive and find prosperity. I
will end with a quote from Sir Winston Churchill’s speech to
the British troops during World War II – “We will fight on the
beaches, we will fight on the streets, we will fight on the
mountains – we shall never give up”.
...Needlessly, I add, the British troops won the battle.
By Anirban Ghosh
Annexure-II
Functions, Structure and Decision Making Process of
WTO
The Agreement establishing WTO provides that it should
perform the following four functions:
1. First it shall facilitate the implementation administration
and operation of the Uruguay Round legal instruments
and of any new agreements that may be negotiation in the
future.
39
 2. Second, it shall provide a forum for future negotiations
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
among member countries on matters covered by the
agreements as well as on new issues falling within its
mandate.
3. Third, it shall be responsible for the settlement of
differences and disputes among its member countries.
4. Fourth, it shall be responsible for carrying out periodic
reviews of the trade policies of its member countries.
Structures of WTO
The apex WTO body responsible for decision making is the
Ministerial Conference. It is expected to meet every two years.
During the two years between meetings, the functions of the
conference are performed by the General Council
The General Council meets as a Dispute settlement body when
it considers complaints and takes necessary steps to settle
dispute between member countries. It is also responsible for
carrying out reviews of the trade policies of individual countries
on the basis of the reports prepared by the WTO secretariat.
The general council is assisted in its work by the:
1. Council for trade in Goods, which oversees the
implementation and operation of GATT 1994 and its
associate agreements,
2. Council for trade in services, which which oversees the
implementation and operation of GATTs and
3. Council for TRIPS which oversees the operation of the
Agreement of TRIPS.
It is also indicates the various committees established by the
WTO Agreement itself and the other committees that have
been established for detailed work at the operational level under
the various associate agreements.
Decision – Making Process
The agreements stipulates the WTO shall continue the GATT
practice of decision making by consensus. Consensus is deemed
to have been reached when at the time a decision is being taken,
not a single member country voices opposition to its adoption.
When a consensus is not possible the WTO agreement
provides for decision by majority vote with each country having
one vote. Despite these provisions decision on all important
policy matter are expected to continue to be taken by consensus.
The rule of consensus prevents “tyranny of the majority”
particularly where a sizeable section of opinion strongly
opposes the decision being taken.
Annexure – III
Unctad: Its Objectives And Working
The united nation conference on Trade & Development
(UNCTAD) was established by the United Nations Generals
Assembly as one of its permanent organs in December in 1964.
its main objective is to promote international trade, particularly
that of developing countries with a view to accelerating
economics development.
The conference of Government Minister concerned with trade
and development is held every four years in different capitals of
the member – states. It has 166 members including India. Ten
such conferences have been held so far with last conference
40
being held at Bangkok in Thailand in 2000. The main recurring
themes of the conference relate to the following:
a. The expansion and diversification of export of goods and
services of the developing countries. ….. and the need for
the developed countries to adopt policies and measures to
support this aim.
b. The stabilization and strengthening of international
commodity markets on which most developing countries
remain dependent for exports earning.
c. The enhancement of the export capacity of developing
countries through mobilizing domestic and external
resources including development assistance and foreign
investment, strengthening technological capabilities etc.
The major achievement of UNCTAD II (1968-72) has been the
acceptance by the developed countries of the resolution on the
Generalized System of Tariff Preferences (GSP) in 1971. Each
of the developed countries agreed in terms of resolution to
formulate a scheme called GSP scheme to implement this
resolution. Under this scheme developed countries grant
concession in the import tariff on the import of various
manufactured or the semi-manufactured items of import from
the developing countries. The tariff concession is granted
subject to the rules of origin criterion laid down under each of
the scheme.
Another significant development is that the UNCTAD VIII
held in Cartgagena de Indias, Columbia called for action to halt
the protectionism in order to bring about furniture liberaliza-
tion and expansion of World Trade; to the benefit to all, in
particular the developing countries and to ensure that environ-
ment and that trade policies were mutually supportive with a
view to achieving sustainable development.
The Xth conference of the UNCTAD held at Bangkok in
Thailand in the February 2000 has called for declining of the
issue relating to labour and environment with the trade. It
assumes importance in the backdrop of the Seatle Round of
the WTO meeting in December 1999 to decide the agenda for
the Millennium Round of international trade negotiations. At
this meeting the developed countries particularly USA had
demanded the linking of labour and environment issues with
the trade agenda. Thus UNCTAD has been articulating the
views on the developing world on the issue of trade and
development from time to time.
Question Bank
Q1. When and why was the GATT agreement signed?
Q2. What are the functions and objectives of the WTO ?
Q3. Explain the Uruguay Round of GATT negotiations with
special reference to India.
Q4. Explain the MFN clause of the GATT.
Q5. When and why was the UNCTAD constituted?
Q6. Explain the GSP under the UNCTAD.
Q7. “Trading Blocs create obstacles to international trade.”
Examine critically.
Q8. Define Trading Blocs. What are the different types of
trading blocs?
11.675.1

LESSON 7:
REGULATIONS FOR INTERNATIONAL TRADE
Introduction
Major Laws Governing India’s Export Import Trade
• Foreign Trade (Development & Regulation) Act.
• Objective of the act
• India’s foreign trade Policy.-
• Foreign Exchange Regulation Act (FERA).
• Introduction and Concept.
• Definition.
• Main Provision of the Act.
• Regulation and management of foreign exchange
• Pre-shipment Inspection & Quality Control Act, 1963.
• Customs Act, 1962.
International Commercial Practices
• Uniform Customs and Practice for Documentary Credits
(UCP), 1993.
• INCOTERMS,2000.
Question Bank
Introduction
One of the distinctive features of international marketing is
that exporters have to deal with different legal systems.- An
Indian manufacturer operating in domestic market is well aware
of the fact that he is governed by the Indian laws and is subject
to the jurisdiction of Indian Courts. But an Indian exporter
exporting his products to an importer, say in the USA, must
contend with the fact that US laws may also have influence over
their contractual relations as well as settlement of dispute, if
any, arising ‘out of the contract. This is technically referred to as
the conflicts of laws, which can be settled in advance by
incorporating specific provisions in the contract as to the proper
law governing the contract and jurisdiction.
At the same time, since the buyer and the seller are at a great
geographical distance from each other, many intermediaries like
shipping companies, airlines, insurance companies and banks
are involved in the transaction. These intermediaries are from
different countries and trade terms and usages differ across the
countries. Therefore, it is advisable for the exporters to enter
into written export contracts, incorporating all the’ necessary
details, so as to avoid all future conflicts and disputes.
Laws Governing India’s Export Import Trade
The major laws influencing Indian exporters and importer~ are:
a. Foreign Trade Development and Regulation Act, 1992,
b. Foreign Exchange Regulation Act (FERA), 1973.
c. Pre-shipment Inspection and Quality Control Act, 1963.
d. Customs Act, 1962.
e. International Commercial Practices.
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Foreign Trade (Development and Regulation) Act,
1992
The Foreign Trade (Development and Regulation) Act, 1992,
which replaced the. Imports and Exports Control Act, 1947,.
Came into force on the 19th June 1992. However, all orders
made under the latter Act shall continue the be in force if these
are not inconsistent with the provisions of the Foreign Trade
(Development and Regulation) Act, 1992.
Under the authority of this Act, the office of Director General
of Foreign .Trade (DGFT) brings out the export import policy
and lays down the procedures. The policy determines .among
other things :-
a. Whether export of a product is banned;
b. Whether the export of. the product is subject to quota
restrictions or licensing arrangements;
c. Whether export of a product is canalised through a
Government undertaking; and
d. Whether there is any floor price regulation regarding that
product.
No export or import shall be made by any person except in
accordance with the provisions of this Act, the orders and rules
made under this Act and the export and import policy.
Objective of the Act
The objective of the Act is to provide for the development and
regulation of foreign trade by facilitating imports into and
augmenting exports from India and for matters connected
therewith or incidental thereto.
Main Provisions of the Act
a. Development and Regulation :- The Act. empowers the
Central Government to make provisions for the
development and regulation of foreign trade by facilitating
imports and increasing exports.
b. Prohibition and Restriction :- The Act also empowers the
Central Government to make provisions for prohibiting,
restricting and otherwise regulating the import or export of
goods as and when required:
c. Export Import (EXIM) Policy :-
1. The Act lays down that the Central Government may
from time to time formulate and announce the EXIM
policy and may also amend it keeping in mind the
national priorities.
2. The Central Government may also, by Order published
in the Official Gazette, make provision for prohibiting,
restricting or otherwise regulating, in all cases or in
specified classes of cases and subject to such
exceptions, if any , as may be made by or under the
Order, the import or export of goods.
41
 3. All goods to which any Order under sub section (2)
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
applies shall be deemed to be goods the import or
export of which has been prohibited under section 11
of the Customs Act, 1962 (52 of 1962) and all the
provisions of that Act shall have effect Accordingly.
d. Director General of Foreign Trade (DGFT) :- The Act
empowers the Central Government to appoint the Director
General of Foreign Trade (DGFT) for advising it in the
formulation of the EXIM policy and its execution.
e. Importer Exporter Code Number (IEC No.) :- The Act
empowers the DGFT to issue, suspend or cancel the
Importer Exporter Code (lEC) Number. No person shall
make any import or export except under IEC No.
f. Search, Inspection and Seizure :- Where any
contravention of any condition of the licence is suspected,
any person authorised by the Central Government may
search, inspect and seize such goods, documents and
conveyances subject to such requirements and conditions as
may be prescribed.
g. Penalty for Contravention :- Where any person makes or
attempts to make any export or import in contravention of
any provisions of this Act or the EXIM Policy, he shall be
liable to a penalty not exceeding one thousand rupees or
five times the value of the goods involved, whichever is
more.
India’s Foreign trade Policy
The then Commerce Minister, Mr. P. Chidambaram, announced
a major overhaul of trade policy on July 4, 1991 entailing
i. Suspension of cash compensatory support;
ii. An enlarged and uniform Rep. rate of 30 per cent of f.o.b.
value;
iii. Abolition of all supplementary licenses except in the case of
small scale sector and producers of life: Saving drugs/
equipment;
iv. Abolition of unlisted OGL and
v. Removal of all import licensing for capital goods and raw
materials, except for a small negative list in 3 years.
Rationale of Foreign Trade Policy
Giving the rationale for the new policy, the Commerce Minister
noted: For several decades, trade policy in India has been
formulated in a system of administrative controls and licenses.
As a result, we have a bewildering number and variety of lists,
appendices and licences. This system has led to delays, waste,
inefficiency and corruption. Human intervention-described as
discretion-at every stage, has stifled enterprise and spawned
arbitrariness.
The Government, therefore, decided that while all essential
imports like POL, fertilizer and edible oil should be protected,
all other imports should be linked to exports by enlarging and
liberalizing the replenishment licence system. For this purpose,
the following major reforms were announced
1. Rep will become the principal instrument for export-related
imports. To describe Rep as a licence is a misnomer. Hence,
it will now be called Exim scrip and can be freely traded.
42
2. All exports will now have a uniform Rep rate of 30 per cent
of the f.o.b. value. This was a substantial increase from the
present Rep rates, which vary between five per cent and 20
per cent of f.o.b. value.
3. The new Rep scheme gave maximum incentive to exporters
whose import intensity was low. For example, agricultural.
Exports which earlier had very low replenishment rates of
five per cent or 10 per cent will now gain considerably.
4. All supplementary licences shall stand abolished except in
the case of the small scale sector and for producers of life-
saving drugs/equipment.
5. All additional licences granted to export houses shall stand
abolished.
6. All items now listed in the Limited Permissible List OGL
items would hereafter be imported through the Rep route.
7. The Exim policy contained a category known as Unlisted
OGL. This category stands abolished and all items falling
under this category may be imported only through the Rep
scheme.
8. Advance licensing had been an alternative to the Rep route
for obtaining imports for exporters. It was expected that
many exporters would find the Reprouternore attractive
now. However, for exporters who wish to go through
advance licensing, this route would remain open.
9. In three years time our objective will be to remove all
import licencing for capital goods and raw materials, except
for a small negative list.
10. The goal of the government was to decanalise all items
except those that are essential.
11. In the light of the substantial liberalization of the trade
regime, and also the recent changes in exchange rates (after
devaluation), Cash Compensatory Scheme (CCS) was
abolished from July 3, 1991.
On August 3, 1991, the Commerce Minister announced a new
package of incentives for Export oriented U5Jits (EOUs) and
Export Promotion Zones (EPZs).
Foreign’ Exchange Regulation Act, 1973
Meaning: of Exchange Control
Exchange control means regulating the demand for and supply
of foreign exchange with the objective of making rational use
of available foreign exchange for various purposes according to
a scheme of priorities laid down by the policy. Exchange control
is usually imposed on both, i.e., on payments as well as on
receipts. The purpose of introducing the exchange control on
receipts is to pool the countries foreign exchange reserves to
facilitate. their judicious use, while the purpose of imposing
exchange control on payments is to restrain the demand and
contain it within the permissible limits.
Foreign Exchange Regulation Act (FERA), 1973
In India, exchange control was introduced on the outbreak of
the Second World War on 3rd September 1939 by virtue of the
emergency powers derived under the financial provisions of the
Defense of India Rules, mainly to- conserve the non-sterling
area currencies and utilise them for essential purposes. The
emergency powers were later placed on a statutory basis by the
11.675.1
enactment of the Foreign Exchange Regulation Act, 1947. The
Act was later replaced by a more comprehensive legislation, viz.,
the Foreign Exchange Regulation Act (FERA), 1973.
Introduction and Concept of Foreign Exchange
Management Act ( FEMA)
The Foreign Exchange Management Act (FEMA) is a law to
replace the draconian Foreign Exchange Regulation Act, 1973.
Any offense under FERA was a criminal offense liable to
imprisonment, whereas FEMA seeks to make offenses relating
to foreign exchange civil offenses. Unlike other laws where
everything is permitted unless specifically prohibited, under
FERA nothing was permitted unless specifically permitted.
Hence the tenor and tone of the Act was very drastic. It
provided for imprisonment of even a very minor offense.
Under FERA, a person was presumed guilty unless he proved
himself innocent whereas under other laws, a person is
presumed innocent unless he is proven guilty.
With liberalization, a need was felt to remove the drastic
measures of FERA and replace them by a set of liberal foreign
exchange management regulations. Therefore FEMA was
enacted to replace FERA. It has laid down the areas where
specific permission of the Reserve Bank or Government of
India is required. In rest of the cases, no such permission
would be needed and a person can remit funds and acquire
assets, incur liability in accordance with. the specific provisions
laid down in the Act or Notifications issued by the Reserve
Bank or Government of India under the Act.
Definition
FEMA contains definitions of certain terms which have been
used throughout the Act. The meaning of these terms may
differ under other laws or under common language. But for the
purposes of FEMA, the terms will signify the meaning as
defined there under. Let us take up some of the more impor-
tant ones.
“Authorized person” means an authorized dealer, money
changer, off-shore banking unit or any other person for the
time being authorized to deal in foreign exchange or foreign
securities;
“Capital Account Transaction” means a transaction which alters
the assets or liabilities, including contingent liabilities, outside
India of persons resident in India or assets or liabilities in India
of persons resident outside India, and includes transactions by
way of giving guarantees or surety for any debt, obligation or
other liability of (1) a person resident outside India or (2) of a
person resident in India and owed to a person resident outside
India.
“Currency” includes all currency notes, postal notes, postal
orders, money orders, cheques, drafts, travelers cheques, letters
of credit, bills of exchange and promissory notes, credit cards or
such other similar instruments, as may be notified by the
Reserve Bank;
“Currency Notes” means and includes cash in the form of
coins and bank notes;
“Current Account Transaction” means a transaction other than a
capital account transaction and includes :-
11.675.1
i. payments due in connection with foreign trade, other
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
current business, services, and short-term banking and
credit facilities in the ordinary course of business,
ii. payments due as interest on loans and as net income from
investments,
iii. remittances for living expenses of parents, spouse and
children residing abroad,
iv. expenses in connection with foreign travel, education and
medical care of parents, spouse and children;
“Export”, with its grammatical variations and cognate expres-
sions, means :-
i. the taking out of India to a place outside India any goods,
ii. provision of services from India to any person outside
India;
“Foreign currency” means any currency other than Indian
currency;
“Foreign Exchange” means foreign currency and includes :-
i. deposits, credits and balances payable in any foreign
currency,
ii. drafts, travelers cheques, letters of credit or bills of
exchange, expressed or drawn in Indian currency but payable
in any foreign currency,
iii. drafts, travelers cheques, letters of credit or bills of exchange
drawn by banks, institutions or persons outside India, but
payable in Indian currency;
“Foreign Security “ means any security, in the form of shares,
stocks, bonds, debentures or any other instrument denomi-
nated or expressed in foreign currency and includes securities
expressed in foreign currency, but where redemption or any
form of return such as interest or dividends is payable in Indian
currency;
“Import”, with its grammatical variations and cognate expres-
sions, means bringing into India any goods or services;
“Indian currency” means currency which is expressed or drawn
in Indian .rupees but does not include special bank notes and
special one rupee notes issued under section 28A of the Reserve
Bank of India Act, 1934 by the Ministry of Finance.
“Person” includes an individual, a Hindu undivided family, a
company, a firm, an association of persons or a body of
individuals, whether incorporated or not, every artificial juridical
person and any agency, office or branch owned or controlled by
such person;
“Person resident in India” means :-
i. a person residing in India for more than one hundred and
eighty-two days during the course of the preceding Financial
year but does not include :-
a. a person who has gone out of India or who stays
outside India,
i. for or on taking up employment outside India, or
ii. for carrying on outside India a business or
vocation outside India, or
43
 iii. for any other purpose, in such circumstances as
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
would indicate his intention to stay outside India
for an uncertain period;
a. a person who has come to or stays in India, otherwise
than
i. for or on taking up employment in India, or
ii. for carrying on in India a business or vocation in
India, or
iii. for any other purpose, in such circumstances as
would indicate his intention to stay in India for an
uncertain period;
ii. any person or body corporate registered or incorporated in
India,
iii. an office, branch or agency in India owned or controlled by a
person resident outside India,
iv. an office, branch or agency outside India owned or
controlled by a person resident in India.
“Security” means shares, stocks, bonds and debentures,
Government securities, savings certificates, deposit receipts in
respect of deposits of securities and units of the Unit Trust of
India or of any mutual fund and includes certificates of title to
securities, but does not include bills of exchange or promissory
notes other than Government promissory notes or any other
instruments which may be notified by the Reserve Bank as
security for the purposes of this Act;
“Service” means service of any description which is made
available to potential users and includes the provision of
facilities in connection with banking, financing, insurance,
medical assistance, legal assistance, chit fund, real estate,
transport, processing, supply of electrical or other energy,
boarding or lodging or both, entertainment, amusement or the
purveying of news or other information, but does not include
the rendering of any service free of charge or under a contract of
personal service;
“Transfer” includes sale, purchase, exchange, mortgage, pledge,
gift, loan or any other form of transfer of right, title, posses-
sion or lien.
Main Provisions of the Act
a. Application of FEMA may be seen. broadly from two
angels :-
• Capital Account Transactions :-Capital account
transactions relate to movement of capital Or
transaction which alters the assets or liabilities,
including contingent liabilities, outside India of
persons resident in India or assets or liabilities in India
of persons resident outside India, and includes
transactions by way of giving guarantees or surety for
any debt, obligation or other liability of (1) a person
resident outside India or (2) of a person resident in
India and owed to a person resident outside India. For
example, transactions in property and investments and
lending and borrowing money.
• Current Account Transactions :- Transactions which
do not fall in capital account category are current
44
account transactions. Such transactions are permitted
freely subject to a few restrictions as given below :-
• Certain current account transactions would require RBI
permission if they exceed a certain ceiling.
• A few current account transactions need permission of
appropriate Government of India authority
irrespective of the amount.
• There are seven types of current account transactions,
which are totally prohibited. These include.
transactions relating to lotteries, football pools,
banned magazines and a few others.
• Payments due in connection with foreign trade, other
current business, services, and short-term banking and
credit facilities in the ordinary course of business.
• Payments due as interest on loans and as net income
from investments.
• Remittances for living expenses of parents, spouse and
children residing abroad, expenses in connection with
foreign travel, education and medical care of parents,
spouse and children India authority irrespective of the
amount.
b. The Act provides that :-
• For all cash exports, the foreign exchange proceeds
from exports must be brought back to India within
180 days, except where exports are made on deferred
payment, terms or on consignment basis.
• Under FEMA, effective from June 2000, there is no
longer any ceiling as a percentage of FOB value of
exports for payment of commission. The erstwhile
ceiling of 12.5% of FOB value of exports has been
abolish
• Residents going abroad for business purposes or
for’ participating in conferences or seminars will not
need RBI permission to avail foreign exchange up
to US $ 25,000 per trip irrespective of the period of
stay.
• The Exchange Earner’s Foreign Currency (E,EFC)
account holders and Residents Foreign Exchange
(RFC) account holders are permitted to freely use
the funds held in such accounts for payment of all
permissible current account transactions.
c. The Act also contains comprehensive and transparent rules
for foreign investment in India and Indian investments
abroad and permits Indian companies engaged in certain
specified sectors to acquire shares of foreign companies
engaged in similar activities by share, swap or exchange
through issue of ADRs/GDRs up to certain specified
limits.
d. FEMA is a civil law unlike FERA. Contraventions under
FEMA will be dealt with through civil procedures. Unlike in
FERA, the burden of proof under FEMA will be on the
enforcement agency and not on the implicated. FEMA
describes an elaborate redressal machinery for totCl1 justice
and fairness tothe implicated while deciding on the question
of contravention.
11.675.1
Regulation and management of foreign exchange
Except with the general or special permission of the Reserve
Bank, no person can :-
a. deal in or transfer any foreign exchange or foreign security to
any person not being an authorized person;
b. make any payment to or for the credit of any person
resident outside India in any manner;
c. receive otherwise through an authorized person, any
payment by order or on behalf of any person resident
outside India in any manner;
d. Where any person in, or resident in India receives any
payment by order or on behalf of any person resident
outside India through any other person (including an
authorized person) without a corresponding inward
remittance from any place outside India, then, such person
shall be deemed to have received such payment otherwise
than through an authorized
e. enter into any financial transaction in India as consideration
for or in association with acquisition or creation or transfer
of a right to acquire, any asset outside India by any person
Financial transaction means making any payment to, or for
the credit of any person, or receiving any payment for, by
order or on behalf of any person, or drawing, issuing or
negotiating any bill of exchange or promissory note, or
transferring any security or acknowledging any debt.
No person resident in India can acquire, hold, own, possess or
transfer any foreign exchange, foreign security or any immovable
property situated outside India except with the general or special
permission of the Reserve Bank.
Any person may sell or draw foreign exchange to or from an
authorized person if such sale or drawal is a current account
transaction. However, the Central Government may, in public
interest and in consultation with the Reserve Bank, impose
such reasonable restrictions for current account transactions as
may be prescribed.
Any person may sell or draw foreign exchange to or from an
authorized person for a capital account transaction. The Reserve
Bank may, in consultation with the Central Government,
specify:-
a. any class or classes of capital account transactions which are
permissible;
b. the limit up to which foreign exchange shall be admissible
for such transactions:
However, the Reserve Bank cannot impose any restriction on
the drawal of foreign exchange for payments due on account of
amortization of loans or for depreciation of direct investments
in the ordinary course of business.
The Reserve Bank can, by regulations, prohibit, restrict or
regulate the following :-
a. transfer or issue of any foreign security by a person resident
in India;
b. transfer or issue of any security by a person resident outside
India;
11.675.1
c. transfer or issue of any security or foreign security by any
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
branch, office or agency in India of a person resident
outside India;
d. any borrowing or lending in foreign exchange in whatever
form or by whatever name called;
e. any borrowing or tending in rupees in whatever form or by
whatever name called between a person resident in India
and a person resident outside India;
f. deposits between persons resident in India and persons
resident outside India;
g. export, import or holding of currency or currency notes;
h. transfer of immovable property outside India, other than a
lease not exceeding five years, by a person resident in India;
i. acquisition or transfer of immovable property in India,
other than a lease not exceeding five years, by a person
resident outside India;
j. giving of a guarantee or surety in respect of any debt,
obligation or other liability incurred (i) by a person resident
in India and owed to a person resident outside India or (ii)
by a person resident outside India.
A person resident in India may hold, own, transfer or invest in
foreign currency, foreign security or any immovable property
situated outside India if such currency, security or property was
acquired, held or owned by such person when he was resident
outside India or inherited from a person who was resident
outside India.
A person resident outside India may hold, own, transfer or
invest in Indian currency, security or any immovable property
situated in India if such currency, security or property was
acquired, held or owned by such person when he was resident
in India or inherited from a person who was resident in India.
The Reserve Bank may, by regulation, prohibit, restrict, or
regulate establishment in India of a branch, office or other place
of business by a person resident outside India, for carrying on
any activity relating to such branch, office or other place of
business.
Every exporter of goods must :-
a. furnish to the Reserve Bank or to such other authority a
declaration in such form and in such manner as may be
specified, containing true and correct material particulars,
including the amount representing the full export value or,
if the full export value of the goods is not ascertainable at
the time of export, the value which the exporter, having
regard to the prevailing market conditions, expects to receive
on the sale of the goods in a market outside India;
b. furnish to the Reserve Bank such other information as may
be required by the Reserve Bank for the purpose of
ensuring the realization of the export proceeds by such
exporter.
The Reserve Bank may, for the purpose of ensuring that the
full export value of the goods or such reduced value of the
goods as the Reserve Bank determines, having regard to the
prevailing market-conditions, is received without any delay,
direct any exporter to comply with such requirements as it
deems fit.
45
 Every exporter of services shall furnish to the Reserve Bank or
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
to such other authorities a declaration in such form and in such
manner as may be specified, containing the true and correct
material particulars in relation to payment for such services.
Where any amount of foreign exchange is due or has accrued to
any person resident in India, such person shall take all reason-
able steps to realize and repatriate to India such foreign
exchange within such period and in such manner as may be
specified by the Reserve Bank.
Pre-shipment Inspection and Quality Control Act,
1963
Export (Quality Control & Inspection) Act, 1963
The Export Inspection Council is responsible for the operation
of this Act. Under the Act, a large number of exportable
commodities have been notified for compulsory pre-shipment
inspection. The quality control and inspection of various export
products is administered through a network of more than fifty
offices located around major production centres and ports of
shipment. In addition, organizations may be recognized as
agencies for inspection and /or quality control. Recently, the
government has exempted agriculture and food products, fruit
products and fish and fishery products from compulsory pre-
shipment inspections, provided that the exporter has a firm
letter from the overseas buyer stating that the overseas buyer
does not require pre-shipment inspection from official Indian
inspection agencies.
In order to promote exports of quality goods as per the
international standards, the Government of India has intro-
duced compulsory Quality Control and Pre-Shipment
Inspection for 90% of the items of export under one or the
other system as per the Export (Quality Control and Pre-
shipmer1t Inspection)’ Act,1963. Some of these items are;- .
a. Food and agricultural products;
b. Chemicals and allied products;
c. Engineering goods;
d. Textiles;
e. Coir, jute and leather products such as footwear, etc.
The Act empowers the Government to :-
a. Notify commodities, which shall be subjected to Quality
Control or Inspection or both, prior to the export.
b. Specify the type of Quality Control or Inspection, which
will be applied to a notified commodity.
c. Establish, adopt or recognise one or more standard
specifications to a “notified commodity..
d. Prohibit the export in the. course of international trade of a
notified commodity, unless it is accompanied by a certificate
under Section 7 that the commodity satisfies the conditions
related to Quality Control or Inspection or it has affixed or
applied to it a mark or seal accepted by the Central
Government that it conforms to the s1andard specifications
applicable to it.
For carrying out pre-shipment inspection: of various goods a
number of existing agencies, both the Government as well as
private, have been recognised under the Exports (Quality
46
Control and Inspection) Act, 1963. To supplement the work of
the agencies, the Government has also established five Export
Inspection Agencies, one each at Mumbai, Kolkata, Cochin
Chennai and Delhi in 1966 exclusively for export inspection.
The Export Inspection Agencies (ElAs) has a network of nearly
62 offices throughout India. These ElAs have certain specific
areas under their jurisdiction. For example, the EIA of Mumbai
has jurisdiction over Maharashtra, Gujarat and Goa. These
agencies work under the administrative and technical control of
the Export Inspection Council.
Inspection by Buyer’s Agency
Sometimes, the. foreign buyers lay down their own standards
and specifications, which mayor may not be equivalent with the
Indian standards including stipulations under the. Quality
Control Regulations. For this purpose the overseas buyers
nominate their own persons or agencies to supervise the
production of goods and carry out inspection before the
shipment.
Customs Act, 1962
The Customs Department is vested with the task of carrying
out physical as well as documentary check on all the goods
crossing the Indian customs frontier. All export consignments
will be checked by the customs authorities at port or airport
with a view to. ascertaining that the. goods being shipped are
those which are declared in the documents and that no under or
over invoicing is involved.
International Commercial Practices
Apart from the Indian laws, import and export contracts are
also subject to the provisions of certain international commer-
cial practices. In this connection, the following two documents
prepared by the International Chamber of Commerce (ICC) ,
Paris, are widely used in international business:- .
a. Uniform Customs and Practice for Documentary
Credits (UCP), 1993 :-In order to ensure uniformity of
interpretation in international trade, the International
Chamber of Commerce has worked out the Uniform
Customs and Practices for Documentary Credits. These have
been revised and brought up to date several times.
Presently, they are applied in nearly all the countries. The
latest in the line of revisions is the UCP ,,500 (w.e.f. from
1st January 1994), which updates and consolidates the
previous UCP 400. The UCP for documentary credit has
been subscribed to by India also.
b. INCOTERMS, 2000 :- In order to have uniform export
terms for delivery of goods and payment, there are several
trade terms that are used at the international level. These
terms define the various trade terms like, FOB, C&F, CIF;
etc., and codify the respective rights and obligations of the
two parties under various contract terms. These terms are
codified by the International Chamber of Commerce (ICC)
under the title ‘INCOTERMS’. The INCOTERMS were
first introduced in 1936. These terms were known as
“INCOTERMS 1936”. Amendments and additions were
later made in 1953, . 1967, 1980, 1990 and 2000 in order to
bring these terms in line with current international trade
practices.
11.675.1
All INCOTERMS must be expressed by the appropriate three-
letter code and include the naming of a physical place of
handover and - in certain cases - the further naming of the
carrier or Vessel. The buyer and seller must use the expression
INCOTERMS 2000 to conclude the term, thereby clearly
indicating INCOTERMS 2000 as the source of reference for
definition.
These conditions are the minimum requirements for the use of
these terms but the terms can be added to or modified so as to
incorporate the buyer and seller’s specific needs, provided that
such modification does not contradict the basic INCOTERM
itself.
Important Note: Certain INCOTERMS are Multimode certain
others are restricted to moves where the main carriage is by sea
transport only. The terms must be used for the correct form of
transport if they are to offer any protection to the parties
involved.
Article-1
Foreign Exchange Management Act
Receipt from and payment to, a person resident outside India
Notification No. FEMA/16/RB-2000 dated 3rd May 2000
Reserve Bank of India
(Exchange Control Department)
Central Office
Mumbai 400001
Receipt from, and payment to, a person resident
outside India
In pursuance of the provisions of Section 3 of the Foreign
Exchange Management Act, 1999 (42 of 1999), the Reserve
Bank is pleased to permit -
1. any person, to receive any payment
a. made in rupees by order or on behalf of a person
resident outside India during his stay in India out of
rupee funds provided by him by sale of foreign
exchange to an authorised dealer or a money changer in
India;
b. made by means of a cheque drawn on a bank situated
outside India or a bank draft or travellers cheque issued
outside India;
c. made in foreign currency notes directly from out of
India; subject to the condition that the foreign
exchange received pursuant to clauses (b) and (c) shall
be offered for sale or caused to be offered for sale to an
authorised dealer or a money changer within seven
days of receipt thereof;
d. by means of postal order issued by a post office
outside India or by a postal money order issued by
such post office.
2. a person resident in India, to make any payment in rupees
i. towards meeting expenses on account of boarding,
lodging and services related thereto or travel to and from
and within India of a person resident outside India who
is on a visit to India;
11.675.1
ii. to a person resident outside India, by means of a
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
crossed cheque or a draft as consideration for purchase of
gold or silver in any form imported by such person in
accordance with the terms and conditions imposed
under any order issued by the Central Government
under the Foreign Trade (Development and Regulations)
Act, 1992 or under any other law, rules or regulations for
the time being in force;
3. a company in or resident in India, to make payment in
rupees to its whole time director who is resident outside
India and is on a visit to India for the company’s work and
is entitled to payment of sitting fees or commission or
remuneration, and travel expenses to and from and within
India, in accordance with the provisions contained in the
company’s Memorandum of Association or Articles of
Association or in any agreement entered into by it or in any
resolution passed by the company in general meeting or by
its Board of Directors, provided the requirements of any
law, rules, regulations, directions applicable for making such
payments are duly complied with.
(P.r. Gopala Rao)
Executive Director
Note: To obtain an aligned printout please download the PDF
or WORD version to your machine and then use respective
software to print the story.
Article-2
Committee on Commerce
The Foreign Trade (Development And Regulation)
Amendment Bill, 2001
The Foreign Trade (Development and Regulation) Amendment
Bill, 2001, introduced in the Rajya Sabha on the 24th April, 2001,
has been referred to the Department-related Parliamentary
Standing Committee on Commerce, with Shri Sikander Bakht,
Member, Rajya Sabha, as its Chairman, for examination and
report.
1. In pursuance of the new liberalized economic policy and
with a view to fulfilling international obligations, India
continues to remove quantitative restrictions on imports.
2. The Agreement on Safeguards enables member-countries to
impose quantitative restrictions by way of emergency action,
if imports of such articles are in such increased quantities as
to cause or threaten to cause serious injury to domestic
producers of like or directly competitive articles, with a more
liberal dispensation for such imports from the developing
countries. The present Bill, therefore, seeks to amend
Foreign Trade (Development and Regulation) Act, 1992, to
enable the Union Government to take corrective steps
through imposing quantitative restrictions on imports by
way of emergency action, in accordance with the Agreement
on Safeguards.
3.1 The proposed Bill further seeks to empower the Union
Government to make rules to provide for the manner in
which articles liable for import restrictions may be identified
and for the manner in which the causes of serious injury or
causes of threat of serious injury in relation to such articles
47
 may be determined and for the manner in which import
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

restrictions may be imposed.

4. The Standing Committee, at its sitting held on the 21st May,
2001, decided to invite views/suggestions on the
provisions of the Bill from State Governments/Union
Territory Administrations and individuals, institutions and
organisations, engaged in import/export of articles and/or
interested in / having knowledge of the subject-matter of
the Bill, and to hear oral evidence. The individuals,
institutions and organisations may send copies of
memoranda containing their suggestions on the Bill, latest
by the 15th June, 2001, indicating whether they would also
be interested in giving oral evidence before the Committee,
to Shri Surinder Kumar Watts, Deputy Secretary, Rajya
Sabha Secretariat, Room No. 007, Ground Floor, Parliament
House Annexe, New Delhi. Copies of the Bill, which was
published in the Gazette of India (Extraordinary) Part-II
dated 24th April, 2001, can be had on a request made in
writing to the above mentioned officer.
5. The text of the Bill is also available on the official website
of the Rajya Sabha Secretariat at http://rajyasabha.nic.in
(Surinder Kumar Watts)
Deputy secretary
Tel. No. 3034262
E-mail: watts@sansad.nic.in
Website: http://rajyasabha.nic.in/<![endif]>
New Delhi
22nd May, 2001.
Question Bank
Q1. Explain the provisions of the Foreign Tracie
(Development & Regulation) Act, 1992.
Q2. What do you mean by exchange control? Explain the
provisions of FERA, 1973 with respect to exchange
control.
Q3. Why and when was the Pre-,shipment Inspection and
Quality Control Act enacted?
Q4. Write a note on UCP 500 and INCOTERMS 2000.

48 11.675.1

LESSON 8:
LEGAL ASPECT OF EXPORT CONTRACT
Introduction
Laws Relating Export Contract
• Meaning
• Elements
• FOB Contract
• CIF Contract
Laws Relating to Export Agency Agreement
• Meaning.
• Elements.
• Sources of Selecting Overseas Agent.
• Remittance of Commission to Overseas Agents.
Laws Relating to Product
• Branding.
• Product Liability.
• Promotion
Question Bank:-
Introduction
An international marketer has to face a number of legal issues
in implementation of the corporate export-marketing plan. The
basic legal issues can broadly be classified into
a. Those relating to export-import contracts;
b. Those relating to the export agency agreement;
c. Those relating to products, viz, branding, product liability
and promotion;
d. Those relating to credit contracts, i.e. letter of credit.
e. Those relating tos settlement of international trade
disputes.
Meaning of Export Contract
Export contract can be understood within the framework of
the definition of the term contract as defined under the contract
law. generally all export orders, inducing those for long term
supply contracts and project exports, are invariably quoted on
the basis .of detailed documentation and written agreements
signed by both, the importer and exporter. However, a fairly
large part of India’s exports is carried out without the backing
of written export contracts. This is especially true in the case of
export of products from small scale and cottage industries like
handicrafts, garments, jewellery, etc. However, absence of
written contract does not mean that there is no-contract at all.
There has to be a contract if exports are to be made. There
exists, in such cases, what is known as a ‘constructed contract’. A
constructed contract is one where the existence of a contract can
be inferred from relevant documents, ~iz, telex messages,
Performa invoice, commercial invoice or letter of credit. The
exporter must, however, make sure that all the information on
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
which agreement is required are available on any or all of these
documents.
Accordingly, contract is defined as an agreement enforceable by
law. An agreement would be treated as a contract if it is made by
the free consent of the parties competent to contract, for a
lawful consideration and with a lawful object and are not
expressly declared to be void. Thus the export would be treated
as an export contract if it meets the essential requirements of
the contract.
Elements of Export Contract
There is no standard format of export contract as the elements
of export contract may vary from individual to individual,
transaction to transaction and country to country. The elements
of an export contract also depend upon the nature of product
being exported. However, some of the elements of the export
contract are common. These elements are:-
a. Product standards and specifications such as quantity,
quality specifications,price per unit, total contract price;
b. Currency, Taxes and Charges;
c. Packing specifications and Marking and Labeling;
d. Mode of transport and Time and place of delivery;
e. Marine insurance;
f. Inspection and Documentation;
g. Mode of payment, Terms of delivery and Credit period, if
any;
h. Warranties and After sales service.
i. Provisions relating to export and import licences and
permits;
j. Laws governing contract, Jurisdiction and Procedure for
settlement of disputes.
FOB Contract
FOB (Free On Board) is one of the commoner trade terms in
use. Yet this ‘common’ aspect of the term has resulted in the
myriad definitions found all over the world for FOB.
Some of these directly contradict others, and many are sup-
ported by domestic legislation making such definitions unique
to a specific country or port.
In defining FOB as an INCOTERM, it is expressed as being
Monomodal and it can only be used for transactions where sea
freight is the main carriage. Therefore, as an INCOTERM, there
is no application for FOB in road, rail or air transport.
Under INCOTERMS 2000, risk and responsibility pass from
the seller to the buyer when the goods pass over the (named or
unnamed) ship’s rail at the (named) port of loading, cleared for
export by the seller.
For FOB to apply, the seller must be in the physical position of
being able to load the cargo over the rail under their own direct
49
 control i.e. the loading is undertaken by the seller’s own labour,
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

A5 Transfer of risks B5 Transfer of risks

or by an agent that is under the contractual control of the seller. The seller must, subject to the provisions The buyer must bear all risks of loss of
of B5, bear all risks of loss of or damage or damage to the goods
Further this process would have to be monitored by both the to the goods until such time as they have q From the time they have passed the
passed the ship's rail at the named port ship's rail at the named port of
seller and buyer or their representatives. of shipment. shipment; and
q From the agreed date or the expiry
Generally, from the modern deep-sea export perspective, this date of the agreed period for delivery
control often cannot be achieved as the seller is either not which arise because he fails to give
notice in accordance with B7, or
allowed into the harbour area or, even in those extreme because the vessel nominated by him
circumstances where they are, they have no influence over the fails to arrive on time, or is unable to
take the goods, or closes for cargo
party loading the vessel. earlier than the time notified in
accordance with B7, provided,
The INCOTERM FOB still has an application in some markets, however, that the goods have been
but these are more and more in the minority. Note that the use duly appropriated to the contract,
that is to say, clearly set aside or
of an ‘on-board’ Bill of Lading or mate’s receipt could be otherwise identified as the contract
goods.
appropriate in recording the passage of risks under FOB
A6 Division of costs B6 Division of costs
making FOB one of the few terms still unavoidably dependant The seller must, subject to the provisions The buyer must pay
on such documents of B6, pay q All costs relating to the goods from
• all costs relating to the goods until the time they have passed the ship's
Free on Board (FOB) is the most frequently used price quota- such time as they have passed the rail at the named port of shipment;
ship's rail at the named port of and
tion in the international market. Under this quotation, the shipment; and q Any additional costs incurred, either
exporter undertakes to pay all expenditure till the loading of • where applicable (Refer to because the vessel nominated by him
Introduction paragraph 14) , the fails to arrive on time, or is unable to
goods on board the ship, inducing documentation charges. All costs of customs formalities take the goods, or closes for cargo
expenditure thereafter, such as ocean freight marine insurance, necessary for export as well as all earlier than the time notified in
duties, taxes and other charges accordance with B7, or because the
unloading charges, etc., are borne by the importer. payable upon export. buyer has failed to give appropriate
notice in accordance with B7,
Buyer’s & Seller’s Obligations provided, however, that the goods
have been duly appropriated to the
FOB contract, that is to say, clearly set
aside or otherwise identified as the
contract goods; and
Free on Board q Where applicable (Refer to
Free on Board» means that the seller delivers when the goods Introduction paragraph 14), all duties,
taxes and other charges as well as the
pass the ship’s rail at the named port of shipment. This means costs of carrying out customs
that the buyer has to bear all costs and risks of loss of or formalities payable upon import of
the goods and for their transit
damage to the goods from that point. The FOB term requires through any country.
the seller to clear the goods for export. This term can be used A7 Notice to the buyer B7 Notice to the seller
only for sea or inland waterway transport. If the parties do not The seller must give the buyer sufficient The buyer must give the seller sufficient
notice that the goods have been notice of the vessel name, loading point
intend to deliver the goods across the ship’s rail, the FCA term delivered in accordance with A4. and required delivery time.
should be used. A8 Proof of delivery, transport document or B8 Proof of delivery, transport document
equivalent electronic message or equivalent electronic message
THE SELLER'S OBLIGATIONS THE BUYER'S OBLIGATIONS The seller must provide the buyer at the The buyer must accept the proof of
seller's expense with the usual proof of delivery in accordance with A8.
A1 Provision of goods in conformity with the B1 Payment of the Price delivery in accordance with A4.
contract The buyer must pay the price as provided in Unless the document referred to in the
The seller must provide the goods and the contract of sale. preceding paragraph is the transport
the commercial invoice, or its equivalent document, the seller must render the
electronic message, in conformity with buyer, at the latter's request, risk and
the contract of sale and any other expense, every assistance in obtaining a
evidence of conformity, which may be transport document for the contract of
required by the contract. carriage (for example, a negotiable bill of
lading, a non-negotiable sea waybill, an
A2 Licences, authorisations and formalities B2 Licences, Authorisations and Formalities inland waterway document, or a
The seller must obtain at his own risk The buyer must obtai n at his own risk multimodal transport document).
and expense any export licence or other and expense any import licence or other Where the seller and the buyer have
official authorisation and carry out, official authorisation and carry out, agreed to communicate electronically,
where applicable (Refer to Introduction where applicable (Refer to Introduction the document referred to in the
paragraph 14) , all customs formalities paragraph 14), all customs formalities for preceding paragraph may be replaced by
necessary for the export of the goods. the import of the goods and, where an equivalent electronic data interchange
necessary, for their transit through any (EDI) message.
country.
A9 Checking - packaging - marking B9 Inspection of goods
A3 Contracts of carriage and insurance B3 Contracts of carriage and insura nce The seller must pay the costs of those The buyer must pay the costs of any
a. Contract of carriage a) Contract of carriage checking operations (such as checking pre-shipment inspection except when
No obligation (Refer to The buyer must contract at his own quality, measuring, weighing, counting) such inspection is mandated by the
Introduction paragraph 10) expense for the carriage of the goods which are necessary for the purpose of authorities of the country of export.
q Contract of insurance from the named port of shipment. delivering the goods in accordance with
No obligation (Refer to b) Contract of insurance A4.
Introduction paragraph 10) No obligation (Refer to Introduction The seller must provide at his own
paragraph 10). expense packaging (unless it is usual for
the particular trade to ship the goods of
A4 Delivery B4 Taking delivery
The seller must deliver t he goods on the The buyer must take delivery of the the contract description unpacked)
date or within the agreed period at the goods when they have been delivered in which is required for the transport of
the goods, to the extent that the
named port of shipment and in the accordance with A4.
circumstances relating to the transport
manner customary at the port on board
(for example modalities, destination) are
the vessel nominated by the buyer.
made known to the seller before the
contract of sale is concluded. Packaging
is to be marked appropriately.

50 11.675.1

A10 Other obligations B10 Other obligations
The seller must render the buyer at the The buyer must pay all costs and
latter's request, risk and expense, every charges incurred in obtaining the
assistance in obtaining any documents documents or equivalent electronic
or equivalent electronic messages messages mentioned in A10 and
(other than those mentioned in A8) reimburse those incurred by the seller
issued or transmitted in the country of in rendering his assistance in
shipment and/or of origin which the
buyer may require for the import of
the goods and, where necessary, for
their transit through any country.
The seller must provide the buyer,
upon request, with the necessary
information for procuring
insurance.
CIF Contract
Terms beginning ‘C’ are ‘Contracts of Dispatch’. They differ
from other INCOTERMS as they segregate the point at which
risk and responsibility passes from the point at which costs
pass.
Under all other terms, the point of transferring risk and the
point at which responsibility for cost is also transferred are
simultaneous. With the ‘C’ terms this is NOT the case.
CFR (Cost and Freight) has a long history and outside of
INCOTERMS a definition with consensus is difficult.
As an INCOTERM risk passes from the seller to the buyer
when the cargo crosses the ship’s rail at the origin port. How-
ever, the responsibilities for the costs of transit only pass from
the seller to the buyer at the destination port. CFR and CIF are
Monomodal expressions used when the main carriage is by sea
and both are suited to the use of Bills of Lading.
Because the ship’s rail is seen as triggering these terms, it is
often inappropriate to use either in a modern port and reference
should be made to the notes on this subject under FOB.
Buyers are disadvantaged with contracts of dispatch. The buyer
must take risks for a period of carriage during which the buyer
has no means of controlling or limiting those risks. The carrier
used; the costs incurred for carriage and the timing of the
carriage are all under the seller’s control. The buyer must
consider this disparity before accepting a C termed contract.
From the seller’s perspective, the C terms represent exceptional
risk-management opportunities and are actively pursued as a
consequence.
CIF (Cost, Insurance and Freight) represents the condition of
CFR with the addition of Insurance. This is the first of only
two terms that place a compulsory responsibility for insurance
on the seller. Under all other terms, the buyer considers
insurance as an optional responsibility.
Under the Cost, Insurance and Freight (CIF) contract the seller
has tl1.e same obligations as under C&F contract but with the
addition that he has to procure marine insurance against the
buyer’s risk of loss or damage to the, goods during carriage.
The seller contracts for insurance and pays the insurance
premium. The seller is required to obtain insurance on mini-
mum coverage only. The CIF term requires the seller to clear the
goods for export. This term can only be used for sea and inland
waterway transport.’
a. To provide goods and the commercial invoice; or its
equivalent electronic message, in conformity with the
contract: of sale.
11.675.1
b. To obtain any export licence or other official authorisation
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
and carry out all the customs formalities necessary life the
exportation of the goods.
c. To arrange for the carriage of the goods to the named port
of destination by the usual route in a seagoing vessel and to
pay its costs and freignts.
d. To obtain cargo insurance as agreed In the contract and to
provide the buyer with the insurance’ policy or other
evidence of insurance cover.
e. To deliver the goods on board the vessel at the part Of
shipment on the date or within the period stipulated
f. To give the buyer sufficient notice’ that the goods have,
been delivered on board the vessel.
g. To pay the costs, of checking quality, measuring, weighing,
counting, packing and marking of the goods.]
Seller’s &Buyer’s Obligations
CIF
Cost, Insurance and Freight
Cost, Insurance and Freight» means that the seller delivers when
the goods pass the ship’s rail in the port of shipment.
The seller must pay the costs and freight necessary to bring the
goods to the named port of destination BUT the risk of loss
of or damage to the goods, as well as any additional costs due
to events occurring after the time of delivery, are transferred
from the seller to the buyer. However, in CIF the seller also has
to procure marine insurance against the buyer’s risk of loss of
or damage to the goods during the carriage.
Consequently, the seller contracts for insurance and pays the
insurance premium. The buyer should note that under the GIF
term the seller is required to obtain insurance only on mini-
mum cover (Refer to Introduction paragraph 9.3). Should the
buyer wish to have the protection of greater cover, he would
either need to agree as much expressly with the seller or to make
his own extra insurance arrangements.
The GIF term requires the seller to clear the goods for export.
This term can be used only for sea and inland waterway
transport. If the parties do not intend to deliver the goods
across the ship’s rail, the CIP term should be used.
THE SELLER'S OBLIGATIONS THE BUYER'S OBLIGATIONS
A1 Provision of goods in conformity with the contract B1 Payment of the price
The seller must provide the goods and the commercial invoice,
or its equivalent electronic message, in conformity with the The buyer must pay the price as provided in the contract of
contract of sale and any othe r evidence of conformity, which sale.
may be required by the contract.
A2 Licences, authorisations and formalities B2 Licences, authorisations and formalities
The seller must obtain at his own risk and expense any export
licence or other official authorisation and carry out, where
The buyer must obtain at his own risk and expense any
import licence or other official authorisation and carry out,
applicable (Refer to Introduction paragraph 14) , all customs where applicable (Refer to Introduction paragraph 14), all
formalities necessary for the export of the goods. customs formalities for the import of the goods and for
their transit through any country.
A3 Contracts of c arriage and insurance B3 Contracts of carriage and insurance
a) Contract of carriage
a) Contract of carriage
The seller must contract on usual terms at his own expense for
the carriage of the goods to the named port of destination by No obligation (Refer to Introduction paragraph 10)
the usual route in a seagoing vessel (or inland waterway vessel as
the case may be) of the type normally used for the transport of b) Contract of insurance
goods of the contract description.
b) Contract of insurance No obligation (Refer to Introduction paragraph 10).
No obligation (Refer to Introduction paragraph 10)
A4 Delivery B4 Taking delivery
The seller must deliver the goods on board the vessel at the port The buyer must accept delivery of the goods when they have
of shipment on the date or within the agreed period. been delivered in accordance with A4 and receive them
from the carrier at the named port of destination.
51
 agent abroad who is well versed with the conditions prevailing
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
A5 Transfer of risks B5 Transfer of risks

The seller must, subject to the provisions of B5, bear all
risks of loss of or damage to the goods until such time
as they have passed the ship's rail at the port of
shipment.
A6 Division of costs
The seller must, subject to the provisions of B6. pay
• all costs relating to the goods until such time as they have pay
been delivered in accordance with A4; and
• the freight and all other costs resulting from A3 a),
including the costs of loading the goods on board; and
• the costs of insurance resulting from A3 b); and
• any charges for unloading at the agreed port of discharge
which were for the seller's account under the contract of
carriage; and
• where applicable (Refer to Introduction paragraph 14), the • unloading costs including lighter age and
costs of customs formalities necessary for export as well as
all duties, taxes and other charges payable upon export, and
for their transit through any country if they were for the
seller's account under the contract of carriage.
The buyer must bear all risks of loss of or in the overseas market. Sales agents are of two types :-
damage to the goods from the time they have
passed the ship's rail at the port of shipment. a. Commission agents;
The buyer must, should he fail to give notice
in accordance with B7, bear all risks of loss b. Distributors.
of or damage to the goods from the agreed
date or the expiry date of the period fixed for
shipment provided, however, that the goods
Difference Between’ a Commission Event and a Distributor
have been duly appropriated to the contract,
that is to say, clearly set aside or otherwise Commission Agent Distributor
identified as the contract goods.
A. commission agent solicits orders and (a) A distributor, himself purchases good
B6 Division of costs
passes them on to t he exporters. from the exporter and sells them on his
The buyer must, subject to the provisions of A3, account
• all costs relating to the goods from the time
b) A coinmission agent neither takes the title (b) A distributor purchases goods and
they have been delivered in accordance with to the. goods nor takes another sort of credit therefore takes the title of goods and
A4; and risk. assumes full credit risk
• all costs and charges relating to the goods
whilst in transit until their arrival at the port of c) A commission agent. gets an a reed rate of (c) The distributor earns much hi her
destination, unless such costs and charges
commission.
were for the seller's account under the
contract of carriage; and
(d) Normally, an agent does not. provide any (d) A distributor mayor may not Provide
wharfage charges, unless such costs and ,sales services after sales services
charges were for the seller's account under the
contract of carriage; and
• all additional costs incurred if he fails to give
notice in accordance with B7, for the goods
Elements of Export Agency Agreement
from the agreed date or the expiry date of the
period fixed for shipment, provided, however,
An export agency agreement is a legal document, which
that the goods have been duly appropriated to
the contract, that is to say, clearly set aside or
establishes a commercial relationship between the principal and
otherwise identified as the contract goods; and the agent. It incorporates the conditions mutually agreed upon
• where applicable (Refer to Introduction
paragraph 14), all duties, taxes and other by the agent and the principal for the conduct of business.
charges as well as the costs of carrying out
customs formalities payable upon import of While concluding an agency agreement, the Indian firms should
the goods and, where necessary, for their
transit through any country unless included consider the following points :-
within the cost of the contract of carriage.

A7 Notice to the buyer B7 Notice to the seller

The seller must give the buyer sufficient notice that the goods
have been delivered in accordance with A4 as well as any other
notice required in order to allow the buyer to take measures,
which are normally necessary to enable him to take the goods.
A8 Proof of delivery, transport document or
equivalent electronic message
The seller must, at his own expense, provide the buyer
without delay with the usual transport document for the
agreed port of destination.
This document (for example a negotiable bill of lading, a non- contract.
negotiable sea waybill or an inland waterway document) must
cover the contract goods, be dated within the period agreed
for shipment, enable the buyer to claim the goods from the
carrier at the port of destination and, unless otherwise agreed,
enable the buyer to sell the goods in transit by the transfer of
the document to a subsequent buyer (the negotiable bill of
lading) or by notification to the carrier.
When such a transport document is issued in several
originals, a full set of originals must be presented to the
buyer. Where the seller and the buyer have agreed to
communicate electronically, the document referred to in the
preceding paragraphs may be replaced by an equivalent
electronic data interchange (EDI) message.
A9 Checking - packaging - marking
The seller must pay the costs of those checking operations
(such as checking quality, measuring, weighing, counting)
which are necessary for the purpose of delivering the goods
in accordance with A4.
The seller must provide at his own expense packaging (unless
it is usual for the particular trade to ship the goods of the
contract description unpacked) which is required for the
transport of the goods arranged by him. Packaging is to be
marked appropriately.
A10 Other obligations
The seller must render the buyer at the latter's request, risk
and expense, every assistance in obtaining any documents or
equivalent electronic messages (other than those mentioned
in A8) issued or transmitted in the country of shipment
and/or of origin which the buyer may require for the import
of the goods and, where necessary, for their transit through
any country.
The seller must provid e the buyer, upon request, with the
necessary information for procuring any additional insurance.
Meaning of Export Agency Agreement
‘Products don’t sell themselves, however well designed and
competitively priced they may be.’
In the modern competitive~ world, every product requires
extensive sales efforts for the promotion of the product in the
market. Since, it is a very costly affair for an exporter to maintain
sales force abroad as well as it’s difficult for him to keep track of
latest trends in overseas market, it is advisable to appoint an.
The buyer must, whenever he is entitled to
determine the time for shipping the goods and/or
the port of destination, give the seller sufficient
notice thereof.
B8 Pro of of delivery, transport
document or equivalent electronic
message
The buyer must accept the transport document in
accordance with A8 if it is in conformity with the
B9 Inspection of goods
The buyer must pay the costs of any pre-shipment
inspection except when such inspection is
mandated by the authorities of the country of
export.
B10 Other obligations
The buyer must pay all costs and charges incurred
in obtaining the documents or equivalent
electronic messages mentioned in A10 and
reimburse those incurred by the seller in
rendering his assistance in accordance therewith.
The buyer must provide the seller, upon request,
with the necessary information for procuring
insurance.
- O. Mary Hill.
a. Parties to the Contract :..: The identity of the parties must
be made explicit; especially whether the agency is assignable
or not, should be made clear.
b. Contracted Territory :- The territory for which the sole
agency is being granted should be explicitly mentioned. This
would help in preventing inter-,territorial disputes between
agents in the different areas.
c. Contractual Products :- The agreement should explicitly
indicate the products for which the agency is being
concluded. Otherwise, it is implied that the agreement is for
the entire product range, both present and future.
d. Customers :- An agent is expected to contact all potential
customers. However, if the principal wants to reserve the
right of contacting specific groups of buyers, then the same
should be clearly mentioned in the contract.
e. Acceptance or Rejection of Orders:- The principal may
reserve the right to accept or reject orders secured by the
agent by mentioning the fact in the agreement. This is must
when the transaction involves credit terms and the principal
is not sure of the creditworthiness of the buyer.
f. Settlement of Disputes :~ Generally, no dispute can arise
if the agency agreement is clearly drafted. Still, it is advisable
to agree upon the’ mechanism for settling disputes while
entering into the agency agreement., Arbitration is the best
method of settling international disputes.
g. Renewal and Termination :- The agency agreement
should also provide for the renewal’ or termination
procedure. If the agent is sound! Obviously no principal’
will think of terminating the agreement. The’ problem of.
termination arises only when the agent is not effective.
h. Other Miscellaneous Elements :-
• Minimum order size.
• Mode of commission payment.

52 11.675.1
 • Rate of commission in case of an agent and rate ‘of
discount in case of distributor.
• Sales promotion allowance, if any, to be granted to the
agent or distributor, including advertisement and
traveling allowance.
• Responsibility of the agent in terms of product,
installation, stocking, sales promotion, etc.
• Samples of products to be provided to the agent and the
conditions- relating thereto.
• Expiration or earlier termination of the agreement
Sources of Selecting Overseas Agents
a. The exporter can gather information about the overseas
agents from
b. Export Promotion Councils (EPCs) and Commodity
Boards (CBs)
c. Federation of Indian Chambers of Commerce and
Industries (FICCI);
d. Indian trade missions and representatives abroad and
foreign countries trade missions and representatives in
India;
e. Banks dealing in foreign exchange;
f. Manufacturer’s and exporter’s associates abroad, if any;
g. Advertisements in newspapers, trade magazines and other
similar specialised journals.
h. Web sites of various organisations and institutions.
Remittance of Commission to the Overseas Agents
Rules for Remittance of Commission to the Overseas Agents
a. It is obligatory for Indian exporters to declare the
commission to be payable to the overseas agents,
distributors and sales representatives to the Customs on
the relative GR/SDF/PP/SOFTEX form.
b. Reserve Bank has delegated powers to authorised dealers
for the remittance of commission to the overseas agents.
However, remittance of commission in advance, i.e. before
shipments of goods, is not permitted.
c. No remittance of commission is allowed in respect of
exports financed under credits extended by the Government
of India to any foreign government.
d. The exporters are allowed to pay commission either from
their Current or Cash Credit account or from EEFC account
maintained by them with the authorised dealers.
Rate of Commission
Under the Foreign Exchange Management Act (FEMA),
effective from June 2000, there is no longer’- any ceiling as a
percentage of FOB value of exports for payment of commis-
sion. The erstwhile ceiling of 12.5% of FOB value of exports
has been abolished.
Methods of Payment of Commission to the Overseas
Agents
a. EEFC Account: - The exporters are permitted to utilise
their Exchange Earners Foreign Currency (EEFC) account
for remittance of commission to the overseas agent.
11.675.1
b. Non-EEFCCases: - Where the exporter does not wish to
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
utilise his EEFC account, the authorised dealers remit the
commission in the usual manner.
Procedure for the Payment of Commission to the
Overseas Agents
a. Remittance by Bank: - There is no restriction on payment
of commission to overseas agents and the payment
procedure for remittance is also quite simple; Reserve Bank
has delegated powers to authorised dealers for the
remittance of commission to the overseas agents.
b. Letter to Bank:- The exporter is required to make an
application (in duplicate) on his letterhead to the bank,
which is authorised dealer in foreign exchange, inter alia,
giving the following particulars :-
• IEC number allotted by the Regional Licensing
Authority.
• Customs or Shipping bill no.
• Details of commodity exported.’
• Full name and address of the agent or distributor.
• Total value of export invoice.
• The applicants for remittance of commission must
clearly indicate whether the commission is payable on
FOB, C&F or CIF value of the export;
c. Documentary Enclosures :- The application submitted to
the bank should be accompanied by the following
documents :-
• Invoice (attested copy).
• Documentary evidence in support of the amount to be
remitted. -
d. Payment of Commission :- If the application is found in
order,’ the bank remits the commission. In cases where
exporters desire to deduct commission directly from the bill
proceeds, the bank may convey instructions to this effect to
its foreign correspondent while forwarding the documents.
e. Deduction from Invoice Value :- In the cases where,
exporters desire to deduct commission directly from the bill
proceeds, the bank accepts invoices showing deduction on
account of commission. However, such bank should be
authorised to remit commission under the delegated
powers.
Commission on the Project & Service Exports on Deferred
Payment Terms Special rules are applicable to remittance of
commission on exports on-deferred payment terms, turnkey
projects and construction contracts abroad. The proposal for
payment of commission abroad in above cases requires the
sanction of the Working Group consisting of representatives
from RBI, EXIM Bank and ECGC.
Branding
A brand is a name, term, symbol or design, or a combination
of them, which is intended to identify the goods or services of
the seller or group of sellers and to differentiate them from
those of competitors.’ - American Marketing Association.
53
 Brand Piracy
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Brand piracy refers to counterfeiting of popular brand names in
the international market. Brand piracy takes place in case of
outstanding brands where people are brand loyal. It is common
in case of consumer goods and consumer durables.
Reason for the Growth of Brand Piracy
a. The laws in some countries where counterfeiting of brand
names is done are not strict.
b. Popular brands of MNCs from developed countries
command goodwill in. the market and generally people tend
to become brand loyal. Counterfeiters capitalise on such
loyalty by pirating the brand name in one or the other way.
c. Technological know-how required to produce a
counterfeited product is easily available.
Forms of Brand Piracy
a. Imitation: Imitation means copying a popular brand. For
example, many manufacturers produce jeans in India and put
a label of Calvin Klien on it.
b. Faking: Faking mean copying a popular brand with minor
unnoticeable differences. For example, a Seiko watch may be
copied as Reiko watch.
c. Pre-emption: In countries where law permits wholesale
registration of brand names, a counterfeiter may register a
large number of well-known brands in his name and then
sell such brand names to those interested in counterfeiting. .
Consequences of Brand Piracy
a. MNCs are the worst sufferers of brand piracy. But it also
affects others, such as consumers, government, etc.
• Causes unfair competition for MNCs.
• Loss of market share and profit.
• Loss of consumer faith and consumers.
• Poor quality.
• Loss, of revenue for the. government.
b. The US Supreme Court established the Principal of Strict
Liability in 1953 which states that the aggrieved party need
not prove negligence on the part of the manufacturer but
hold him strictly liable for any injury resulting from a
defective product, irrespective of whether he was negligent
or not.
c. Under some contracts of sale, there are express warranties as
well as implied warranties of merchantability. Such
warranties must be taken into consideration while
designing, manufacturing and selling a product.
Legal action may be taken against any or every party involved in
the manufacture and distribution of the products, which prove
to be injurious to the welfare-of consumers.
The exporter must, therefore, study the relevant laws and
regulations of the country and make sure that his products
comply with such laws or carry out necessary modifications in
his products to meet the requirements of the law. Losses arising
out of product liability can be insured by taking appropriate’
product liability insurance policy.
54
Remedies against Brand Piracy
a. The best remedy is to get the brand name registered with
appropriate authority.
b. To initiate Legal action against counterfeiters.
c. To create awareness among consumers about the
counterfeited brands.
d. To introduce some special mark or other distinctive feature
such as packing, protective seal, etc.
e. To withdraw the brand from the market. World Trade
Organisation (WTO) is making some efforts to prevent
international brand piracy.
Product’ Liability
Product liability can be define4., as the responsibility borne by
the manufacturers; distributors and retailers; for any conse-
quent- injuries or damages from products they make or sell.
Recognized Bases of Product Liability
a. Any negligence on the “Part of the manufacturer while
manufacturing the product or negligence on the part of
seller while selling the product which may cause consumers
to suffer injuries or d(Ul1age. Therefore, the manufacturer
must exercise. reasonable care in designing and
Promotion
Marketing Communication, or promotion, plays a very
important role in marketing, both domestic and international.
Even if a product is very good, it may not achieve success unless
the promotion is appropriate and adequate.
‘The word communication in marketing simply means the
transaction of a message, to the buyer or the consumer or the
channel of distribution, in which the supplying company aims
to tell each one of these receiver why they should buy or handle
the product.’
- Simon MaJaro
Promotion mix consists of different techniques of communica-
tion such as advertising, sales promotion, public relations,
personal selling, publicity, packaging and trade fairs and
exhibitions. These factors must be blended together in order to
accomplish the firm’s promotion objectives. The nature of the
export marketing communication mix is determined by the
marketing environment and the company’s objectives and
resources.
Various Elements of Promotion Mix
a. Advertising :- It is any paid form of non-personal
presentation and promotion of ideas, goods and ‘services
by an identified sponsor. The different advertising media
are newspapers, magazines, radio, television, and so on.
However, their relative effectiveness vary from country to
country and so do their availability and efficiency.
Advertising plays an important role in informing,
persuading, and educating the present and potential
customers. .
b. Sales Promotion :- Sales promotion is defined as short-
term incentives offered to encourage purchase or sale of a
product or service. Sales promotion activities include trade
fairs and exhibitions, samples, gifts, contests, games,
11.675.1
 lotteries, discounts, etc. Regulations regarding sales
promotion differ in different countries. Sales promotion
efforts of a firm must be supported or complemented by
the other elements in the promotion mix.
c. Public Relations :- Modern business houses are becoming
more of consumer oriented. They believe in maintaining
good and cordial relations with their consumers, creditors,
dealers as well as intermediaries. Through public relations,
the firm intends to create a positive impression on the
government agencies, employees, shareholders,
consumerists, environmentalists, suppliers, and others,
which may include present and potential customers.
d. Personal Selling :- Personal selling is defined as oral
presentation in a conversation with one or more prospective
consumers for the purpose of effecting sales. Personal
selling may be preferable when the product is technical in
nature, is of high unit value and the number of customers
is limited. Effective communication and skilful
salesmanship is needed to convince and induce the target
customers to buy the company’s products.
e. Publicity :- Publicity is unpaid form of advertising
whereby a news item is carried in the mass media about a
firm and its products, policies, personnel or actions. For
example, a newspaper may publish an article on the company
or its products or activities. It may be favourable or
unfavourable. The publicity unit or the public relations
department may influence the media owners to write a
positive story about the company and its products.
f. Packaging :- Attractive and durable packing not only
protects the product but also acts as a silent salesman. An
attractively designed packaging can attract the attention of
the prospects and can induce them to act upon their buying
decisions. While designing the packages, factors such as the
size and shape of the packages, their colours, language used,
international packing standards, etc., must be taken into
consideration.
g. Trade Fairs and Exhibitions:- Trade fairs and exhibitions
playa leading role in publicising the products of the
exporters. Trade fairs and exhibitions, by bringing potential
buyers and suppliers in contact with each other and
imparting information about the relevant developments
around the world, play an important role in international
marketing. In India, Indian Trade Promotion Organisation
(ITPO) looks after trade fairs and exhibitions of Indian
products.
h. New Information Technologies :- There have been
dramatic changes in the information technology over the
last few years. New information technology modes include
electronic mail, corporate and public databases, application
systems, fax, video and computer conferencing, which are
widely used in the field of international marketing. These
modes are considered to be some of the driving forces of
internationalization.
Some Guidelines Governine: International Promotion Mix
a. Prior permission of the Reserve Bank of India is required
for advertisement on foreign television by a person whose
11.675.1
export earnings are less than Rs.10 lakhs during each of the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
preceding two years, unless the payment is made from their
Exchange Earners Foreign Currency (EEFC) Account.
b. Persons with export earnings of more than Rs.10 lakhs
during each of the two preceding years do not require any
permission from the RBI. However, they are required to
submit to the Authorised Dealers in Foreign Exchange a
certificate from a Chartered Accountant certifying that :-
• The applicant exporter satisfies the criteria of having
export earnings of ore than Rs.1Q lakhs during each of
the preceding two years, and
• The advertisement for which foreign exchange is being
remitted will be broadcast by, the foreign television
company in foreign countries and not in India alone.
• RBIs prior permission is also required in the following
cases:-
• For remittances exceeding US $ one lakh per project for
any consultancy service procured from outside India.
• For use and/or purchase of trade marks/franchise in
India.
• For royalty and payment of lumpsum fees under
technical llaborations
Questions
Q1. What do, you mean by export contract? What are its
elements?
Q2. Explain the obligations of the buyer and the seller under
FOB-& CIF Contract.’
Q3. What are the elements of export agency agreement?
Q4. Explain the procedure far remittance of commission to,
an overseas agent.
Q5. What do, you mean by brand piracy? What remedies are
available to, prevent it?
Q6. What are the recognized bases of product liability?
Q7. What are the various elements a promotion mix?
Case Study -1
On Overseas Agent Selection
(Adapted from CBI News Bulletin)
Study the letter below. The letter has been sent to potential
agents whose names have been given to the Managing Director
of Garments Company Limited by his country’s trade represen-
tative in Turkey.
Dear Sirs,
Our trade representative in Turkey informs us that your
company may be in a position to take up the Turkish agency for
our range of leather jackets. We enclose~ illustrations and price
lists of our products and should be grateful if you could let us
have your comments.
Please let us have details of your organisation, the agencies you
hold at the moment, the area you cover and the commission
rate you would expect on products of this sort.
Yours faithfully,
Managing Director
Garments Company Ltd.
55
 Here are the replies 2a, Assorted Sizes At Once At Your Acc:Ount 60 Days Credit
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

First reply: from the Universal Agency Company At

Dear Sirs, Prices.
Thank you for your letter of November 1st. We are certainly As Per Your List Plus Charges Delivery Our Wareagent
interested in the agency for your most attractive range of leather Istanbul.
garments, which we are sure would sell well in Turkey provided Now that you have studied the replies, reflect on the additional
they are introduced by a large, well established, well- known information you would require on each agent and how you
firm of agents such as ourselves. would try to obtain it. Then list the four potential agents in
We enclose a full list of the 200 firms we represent, and you will your order of preference based on the information given in the
see that they will include well-known names in the field of letters and explain the reasons for your ranking. You are
clothing, hardware, engineering sup-plies and building equip- required to draft an agreement with the selected agent.
ment.
We employ 20 salespersons covering the whole of Turkey and
50 head office staff. We expect to receive a minimum 10%
commission.
Yours faithfully,
Second reply (handwritten): from Y. Evirgen
Dear Sir,
Thank you for your letter. I am very much interested in
becoming the agent for
Your impressive range of leather garments. I have already
shown the illustrations to a garment shop in Izhmir and I
expect they will give me an order in a day or two.
I have been an agent for the last six months and I cover Turkey
using my home as my office. My wife helps with the correspon-
dence and we currently represent the ABC Glove Company of
London in Turkey. We should be happy to work for a 5%
commission.
Yours faithfully,
Y. Evirgen
Third reply: from the Turkish Garment Agency
Dear Sir,
Thank you for your letter of 1st November. Your agency is of
great interest to me as I specialise in leather products. I am sure
I can provide your with good business.
I have employed one representative to cover eastern Turkey and
I will cover the west myself. We have also employed a secretary
at our office in Bursa and we are in close and regular contact
with the wholesale and retail leather - garment distribu-tors,
departmental stores, mail-order agents and institutional buyers
such as the armed forces. We usually work on a 7.5% commis-
sion.
I represent the Jones Garment Company, the Ahmed Garment
Company, the Fungko Brush Company and six shoe manufac-
turers. I am confident that your excellent products would fit in
very well with my programme.
Yours faithfully,
Fourth reply: fax from Quickwork
To: The Garment Company Limited.
From: Quickwork Represent a Tives, Istanbul
Letter Received, Agency Accepted With Thanks, Ship 1000
Pieces,
~Ylli

56 11.675.1

LESSON 9 & 10:
Laws Relating to Credit Contracts (Letter
of Credit)
• Meaning
• Parties
• Procedure
• Types
• Advantages
Laws Relating to Settlement of
International Trade Disputes
• Litigation.
• Arbitration.
• Enforcement of International Arbitration.
• Procedure for Arbitration.
Question Bank
Meaning of Letter of Credit
The D /P and the D / A modes of payment suggest that there
is a certain degree of lack of confidence of the parties in each
other. The exporter is not willing to send the goods on D /P or
D / A basis because he is not sure as to whether the importer
would make the payment and if the importer doesn’t pay, then
he runs the risk of non-payment. Similarly, importer may also
have the feeling that if he makes advance payment to the
exporter and he does not supply the goods of the quality
desired by him on the due date, then he would also suffer loss.
Both the parties would be able to conduct their part of the
transaction smoothly if there is an assurance to them as regards
protection of their interests. The exporter requires an assurance
for payment of the goods if he has sent the shipment as per
export order. The importer on the other hand, requires an
assurance that the payment would be released to the exporter
only when he has supplied the goods as per the terms and
conditions stipulated in the export contract. This assurance is
pro-vided by the importer’s bank and is known as Letter of
Credit or the Documentary Credit.
Letter of Credit refers to a written undertaking made by the
importer’s bank to the exporter that the payment shall be made
to him provided the shipment is sent by him in strict compli-
ance with the terms and conditions of the export contract. The
terms and conditions of the export contract form part of the
letter of credit and are known as the terms and conditions of
the letter of credit. The essential characteristic of the Letter of
Credit is that it relies on the doctrine of strict compliance for
release of payment to the exporter against the draft( s ) drawn
by him. The banks do not deal in goods; they deal in docu-
ments. As such, the importer has to specify to the bank the
documents which it should examine as an evidence to the effect
that the exporter has sent the shipment in strict compliance
with the terms and conditions of the export contract.
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
The operations of Letters of Credit have been regulated and are
governed by the articles of ‘Uniform .Customs and Practice for
Documentary Credits’ of International Chamber of Commerce
adopted by more than 165 countries which were latest revised in
1993 for implementation w.e.f. 1st January 1994.
The operations of Letters of Credit have been regulated and are
governed by the articles of ‘Uniform .Customs and Practice for
Documentary Credits’ of International Chamber of Commerce
adopted by more than 165 countries which were latest revised in
1993 for implementation w.e.f. 1st January 1994.
Procedure for Opening Letter of Credit
The following is the procedure for opening a letter of credit: -
a. Importer’s Request: - If the method of payment agreed
between the importer and exporter is through letter of
credit then the importer requests his bank to open a letter
of credit in favour of exporter, either by paying the amount
of letter of credit or by requesting credit to that extent.
b. Issue of Letter of Credit: - The issuing bank issues letter
of credit in favour of the exporter and sends it to its -
branch located in exporter’s country (advising bank). The
issuing bank may also request advising bank to add its
confirmation, if desired by the beneficiary.
c. Receipt of Letter of Credit: - The exporter takes the
possession of the letter of credit fr6m the advising bank.
He should check the relevant details in the letter of credit
and in case there is any discrepancy, the same should be
brought to the notice of the advising bank..
d. Shipment of Goods: - The exporter fulfils the shipping
and customs procedure and collects the required documents
from various authorities for negotiation.
e. Negotiation of Documents: - The exporter submits the
required documents to the negotiating Bank, which
scrutinises the documents and makes payment to the
exporter.
f. Re-imbursement of Payment:- The negotiating bank gets
the payment reimbursed from the issuing bank..
g. Documents to Importer :- The documents forwarded to
the issuing bank by the negotiating bank are handed over to
the importer and the amount is debited to his account.
1.
Importer Importer’s Advising Bank Exporter
Approaches bank to 2. Bank sends 3. (in exporter 4. Authenticates L/C
Open to L/C L/C country)
& send it to
Procedure for the Issue of Letter of
Credit
Contents of Letter of Credit
A Letter of Credit generally contains the following information:
57
 1. Complete and correct name and address of the beneficiary
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
i.e., the exporter.
2. Complete and correct name and address of the applicant
i.e.:, importer
3. Type of the Letter of Credit/Documentary Credit
4. Amount of letter of credit
5. How the credit shall be available e.g., by payment, deferred
payment, acceptance or negotiation
6. The name of the drawee of the draft and the tenor of the
draft.
7. Description of goods, quantity of the items and the unit
price.
8. List of documents required to be submitted by the
beneficiary.
9. Port of discharge and the place of final destination.
10. Terms of delivery i.e., FOB, CFR, CIF etc.
11. Status of transhipment i.e., whether allowed or not.
12. Status of partial shipment i.e., whether allowed or not.
13. The last date of sending shipment.
14. Time period for the presentation of documents for
negotiation by the beneficiary after the dispatch of the
shipment.
15. The date and place of expiry of the Letter of Credit.
16. Transfer of the Letter of Credit allowed or not.
17. Mode of advice of the Letter of Credit i.e., by mail or
teletransmission.
Documents Required under Letter of Credit
According to Article 4 of the Uniform Custom and practice for
documentary credit in credit operations all parties concerned deal
in documents and not in goods, services and or other perfor-
mances to which the documents may relate. Hence it is necessary
that the beneficiary tenders documents in conformity with the
requirements of letter of credit. Usual documents prescribed in
letters of credit are discussed below:-
1. Bill of exchange:- It is an instrument drawn by one
person(the seller of the goods) on another(the buyer)
directing him to pay to or to the order of drawer(i.e. the
seller). The person whom payment is to be made is called
“payee” who can be either the drawer himself or a third
person. most letters of credit require that the exporter will
prepare the bill called the draft and submit it to the banker
along with other documents. It is document through which
payment is arranged.
2. Commercial invoice:- It is document of content. It
contains details about the goods sold, the price and any
other charges which may be on account of buyer. It also
contains information about any discounts, if given by the
seller. A correctly completed commercial invoice should
conform to the sale contract.
3. Packing List:- this gives details of the individual parcels
shipped to the buyer.
4. Transport documents:- As shipment is the most crucial
condition for payment all letter of credit insist on lodgment
58
of documentary evidence in support of exporter’s
contention of having shipped the goods. Bill of Lading is
issued by the shipping company in case goods are sent by a
sea vessels. Airway bill is used in case of air consignment,
railway receipt in case the goods are sent by land route.
5. Inspection Certificate:- As the goods must conform to
agreed quality standards all letter of credit require an
Inspection Certificate. The Inspection certificate has to be
submitted as a proof of the goods having been inspected
by a qualified government or private agency.
6. Insurance policy Certificate:- Insurance policy is a legal
evidence of contract of insurance showing full details of
risks covered. Insurance certificate , applicable in case of
floating OR open cover contains a declaration regarding
value of ach shipment and is signed by the exporter
himself. Insurance certificates not normally acceptable unless
specifically provided in the letter of credit.
Besides some letters of credit require documents such as
Certificate of Origin ,Analysis and Weight Certificate, health and
Sanitary Certificate to be submitted to the negotiating bank.
Precautions to be Taken by the Beneficiary on the Receipt
of Letter of Credit
An exporter should scrutinise the Letter of Credit carefully
before proceeding to execute the export order. He should
examine the following points to ensure that:
1. The Letter of Credit appears to be a valid Letter of Credit.
He can consult his Banker for this purpose.
2. The type of Letter of Credit and its terms and conditions
are as per the agreed terms and conditions of the export
contract.
3. All the terms and conditions are acceptable and can be
complied with. It should be ensured that the Letter of
Credit does not include any condition that is unaccept-able
or cannot be complied with.
4. The documents required under the Letter of Credit can be
obtained and presented for negotiation.
5. The description of the goods, quantity and the unit prices
are as per the export contract.
6. There is no clause in the Letter of Credit that requires
payment of costs or charges not agreed to with the
importer.
7. The last date for sending shipment and the time allowed
for presentation of the documents are acceptable.
The port of loading and the port of discharge are as per the
export contract. The responsibility.
Parties to Letter of Credit
The following parties are involved in the operation of a letter
of credit :-
a. Applicant or Opener: - The applicant or opener is the
buyer or importer of goods who opens the letter of credit
through his bank in favour of exporter.
b. Beneficiary: - Beneficiary is the exporter of goods in’
whose favour the letter of credit is opened by the importer
through his bank.
11.675.1
c. Issuing Bank: - Issuing bank is the importer’s bank, who If the documents required are without any discrepancy and are

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

issues a letter of credit in favour of the exporter on the as per requirement in the Letter of Credit, the bank undertakes
request of the importer. that the drafts will be honoured. The only risk under this mode
d. Advising Bank: - Advising bank is the branch of issuing of payment is when the documents submitted have discrep-
bank situated in the exporter’s country. Such branch receives ancy. Lithe goods are shipped on a date later than stated in the
the letter of credit and looks after its onward transmission Letter of Credit or any document is missing or there is a
to the beneficiary. spelling mistake in a document, then it amounts to discrepancy
in the document.
e. Confirming Bank: - Confirming bank is the bank situated
in the exporter’s country, which guarantees the credit on the The issuing bank is allowed a reasonable time not exceeding
request of the issuing bank. Many times, the advising bank seven banking days following the day of the receipt of docu-
and confirming bank are one and the same. ments to examine them and determine whether the documents
are discrepant or not. In case the documents are non-discrepant;
f. Negotiating Bank: - Negotiating bank is a bank situated in
the issuing bank makes the payment against the draft / s drawn
the exporter’s country through which documents are
under the Letter of Credit
negotiated by the exporters, I.e., exporter’s bank.
In case the issuing bank comes to the conclusion that the
documents are discrepant, then it would not make the payment
SE
SE LLLE R
1. The buyer and seller enter into a
sales contract providing for BUUYE
YE R and return the documents to the beneficiary or the other party
1 1
(B
(Beene
nefiiccia
iary
ry ) payment by documentary credit. (A
(App
ppllic
icaant
nt)
through whom it had received them. In such an eventuality, the
4
issuing bank must give notice to this effect by telecommunica-
tion or by other expeditious means without delay but in any
case before the close of the seventh banking day following the
day of receipt of the documents. Such notice should be given
4. The advising or confirming bank
to the bank from which it had received the documents or to the
2. The buyer instructs his bank the
informs the seller that the credit
has been issued
issuing bank to issue a credit in beneficiary if it received the documents directly from him. Such
favour of the seller
notice must state all the discrepancies in the documents. In case
the issuing bank fails to examine and determine whether the
documents are discrepant or not within the time limit of seven
2 banking days, then it shall, thereafter, be precluded from raising
AD
DVI SIN
CO
IN G/
ON FI RM MIIN G/
3. The issuing bank asks another
bank, us ually in the country of I SSSUIN
NGG
the issue of discrepancy to reject the documents. In such a case,
N EG
BAN
GO
ANK
OTI
K
TIAT
ATIING
NG 3 the seller, to advise or confirm BBANNKK it will be under an obligation to make the payment against the
the credit.
draft/ s drawn under Letter of Credit.
However, the issuing bank may, in its sole judgment, approach
Chart on relationship among the parties to the letter of credit the applicant to waive of the discrepancy or the discrepancies
Doctrine of Strict Compliance and if the applicant agrees to the request t of the issuing bank
The operation of letter of credit as a mode of payment is based then it would make the payment to the beneficiary otherwise
on the doctrine of strict compliance. This doctrine provides that the issuing bank would act according to the decision of the
issuing bank would make the payment if the documents as applicant. It is important to emphasize here that the issuing
specified under letter of credit appear on their face to be in bank will have the time not later than seven banking days from
compliance with the terms and conditions of the Letter of the day following the receipt of documents to approach the
Credit. Such documents are termed as no discrepant docu- applicant and take the decision accordingly and communicate the
ments. The banks follow the international standard banking same to the concerned party that is pre-senter of documents or
practices to determine whether the documents stipulated in the the beneficiary within the prescribed time limit of maximum
Letter of Credit are in compliance with the terms and condi- seven days.
tions or not. The standard banking practices are given in the Under this doctrine, the bank has the right to reject any
Uniform Custom and Practices for Documentary Credits document, which is not in strict conformity with what is asked
number 500 (1993 revision) as published by the International for in the letter of credit. There is no question of minor or
Chamber of Commerce. According to these guidelines, the major discrepancy in documents. Any discrepancy makes the
issuing bank would examine only those documents which have documents liable for non-acceptance.
been stipulated in the Letter of Credit. In case the beneficiary Form of Documentary Credit or Letter of Credit
has tendered additional documents which are not stipulated in The form of documentary credit is the irrevocable documentary
the Letter of Credit, then the issuing Bank shall not examine credit or the Letter of Credit.
them and return them to the beneficiary without any responsi-
bility. The documents are considered dis-crepant if they do not A Letter of Credit is known as irrevocable Letter of Credit if its
appear on their face to be in compliance with terms and terms and conditions can be cancelled/ modified only with the
conditions of the Letter of Credit or on their face appear to be ex-consent of the beneficiary, the issuing bank and the confirm-
inconsistent with one another. ing bank( if any). Thus, an importer cannot get the terms and
condi-tions of the Letter of Credit modified/cancelled without

11.675.1 59
 the express consent of the ex-porter. An irrevocable Letter of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Credit gives an assurance to the beneficiary that the issu-ing
bank commits itself to honour the draft/s drawn by the
exporter under the credit provided that all the stipulated
documents are presented and these are in strict compli-ance with
the terms and conditions of the Letter of Credit. This means
that the irrevocable Letter of Credit is an insurance against
commercial risks to payment. Such risks are bankruptcy of the
importer, dishonest intentions of the importer to make the
payment or the liquidity problems faced by him and would not
affect payment to the exporter.
On the other hand, a Letter of Credit is known as revocable if
its terms and condi-tions can be amended, revoked or cancelled
without the consent of the beneficiary and even without giving
prior notice to the beneficiary regarding the likely change in the
Letter of Credit. Such a Letter of Credit involves lot of risk to
the beneficiary as its terms and conditions can be modified/
cancelled while the goods are in transit or though the docu-
ments have been presented but before payment could be made.
In such a situation, the exporter will face the problem of
realising payment directly from the importer.
The banks normally do not issue the revocable Letter of Credit
unless there is a specific request to this effect from the applicant.
A Letter of Credit is deemed to be an irrevocable Letter of
Credit unless it is specifically marked otherwise.
A specimen of the letter of credit is given as annexure I to this
chapter.
Kinds of Letter of Credit
There are various kinds of Letter of Credit depending upon the
features added to it as desired by the applicant. The different
kinds of the Letter of Credit are as follows:
1. Sight or Usance Letter of Credit
2. Confirmed or Unconfirmed Letter of Credit
3. Negotiable Letter of Credit
4. Revolving Letter of Credit
5. Red clause Letter of Credit
6. Green clause Letter of Credit
7. Transferable Letter of Credit
8. Back to back Letter of Credit
9. With recourse or without recourse Letter of Credit
10. Standby Letter of Credit
11. Revocable and Irrevocable Letter of Credit
12. Restricted Credits
Sight or Usance Letter of Credit
A Letter of Credit is known as Sight Letter of Credit or the
Letter of Credit at sight if it involves payment to the exporter
against sight draft. On the other hand, if the pay-ment is to be
made against usance draft, then the Letter of Credit is known as
Usance Letter of Credit. In this case, the usance draft is accepted
jointly by the issuing bank and the importer. Once, the draft is
jointly accepted by the bank and the importer, it becomes the
first class commercial paper which can be discounted through
any commercial bank before the due date. This enables an
60
exporter to obtain funds in advance before waiting for the due
date.
Confirmed or Unconfirmed Letter of Credit
An irrevocable Letter of Credit is confirmed when the advising
bank add? its confirmation to the Letter of Credit. This means
that the advising bank assumes the primary liability for making
payment to the beneficiary as if it were the issuing bank. This
arrangement is beneficial for the exporter as it enables him to
protect himself against the political risks involved in transfer of
funds from the importer’s country to the exporter’s country.
This kind of situation may arise when the importer’s country is
at war or is faced with civil/ ethnic disturbances leading to the
imposition of financial emergency or temporary financial crisis
leading to the ban on the transfer of funds out of the country.
It is important to understand that confirmation of Letter of
Credit is possible only if there is a clause in the Letter of Credit
which permits the advising bank or any other negotiating bank
to add its confirmation. Thus; if an exporter wants confirma-
tion of Letter of Credit then he must negotiate for this with
the importer so that he can get this clause included in the Letter
of Credit. Confirmation of credit, in fact, operates as an
insurance against the political risks to payment.
An irrevocable confirmed Letter of Credit is the most beneficial
form of credit for the exporter as he has obtained assurance of
payment from two banks namely, the issuing bank and the
confirming bank. The exporter should take the decision
regarding confirmation carefully as it involves cost in terms of
payment of confirmation charges to the bank. It is the most
desirable to opt for confirmation in the case of those countries
which are politically unstable or the financial standing of the
issuing bank is not very good.
Once the payment is made by the confirming bank ( it is usually
located in the exporter’s country)/ then it claims the amount of
Letter of Credit from the issuing bank. In case it fails to obtain
the payment from the issuing bank for any reason, then it
cannot claim the amount from the exporter, i.e. the beneficiary
under the Letter of Credit. Confir-mation of Letter of Credit is,
thus, without recourse to the beneficiary.
On the other hand, if the irrevocable Letter of Credit does not
provide for its confir-mation, then it would be known as
unconfirmed Letter of Credit
Negotiable Letter of Credit
A Letter of Credit is known as negotiable if the issuing bank
authorises the negotiating bank to honour the draft/s drawn
under the terms of the credit. In such a case, the exporter gets
the payment even before the documents are scrutinised by the
issuing bank. The negotiating bank i.e., the bank through which
the documents are pre-sented for negotiation for realisation of
the export proceeds, would examine the documents and if the
same are found to be non discrepant, then the it would release
the payment under the terms of the credit to the exporter
subject to an undertaking from the exporter that in case the
issuing bank does not release the payment then he would
refund the amount to the negotiating bank. Thus, the negotiat-
ing bank reserves to itself the right to take recourse to the
beneficiary in the event of non- payment by the issuing bank
11.675.1
under the credit. This facility of payment would be available to
the exporter only if it is stated in the Letter of Credit that the
payment is allowed by negotiation and the name of the bank(s)
allowed to negotiate is also stated in the Letter of Credit. In case
the name of the negotiating bank is stated in the letter of credit,
then the negotiation is restricted to the nominated bank and the
credit is then called the restricted credit. In case the issuing bank
agrees for negotiation by any bank then the credit would be
called Unrestricted.
Revolving Letter of Credit
A revolving letter of credit is one which provides for the
renewal of the amount of the credit without any amendments
to the letter of credit in relation to a given time period or a
given amount. The revolving letter of credit may be revocable or
irrevocable. For example, a letter of credit may revolve initially
for an amount upto $20,000 per month for a fixed period of
say, three months. In this case, the amount of credit shall be
renewed for $20,000 every month for a period of three months
irrespective of whether any credit was utilised or not by the
beneficiary during the month. Thus, while the face value of the
letter of credit is $20,000, the undertaking of the issuing bank is
for the total amount of $60,000 in revolving periods each for
$20,000 for three months:
The revolving credits are opened in those cases where the
importer regularly im-ports goods from a certain exporter.
Instead of opening letter of credit for each import, the
importer saves on the transaction costs by opening the revolv-
ing credit. The disadvan-tage of revolving credit from the point
of view of the importer is that he enters into long term
commitment with a particular supplier and thereby deprives
him of the possible of opportunities of making imports at
competitive rates in future.
The revolving credit may be cumulative or non-cumulative. The
credit is consid-ered Cumulative if the unutilised amount of
one time period can be carried over to the next period. If the
unutilised amount cannot be carried over, then the credit would
be called Non- cumulative.
Red Clause and Green Clause Letters of Credit
A Red Clause letter of credit is a kind of credit which enables
the confirming bank or the nominated bank to make advances
to the beneficiary even before the presentation of the docu-
ments. Since this clause used to be written customarily in red
ink hence the name Red Clause letter of credit. This clause states
the amount that can be advanced to the beneficiary and in
certain case it may cover even the full amount of the letter of
credit. The confirming or the nominated bank recovers the
amount of advance with interest out of the payment realised
under the credit. In case the documents presented by the
exporter are found to be discrepant then the bank which had
given the advance will have the right to demand repayment of
the advance amount with interest from the issuing bank. The
issuing bank would have the right of recourse against the
applicant Le., the importer. This means that the liability will fall
on the applicant. Whether such a clause would be included in
the letter of credit or not depends upon the agreement between
the exporter and the importer. On the other hand, the letter of
credit is known as Green Clause letter of credit if it provides for
11.675.1
the credit given to the exporter to cover the period of storage of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
goods at the sea port.
Transferable Letter of Credit
Transferable letter of credit is a credit which authorises the
advising bank to trans-fer part or full amount of the credit to
any other party at the request of the beneficiary. In this case, the
importer runs the risk of accepting the shipment of goods
from a party other than with whom the order was placed and
the party supplying the goods may not have had any business
dealings in the past with the importer. However, once the credit
is transferred, the transferee gets the right to make presentation
of the draft/.s and the docu-ments and claim payment for the
goods supplied. This kind of credit is very useful in those cases
where the importer is making imports through an agent in the
exporting country. Such agents, known as buying agents in the
exporting country, maintain the list of reliable exporters for the
supply of goods to their Principals in the foreign country. The
transferable credits help the buying agents to transfer part of the
credit amount to differ-ent exporters who have been given the
orders for the supply of goods to the importer.
Back -to- Back Letter of Credit
Back -to- Back letter of credit is a credit which is issued at the
strength of another letter of credit. For example, an exporter
who has received a letter of credit for the export of goods may
have to import goods from another country for the execution
of the order. The foreign supplier may ask for payment against
letter of credit. The exporter can request for the issue of import
letter of credit on the strength of the export letter of credit. The
second letter of credit is known as the back-to -back letter of
credit. Thus, the back- to-back letter of credit involves two
separate letters of credits as follows:
1. One opened in favour of the primary beneficiary or the
original exporter.
2. The credit opened in favour of the second beneficiary who
would supply goods to the first beneficiary. Thus, the first
beneficiary becomes the applicant for opening of the second
letter of credit. It is important to ensure that the second
letter of credit specifies all the documents required by the
first credit and the time limits set for presentation of the
documents in such a manner that it will enable the primary
beneficiary Le., original exporter to present the documents
within the time limits set by the primary letter of credit
With Recourse or Without Recourse Letter of Credit
A letter of credit is with recourse when under the terms of the
credit, the negotiating bank or the nominated bank cannot
approach the beneficiary for the refund of the payment made
under the letter of credit. It is without recourse when the
negotiating or the nomi-nated bank cannot approach the
beneficiary to refund the payment under the letter of credit. A
confirmed letter of credit is without recourse to the beneficiary
and the uncon-firmed or the negotiable credits are always with
recourse to the beneficiary.
Standby Letter of Credit
Standby letter of credit is an assurance to the beneficiary that the
applicant shall perform his part of the obligation undertaken by
him under the contract between the applicant and the benefi-
61
 ciary. It is, in fact, a kind of performance guarantee to support c. Delivery in Time :- A letter of credit is honoured only
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

the beneficiary in the event of default by the applicant. The
subject matter of this kind of letter of credit could be :
1. Repayment of the money borrowed by the applicant from
the beneficiary or
2. Payment on account of any indebtedness undertaken by the
applicant or
3. Payment on account of any default by the applicant in the
performance of any obligation undertaken by the
applicant.
Revocable and Irrevocable Letter of Credit
Under the revocable letter of credit, the issuing bank retains the
right to cancel or modify the credit. Whereas in an irrevocable
letter of credit, the issuing bank gives a binding undertaking to
the beneficiary.
Restricted Letter of Credit
This refers that negotiations under a credit may be restricted by
the issuing bank to a named bank.
Advantages of Letter of Credit
Advantages of Letter of Credit to Exporters
a. Prevents Blockage of Finance: - The letter of credit
received from the importer can be discounted with the
confirming bank and money can be realised immediately.
This prevents blockage of funds. At the same time, after
fulfilling the required formalities the exporter gets
immediate payment.
b. Prevents Bad Debts: - In the case of a letter of credit, the
payment is I guaranteed by the issuing bank and therefore,
the risk ‘of bad debts is less. A confirmed letter of credit is
more secured due to double guarantees from the issuing
bank and the confirming bank.
c. Fulfilment of Import Regulations: - The letter of credit is
issued by the issuing bank after the importer complies with
the import regulations and exchange control regulations in
his country. Thus, after getting letter of credit unnecessary
delays caused by import regulations can be avoided.
d. Importer’s Obligation: - The importer may refuse to
accept goods in the case of other methods of payment. But
in the case of the letter of credit, the importer cannot do so
because it is obligatory for him to accept goods and make
after the exporter dispatches. the shipping documents to
the importer. Thus, a letter of credit assumes timely delivery
of goods to the importer.
d. Overdraft Facility ::The importer may also get a letter of
credit issued in favour of the exporter on the basis of
overdraft facility extended to him by the issuing bank.
Thus, the importer gets possession of goods without
making actual payment.
e. No Advance Payment:- The importer is not required to
make any advance payment to the exporter once a letter of
credit is issued.
Settlement of Payment under Letter of Credit
The procedure for the settlement of payment against the export
shipment sent under a letter of credit depends upon the
payment mode stated in the letter of credit. Generally, the
sequence of steps involved in this procedure is as follows:
1. The beneficiary (exporter) sends the shipment as per the
terms and conditions of the credit.
2. Exporter collects the required set of documents and draws
the Bill of Exchange as per the requirements of the credit.
3. The set of documents as stated in (2) above are presented
by the exporter to his bank, called beneficiary’s bank.
4. The beneficiary’s bank forwards these documents to the
issuing bank
5. The issuing bank scrutinises the documents and if the same
are found to be non discrepant, then it sends the remittance
to the beneficiary’s bank for its onward credit to the
beneficiary. But in case the documents are found to be
discrepant then the issuing bank may approach the applicant
to decide the course of action it would take in regard to the
discrepant set of documents. The possible options are
rejection of documents; ignoring the discrepancies and
making payment to the beneficiary or sending documents to
the beneficiary for removal of the discrepan-cies. The
issuing bank would follow one of the options as desired by
the applicant.
4B. Documents Released
Importer
3. Informs
For advise

Beneficiary Beneficiary
Issuing Bank
5 A.

(exporter) (Exporter)
to

payment once he gets the documents negotiated in his submits

7. Account
Bank forwards
Remittance (L/C opening
Bank)
documents to them to
favour. of exporter
credited
sent 6.
Discrepant
Documents
e. Helps to Procure Pre-shipment Finance: - In India an
exporter can obtain pre-shipment finance from commercial
Remittance

banks on the strength of a letter of, credit issued by the Security of

importer’s bank in his favour. Documents

Advantages of Letter of Credit to Importer

Non-
a. Better Terms of Trade :- Since in the case of a letter of Discrepant

credit, payment is assured, the importer is in a better

position to negotiate the terms of trade with foreign Procedure for Settlement of payment Under L/C.
suppliers which otherwise is not possible.
Payment Settlement Procedures
b. Guaranteed Shipment :- Shipment of goods cannot be
The above procedure would be changed depending upon the
delayed once a letter of credit is issued. Therefore, the
type of payment settlement procedure specified under L/e. The
importer is assured of the delivery of goods in time.
various types of settlement procedures are as follows:

62 11.675.1
1. Settlement by deferred payment.
2. Settlement under negotiable letter of credit.
3. Settlement under confirmed L/ e.
4. Settlement against acceptance.
Settlement by Deferred Payment
The procedure for retaliator of payment under deferred
payment arrangement is as follows:
1. The beneficiary presents the documents to the nominated
bank for deferred credit and the nominated bank makes
payment to the beneficiary at a future date against
presentation of conforming documents. In this case the
exporter is not required to prepare any draft. However, a
draft may be prepared by the exporter to be pre-sented to
the nominated bank for acceptance of the liability as regards
payment at a future date. The nominated bank accepts the
draft and returns it the exporter. The dates on which
payment is made is always defined as a certain number of
days from the date of presentation of the documents. It is
the responsibility of the issuing bank to make the payment
on due date.
2. The nominated bank which accepted the draft sends the
documents to the issuing bank informing that it has
accepted the draft drawn by the beneficiary.
3. The issuing bank scrutinises the documents and if the same
are found to be non discrepant then it reimburses the
amount of the draft to the accepting bank/nominating
bank..
4. The issuing bank releases the documents to the importer.
5. The accepting bank or the nominating bank releases
payment to the beneficiary.
It may however, be noted that in case of negotiable credit or the
confirmed credit the negotiating bank/ confirming bank will
release the payment to the beneficiary on due date even before
the reimbursement is received from the issuing bank.
Procedure for Settlement under Negotiable Letter of
Credit
The procedure for settlement of payment under negotiable
letter of credit is as follows:
1. The basic procedure remains the same as outlined above
with the only difference being that the negotiating bank will
release the payment to the beneficiary against the draft
drawn under the L/C after satisfying itself that the
documents presented by the beneficiary are non discrepant.
2. The exporter submits an undertaking to the negotiating
bank that it will refund the amount to the bank if the
payment is not received by the negotiating bank from the
issuing bank..
3. The negotiating bank after making payment to the
beneficiary sends the docu-ments to the issuing bank.
4. The issuing bank checks the documents and sends
reimbursement to the negotiate- in bank if the documents
are non discrepant.
5. The issuing bank sends the documents to the buyer.
11.675.1
Procedure for Settlement of Payment in Case of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Confirmed Letter of Credit
The procedure for settlement of payment in the case of
confirmed letter of credit is explained below:
1. The exporter presents the documents to the confirming
bank after sending the shipment as per the terms and
conditions of the letter of credit.
2. The confirming bank examines the documents and if
found non discrepant, it releases the payment to the
beneficiary i.e. ,exporter.
3. The confirming bank then sends the documents to the
issuing bank for claiming reimbursement for the payment
made.
4. The issuing bank sends reimbursement to the confirming
bank if the documents are found to be non-discrepant.
5. The issuing bank releases the documents to the applicant
i.e. the importer.
In case the documents are found to. be discrepant, the confirm-
ing bank will not release payment to the exporter and would
seek the advise of the issuing bank for taking suitable action in
the matter.
In case the confirming bank has released payment to the
exporter but it fails to get its reimbursement from the issuing
bank then it cannot take recourse to the exporter and in such an
eventuality it would be the loss of the confirming bank.
Procedure for Settlement of Payment in the Case of
Transferable Letter of Credit
In case a part or whole amount of the letter of credit has been
transferred then the transferee becomes the beneficiary and
would present the document for negotiation in the same
manner as if he were the original beneficiary.
Procedure for Settlement of Payment by Acceptance
The procedure for settlement of payment by acceptance is as
follows:
1. The beneficiary i.e., exporter tenders documents evidencing
shipment of goods to the bank where credit is available by
acceptance (Accepting Bank). The draft is drawn on the
Accepting Bank with specified tenure i.e. the time when
payment is to be made and is also presented along with the
documents.
2. The Accepting Bank checks the documents and if these are
as per the credit require-ments, then it accepts the draft and
returns it to the beneficiary.
3. The Accepting Bank then sends the documents to the
Issuing Bank stating that it has accepted the draft.
4. The Issuing Bank checks the documents and if these are as
per credit requirements then it makes payment to the
Accepting Bank at maturity.
5. The Accepting Bank makes payment to the beneficiary.
6. The Issuing Bank sends document to the applicant (i.e.,
importer).
63
 Law Relating to Settlement of International trade
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
disputes
Written orders rather than based on verbal orders conveyed
personally by the importer. The written export orders/
agreements/contracts form the basis of exports business. This,
in turn, forms the basis of disputes between the parties to a
trade transaction. Disputes arise due to the breach of contract
either by exporter or importer. For example dispute may be the
result of the following:
1. Non-supply or short supply or delayed supply of goods.
2. Non-payment of discounts and commissions by the seller.
3. Non-remittance of sale proceeds by the buyer.
4. Difference in interpretation of the clauses in the agreement.
5. Difference in the interpretation of quality standards.
6. Difference due to language problems, commercial practices
etc
There is a need to reduce to the minimum the incidence of
disputes. If the incidence of disputes is heavy, it not only spoils
the name and trade prospects of the exporter concerned, but
also the image of the country. One of the ways to minimise
trade disputes is to use standard contract forms. Indian Council
of Arbitration has evolved the contact form, a copy of the same
is given at the end..
Inspite of written agreement and all the precautions taken,
disputes do arise. How to settle the disputes?
Settlement of Industrial Disput
Similar to domestic trade, disputes are inevitable in international
trade. There are a number of alternative ways to settle a dispute
in international transactions.
There are Four ways of settling a dispute, but two are the well
recognized methods for settlement of dispute, i.e. litigation
and arbitration . Litigation is not suitable for settlement of
trade disputes as it is beset with inordinate delays, high costs
and uncertainty of the final decision.
1. Conciliation
2. Mediation
3. Litigation
4. Arbitration
1.Conciliation
Amicable settlement of disputes through the good offices of
an impartial third party is termed as conciliation. Indian
exporter can approach Indian Government Trade Representative
abroad for settlement of the dispute through conciliation. This
is done by persuading the importer directly or through Govern-
ment authorities or local chamber of commerce to agree for
amicable settlement.
The importers can approach the Directorate General of
Commercial Intelli-gence & Statistics, Calcutta, of the Ministry
of Commerce in case they have any complaint against the
Indian Exporter and want settlement of the dispute through
conciliation. Indian Council of Arbitration, New Delhi has also
been endeavoring to conciliate in a large number of complaints
from foreign importers and vice versa.
64
Conciliation refers to a process where parties resolve their
dispute by direct negotiation on a voluntary basis without the
assistance of a third party. Conciliation, as a way of dispute
settlement, has a number of advantages, including a simple
procedure, saving on the cost and the possibility of maintaining
the cooperative relationship among the parties involved.
However in practice, conciliation often fails to reach a mutually
satisfactory solution. Furthermore, the agreement reached
through conciliation lacks the legal binding effect upon the
parties and therefore, if one party withdraws from the agree-
ment, new dispute may likely arise. As a consequence, the
proportion of disputes settled through conciliation is relatively
small in international trade. In case the conciliation efforts fail
the matter can be settled through arbitration-.
2. Mediation
Mediation is a process where the parties involved in a dispute
resolve their dispute with the assistance of a third party (the
Mediator). The Mediator is mostly a permanent arbitration
institute. Many permanent arbitration institutes (e.g. China
International Economic and Trade Arbitration Commission,
International Chamber of Commerce) have their mediation
rules or include the rules of meditation in their arbitration rules.
Although some arbitration institutes may not have particular
mediation rules, it does not mean they will exclude mediation
from being applied as a form of dispute settlement.
Similar to conciliation, mediation is based on the respect for the
free will of the parties and an informal negotiating atmosphere.
The advantage of mediation is that, due to the participation of
the third party, the process of reaching an agreement among the
parties will be accelerated. In the meantime, if the arbitration
body makes an award in accordance with the mediation
agreement reached by the parties, the stipulation of the
agreement will have a legal binding effect upon all the parties
involved. In comparison with litigation and arbitration,
mediation requires less cost and is a simpler process.
3. Litigation
A controversy before a court or a “lawsuit” is commonly
referred to as “litigation”. If it is not settled by agreement
between the parties it would eventually be heard and decided by
a judge or jury in a court. Litigation is one way that people and
companies resolve disputes arising out of an infinite variety of
factual circumstances.
The term “litigation” is sometimes to distinguish lawsuits
from “alternate dispute resolution” methods such as “arbitra-
tion” in which a private arbitrator would make the decision, or
“mediation” which is a type of structured meeting with the
parties and an independent third party who works to help them
fashion an agreement among themselves.
Definition of Litigation
A dispute is in “litigation” ( or being “litigated”) when it has
become the subject of a formal court action or law suit. Also
the study of court process, both civil and criminal.
Using legal action to recover a debt. NRC’s Tandem Program
offers full follow through to litigation forwarding, when
warranted. Litigation is most often used as the final remedy
after all other collection efforts have failed. Litigation is at NRC’s
11.675.1
option and may not be a cost-effective solution on low-balance
accounts
Basic Limitations of Litigation
a. Lengthy and Time Consuming :. Court process is
generally very slow, time-consuming .and’ formalistic. It
takes years for settlement o f a dispute in a court of law. At
the same time, longer the time higher is the cost and other
expenditure.
b. Requires Concrete Evidences :- Generally, judges and
lawyers are not well-versed with the practices and procedures
of the international trade. Therefore, such trade practices
and procedures have to be proved before the court by expert
witnesses having knowledge and experience in the field.
c. Inconvenience to the Parties :- Since the litigation
procedure is lengthy and time consuming, it causes
inconvenience to the litigants and disturbs their mental
peace. At the same time, the time, place and date of
hearings in a court of law may not be convenient to parties
to litigation.
d. Adverse Public Image:- The court proceedings are open to
the public and judgments of higher courts are also
published. This may cause litigants to expose their internal
and private affairs and trade secrets and the reputation of
the organisation may be affected adversely.
e. Bitterness and Disruption of Trade Relationship :-
Acrimony and bitterness usually accompany litigation and
irrespective of which party wins, many times it results into a
breach or disruption of the long standing trade
relationships between the parties.
f. Different Laws and Procedures :- International trade
transactions involve parties from different foreign countries
whose laws and procedures are not same~ International
trade laws and procedures are rather complicated.
4. Arbitration
According to Indian Council of Arbitration (lCA), arbitration is
the voluntary submission of a dispute to one or more impartial
persons for final and binding determination. It is a substitute
for court proceedings, and arranged in two ways, i.e. either
through “future disputes clause” or “submission agreement”.
Future disputes clause provides for reference of the dispute for
arbitration by the agreed agency. On the other hand, “submis-
sion agreement” refers to the agreement between the parties
usually, written, to submit the dispute after it has arisen, to one
or more arbitrators.
Arbitration is the reference of a dispute to one or more
independent third person(s) who act(s) as judge and jury. In
advance of the arbitration, the parties agree to be bound by the
arbitrator’s decision. Cases that are arbitrated are generally
resolved faster than conventional lawsuits because there is less
bureaucracy and court congestion is not a problem. In an
arbitration, witnesses are placed under oath and written evidence
is submitted, but the technical rules of procedure followed by a
court do not apply. Due to above limitations arbitration is
preferred to litigation as a method of dispute settlement at the
11.675.1
international level. Arbitration bas certain advantages over
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
litigation.
Future Disputes clause is an insurance of a quick and just
settlement of possible future dispute.
The arbitration clause-Future Disputes Clause-must provide
for:-
a. The nature of questions/matters to be referred to
arbitration.
b. Name and rules of procedure of the arbitral body to which
dispute is to be referred.
c. An unequivocal statement as to the finality and binding
nature of the award given by the arbitral body., and
d. The venue of arbitration and the number of arbitrators
who would hear and decide the dispute.
Basic Steps are Involved in Arbitration
After all parties have been informed of the controversy, an
agreement can be reached to resolve the matter through
arbitration. The parties decide whether the arbitration will be
binding or non-binding and then select the arbitrator. Usually
the arbitrator is selected from a panel or list of available
arbitrators. Once the matter has been submitted to the arbitra-
tor (and when each side has paid his/her respective share of the
arbitrator’s fee), the arbitrator will contact all parties. A schedule
will be set, which includes when all documents must be
exchanged, when all witnesses must be disclosed, when
arbitration briefs (written statements covering the facts and the
law of the given controversy) are to be submitted, and where
and when the hearing will be conducted.
At the arbitration hearing, each of the respective parties is
allowed to present his/her evidence concerning the controversy.
Opening statements can be presented, but are usually waived
since arbitration briefs have been submitted. Witnesses (both
percipient -those who saw and heard - as well as experts) are
examined and cross-examined. Documents and other evidence
are submitted. Closing arguments may be presented.
Once all evidence has been submitted to the arbitrator, the
matter is taken under submission. This means that the
arbitrator will take some time to consider all of the evidence
that has been presented. After carefully review, the arbitrator will
make an “arbitrator’s award.” After the arbitrator’s award has
been issued, the prevailing party often has the ability to have it
issued as an enforceable order of a court of law.
Model Arbitration Clause
The Indian Council of Arbitration has suggested the following
clause for insertion in the agreement.
“ All matters of dispute or differences whatsoever arising
between the parties out of business transaction or relating to
the construction, meaning and operation or effect of this
contract or breach thereof shall be settled by arbitration in ac-
cordance with Rules of Arbitration of the Indian Council of
Arbitration and the award made in pursuance thereof shall be
binding on the parties”
Basic Advantages of Arbitration
a. Quickness: - Arbitration procedure is simpler and much
quicker than litigation. Under the Arbitration Act, the
65
 arbitrators have to make the award within four months
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
from the date of entering on the reference. Usually an
arbitration case may be settled between four months to one
year.
b. Inexpensiveness: - The costs and expenses involved in
arbitration are much less than in those involved in the
litigation. Apart from the. Arbitration fee, which is just 2
percent of the claim value or even less in institutional.
Arbitration, the other incidental expenses are rather
moderate and low.
c. Promotes Goodwill: - Arbitration hearing takes place in
very friendly and cordial atmosphere and thereby promotes
friendly trade relations between the parties. The arbitrator is
a person chosen by the parties themselves on the
basis of their faith and confidence in him.
d. Sound and Cogent Decision: - In arbitration, the parties
choose an arbitrator having knowledge and experience in the
line of trade to which the dispute relates. This helps in
avoiding unnecessary delay caused due to lack of knowledge
on the part of judges.
e. Privacy: - Arbitration proceedings are not open to public
and arbitrators’ decisions are not published in law reports
like the court decisions. Therefore, arbitration preserves the
privacy and trade secrets of the parties involved in the
arbitration.
f. Reducing the Psychological Costs of Litigation: The
speed of arbitration and the informality of the process,
couples with a less-confrontational discovery process
minimizes and allows the parties to quickly get on with
their lives.
g. Confidentiality: Unlike court cases, arbitration proceedings
are not public. The case will not be tried in the newspaper.
h. Quality of the Decision: Arbitrators knowledgeable in
employment law may render more rational and
predictable decisions that juries which may be swayed by
emotion.
Disadvantages of arbitration
1. Limited appeal rights: By law, arbitrators’ decisions are
meant to be final, and can be appealed only on limited
grounds.
2. More frequent utilization: Employees can more easily
challenge personnel decisions. However, employers should
accept the possibility of increased challenges, as a tradeoff to
the far greater cost savings which arbitration offers.
Enforcement of International Arbitration
In the case of international transactions, arbitration becomes
international when at least one of the parties involved is
resident or domiciled outside India or the subject matter of the
dispute is abroad. In this case, the law applicable to an arbitra-
tion proceeding depends upon the terms and conditions of the
export contract and the rules of conflict of laws. Therefore, it is
always advisable to specify in the export contract as to which
laws the contract is subject to in case a dispute arises in future.
Depending upon the export contract, arbitration can take place
either in the exporter’s or importer’s .country. The whole
66
philosophy behind the system of arbitration for settling
commercial disputes is that the awards should be voluntarily
honoured by the parties concerned. But, sometimes a party
against whom the decision is made, does not either comply
with or delays compliance with the award. To overcome this
problem, a number of countries have provided for legal
remedies for the enforcement of awards rendered therein.
However, difficulties may arise when an award is to be enforced
in country other than where it is’ given. This is because there
exists a wide disparity and complexity in the laws and proce-
dures of different countries in respect of enforcement of such
awards.
Releasing these difficulties, several multilateral international
conventions have been organised for attaining uniformity and
certainty in the enforcement of arbitral awards in different
countries. These conventions include:
a. Geneva Protocol on Arbitration Clauses, 1923,
b. Geneva Convention of the Execution of Foreign Arbitral
Awards, 1927.
c. New York Convention for the Recognition and
Enforcement of Foreign Arbitral Awards, 1958, and
d. European Convention on International Commercial
Arbitration, 1961.
Besides, these Conventions, arbitral awards are also enforceable
under bilateral treaties between different countries.
Law for the Enforcement of Foreign Awards in India
India is one of the parties to the 1927 Geneva and, the 1958
New York Convention. As a commitment to the provisions of
these conferences, India has enacted the Arbitration (Protocol
and Convention) Act, 1937 and the Foreign Awards (Recogni-
tion and Enforcement) Act, 1961, respectively, giving effect to
the two Conventions.
Prior to 1996, statutory provisions on arbitration were con-
tained in three different enactments, viz.,
a. The Arbitration Act, 1940.
b. The Arbitration (Protocol and Convention) Act, 1937, and
c. The Foreign Awards (Recognition, and Enforcement) Act,
1961.
The Arbitration Act laid down the framework within which
domestic arbitration was carried in India while the ‘other two
Acts dealt with foreign awards. However, the Arbitration and
Conciliation Act, 1996 has repealed the earlier Acts. The new Act
has strengthened and clarified the provisions relating to
international commercial arbitration.
Enforcement of Indian Awards in Foreign Countries
Similarly, awards made in India are also enforceable in foreign
countries, which are parties to any of the international conven-
tions relating to the enforcement of foreign awards. However,
enforcement of arbitral awards in countries, which do not
adhere to either the 1937 or the 1961 Convention or other
similar international regulations, is somewhat difficult.
Procedure for Arbitration
a. Inclusion of Future Dispute Clause: - If the parties to
the export contract desire to settle all future’ disputes
11.675.1
 relating to the contract through arbitration, then the same
can be done by inclusion of ‘Future Dispute Clause’ in the
export contract. If the export contract does not provide for
an arbitration clause then the parties to the contract later by
an agreement, usually written,. submit a controversy to one
or more arbitrators for ‘arbitration. This is called a
‘Submission Agreement’.
b. Initiation of Arbitration: - The party desirous to ‘apply
for arbitration should make an application to the Secretary
along with prescribed registration fees and the following
details: -
• The names and addresses of the parties to the disputes.
• Full details of the applicant’s case.
• Original (or duly certified copies) of such documents and
information relevant to the case.
c. Fees and Expenses: - The fees and expenses incidental to
the ‘arbitration procedure and the award’ include: -
• Registration fee
• Administrative fee and
• Arbitrator’s fee
The registration fee is fixed while the amount of other two,
fees is determined by the ‘Bench’ on the basis of the amount
of suit and the time spent an the case. In, addition,
traveling expenses incurred by the arbitrator or the Secretary
and applicable stamp duty is also included in the total cost.
d. Constitution of Bench: On receipt of the application, the
Secretary constitutes a Bench far the adjudication of the’
dispute or difference. The Bench consists of o ne or three
arbitrators selected form a ‘Panel of Arbitrators’ maintained
by’ the Council. The Panel includes qualified and
experienced parsons from various lines of trade and the
legal profession. It also’ includes persons of various foreign
nationalities. The appointment of arbitrator is made in
accordance with the Council’s Rules. “
e. Deciding the Venue: - The arbitration proceedings are held
at such places) in India or abroad as the bench may
determine taking into, consideration the previsions of the
export contract.
f. Declaration of Awards: - When the Bench of arbitrators
signs the award, the Secretary gives a notice in writing to, the
parties to, the arbitration about the amount of fees and
charges payable in respect of the arbitration and the award
declared. The Secretary sends a true’ copy o f the ward to, the
parties by registered past provided the’ arbitration Costs
have been fully paid. The party, which wishes the award to,
be f1leq before the court, shall pay the prescribed fee to, the
Indian Council o f Arbitration (ICA), in addition to, the
court fees.
g. Enforcement of Awards: - The whale philosophy and,
spirit behind the system of arbitration far settling
commercial disputes are that the awards are voluntarily
complied with by the parties concerned. But, sometimes a
party against wham the decision is made, does not either
11.675.1
comply with or delays compliance with the award. To,
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
overcame this problem, a number of countries have
provided far legal remedies far the enforcement of awards
rendered therein.
Advantages of Arbitration over Litigation
1. Arbitration can be set in two to three weeks or, at most, two
to three months instead of two to three years for a trial
setting.
2. There is little or no “discovery.” Either depostions and
interrogatories will be restricted or else there may be none.
3. Arbitration is private. Court is public. In arbitration, strangers
and news media will not be allowed in court.
4. Arbitration is not appealable. It is final. Court cases are always
subject to rehearings, new trials, and appeals. Post-trial
proceedings can take longer and cost more than the original
trial. Arbitration generally has no rehearings, new trials, or
appeals.
5. Litigation costs in arbitration are substantially less than in
court.
6.Arbitrators are not known for awarding huge amounts for
punitive damages, mental anguish, pain and suffering and
other non-economic damages.
7.Arbitration can be done with or without lawyers — your
choice.
Guidelines for Settlement of Ttrade Dispute
Exporters should project a good image of the country abroad
to promote exports. With this objective in mind, an enduring
relationship with foreign buyers is of the utmost importance,
and trade disputes, whenever they arise, should be settled as
soon as possible.
The majority of complaints from foreign buyers are with regard
to qual-ity. Other complaints are usually for unethical commer-
cial dealings on the part of Indian exporters and can be
categorized as non-supply of goods after confirmation of the
orders, non-payment of agreed commission, non-adher-ence to
the delivery schedule etc. The work relating to dealing such
complaints oi foreign buyers has been centralised with the
‘Nodal Officer’ and its assist-ing cell viz., the Trade Disputes
Cell in the office of the Director General of Foreign Trades,
Ministry of Commerce, Udyog Bhawan, New Delhi.
Action against Erring Exporters
A. Enforcement action in the office of Director General of
Foreign Trade against erring exporters can be taken under the
existing rules & regulations depending on the offence as
follows:-
Non-payment of commission, supply of sub-standard goods,
non-adher-ence of delivery schedules, indulgence in unethical
commercial dealings, amount to breach of contract for which
action can be taken under clause 7 of the Export(Control)
Order, by which the Central Government or Director General
of Foreign Trade or an authorised officer may debar an exporter
from export-ing any goods if he commits a willful breach of
contract. This applies to the cases pertaining to a period prior to
19-06-1992. However, cases pertaining to a period on or after,
19-6-1992 enforcement action is taken in terms to Foreign
67
 Trade(Development & Regulation) Act, 1992 and Rules framed
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
there under namely:
a. Section 8 empowers the Director General of Foreign Trade
to suspend or cancel the Importer Exporter Code Number
which is a prerequisite for any export or import, where the
Director General of Foreign Trade has inter alia reason to
believe (a) that the exporter has committed an economic
offence as a specified by the Government or
b. That any per-son has made an export import in a manner
gravely prejudicial to the trade relations of India with any
foreign country or to the interests of other persons engaged
in imports or exports or has brought disrepute to the credit
or the goods of the country.
c. Sector 9(4) empowers the Director General of Foreign Trade
or the of-ficer authorised by him to grant licence, to
suspend or cancel any licence granted under the Act. Rule 10
of the Foreign Trade (Regulation) Rules, 1993 lays down
the conditions for such cancellation under Section 9(4) of
the said Act. This includes cases where the licence has been
obtained by fraud, suppression of facts or
misrepresentation and where the licen-see has contravened
any law relating to Custom or Foreign Trade or the Rules &
Regulations relating thereto.
d. Section 11(2) of the Act provides for imposition of fiscal
penalty in cases where a person makes or abets or attempts
to make any import or export in contravention of any
provisions of the Act, any Rules or Orders made there
under or the Export-Import Policy. Rule 11 of the Foreign
Trade (Regulation) Rules, 1993 requires an exporter to state
in the shipping bills or any other documents prescribed
under the Customs Act, 1962, the value, quality and
description of export goods to the best of his knowledge
and belief and to certify that the quality and specification of
the goods are in accordance with the terms of the export
contract and has also to subscribe a declaration at the foot
of such a document that the statements made by him are
true.
e. Paragraph 14.6 of the Export-Import Policy AM 1997-2002
empowers the Director General of Foreign Trade to take
action against an exporter, if it comes to his notice or he has
reason to believe, has made an export in a manner gravely
prejudicial to (1) trade relations of India with any foreign
country; (2) to the interests of other persons engaged in
exports or imports and (3) has brought disrepute to the
credit or the goods of the country.
f. The Director General of Foreign Trade has powers under
Section 5 of the Foreign Trade (De-velopment &
Regulation) Act, 1992, to direct any Registering Authority to
register or deregister an exporter or otherwise issue such
directions to them consistent with and in order to
implement the provisions of the Act, the Rules & Orders
made there under, the Policy or the Handbook. Besides, the
Registering Authorities viz. Export Promotion Councils,
Commodity Boards etc. may also take appropriate necessary
action and view on the application furnished by the
exporters for registration if, prima facie, there are reasons to
68
believe that he has indulged i any form of unfair, corrupt or
fraudulent practice
Adequate opportunity is to be provided to the exporter to
explain his stand before resorting to penal action by way of
issuance of Show Cause Notice, personal hearing etc., as per
rules
B. Certain export products have been notified for Compulsory
Quality Control & Pre-shipment Inspection prior to their
export. Penal action can be taken under the Export (Quality
Control & Inspection) Act, 1963 as amended in 1984, against
exporters who do not conform to the standards and or
provisions of Act as laid down for such products.
Facilities of Arbitration
The following institutions provide the facilities of arbitration.
1. The Indian Council of Arbitration
Federation House,
Tansen Marg,
New Delhi 110001
2. Directorate General of Commercial Intelligence & Statistics.
1/ Council House Street
Calcutta.
3. Indo-German Chamber of Commerce
‘Himalaya House’
Kasturba Gandhi Marg
New Delhi.
A list of other organisations can be obtained from the ICA.
Specimen Contract Form for Sale, Purchase Transactions,
Export and Imports
1. Name and Address of the parties .......................
(state correct name and complete address of the parties).
2. Wet the above named parties have entered into this contract
for the sale/purchase etc ...................
(state briefly the purpose of the contract) on this ...............
(date) at .................... (place), subject to the following terms
and conditions:
a) Goods ..................................... Quantity [describe the
quan-tity/ quality and other specifications of the goods
precisely as per agreement. An agency for inspection/
certification of quality and/ or quantity may also be
stipulated.
b) Price .........................
Mode of Payment .......................
[Quote the price, terms, i.e. FOB (free on board)/CFR
(Cost and Freight/CIF (Cost insurance, freight) etc. in the
currency agreed upon and describe the mode of payment i.e.
payment against L/C(letter of credit)/DA(document
against acceptance)/DP (Document againstPayment) etc. It
is also desirable to mention the exchange rate.]
c) Shipment ...............................
[Specify date and delivery and maximum period upto which
deliv-ery could be delayed and for which reasons, Port of
shipment and of delivery should be mentioned.]
11.675.1
 d) Packaging and mar king.................................. M.N. Exporters

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

[requirement to be specified precisely.]
e) Insurance ...................
[state the type of insurance cover required, i.e. FP A(free
from particular average)/WA (with average)/ All Risks, etc.
State also the party responsible for the insurance].
f) Brokerage/Commission .........................
[If any payable may be mentioned].
Passing of the property in goods and of risk.
g) [The property or ownership of the goods and the risk
shall finally . pass on to the buyer at such stage as the parties
may agree, i.e. when the goods are delivered at the seller’s
place of work/pass the ship’s rails/ are covered by insurance
etc. as per agreed terms.]
Arbitration
Arbitration clause recommended by the Indian Council of
Arbitration:
“All disputes of differences whatsoever arising between the
parties out of or relating to the construction, ‘meaning and
operation or effect of this contract or the breach thereof shall be
settled by arbitration in accordance with the Rules of Arbitra-
tion 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).
3. Any other special condition, prevalent in or relevant to the
particular line of trade or transaction, may also be specified.
Annexure I: Specimen of Letter of Credit
Republic National Bank of New York
E-120, Okhla Industrial Area
New Delhi, India 110019
Amount: 15,000.00 USD
Fifteen Thousand US Dollars Date of Expiry: January 22, 2000
Place of Expiry: India
Gentleme
We hereby open our irrevocable Documentary credit in your
favour available by your draft(s) at sight drawn on ourselves for
100% of invoice value bearing the bearing the clause. “drawn
under Republic National Bank of New York credit no. 62340”.
Your draft must be accompanied by the following documents:
1. Airways bills consigned to us and marked” freight prepaid”.
2. Signed commercial invoices in original and 05 copies.
3. Packing list in 06 copies.
4. GSP Certificate of Origin (Form A) 01 Copy.
5. Commercial visa - 02 Copies
Goods Description: Ladies Coordinate Dress(as per approved
sample). E-UNIT NO.600~0103-001.
Quantity: 300 Suits Prices: USD50 per suit CFR, New York
Shipment From: New Delhi, India Partial Shipment .: Not
Allowed
Transportation to: New York Transhipment: Not Allowed
Additional Conditions
We are advised insurance will be covered bybuyer.
Unless otherwise specified, all charges other than ours are for
the account of credit number of Issuing Bank: 62340

INTL DET Renaissance Center Letter of Credit Division A special handling charge of a minimum of USD 40.00, in
addition to telecommu-nication charges, if any, will be deducted
DLI Nvilleavenue, Newyork, 10467 from the proceeds of each set of documents presented for
SWIFT: MNBD US 33 MC 2140 payment or negotiation if such documents contain discrepan-
Fax: (313)222-9115 New York 10467 cies and we are required to contact our customer for approval of
Confirmation of our telecommunication Irrevocable Documen- payment and! or to communicate with the correspondent bank
tary effecting negotiation.

Credit /Transferable Bank of Bank Instructions

We request you to notify the credit to the beneficiary after
Dateofissue:November27,1999
adding your confirmation, if so desired by the beneficiary.
Credit Number of
Documents must be presented within 005 days after the date of
Issuing Bank: 62340 issuance of the transport document(s) but within the validity
Applicant: of the’ credit.
Pra Veena Stores Inc., We hereby agree with you and negotiating banks or bankers that
1324, Max Avenue drafts drawn under and in compliance with the terms of this
credit will be duly honored upon presen-tationand delivery of
Bronx, NY 10467
the documents as specified to the drawee.
Advising Bank:
The amount of each draft negotiated, with date of negotiation,
ANZ Grindla YS Bank must be endorsed on the reverse of this credit by the negotiat-
International Dept. ing bank.
H Block Connaught Circus We suggest negotiating bank forward to us all documents in
New Delhi, India Beneficiary: one mailing.

11.675.1 69
 This credit is subject to the uniform custom and practices for 14.What kind of insurance cover is required to cover the specific
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

documentary credits (1993 revision), International Chamber of risks? Can the insur-ance cover be obtained?
Commerce, Publication No.500. 15.Can the documents called for in the letter of credit be
obtained in time? It should be noted that some documents
Annexure 2: Guidelines for Scrutiny of Letter of Credit
such as inspection certificate or the consular invoice may take
The exporter should examine the letter of credit in all its aspects some time to arrange.
to ensure that its terms and conditions are acceptable. The 16.Are there any contradictions in the letter of credit such as
various reference points to check the letter of credit are as requiring bill of lading for airfreight?
follows:
Question Bank
1. Is the letter of credit of the type desired by the exporter?
Q1. Define, Letter of Credit. Why is it considered to, be the
2. Is it payable when and where as desired? safest method of settling international transactions?
• At sight, or Q2. Explain the procedure far opening a letter of credit.
• At a later date, Q3. What are the different types of letter of credit? Explain
• In India with little or no delay or them,
• Abroad Q4. Why is the arbitration a superior method of settling
3. Is the value of the Letter of Credit correct? Is it equal to the international disputes?
amount of the export order? Does it cover any extra-agreed Q5. What machinery is available far the enforcement of
costs, such as freight or inspection fees? arbitral awards?
4. Are the terms of delivery the same as quoted (e.g. FOB, Q6. Explain the procedure far arbitration.
CIF) in the offer? And do they and the price match Q7. Write notes on:-
properly?
i. Red Clause Letter of credit.
5. Is the price of the product(s) same as agreed?
ii. Settlement procedure under Deferred payment
6. Are the names and addresses of the exporter’s firm and
importer’s firm correctly spelt? iii. Usance Letter of credit

7. Are partial shipments allowed? iv. Revolving Letter of Credit

8. Is transhipment allowed? v. Doctrine of strict compliance.

9. Can the shipment be sent as per the expiry date? Can the
following functions be
• Performed well in time to meet the expiry date?
• Production and packing
• Inspection, if required
• Shipment
• Chamber of Commerce and/ or Consular work
Obtaining the inspection certificate
• Assembling and checking documents.
• Presenting them to the bank.
10. Can the documents as specifies in the letter of credit be
presented within the time mentioned in the Letter of
Credit? It should be remembered that the maximum time
limit for presentation of shipping documents is 21 days
from the date of issuance of the transport documents
under the exchange control regulations in force in India.
11. Is the item of export a restricted item? If so, then it can be
exported only against the export license? Would it be
possible to obtain the license?
12. Are the goods described accurately enough to identify them
properly and are the quantities and other units correct ?
13. Can the transport document required in the letter of credit
be obtained?

70 11.675.1

LESSON 11:
LAW RELATING TO SETTLEMENT OF INTERNATIONAL TRADE DISPUTES
• Introduction
• industrial dispute in india
• Settlement of international trade Disputes
Litigation
Arbitration
Enforcement of International Arbitration
• Procedure for arbitration
Introduction
Written orders rather than based on verbal orders conveyed
personally by the importer. The written export orders/
agreements/contracts form the basis of exports business. This,
in turn, forms the basis of disputes between the parties to a
trade transaction. Disputes arise due to the breach of contract
either by exporter or importer. For example dispute may be the
result of the following:
1. Non-supply or short supply or delayed supply of goods.
2. Non-payment of discounts and commissions by the seller.
3. Non-remittance of sale proceeds by the buyer.
4. Difference in interpretation of the clauses in the agreement.
5. Difference in the interpretation of quality standards.
6. Difference due to language problems, commercial practices etc
There is a need to reduce to the minimum the incidence of
disputes. If the incidence of disputes is heavy, it not only spoils
the name and trade prospects of the exporter concerned, but
also the image of the country. One of the ways to minimise
trade disputes is to use standard contract forms. Indian Council
of Arbitration has evolved the contact form, a copy of the same
is given at the end.
Inspite of written agreement and all the precautions taken,
disputes do arise. How to settle the disputes?
Industrial Disputes in India
There are conflicts between employers and workers. These
conflicts take various forms of protest. From the side of the
workers, the forms of protest are strikes, go- slow, gheraos,
demonstrations etc. From the side of employers, these disputes
take the form of retrenchment, dismissals, lockouts, etc. But
the two most prominent forms of protest are strikes and
lockouts. Whether a strike is a success or a failure, tension is
created between the employers and the employees. This results
in loss of production and decline in national income. It is,
therefore, essential to know the nature and trends of industrial
disputes, the factors responsible for their occurrence and the
methods used to remove them.
Trends in Industrial Disputes and their Nature
A close perusal of the table 3 reveals the following:
i. Increasing trend of mandays lost. There has been a
growing trend in terms of workers involved and mandays
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
lost in industrial disputes. As against a total loss of 38 lakh
mandays in 1951, the loss was of the order of about 70
lakh mandays in 1956. It jumped to 138 lakh mandays in
1966 and further to 206 lakh mandays in 1970. The position
deteriorated further during 1973-74 on account of a rapid
rise in prices and during 1974, a record of 4021akh mandays
were lost. With the declaration of emergency in 1975, the
fear of MIS A (Maintenance of Internal Security Act) and
DIR (Defence ofIndia Rules) were responsible for the
reduction in industrial disputes. However, with the lifting
of the emergency, labour urnest again manifested itself. As
against a loss of 127 lakh mandays during 1976, the total
number of mandays lost during 1977 was 2531akhs. The
situation slightly improved during 1978 but deteriorated
further in 1979 and nearly 439 lakh mandays were lost
during 1979. It appeared as if the trade unions were on the
war path. However, soon after the installation of the
Congress (I) government in 1980, the employers too started
flexing their muscles. The total time loss due to strikes and
lock-outs during 1110 was 219 lakh mandays. It stood at
366 lakh mandays during 1981. Strikes accounted for 58 per
cent of the ..a time loss during 1981 and lock-outs
accounted for 42 per cent. The number of mandays lost
during 1982 (including those due to Bombay Textile Strike)
was 748 lakhs. The mandays lost due to Bombay textile
strike are estimated be 548 lakhs-414 lakhs during 1982 and
1341akhs during 1983. The share of lock-outs for the years
1985811i 1987 was 65 per cent and 60 per cent respectively
of the total mandays lost.
In other words, there is a marked increase in the number of
mandays lost due to lock-outs. In fact, this trend had
started since 1971, particularly since 1976. This is a serious
matter and should be probed in greater depth because this
reverses ,the trend of mandays lost due 10 strikes and lock-
outs during fifties and sixties. Obviously, here i~ a need to
probe the factors leading to strikes and lock-outs.
The main factors responsible for the spreading of industrial
unrest are: (a) the discredited trade union leadership who
lost their image during emergency as champions of .labour
were out to build their image through strikes; political
instability in the country had its impact on the attitude of
trade union leadership. The rival factions tried eke out
concessions from the Governments which were either
unstable or on their way out; (c) growing indiscipline Dong
the workers on account of irresponsible trade lion
leadership; and (d) more frequent use of lock-outs I the
employers to punish the workers emboldened by e New
Economic Policy since 1984 in favour of private sector.
ii. Rise In the share of lock-outs In Manday lost it would
be of interest to study the relative share of strikes and lock-
outs in industrial disputes. the share of lock -outs in total
71
 mandays :t has been on the increase. In 1951, only 26
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
percent of , man-days lost was through lock-outs. By 1961,
this risen to 40 per cent and by 1971 it rose up to 47 perent.
The culmination of this trend was witnessed during the
emergency. During 1976,78 percent of the man-days t was
through lock-outs. The authoritarian forces m e to
ruthlessly muzzle the voice of the working class. : loss of
mandays due to lockouts was’ of the order of percent in
1989. Since lock-out is a form of punishment : the
capitalists inflict on the workers, it would be of interest to
study the average number of days a worker was involved in
a strike or a lock-out.
During 1961 the average number of I a worker was
involved in strikes and lock-outs was lays and 11 days
respectively; but in 1971 this had changed to 8 days and 34
days respectively. However, during 1976, the average
number of days a worker was involved in strike was 5 days,
but the involvement of workers in lock-outs on the average
was for a period of 53 days. A trend analysis from 1961 to
1981 reveals that where as average life of the strike has
remained between 8 113 days, the average life of the lock-
outs has shown a continuously growing trend. From a low
figure of II mandays in 1961, the average life of the lock-
out went up to 53 in 1976. This figure further shot up to
107 and 92 days in 1989. This clearly points out to the fact
that State gave unbridled power to the business and
industrial magnates to punish the workers, whenever they
tried to raise their head against exploitation, oppression and
misery. Mandays lost due to lock-outs were 78 per cent of
total mandays lost during 1976-a record achievement against
working class. The same situation prevailed in 1994, when
lock-outs accounted for 68 per cent of total mandays lost.
Even during 1997, lockouts accounted for 66% of mandays
lost. Even during 1998 and 1999, the share of lockouts in
total mandays lost was 58 per cent and 60 per cent
respectively.
The relatively high share of lock-outs in mandays lost
suggests that whereas the State has been emphasizing
measures for settlement of industrial disputes holding
labour responsible for strikes, there is a strong need to
make an analysis of the phenomenon of lock-outs so as to
control their repeated use against the working class.
Settlement of Industrial Dispute
Similar to domestic trade, disputes are inevitable in international
trade. There are a number of alternative ways to settle a dispute
in international transactions.
There are Four ways of settling a dispute, but two are the well
recognized methods for settlement of dispute, i.e. litigation
and arbitration . Litigation is not suitable for settlement of
trade disputes as it is beset with inordinate delays, high costs
and uncertainty of the final decision.
1. Conciliation
2. Mediation
3. Litigation
4. Arbitration
72
1.Conciliation
Amicable settlement of disputes through the good offices of
an impartial third party is termed as conciliation. Indian
exporter can approach Indian Government Trade Representative
abroad for settlement of the dispute through conciliation. This
is done by persuading the importer directly or through Govern-
ment authorities or local chamber of commerce to agree for
amicable settlement.
The importers can approach the Directorate General of
Commercial Intelli-gence & Statistics, Calcutta, of the Ministry
of Commerce in case they have any complaint against the
Indian Exporter and want settlement of the dispute through
conciliation. Indian Council of Arbitration, New Delhi has also
been endeavoring to conciliate in a large number of complaints
from foreign importers and vice versa.
Conciliation refers to a process where parties resolve their
dispute by direct negotiation on a voluntary basis without the
assistance of a third party. Conciliation, as a way of dispute
settlement, has a number of advantages, including a simple
procedure, saving on the cost and the possibility of maintaining
the cooperative relationship among the parties involved.
However in practice, conciliation often fails to reach a mutually
satisfactory solution. Furthermore, the agreement reached
through conciliation lacks the legal binding effect upon the
parties and therefore, if one party withdraws from the agree-
ment, new dispute may likely arise. As a consequence, the
proportion of disputes settled through conciliation is relatively
small in international trade. In case the conciliation efforts fail
the matter can be settled through arbitration-.
2. Mediation
Mediation is a process where the parties involved in a dispute
resolve their dispute with the assistance of a third party (the
Mediator). The Mediator is mostly a permanent arbitration
institute. Many permanent arbitration institutes (e.g. China
International Economic and Trade Arbitration Commission,
International Chamber of Commerce) have their mediation
rules or include the rules of meditation in their arbitration rules.
Although some arbitration institutes may not have particular
mediation rules, it does not mean they will exclude mediation
from being applied as a form of dispute settlement.
Similar to conciliation, mediation is based on the respect for the
free will of the parties and an informal negotiating atmosphere.
The advantage of mediation is that, due to the participation of
the third party, the process of reaching an agreement among the
parties will be accelerated. In the meantime, if the arbitration
body makes an award in accordance with the mediation
agreement reached by the parties, the stipulation of the
agreement will have a legal binding effect upon all the parties
involved. In comparison with litigation and arbitration,
mediation requires less cost and is a simpler process.
3. Litigation
A controversy before a court or a “lawsuit” is commonly
referred to as “litigation”. If it is not settled by agreement
between the parties it would eventually be heard and decided by
a judge or jury in a court. Litigation is one way that people and
companies resolve disputes arising out of an infinite variety of
11.675.1
factual circumstances.
The term “litigation” is sometimes to distinguish lawsuits
from “alternate dispute resolution” methods such as “arbitra-
tion” in which a private arbitrator would make the decision, or
“mediation” which is a type of structured meeting with the
parties and an independent third party who works to help them
fashion an agreement among themselves.
Definition of Litigation
A dispute is in “litigation” ( or being “litigated”) when it has
become the subject of a formal court action or law suit. Also
the study of court process, both civil and criminal.
Using legal action to recover a debt. NRC’s Tandem Program
offers full follow through to litigation forwarding, when
warranted. Litigation is most often used as the final remedy
after all other collection efforts have failed. Litigation is at NRC’s
option and may not be a cost-effective solution on low-balance
accounts
Basic Limitations of Litigation
a. Lengthy and Time Consuming :. Court process is
generally very slow, time-consuming .and’ formalistic. It
takes years for settlement o f a dispute in a court of law. At
the same time, longer the time higher is the cost and other
expenditure.
b. Requires Concrete Evidences :- Generally, judges and
lawyers are not well-versed with the practices and procedures
of the international trade. Therefore, such trade practices
and procedures have to be proved before the court by expert
witnesses having knowledge and experience in the field.
c. Inconvenience to the Parties :- Since the litigation
procedure is lengthy and time consuming, it causes
inconvenience to the litigants and disturbs their mental
peace. At the same time, the time, place and date of
hearings in a court of law may not be convenient to parties
to litigation.
d. Adverse Public Image:- The court proceedings are open to
the public and judgments of higher courts are also
published. This may cause litigants to expose their internal
and private affairs and trade secrets and the reputation of
the organisation may be affected adversely.
e. Bitterness and Disruption of Trade Relationship :-
Acrimony and bitterness usually accompany litigation and
irrespective of which party wins, many times it results into a
breach or disruption of the long standing trade
relationships between the parties.
f. Different Laws and Procedures :- International trade
transactions involve parties from different foreign countries
whose laws and procedures are not same~ International
trade laws and procedures are rather complicated.
4.Arbitration
According to Indian Council of Arbitration (lCA), arbitration is
the voluntary submission of a dispute to one or more impartial
persons for final and binding determination. It is a substitute
for court proceedings, and arranged in two ways, i.e. either
through “future disputes clause” or “submission agreement”.
Future disputes clause provides for reference of the dispute for
11.675.1
arbitration by the agreed agency. On the other hand, “submis-
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
sion agreement” refers to the agreement between the parties
usually, written, to submit the dispute after it has arisen, to one
or more arbitrators.
Arbitration is the reference of a dispute to one or more
independent third person(s) who act(s) as judge and jury. In
advance of the arbitration, the parties agree to be bound by the
arbitrator’s decision. Cases that are arbitrated are generally
resolved faster than conventional lawsuits because there is less
bureaucracy and court congestion is not a problem. In an
arbitration, witnesses are placed under oath and written evidence
is submitted, but the technical rules of procedure followed by a
court do not apply. Due to above limitations arbitration is
preferred to litigation as a method of dispute settlement at the
international level. Arbitration bas certain advantages over
litigation.
Future Disputes clause is an insurance of a quick and just
settlement of possible future dispute.
The arbitration clause-Future Disputes Clause-must provide
for:-
a. The nature of questions/matters to be referred to
arbitration.
b. Name and rules of procedure of the arbitral body to which
dispute is to be referred.
c. An unequivocal statement as to the finality and binding
nature of the award given by the arbitral body., and
d. The venue of arbitration and the number of arbitrators
who would hear and decide the dispute.
Basic Steps are involved in Arbitration
After all parties have been informed of the controversy, an
agreement can be reached to resolve the matter through
arbitration. The parties decide whether the arbitration will be
binding or non-binding and then select the arbitrator. Usually
the arbitrator is selected from a panel or list of available
arbitrators. Once the matter has been submitted to the arbitra-
tor (and when each side has paid his/her respective share of the
arbitrator’s fee), the arbitrator will contact all parties. A schedule
will be set, which includes when all documents must be
exchanged, when all witnesses must be disclosed, when
arbitration briefs (written statements covering the facts and the
law of the given controversy) are to be submitted, and where
and when the hearing will be conducted.
At the arbitration hearing, each of the respective parties is
allowed to present his/her evidence concerning the controversy.
Opening statements can be presented, but are usually waived
since arbitration briefs have been submitted. Witnesses (both
percipient -those who saw and heard - as well as experts) are
examined and cross-examined. Documents and other evidence
are submitted. Closing arguments may be presented.
Once all evidence has been submitted to the arbitrator, the
matter is taken under submission. This means that the
arbitrator will take some time to consider all of the evidence
that has been presented. After carefully review, the arbitrator will
make an “arbitrator’s award.” After the arbitrator’s award has
been issued, the prevailing party often has the ability to have it
issued as an enforceable order of a court of law.
73
 Model Arbitration Clause
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
The Indian Council of Arbitration has suggested the following
clause for insertion in the agreement.
“All matters of dispute or differences whatsoever arising
between the parties out of business transaction or relating to
the construction, meaning and operation or effect of this
contract or breach thereof shall be settled by arbitration in ac-
cordance with Rules of Arbitration of the Indian Council of
Arbitration and the award made in pursuance thereof shall be
binding on the parties”
Basic Advantages of Arbitration
a. Quickness: - Arbitration procedure is simpler and much
quicker than litigation. Under the Arbitration Act, the
arbitrators have to make the award within four months
from the date of entering on the reference. Usually an
arbitration case may be settled between four months to one
year.
b. Inexpensiveness: - The costs and expenses involved in
arbitration are much less than in those involved in the
litigation. Apart from the. Arbitration fee, which is just 2
percent of the claim value or even less in institutional.
Arbitration, the other incidental expenses are rather
moderate and low.
c. Promotes Goodwill: - Arbitration hearing takes place in
very friendly and cordial atmosphere and thereby promotes
friendly trade relations between the parties. The arbitrator is
a person chosen by the parties themselves on the
basis of their faith and confidence in him.
d. Sound and Cogent Decision: - In arbitration, the parties
choose an arbitrator having knowledge and experience in the
line of trade to which the dispute relates. This helps in
avoiding unnecessary delay caused due to lack of knowledge
on the part of judges.
e. Privacy: - Arbitration proceedings are not open to public
and arbitrators’ decisions are not published in law reports
like the court decisions. Therefore, arbitration preserves the
privacy and trade secrets of the parties involved in the
arbitration.
f. Reducing the Psychological Costs of Litigation: The
speed of arbitration and the informality of the process,
couples with a less-confrontational discovery process
minimizes and allows the parties to quickly get on with
their lives.
g. Confidentiality: Unlike court cases, arbitration proceedings
are not public. The case will not be tried in the newspaper.
h. Quality of the Decision: Arbitrators knowledgeable in
employment law may render more rational and
predictable decisions that juries which may be swayed by
emotion.
Disadvantages of arbitration
1. Limited appeal rights: By law, arbitrators’ decisions are
meant to be final, and can be appealed only on limited
grounds.
2. More frequent utilization: Employees can more easily
challenge personnel decisions. However, employers should
74
accept the possibility of increased challenges, as a tradeoff to
the far greater cost savings which arbitration offers.
Enforcement of international arbitration
In the case of international transactions, arbitration becomes
international when at least one of the parties involved is
resident or domiciled outside India or the subject matter of the
dispute is abroad. In this case, the law applicable to an arbitra-
tion proceeding depends upon the terms and conditions of the
export contract and the rules of conflict of laws. Therefore, it is
always advisable to specify in the export contract as to which
laws the contract is subject to in case a dispute arises in future.
Depending upon the export contract, arbitration can take place
either in the exporter’s or importer’s .country. The whole
philosophy behind the system of arbitration for settling
commercial disputes is that the awards should be voluntarily
honoured by the parties concerned. But, sometimes a party
against whom the decision is made, does not either comply
with or delays compliance with the award. To overcome this
problem, a number of countries have provided for legal
remedies for the enforcement of awards rendered therein.
However, difficulties may arise when an award is to be enforced
in country other than where it is’ given. This is because there
exists a wide disparity and complexity in the laws and proce-
dures of different countries in respect of enforcement of such
awards.
Releasing these difficulties, several multilateral international
conventions have been organised for attaining uniformity and
certainty in the enforcement of arbitral awards in different
countries. These conventions include:-
a. Geneva Protocol on Arbitration Clauses, 1923,
b. Geneva Convention of the Execution of Foreign Arbitral
Awards, 1927.
c. New York Convention for the Recognition and
Enforcement of Foreign Arbitral Awards, 1958, and
d. European Convention on International Commercial
Arbitration, 1961.
Besides, these Conventions, arbitral awards are also enforceable
under bilateral treaties between different countries.
Law for the Enforcement of Foreign Awards in India
India is one of the parties to the 1927 Geneva and, the 1958
New York Convention. As a commitment to the provisions of
these conferences, India has enacted the Arbitration (Protocol
and Convention) Act, 1937 and the Foreign Awards (Recogni-
tion and Enforcement) Act, 1961, respectively, giving effect to
the two Conventions.
Prior to 1996, statutory provisions on arbitration were con-
tained in three different enactments, viz.,
a. The Arbitration Act, 1940.
b. The Arbitration (Protocol and Convention) Act, 1937, and
c. The Foreign Awards (Recognition, and Enforcement) Act,
1961.
The Arbitration Act laid down the framework within which
domestic arbitration was carried in India while the ‘other two
Acts dealt with foreign awards. However, the Arbitration and
Conciliation Act, 1996 has repealed the earlier Acts. The new Act
11.675.1
has strengthened and clarified the provisions relating to
international commercial arbitration.
Enforcement of Indian Awards in Foreign Countries
Similarly, awards made in India are also enforceable in foreign
countries, which are parties to any of the international conven-
tions relating to the enforcement of foreign awards. However,
enforcement of arbitral awards in countries, which do not
adhere to either the 1937 or the 1961 Convention or other
similar international regulations, is somewhat difficult.
Procedure for Arbitration
a. Inclusion of Future Dispute Clause: - If the parties to
the export contract desire to settle all future’ disputes
relating to the contract through arbitration, then the same
can be done by inclusion of ‘Future Dispute Clause’ in the
export contract. If the export contract does not provide for
an arbitration clause then the parties to the contract later by
an agreement, usually written,. submit a controversy to one
or more arbitrators for ‘arbitration. This is called a
‘Submission Agreement’.
b. Initiation of Arbitration: - The party desirous to ‘apply
for arbitration should make an application to the Secretary
along with prescribed registration fees and the following
details: -
• The names and addresses of the parties to the
disputes.
• Full details of the applicant’s case.
• Original (or duly certified copies) of such documents
and information relevant to the case.
c. Fees and Expenses: - The fees and expenses incidental to
the ‘arbitration procedure and the award’ include: -
• Registration fee
• Administrative fee and
• Arbitrator’s fee
The registration fee is fixed while the amount of other two,
fees is determined by the ‘Bench’ on the basis of the
amount of suit and the time spent an the case. In, addition,
traveling expenses incurred by the arbitrator or the Secretary
and applicable stamp duty is also included in the total cost.
d. Constitution of Bench: On receipt of the application, the
Secretary constitutes a Bench far the adjudication of the’
dispute or difference. The Bench consists of o ne or three
arbitrators selected form a ‘Panel of Arbitrators’ maintained
by’ the Council. The Panel includes qualified and
experienced parsons from various lines of trade and the
legal profession. It also’ includes persons of various foreign
nationalities. The appointment of arbitrator is made in
accordance with the Council’s Rules. “
e. Deciding the Venue: - The arbitration proceedings are held
at such places) in India or abroad as the bench may
determine taking into, consideration the previsions of the
export contract.
f. Declaration of Awards: - When the Bench of arbitrators
signs the award, the Secretary gives a notice in writing to, the
11.675.1
parties to, the arbitration about the amount of fees and
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
charges payable in respect of the arbitration and the award
declared. The Secretary sends a true’ copy of the ward to, the
parties by registered past provided the’ arbitration Costs
have been fully paid. The party, which wishes the award to,
be f1leq before the court, shall pay the prescribed fee to, the
Indian Council of Arbitration (ICA), in addition to, the
court fees.
g. Enforcement of Awards: - The whale philosophy and,
spirit behind the system of arbitration far settling
commercial disputes are that the awards are voluntarily
complied with by the parties concerned. But, sometimes a
party against wham the decision is made, does not either
comply with or delays compliance with the award. To,
overcame this problem, a number of countries have
provided far legal remedies far the enforcement of awards
rendered therein.
Advantages of Arbitration over Litigation
1. Arbitration can be set in two to three weeks or, at most,
two to three months instead of two to three years for a trial
setting.
2. There is little or no “discovery.” Either depositions and
interrogatories will be restricted or else there may be none.
3. Arbitration is private. Court is public. In arbitration,
strangers and news media will not be allowed in court.
4. Arbitration is not appealable. It is final. Court cases are
always subject to rehearings, new trials, and appeals. Post-
trial proceedings can take longer and cost more than the
original trial. Arbitration generally has no rehearings, new
trials, or appeals.
5. Litigation costs in arbitration are substantially less than in
court.
6. Arbitrators are not known for awarding huge amounts for
punitive damages, mental anguish, pain and suffering and
other non-economic damages.
7. Arbitration can be done with or without lawyers — your
choice.
Guidelines for Settlement of Trade
Dispute
Exporters should project a good image of the country abroad
to promote exports. With this objective in mind, an enduring
relationship with foreign buyers is of the utmost importance,
and trade disputes, whenever they arise, should be settled as
soon as possible.
The majority of complaints from foreign buyers are with regard
to qual-ity. Other complaints are usually for unethical commer-
cial dealings on the part of Indian exporters and can be
categorized as non-supply of goods after confirmation of the
orders, non-payment of agreed commission, non-adher-ence to
the delivery schedule etc. The work relating to dealing such
complaints oi foreign buyers has been centralised with the
‘Nodal Officer’ and its assist-ing cell viz., the Trade Disputes
Cell in the office of the Director General of Foreign Trades,
Ministry of Commerce, Udyog Bhawan, New Delhi.
75
 Action against erring exporters
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
A. Enforcement action in the office of Director General of
Foreign Trade against erring exporters can be taken under the
existing rules & regulations depending on the offence as
follows:-
Non-payment of commission, supply of sub-standard goods,
non-adher-ence of delivery schedules, indulgence in unethical
commercial dealings, amount to breach of contract for which
action can be taken under clause 7 of the Export(Control)
Order, by which the Central Government or Director General
of Foreign Trade or an authorised officer may debar an exporter
from export-ing any goods if he commits a willful breach of
contract. This applies to the cases pertaining to a period prior to
19-06-1992. However, cases pertaining to a period on or after,
19-6-1992 enforcement action is taken in terms to Foreign
Trade(Development & Regulation) Act, 1992 and Rules framed
there under namely:
a. Section 8 empowers the Director General of Foreign Trade
to suspend or cancel the Importer Exporter Code
Number which is a prerequisite for any export or import,
where the Director General of Foreign Trade has inter alia
reason to believe (a) that the exporter has committed an
economic offence as a specified by the Government or
b. That any per-son has made an export import in a manner
gravely prejudicial to the trade relations of India with any
foreign country or to the interests of other persons engaged
in imports or exports or has brought disrepute to the credit
or the goods of the country.
c. Sector 9(4) empowers the Director General of Foreign Trade
or the of-ficer authorised by him to grant licence, to
suspend or cancel any licence granted under the Act. Rule 10
of the Foreign Trade (Regulation) Rules, 1993 lays down
the conditions for such cancellation under Section 9(4) of
the said Act. This includes cases where the licence has been
obtained by fraud, suppression of facts or
misrepresentation and where the licen-see has contravened
any law relating to Custom or Foreign Trade or the Rules &
Regulations relating thereto.
d. Section 11(2) of the Act provides for imposition of fiscal
penalty in cases where a person makes or abets or attempts
to make any import or export in contravention of any
provisions of the Act, any Rules or Orders made there
under or the Export-Import Policy. Rule 11 of the Foreign
Trade (Regulation) Rules, 1993 requires an exporter to state
in the shipping bills or any other documents prescribed
under the Customs Act, 1962, the value, quality and
description of export goods to the best of his knowledge
and belief and to certify that the quality and specification of
the goods are in accordance with the terms of the export
contract and has also to subscribe a declaration at the foot
of such a document that the statements made by him are
true.
e. Paragraph 14.6 of the Export-Import Policy AM 1997-2002
empowers the Director General of Foreign Trade to take
action against an exporter, if it comes to his notice or he has
reason to believe, has made an export in a manner gravely
prejudicial to (1) trade relations of India with any foreign
76
country; (2) to the interests of other persons engaged in
exports or imports and (3) has brought disrepute to the
credit or the goods of the country.
f. The Director General of Foreign Trade has powers under
Section 5 of the Foreign Trade (De-velopment &
Regulation) Act, 1992, to direct any Registering Authority to
register or deregister an exporter or otherwise issue such
directions to them consistent with and in order to
implement the provisions of the Act, the Rules & Orders
made there under, the Policy or the Handbook. Besides, the
Registering Authorities viz. Export Promotion Councils,
Commodity Boards etc. may also take appropriate necessary
action and view on the application furnished by the
exporters for registration if, prima facie, there are reasons to
believe that he has indulged i any form of unfair, corrupt or
fraudulent practice
Adequate opportunity is to be provided to the exporter to
explain his stand before resorting to penal action by way of
issuance of Show Cause Notice, personal hearing etc., as per
rules
B. Certain export products have been notified for Compulsory
Quality Control & Pre-shipment Inspection prior to their
export. Penal action can be taken under the Export (Quality
Control & Inspection) Act, 1963 as amended in 1984, against
exporters who do not conform to the standards and or
provisions of Act as laid down for such products.
Facilities of Arbitration
The following institutions provide the facilities of arbitration.
1. The Indian Council of Arbitration
Federation House,
Tansen Marg,
New Delhi 110001
2. Directorate General of Commercial Intelligence & Statistics.
1/ Council House Street
Calcutta.
3. Indo-German Chamber of Commerce
‘Himalaya House’
Kasturba Gandhi Marg
New Delhi.
A list of other organisations can be obtained from the ICA.
Specimen Contract Form for Sale, Purchase Transactions,
Export and Imports
1. Name and Address of the parties .......................
(state correct name and complete address of the parties).
2. Wet the above named parties have entered into this contract
for the sale/purchase etc ....................... (state briefly the
purpose of the contract) on this ....................... (date) at
....................... (place), subject to the following terms and
conditions:
a) Goods ....................... Quantity [describe the
quan-tity/ quality and other specifications of the
goods precisely as per agreement. An agency for
11.675.1
 inspection/certification of quality and/ or quantity

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

may also be stipulated.
b. Price .......................
Mode of Payment .......................
[Quote the price, terms, i.e. FOB (free on board)/CFR
(Cost and Freight/CIF (Cost insurance, freight) etc. in
the currency agreed upon and describe the mode of
payment i.e. payment against L/C(letter of credit)/
DA(document against acceptance)/DP (Document
againstPayment) etc. It is also desirable to mention the
exchange rate.]
c. Shipment .......................
[Specify date and delivery and maximum period upto
which deliv-ery could be delayed and for which reasons,
Port of shipment and of delivery should be
mentioned.]
d. Packaging and mar king..................................
[requirement to be specified precisely.]
e. Insurance .......................
[state the type of insurance cover required, i.e. FP
A(free from particular average)/WA (with average)/ All
Risks, etc. State also the party responsible for the
insurance].
f. Brokerage/Commission .......................
[If any payable may be mentioned].
Passing of the property in goods and of risk.
g. [The property or ownership of the goods and the risk
shall finally . pass on to the buyer at such stage as the
parties may agree, i.e. when the goods are delivered at
the seller’s place of work/pass the ship’s rails/ are
covered by insurance etc. as per agreed terms.]
Arbitration
Arbitration clause recommended by the Indian Council of
Arbitration:
“All disputes of differences whatsoever arising between the
parties out of or
relating to the construction, ‘meaning 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 arbitra-
tion clause that may be agreed upon between the parties).
3. Any other special condition, prevalent in or relevant to the
particular line of trade or transaction, may also be specified.
Question Bank
Q1. Why is the arbitration a superior method of settling
international disputes?
Q2. What machinery is available far the enforcement of arbitral
awards?
Q3. Explain the procedure far arbitration.

11.675.1 77
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 12:
EXPOR T- IMPORT POLICY OF INDIA
• Export-Import policy of India
• Introduction
• Meaning
•General Objectives.
• Export-Import Policy 1997-2000
• Objective.
• Highlights.
• Implications.
• Export-Import Policy 2002-2007
• Objective.
• Highlights.
• Implications.
Introduction
Trade policy governs exports from and imports into a country.
It is one of the various policy instruments used by a country to
attain her goals of economic develop-ment. This policy is thus,
formulated keeping in view, the national priorities for economic
development and the international commitments made by the
country. It is essential that the entrepreneurs and the export
managers understand the trade policy as it provides the vital
inputs for the formulation of their business growth strategies.
In India, the trade policy Le., export-import policy is formu-
lated by the Ministry of Commerce, Government of India in
terms of section 5 of the Foreign Trade (Development and
Regulation) Act,1992Besides, the Government of India also
announced on January 30,2002 a Medium Term Export
strategy, to guide the formulation the Export-Import Policy:
2002 - 07 with the, objective of achieving a share of 1 % in
world trade by the end of 2006 - 07 from the present I share of
0.6% (2000 - 01). The text of this strategy is given as Appendix
VII at the end of the book. The present Export - Import Policy
was announced on 31.3.2002 for a period of 5 years with effect
from 1.4.2002 to 31.3.2007 co-terminus with Tenth Five Year
Plan. It covers both the trade in merchandise and services. The
present chapter explains legal framework affecting foreign trade
of India particularly with reference to Export-Import Policy;
2002 - 2007. It also discusses the preferential trading arrange-
ments affecting exports and imports of India.
Meaning
The foreign trade of India is guided by the Export-Import
(EXIM) Policy of the government of India arid is regulated by
the Foreign Trade (Development and Regulation) Act, 1992.
EXIM Policy contains various policy decisions taken by the
government in the sphere of foreign trade, i.e., with respect to
imports and exports from the country and more especially
export promotion measures, policies and procedures related
thereto. It is prepared and announced by the Central Govern-
ment (Ministry of Commerce). India’s EXIM policy, in general,
78
aims at developing export potential, improving export perfor-
mance, encouraging foreign trade and creating favourable
balance of payments position.
Legal Framework for Foreign Trade of
India
In India, the legal framework for the regulation of foreign trade
is mainly provided by the Foreign Trade (Development and
Regulation) Act, 1992, Garments Export Entitle-ment Policy:
2000-2004, Export (Quality Control and Inspection) Act, 1963,
Customs and Central Excise Duties Drawback Rules, 1995,
Foreign Exchange Management Act, 1999 --and the Customs
and Central Excise Regulations.
The main objective of the Foreign Trade (Development and
Regulation) Act is to provide for the development and regula-
tion of foreign trade by facilitating imports into, and
augmenting exports from India. This Act has replaced the
earlier law namely, the imports and Exports (Control) Act1947.
A comparison of the nomenclature of the two Acts makes it
very dear that there is a shift in the focus of the law from
control to development of foreign trade. This shift in the focus
is the outcome of the emphasis on liberalisation and
globalisation as a part of the process of economic reforms
initiated in India since June 1991.
The application of the provisions of the Foreign Trade
(Development & Regulation) Act 1992 has been exempted for
certain trade transactions vide Foreign Trade (Exemption from
application of Rules in certain cases) Order 1993
General Objectives of the Exim Policy
Government control import of non-essential items through an
import policy. At the same time, all-out efforts are made to
promote exports. Thus, there are two aspects of trade policy;
the import policy which is concerned with regulation and
management of imports and the export policy which is
concerned with exports not only promotion but also regula-
tion. The main objective of the Government policy is to
promote exports to the maximum extent. Exports should be
promoted in such a manner that the economy of the country is
not affected by unregulated exports of items specially needed
within the country. Export control is, therefore, exercised in
respect of a limited number of items whose supply position
demands that their exports should be regulated in the larger
interests of the country. In other words, the policy Aims at
i. Promoting exports and augmenting foreign exchange
earnings; and
ii. Regulating exports wherever it is necessary for the purposes
of either avoiding competition among the Indian exporters
or ensuring domestic availability of essential items of mass
consumption at reasonable prices.
The government of India announced sweeping changes in the
trade policy during the year 1991. As a result, the new Export-
11.675.1
Import policy came into force from April I, 1992. This was an
important step towards the economic reforms of India. In
order to bring stability and continuity, the policy was made for
the duration of 5 years. In this policy import was liberalised and
export promotion measures were strengthened. The steps were
also taken to boost the domestic industrial production. The
more aspects of the export-import policy (1992-97) include:
introduction of the duty-free Export Promotion Capital
Goods (EPCG) scheme, strengthening of the Advance
Licensing System, waiving of the condition on export proceeds
realisation, rationalisation of schemes related to Export
Oriented Units and units in the Export Processing Zones. The
thrust area of this policy was to liberalise imports and boost
exports.
The need for further liberalisation of imports and promotion
of exports was felt and the Government of India announced
the new Export-Import Policy (1997, 2002). This policy has
further simplified the procedures and reduced the interface
between exporters and the Director General of foreign Trade
(DGFT) by reducing the number of documents required for
export by half. Import has been further liberalised and efforts
have been made to promote exports.
The new EXIM Policy 1997-2002 aims at consolidating the
gains made so far, restructuring the schemes to achieve further
liberalisation and increased transparency in the changed trading
environment. It focusses on the strengthening the domestic
industrial growth and exports and enabling higher level of
employment with due recognition of the key role played by the
SSI sector. It recognises the fact that there is no substitute for
growth, which creates jobs and generates income. Such trade
activities also help in stimulating expansion and diversification
of production in the country. The policy has focussed on the
need to let exporters concentrate on the manufacturing and
marketing of their products globally and operate in a hassle free
environment. The effort has been made to simplify and
streamline the procedure.
The objectives will be achieved through the coordinated efforts
of all the departments of the government in general and the
ty1inistry of Commerce and the Directorate General of Foreign
Trade and its network of Regional Offices in particular. Further
it will be achieved with a shared vision and commitment and in
the, best spirit of facilitation in the interest of export.
Objectives of the Exim Policy 1997 -2002
The principal objectives of the EXIM Policy 1997 -2002 are as
under: -
a. To accelerate the economy from low level of economic
activities to high level of economic activities by making it
a globally oriented vibrant economy and to derive
maximum benefits fro~ expanding global market
opportunities.
b. To stimulate sustained economic growth by providing
access to essential raw materials, intermediates,
components,’ consumables and capital goods required for
augmenting production.
11.675.1
c. To enhance the technoloca1 strength and efficiency of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Indian agriculture, industry and services, thereby, improving
their competitiveness.
d. To generate new employment. Opportunities and encourage
the attainment of internationally accepted standards of
quality.
e. To provide quality consumer products at reasonable prices.
Highlights of the Exim Policy 1997-2002
a. Period of the Policy
• This policy is valid for five years instead of t}:1ree years
as in the case of earlier policies. It is effective from 1st
April 1997 to.31st March 2002.
b. Liberalisation
• A very important feature of the policy is liberalisation.
• It has substantially eliminated licensing, quantitative
restrictions and other regulatory and discretionary
controls. All goods, except those coming under
negative list, may be freely imported or exported.
c. Imports Liberalisation
• Of 542 items from the restricted list 150 items have
been transferred to Special Import Licence (SIL) list
and remaining 392 items have been transferred to
Open General Licence (OGL) List.
d. Export Promotion Capital Goods (EPCG) Scheme
• The duty on imported capital goods under EPCG
scheme has been reduced from 15% to 10%.
• Under the zero duty EPCG Scheme, the threshold limit
has been reduced from Rs. 20 crore to Rs. 5 crore for
agricultural and allied! Sectors
e. Advance Licence Scheme
• Under Advance License Scheme, the period for export
obligation has been extended from 12 months to 18
months.
• A further extension for six months can be given on
payment of 1 % of the- value of unfulfilled exports.
f. Duty Entitlement Pass Book (DEPB) Scheme
• Under the DEPB, an exporter may apply for credit, as a
specified percentage of FOB value of exports, made in
freely convertible currency.
• Such credit can be can be utilised for import of raw
materials, intermediates, components, parts, packaging
materials, etc. for export purpose.
g. Special Import Licence (SIL)
• 150 items from the restricted list have been transferred
to SIL.
• SIL on exports from SSIs has been increased from 1 %
to 2%.
• Export houses and all forms of trading houses are
eligible for additional SIL of 1 % on exports of
products from SSIs from North Eastern States.
• Additional SIL has been declared for exploration of
new markets and for export of agro products.
79
 • The SIL entitlement of exporters holding ISO 9000 • This is evident from the very first objective of the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

certification has been? Increased from 2% to 5% of the policy, which states. “To accelerate the economy from
FOB value of exports. low level of economic activities to- high level of
h. Export Houses and Trading Houses :- economic activities by making it a globally oriented
vibrant economy and to derive maximum benefits
The criteria for recognition of export houses and all forms
from expanding global market opportunities.”
of trading houses has been modified.
(AMOUNT IN RS. CRORES) FOR 2000-01 PERIOD
• The Indian economy has been exposed to more
FOB Criterion NFE Criterion foreign competition. The regime of high protection is
Annual Average FOB value of Annual Average FOB value of gradually’ vanishing.
FOB value of export made FOB value of export made
export made during during export made during • It means, in order to survive, Indian companies will
preceding 3 preceding during preceding 3 preceding
licensing licensing years licensing years licensing years have to pay due attention to cost reduction,
EH 15 22 12 18 improvement in quality, delivery schedules and after
TH 75 112 62 90 sales service.
STH 375 560 312 450
SSTH 1125 1680 937 1350 • At the same time, Indian industry’s have also been
given an opportunity to globalise their business by
i. Deemed Exports :- allowing them to import machineries and raw
• Deemed exports facilities have been extended to oil materials from abroad on liberal terms.
and gas sectors in addition to power sector. b. Impact on the Indian Industry :-
j. Software:- • In the EXIM policy 1997-02, a series of reform
• Software units can undertake exports using data measures have been introduced in order to give boost
communication links or through courier service. to India’s industrial growth and generate employment
• Import of computer systems has been brought under opportunities in non-agricultural sector.
the purview of EPCG scheme. . • The reduction of duty from 15% to 10% under EPCG
k. Computerisation of DGFT Offices :- scheme will enable Indian firms to import capital
goods. This will improve the quality and productivity
• By 1998, most DGFT transactions will be on line so as
of the Indian industry.
reduce paper work and avoid delay in disposal of
applications. • However, liberalisation of imports by transferring 542'
items from restricted list to OGL and SIL list would
l. SSI Units :
adversely affect the growth of , consumer
• SIL on exports from ‘SSls has been increased from 1 % goods industry in India, as most of .these items are
to 2%. consumer goods items.
• ‘Export houses and all forms of trading houses are c. Impact on Agriculture :- Many encouraging steps have
eligible for additional SIL of 1 % on exports of been taken in order to give a boost to Indian agricultural
products from SSls from North eastern States. sector.
• Reduction of threshold level to Rs. 5 crore from Rs. 20 • Double weightage for agro exports while calculating the
crore under EPCG scheme will benefit SSls. eligibility for export houses and all forms of trading
m. Agriculture Sector : houses.
• Double weightage ‘will be given for agro exports in • Additional SIL of 1 % for export of agro products.
calculating the eligibility for export houses and all • EOUs’ and units in EPZs in agriculture and allied
forms of trading houses. sectors can sell 50% of their output in the domestic
• Additional SIL of 1 % has been declared for export of tariff area (DTA) on payment of duty.
agro products. • Under .the zero duty EPCG Scheme, the threshold
• EOUs and units in EPZs in agriculture and allied level has been reduced from Rs. 20 crore to Rs.. 5 crore
sectors can sell 50% of their output in the domestic for agriculture and allied sectors.
tariff area (DT1) on payment of duty. d. Impact on. Foreign Investment
• Under the zero duty EPCG Scheme, the threshold level • In order to encourage foreign investment in India, the
has been reduced from Rs. 20 crore to Rs. 5 crore for EXIM policy 1997-02 has permitted 100% foreign
agriculture and allied sectors. equity participation in the case of 100% EOUs, and
Implications of the Exim Policy 1997– units set up in EPZs.
2002 • Due to liberalisation of procedural formalities, foreign
The major implications of the EXIM Policy 1997-2002 are :- companies may bee attracted to set up manufacturing
a. Globalisation of Indian Economy :- units in India.
• The EXIM policy 1997-02 proposed to prepare a • Full Convertibility of Indian Rupee on revenue
framework for globalisation of Indian economy. account would also give a fillip to foreign investment
in India.

80 11.675.1
e. Impact on Quality Upgradation :-
• The SIL entitlement of exporters holding ISO 9000
certification has been increased from 2% to 5% of the
FOB value of exports.
• This would encourage Indian industries to undertake
research and development programmers and upgrade
the quality of their products.
• Liberalisation of EPCG scheme would encourage
Indian industries to import capital goods and improve
quality and increase productivity of goods.
f. Impact on Self-reliance:-
• One of the long-term objectives of the Indian
planning is to become self-reliant. This objective is well
reflected in the EXIM Policy 1997-02.
• The policy aims at encouraging domestic sourcing of
raw materials, so as to build up a strong domestic
production base.
• In order to achieve this the policy has also extended the
benefits given to exporters to deemed exporters. This
would lead to import substitution.
• Oil, power and natural gas sectors have also been
brought under the purview of deemed exports.
However, the globalisation policy of the government may harm
the interests of SSls and cottage industries, as they may not be
able to compete with MNCs.
Export-Import Policy 2002 – 2007
The Export- Import Policy: 2002 - 2007 deals with both the
export and import of merchandise and services. It is worth
mentioning here that the Export -Import Policy: 1997 - 2002
had accorded a status of exporter to the business firm export-
ing services with effect from1.4.1999. Such business firms are
known as Service Providers.
The Export-Import Policy has been described in the following
documents:
• Export- Import Policy: 2002- 2007
• Handbook of Procedures Volume I
• Handbook of Procedures Volume II
• ITC(HS) Classification of Export- Import Items
The main policy provisions are given in the policy document
entitled “Export -Import Policy 2002-2007”. An exporter will
have to refer to the Handbook of Procedures Volume-I to
know the procedures, the agencies and the documentation
required to take advantage of a certain provision of the policy.
There is a para-by-para correspondence between the Policy and
the Handbook of Procedures Volume-I. Thus, if an exporter
finds that para 6.2 of the policy is relevant for his business
enterprise then he should also refer to the corresponding para
of the Handbook of Procedures Volume- I to know precisely
what is to be done t01ake advantage of the policy provision.
The Handbook of Proce-dures Volume-II provides a very vital
information as regards the standard input-output norms in
regard to items of export from India. Based on these norms,
exporters are provided the facility to make duty-free import of
inputs required for manufacture of export products under the
11.675.1
Duty Exemption Scheme/Duty Remission Scheme. The policy
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
regarding import or export of a specific item is given in the
document entitled “ITC (HS) Classifications of Export -
Import Items”.
In addition to these policy documents, an export enterprise
should also refer to the various policy circulars and trade notices
issued by various regulatory authorities deal-ing with different
aspects of foreign trade. One can refer to these notices either by
visiting the relevant web site of the authority concerned or by
referring to various trade magazines which circulate them.
Objectives of the Export-Import Policy:
2002 - 2007
The export-import policy 1997-2002 carried forward the process
of liberalization and globalization set in motion by the process
of economic reforms initiated since June, 1991. These reforms
had aimed at restructuring the Indian economy to increase the
productivity and competitiveness of foreign trade enterprises in
order to achieve a higher rate of growth in exports. It also
enabled the foreign trade grow in an environment of liberaliza-
tion from licensing procedures, quantitative restrictions,
discretionary bureau-cratic controls and cumbersome documen-
tation procedures. The present Export-Import-Policy:
2002-2007 aims at facilitating the growth in exports to attain a
share of at least 1 % of global merchandise trade by the end of
2006-07. Specifically, main objectives of the present policy are as
follows:
1. To stimulate sustained economic growth by providing
access to essential raw ma- terials,intermediates,
components, consumables and capital goods required for
augmenting production and providing services.
2. To enhance the technological strength and efficiency of
Indian agriculture, indus-try and services, thereby
improving their competitive strength while generating new
employment opportunities and encourage the attainment
of internationally accepted standards of quality; and
3. To provide consumers with good quality products and
services at internationally competitive prices while at the
same time creating a level playing field for the domestic
producers
Features of Exim Policy
Union Commerce and Industry Minister Mr. Murasoli Maran
announced the Exim policy for the 5 year period (2002-07) on
March 31, 2002. The main thrust of the policy is to push India’s
exports aggressively by undertaking several measures aimed at
augmenting exports of farm goods, the small scale sector,
textiles, gems and jewellery, electronic hardware etc. Besides
these, the policy aims to reduce transaction cost to trade
through a number of measures to bring about procedural
simplifications. In addition, the Exim policy removes quantita-
tive restrictions (QRs) on exports, except a few sensitive items.
1. Special Economic Zones (SEZs):-
a. Offshore Banking Units (OBUs) shall be permitted in
Special Economic Zones (SEZs).
b. Units in SEZ would be permitted to undertake hedging
of commodity price-risks, provided such transactions
are undertaken by the units ‘on stand- alone basis.
81
 c. Units in SEZ shall be permitted External Commercial
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Borrowings (ECBs) for a tenure of less than three years.
d. Four existing EPZs have been converted into SEZs and
13 New SEZs have already been given approval.
2. Employment Oriented Measures:- Exim (2002-07) policy
initiated a number of measures which would help
employment orientation. Among them were the following:
a. Agriculture :-
• Removal of quantitative and packaging restrictions on
wheat and its products, butter, pulses, grain and flour
of barley, maize, bajra, ragi and jowar.
• Removal of restrictions on export of all cultivated
(other than wild) varieties of seed, except jute and
onion.
• 20 Agricultural Export Zones have been notified.
• Transport subsidy for export of fruits, vegetables,
floriculture, poultry and dairy products.
• 3% special DEPB rate for primary and processed
foods exported in retail packaging of 1 kg. or less.
b. Cottage Sector and Handicrafts :-
• An amount of Rs. 5 crore under Market Access
Initiative (MAl) has been earmarked for promoting
cottage sector exports coming under the Khadi and
Village Industries Commission (KVIC).
• Market Access Initiative (MAI) scheme for the
development of website for virtual exhibition of
products from the handicrafts sector.
• Entitlement for Export House Status at Rs. 5 crore
instead of Rs.15 crore for others.
• Entitlement to duty free imports of an enlarged list
of items as embellishments upto3% of FOB value
of exports.
c. Small Scale Industry :-
With a view to encouraging further development of
centres of economic and export excellence such as Tirpur
for hosiery, woollen blankets in Panipat, woollen knitear
in Ludhiana, following benefits would be available to
small-scale sector.
• EPCG facility for the common service providers in
these areas.
• Market Access Initiative (MAl) for creating focused
technological services and marketing abroad to the
recognised associations of units in SSI.
• Entitlement for Export House Status at Rs. 5 crore
instead of Rs.15 crore for others.
d. Leather:-
Duty free imports upto 3% of f.o.b. value combined to
leather garments has been extended to all leather
products.
e. Textiles :-
• Sample fabrics permitted duty free within the 3%
limit for trimmings and embellishments.
82
• Additional items such as zip fasteners, inlay cards,
eyelets, rivets, toggles, Velcro tape, cord and cord
stopper included in input output norms.
• Duty Entitlement Passbook (DEPB) rates for all
kinds of blended fabrics permitted.
f. Gem and Jewellery :-
• Import of rough diamonds is allowed freely at 0%
customs duty.
• Licensing regime for rough diamond is being
abolished.
• Value addition norms for export of plain jewellery
reduced to 7% and for all merchandised unstudded
jewellery to 3%.
• Personal carriage of jewellery allowed through
Hyderabad and Jaipur airport as well.
Technology Oriented
a. Electronic Hardware :-
• Conversion of the Electronic Hardware Technology Park
(EHTP) into zero duty regime under the ITA
(Information Technology Agreement)-I
• Net Foreign Exchange as Percentage of Exports (NEEP)
to be made positive in 5 years.
• No other export obligation for units in EHTP.
b. Chemicals and Pharmaceuticals :-
• 65% of DEPB rate for pesticides formulations.
• No limit on export of samples.
• Reimbursement of 50% of registration fees on
registration of drugs.
c. Projects:
• Free import of equipment and other goods used abroad
for more than one year.
Growth Oriented
a. Strategic Package for Status Holders:
• Licence, certificate, permissions. and customs clearances
for both imports and exports on self-declaration basis.
• Priority finance for medium and long term capital
requirement as per conditions notified by the RBI.
• Exemption from compulsory negotiation of
documents through banks, However, the remittance
would continue to be received through banking
channels.
• 100% retention of foreign exchange in Exchange
Earner’s Foreign Currency 1EEFC) account.
• Enhancement in normal repatriation period from 180
days to 360 days,
b. Diversification of Markets :-
• Setting up of “Business Centre” in Indian missions
abroad for visiting Indian exporters/businessmen.
• ITPO portal to host a permanent virtual exhibition of
Indian export products.
11.675.1
 • Focus Latin American Countries (LAC) has been
extended upto March 2003.
• Focus Africa has been launched for developing trade
relations with the Sub-Saharan African region. The
exporters exporting to these markets shall be given
Export House Status. on export of Rs. 5 crore.
• Links with the Commonwealth of Independent States
(CIS) countries to be revived.
c. North Eastern States, Sikkim and Jammu and
Kashmir:-
• Transport subsidy for exports to be given to units
located in North East, Sikkim and-Jammu and
Kashmir so as to offset the disadvantage of being far
from ports.
d. Neutralising High Fuel Cost:-
• Fuel costs to be rebated for all export products. This
would enhance the cost competitiveness of our export
products.
Procedural reforms
a. Dgft:-
• The new 8 digit commodity classification for imports
introduced by the Director General of Foreign Trade
(DGFT) would also be adopted by the Customs and
Director: General of Commercial Intelligence and
Statistics (DGCI&S) shortly. This will eliminate the
classification disputes and hence reduce transaction
costs and time.
• The maximum fee limit for electronic application under
various schemes has been reduced from Rs. 1.5 lakh to
Rs. 1.00 lakh.
• Same day licensing introduced in all regional offices.
b. Customs :-
• Adoption and harmonisation of the 8 digit Indian
Trade Classification (ITC) Harmonised System (HS)
code.
• The percentage of physical examination of export
cargo has already been reduced to less than 10% except
for a few sensitive destinations.
• Fixation of special brand rate of drawback within 15
days.
c. Banks :-
• Direct negotiation of export documents to be
permitted.
• 100% retention in Exchange Earners Foreign Currency
(EEFC) accounts.
• Enhancement in normal repatriation period from 180
days to 360 days.’
Trust based
a. Import and export of samples to be liberalised for
encouraging product up gradation
b. Penal interest rate for bonafide defaults to be brought
down from 24% to 15%.
11.675.1
c. No penalty for non-realisation of export proceeds in respect
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
of cases covered. by ECGC insurance package.
d. No seizure of stock in trade so as to disrupt the
manufacturing process affecting delivery schedule of
exporters.
e. Foreign Inward Remittance Certificate (FIRC) to be accepted
in lieu of Bank Realisation Certificate for documents
negotiated directly.
f. Optional facility to convert from one scheme to another
scheme. In case the exporter is denied the benefit under one
scheme, he shall be entitled to claim benefit under some
other scheme.
g. Newcomers. to be entitled for licences without any
verification against execution of Bank Guarantee.
Duty Neutralisation Instruments
a. Advance Licence:-
• Duty Exemption Entitlement Certificate (DEEC) book
to be abolished. Redemption on the basis of Shipping
Bill and Bank Realisation Certificate.
• Withdrawal of Advance Licence for Annual
Requirement (AAL) scheme. The exporters can avail
Advance Licence for any value.
b. Duty Entitlement Passbook (DEPB) Scheme :-
• Value cap exemption granted on 429 items to continue.
• DEPB rates slashed on 8 out of 10 items.
• Reduction in rates only after due notice.
• No Present Market Value (PMV) verification except on
specific intelligence’
• Same DEPB rate for exports whether as CBUs or in
CKD/SKD form. .
• DEPB for transport vehicles to Nepal in free foreign
exchange.
c. Export Promotion Capital Goods (EPCG):-
• EPCG licences ‘of Rs. 100 crore or more to have 12 year
export obligation period with 5 year moratorium
period.
• Export obligation fulfillment period extended from 8
years to 12 years in respect of units in Agricultural
Export Zones and in respect of companies under the
revival plan of BIFR. .
• Supplies under Deemed Exports to be eligible for
export obligation fulfilment along with deemed export
benefit
Implications of the Exim Policy 2002-07
The implications of the EXIM Policy 2002-07 are as follows :-
a. All-round Development of Indian Economy:. The EXIM
2002-07emphasises all-round development of Indian
economy by giving due weightage to different sectors of the
economy. That is why. the policy has been described as :-
• Employment Oriented.
• Technology Oriented.
• Growth Oriented.
83
 • This has also been reflected in its objectives :-
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
• To facilitate sustained growth in exports.
• To stimulate sustained economic growth.
• To enhance the technological strength and efficiency of
Indian agriculture, industry and services.
• To generate new employment opportunities
• To attain internationally accepted standards of quality.
• To provide consumers with good quality goods and
services at internationally competitive prices.
b. Implications on Agricultural Sector :- Agriculture being
the backbone of Indian economy, the EXIM policy has
initiated a series of measures for its growth and
development, especially for promotion of exports from
agricultural sector.
• Removal ‘of quantitative and packaging restrictions on
certain agricultural products and on export of all
cultivated varieties of seed would give a major boost to
the export of these items.
• Identification of 20 “Agricultural Export Zones would
help in development of specific geographical areas for
export of specific products.
• Extension of export obligation fulfilment period from 8
years to 12 years in respect of units in Agricultural
Export Zones.
• Other measures such as transport subsidy, 3% special
DEPB rate, would definitely give a fillip to exports from
agricultural sector.
c. Implications on Development of Cottage Industries :
The small scale sector, alongwith the cottage and handicraft
sector, has been contributing to more than half of the total
exports of the country. In recognition of the export
performance of these sectors and to further increase their
competitiveness, the following facilities have been extended
to this sector :-
• Incentives such as Market Access Initiative (MAl), duty
free imports upto 3% of FOB value of exports, EPCG
facility, etc.
• Entitlement for Export House Status at Rs. 5 crore
instead of Rs.15crore for others. These steps would
encourage units in cottage industries to develop their
export potentiality.
d. Implications on Small Scale Industry :- With a view to
encourage further development of centres of economic and
export excellence as Tripura for hosiery, woollen blankets in
Panipat, woollen knitwear in Ludhiana, the following
benefits have been made available to the small scale sector :-
• Common service providers in these areas shall be
entitled for facility of EPGC Scheme.
• Availability of Market Access Initiative Scheme for
creating focused technological services and marketing
abroad.
• Entitlement for Export House Status at Rs. 5 crore
instead of Rs.15 crore for others.
84
These steps would lead to development of new centres of
economic and export excellence.
e. Implications on Gem and Jewellery Industry : Having
already achieved leadership position in diamonds, the
EXIM. Policy 2002-07 aims at achieving a quantum jump
on jewellery exports as well. In order to achieve this, the
following steps have been taken in the new EXIM Policy :-
• Import of rough diamonds is allowed freely at 0%
custom duty.
• Abolition of licensing regime for rough diamonds
would help the country emerge as a major international
centre for diamonds.
• Value addition norms for export of plain jewellery
reduced to 7% and for all merchandised unstudded
jewellery to 3%
• Personal carriage of jewellery allowed through Hyderabad
and Jaipur airports as well.
f. Implications on Industrial Sector :--
• Liberalisation of EPCG scheme would help Indian
industries to promote. quality up gradation and would
also enable sick units to revive.
• Extension of repatriation period for realisation of
export proceeds from180 days to 360' days -would help
Indian industries to be more competitive in offering
liberal payment terms to foreign importers.
• Licence, certificate, permissions and customs clearances
for both imports and exports on self-declaration basis,
priority finance for medium and long term capital’
requirement and 100% retention of foreign exchange in
Exchange Earner’s Foreign Currency (EEFC) account
would definitely benefit Indian industries and would
encourage Indian producers to enter the export field.
• Exemption from compulsory negotiation of documents
through banks would help exporters to save bank
charges.
• Transport subsidy for exports from units located in
North East, Sikkim and Jammu and Kashmir would
offset the disadvantage of being far from ports.
g. Diversification of Indian Industrial Sector :- In order to
promote Indian industries to diversify their business and
markets, the following measures have been taken in the
EXIM Policy 2002-07:--
• Setting up of “Business Centre” in Indian missions
abroad would enable India exporters and businessmen
to visit abroad.
• Launching of Focus LAC (Latin American Countries) in
Novernber 1997 has greatly accelerated Indian trade with
Latin American countries. Extension of this programme
upto March 2003 would enable Indian exporters to
consolidate the gains of this programme.
• There is a tremendous potential for trade with the Sub-
Saharan African region. Launching of Focus Africa
programme would help exporters to diversify their
exports to these markets.
11.675.1
 • Permission granted to External. Commercial Borrowings Q4. Explain the effect of EXIM Policy 1992-97 on the

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

(ECBs) for tenure of less than three years in SEZs following:-
would provide opportunities for accessing working (i) Foreign Exchange. (ii) Technology Upgradation. (iii)
capital loan for these units at internationally competitive Export Promotion.
rates.
Q5. What are the objectives of EXIM policy 2002-07 ?
h. Implications on Technology Upgradation :-
Q6. Explain the major highlights of EXIM policy 2002-07.
• Conversion of Electronic Hardware Technology Park
Q.7 Explain the implications of the EXIM Policy 2002-07.
(EHTP) into zero duty regime under the ITA
(Information Technology Agreement)- I would give
encouragement to setting up of more units in EHTP.
• Liberalisation of import and export of samples would
encourage product upgradation.
• Liberalisation of EPCG scheme would encourage Indian
industries to import capital goods and improve quality
and increase productivity of goods.
• This would also encourage Indian industries to
undertake research and development programmes and
upgrade the quality of their products.
i. Implications on Procedural Formalities :- Various
procedural simplifications would reduce transaction costs
and save time. Some of such steps include :-
• Adoption of a new 8 digit commodity classification for
imports by Customs and Director General of
Commercial Intelligence and Statistics (DGCI&S) would
eliminate the classification disputes and hence reduce
transaction costs and time.
• Reduction of the maximum fee limit for electronic
application under various schemes from Rs. 1.51akh to
Rs. 1.00 lakh.
• Foreign Inward Remittance Certificate (FIRC) to be
accepted in lieu of Bank Realisation Certificate for
documents negotiated directly.
• Fixation of special brand rate of drawback within 15
days.
• Reduction. in percentage of physical examination of
export cargo to 10%.
• Penal interest rate for bonafide defaults to be brought
down to 15%.
• No penalty for default where payment is covered by
ECGC policy.
• No seizure of stock in trade.
• Same day licensing introduced in all regional offices.
• Newcomers to be entitled for ljcences against execution
of Bank Guarantee.
• Optional facility to convert from one scheme to another
scheme.
Questions Bank
Q1. What is an EXIM Policy? What are its objectives?
Q2. What are the objectives of EXIM policy 1997-02 ?
Q3. Explain the major highlights of EXIM policy 1997-02.

11.675.1 85
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

LESSON 13:
TERMS USED IN EXIM POLICY

Notes g. Realisation of exports proceeds extended to 12 months

• Special Economic zones (SEZs) from the date of export.
• Agriculture Export zones. (AEZs) h. State Trading Enterprises Policy will not apply to SEZ
manufacturing units.
• Negative List for Exports.
i. Creating special windows under existing rules and
• Open general Licence.
regulations of the Central Govt. and State Govt. for SEZ is
• Export Obligations. developing a framework
• Counter Trade. j. State Government have a lead role in the setting up of
Note On Special Economic Zones (SEZS) SEZ.
Special Economic Zones (SEZs) Scheme in India was conceived Special Package’s for SEZs in the Exim
by the Commerce and Industries Minister Murosoli Maran Policy 2002-07
during a visit to Special Economic Zones in China in 1999. The
a. Offshore Banking Units (OBUs) shall be per1Ilitted in
scheme was announced at the time of annual review of EXIM
Special Economic Zones (SEZs).
Policy effective from 1.4.2000. The basic idea is to establish the
zones as areas where export production could take place free b. Units in SEZ would be permitted to undertake hedging of
from all roles and regulations governing imports and exports commodity price-risks, provided such transactions are
and to give them operational flexibility. undertaken by the units on stand- alone basis..
Special Economic Zone (SEZ) is a specifically delineated duty c. Units in SEZ shall be permitted External Commercial
free enclave, which shall be deemed to be a foreign territory for Borrowings (ECBs) for a tenure of less than three years.
the purposes of trade operations and duties and tariffs. . d. Four existing EPZs namely, Kandla, Santacruz, Kochin and
Surat have been converted SEZs and 13 New SEZs have
Features of Special Economic Zones
already been given approval.
(SEZS)
a. Goods going into the SEZ area from DTA shall be treated Export performance of the four functional SEZ
as. deemed exports and the domestic suppliers are. eligible Export performance of the four functional SEZ are as given
for deemed export benefits. Similarly, goods coming from below;-
the SEZ area into DTA shall be treated as if the goods are 2000-2001 2001-2002 2002-2003
Zone
being imported. (Rs millions) (Rs millions) (Rs. millions)
Kandla SEZ 5278.90 4759.80 7292.90
b. SEZ units may be set up (or manufacture of goods and
SEEPZ, SEZ 51937.00 52256.00 60830.20
rendering of services, production, processing,
Cochin SEZ 3043.00 2585.00 2704.20
c:l.8sembling, trading, repair, remaking, reconditioning, re-
Surat SEZ 622.80 3118.60 2807.10
engineering including making of gold, silver or platinum
Noida SEZ 10342.00 9804.10 10011.70
jewellery and articles thereof. Madras SEZ 6908.40 7625.90 8191
c. Foreign Direct Investment (FDI) upto 100% is allowed Vishakhapatnam SEZ 2190.80 2530.20 3572.7
through automatic I route for all manufacturing activities Faltz SEZ 5199.70 9236.30 5123.90
except arms and ammunition, items of defense Total : 85523.00 91895.50 100533.70
equipments, narcotic. And psychotropic substances,
hazardous chemicals, brewing of alcoholic drinks, cigarettes Special Economic Zones- Legal
and tobacco. Prospective
d. Procurement of raw materials and exports of finished Eligibility
products are exempted from central levies
a. Special Economic Zone (SEZ) is a specifically delineated
e. The entire production of the units in the SEZs must be. duty free enclave and shall be deemed to be foreign territory
exported and DTA sales is permitted only on the payment for the purposes of trade operations and duties and tariffs
of full applicable customs duties.
b. Goods and services going into the SEZ area from DTA
e. SEZ units are eligible for a corporate tax holiday upto 2010, shall be treated as exports and goods coming from the SEZ
under the I . provisions of section 10A of the Income Tax area into DTA shall be treated as if these are being
Act. imported
f. SEZ units can retain 100% of their exports proceeds in c. SEZ units may be set up for manufacture of goods and
Exchange Earner’s Foreign Currency (EEFC) account. rendering of services

86 11.675.1
Export and Import of Goods
a. SEZ units may export goods and services including agro-
products, partly processed goods, sub-assemblies and
components except prohibited items of exports in ITC
(HS). The units may also export by-products, rejects, waste
scrap arising out of the production process. Export of
Special Chemicals, Organisms, Materials, Equipment and
Technologies (SCOMET) shall be subject to fulfillment of
the conditions indicated in the ITC (HS) Classification of
Export and Import Items. SEZ units, other than trading/
service unit, may also export to Russian Federation in
Indian Rupees against repayment of State Credit/Escrow
Rupee Account of the buyer, subject to RBI clearance, if
any.
b. SEZ unit may import/procure from the DTA without
payment of duty all types of goods and services, including
capital goods, whether new or second hand, required by it
for its activities or in connection therewith, provided they
are not prohibited items of imports in the ITC(HS).
However, any permission required for import under any
other law shall be applicable. Goods shall include raw
material for making capital goods for use within the unit.
The units shall also be permitted to import goods required
for the approved activity, including capital goods, free of
cost or on loan from clients.
c. SEZ units may procure goods required by it without
payment of duty, from bonded warehouses in the DTA set
up under the Policy and/or under Section 65 of the
Customs Act and from International Exhibitions held in
India.
d. SEZ units, may import/procure from DTA, without
payment of duty, all types of goods for creating a central
facility for use by units in SEZ. The Central facility for
software development can also be accessed by units in the
DTA for export of software
e. Gem & Jewellery units may also source gold/ silver/
platinum through the nominated agencies
f. SEZ units may import/procure goods and services from
DTA without payment of duty for setting up, operation
and maintenance of units in the Zone
Leasing of Capital Goods
a. SEZ unit may, on the basis of a firm contract between the
parties, source the capital goods from a domestic/foreign
leasing company. In such a case the SEZ unit and the
domestic/ foreign leasing company shall jointly file the
documents to enable import/ procurement of the capital
goods without payment of duty.
Net Foreign Exchange Earning (NFE)
SEZ unit shall be a positive Net Foreign exchange Earner. Net
Foreign Exchange Earning (NFE) shall be calculated cumula-
tively for a period of five years from the commencement of
production according to the formula given in Appendix -14-II
of the Handbook (Vol-I)
11.675.1
Monitoring of performance
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
a. The performance of SEZ units shall be monitored by the
Unit Approval Committee
b. The performance of SEZ units shall be monitored as per the
guidelines given in Appendix 14-II of Handbook (Vol-I).
Legal Undertaking
The unit shall execute a legal undertaking with the Develop-
ment Commissioner concerned and in the event of failure to
achieve positive foreign exchange earning it shall be liable to
penalty in terms of the legal undertaking or under any other law
for the time being in force.
Approvals and Applications
a. Applications for setting up a unit in SEZ other than
proposals for setting up of unit in the services sector
(except software and IT enabled services, trading or any
other service activity as may be delegated by the BOA), shall
be approved or rejected by the Units Approval Committee
within 15 days as per procedure indicated in Annexure to
Appendix 14-II of Handbook (Vol-I) . In other cases
approval may be granted by the Board of Approval.
b. Proposals for setting up units in SEZ requiring Industrial
Licence may be granted approval by the Development
Commissioner after clearance of the proposal by the SEZ
Board of Approval and Department of Industrial Policy
and Promotion within 45 days on merits.
Dta Sales and Supplies
a. SEZ unit may sell goods, including by-products, and
services in DTA in accordance with the import policy in
force, on payment of applicable duty.
b. DTA sale by service/trading unit shall be subject to
achievement of positive NFE cumulatively. Similarly for
units undertaking manufacturing and services/ trading
activities against a single LOP, DTA sale shall be subject to
achievement of NFE cumulatively.
c. The following supplies effected in DTA by SEZ units will
be counted for the purpose of fulfilment of positive NFE:
i. Supplies made to bonded warehouses set up under the
Policy and/or under Section 65 of the Customs Act.
ii. Supplies to other EOU/SEZ/ EHTP/ STP units
provided that such goods are permissible for
procurement by units
iii. Supplies against special entitlement of duty free import
of goods.
iv. Supplies of goods and services to such organizations
which are entitled for duty free import of such items in
terms of general exemption notification issued by the
Ministry of Finance.
v. Supply of services (by services units) relating to exports
paid for in free foreign exchange or for such services
rendered in Indian Rupees which are otherwise
considered as having been paid for in free foreign
exchange by RBI.
87
 vi. Supplies of Information Technology Agreement (ITA-
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
1) items and notified zero duty telecom/electronic items
indicated in the Appendix 14-II of Handbook.
Export through Status Holder
SEZ unit may also export goods manufactured/software
developed by it through a merchant exporter/ status holder
recognized under this Policy or any other EOU/SEZ/ EHTP/
STP unit.
Inter-unit Transfer
a. SEZ units may transfer manufactured goods, including
partly processed/semi-finished goods and services from
one SEZ unit to another SEZ/EOU/ EHTP/STP unit.
b. Goods imported/procured by a SEZ unit may be
transferred or given on loan to another unit within the
same SEZ which shall be duly accounted for, but not
counted towards discharge of export performance
c. Capital goods imported/procured may be transferred or
given on loan to another SEZ/EOU/ EHTP/ STP unit
with prior permission of the Development Commissioner
and Customs authorities concerned.
d. Transfer of goods in terms of sub-paras (a) and (b) above
within the same SEZ shall not require any permission but
the units shall maintain proper accounts of the transaction.
Sub-contracting
a. SEZ unit, may subcontract a part of their production or
production process through units in the DTA or through
other SEZ/EOU/ EHTP/ STP, with the annual
permission of Customs authorities. Subcontracting of part
of production process may also be permitted abroad with
the approval of the Development Commissioner.
b. Sub-contracting by SEZ gems and jewellery units through
other SEZ units or EOUs or units in DTA shall be subject
to following conditions.
i. Goods, finished or semi finished, including studded
jewellery, taken outside the zone for sub- contracting
shall be brought back to the unit within 30 days. No cut
and polished diamonds, precious and semi-precious
stones (except precious and semi precious stone having
zero duty) shall be allowed to be taken outside the zone
for sub-contracting.
ii. Receive plain gold/silver/platinum jewellery from DTA
in exchange of equivalent quantity of gold/silver/
platinum, as the case may be, contained in the said
jewellery.
iii. SEZ units shall be eligible for wastage as applicable for
sub-contracting and against exchange
iv. The DTA unit undertaking job work or supplying
jewellery against exchange of gold/silver/platinum shall
not be entitled to export benefits.
c. All units, including gem and jewellery, may sub-contract part
of the production or production process through other
units in the same SEZ without permission of Customs
authorities subject to records being maintained by both the
supplying and receiving units.
88
a. SEZ units other than gems and jewellery units may be
allowed to undertake job-work for export, on behalf of
DTA exporter, provided the finished goods are exported
directly from SEZ units. For such exports, the DTA
units will be entitled for refund of duty paid on the
inputs by way of Brand Rate of duty drawback.
b. Scrap/waste/remnants generated through job work may
either be cleared from the job worker’s premises on
payment of applicable duty or returned to the unit.
c. SEZ units engaged in production/processing of
agriculture/horticulture products, may on the basis of
annual permission from the Customs authorities take
out inputs and equipments to the DTA farm subject to
the procedure indicated in
Appendix 14-II of the Handbook (Vol-I)
Exit from SEZ scheme
a. SEZ unit may opt out of the scheme with the approval of
the Development Commissioner. Such exit from the
scheme shall be subject to payment of applicable Customs
and Excise duties on the imported and indigenous capital
goods, raw materials etc. and finished goods in stock. In
case the unit has not achieved positive NFE, the exit shall
be subject to penalty, that may be imposed by the
adjudicating authority under Foreign Trade (Development
and Regulation) Act, 1992.
b. SEZ unit may also be permitted by the Development
Commissioner, as one time option, to exit from SEZ
scheme on payment of duty on capital goods under the
prevailing EPCG Scheme, subject to the unit satisfying the
eligibility criteria of that Scheme and standard conditions
for exit indicated in Appendix 14-II of Handbook (Vol-I).
Export through Exhibitions/Export Promotion Tours/
Export through Show Rooms Abroad/Duty Free
Shops
Sez, Units May
a. Export goods for holding/ participating in exhibitions
abroad with the permission of Development
Commissioner.
b. Personal carriage of gold/ silver/ platinum jewellery,
precious, semi-precious stones, beads and articles.
c. Export of jewellery is also permitted for display/ sale in the
permitted shops set up abroad
d. Display/sell in the permitted shops set up abroad or in the
show rooms of their distributors/agents
e. Set up show rooms/retail outlets at the International
Airports.
Personal Carriage of Export/Import Parcel
Import/ export through personal carriage of gem and jewellery
items may be under-taken as per the procedure prescribed by
Customs. Import/export through personal carriage for units,
other than gem and jewellery unit , shall be allowed provided
the goods are not in commercial quantity.
11.675.1
Export /Import By Post/ Courier
Goods including free samples, may be exported/imported by
airfreight or through Foreign Post Office or through courier,
subject to the procedure prescribed by Customs.
Disposal of Rejects/Scrap/ Waste/Remnants
Rejects/scrap/waste/remnants arising out of production
process or in connection therewith may be sold in the DTA on
payment of applicable duty. No duty shall be payable in case
scrap/waste/ remnants/ rejects are destroyed within the Zone
after intimation to the Custom authorities or destroyed outside
the SEZ with the permission of Custom authorities. Destruc-
tion as stated above shall not apply to gold, silver, platinum,
diamond, and precious and semi precious stones.
Replacement/repair of Goods
a. The general provisions of Policy relating to export of
replacement/ repaired goods shall apply equally to SEZ
units, save that, cases not covered by these provisions shall
be considered on merits by the Development
Commissioner.
b. The goods sold in the DTA and found to be defective may
be brought back for repair/ replacement under intimation
to Development Commissioner.
c. Goods or parts thereof, including gem stones and precious
metal components for jewellery making, on being
imported/ indigenously procured and found defective or
otherwise unfit for use or which have been damaged or
become defective after import/ procurement may be
returned and replacement obtained or destroyed. In the
event of replacement, the goods may be brought back from
the foreign suppliers or their authorised agents in India or
the indigenous suppliers. Destruction shall however not
apply to gem stones and precious metals.
d. Goods may be transferred to DTA/abroad for repair/
replacement, testing or calibration, quality testing and R & D
purpose under intimation to Customs authorities and
subject to maintenance of records.
Management of SEZ
a. SEZ will be under the administrative control of the
Development Commissioner.
b. All activities of SEZ units within the Zone, unless
otherwise specified, including export and re-import of
goods shall be through self certification procedure
Setting up of SEZ in Private/Joint/ State Sector
A SEZ may be set up in the public, private, joint sector or by
state Government as per details indicated in Appendix 14-II of
the Handbook(Vol-I).
Samples:-SEZ units may, on the basis of records maintained
by them, and on prior intimation to Customs authorities:-
a. supply or sell samples in the DTA for display/ market
promotion on payment of applicable duties;
b. Remove samples without payment of duty, on furnishing a
suitable undertaking to Customs authorities for bringing
the goods back within a stipulated period
11.675.1
c. Export free samples, without any limit, including samples
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
made in wax moulds, silver mould and rubber moulds
through all permissible mode of export including through
couriers agencies/post
Sale of Un-utilised Material/ Obsolete goods
a. In case an SEZ unit is unable, for valid reasons, to utilize
the goods, including capital goods and spares, it may
dispose them in the DTA in accordance with the import
policy in force and on payment of applicable duties or
export them
b. Capital goods and spares that have become obsolete/
surplus may either be exported or disposed of in the DTA
on payment of applicable duties. The benefit of
depreciation, as applicable, will be available in case of
disposal in DTA.
c. No duty shall be payable in case capital goods, raw material,
consumables, spares, goods manufactured, processed or
packaged and scrap/waste/ remnants/rejects are destroyed
within the Zone after intimation to the Custom authorities
or destroyed outside the Zone with the permission of
Custom authorities. However destruction shall not apply to
precious and semi precious and precious metals
d. SEZ unit may be allowed by Customs authorities concerned
to donate imported/ indigenously procured computer and
computer peripherals without payment of duty, two years
after their import/procurement and use by the units, to
recognized non-commercial educational institutions,
registered charitable hospitals etc as per the details given in
Appendix 14-II in Handbook (Vol-I)
Entitlement for SEZ Developer: - For development,
operation and maintenance of infrastructure facilities in SEZs,
the developer shall be eligible for the following entitlements
a. Income tax exemption as per 80 IA of the Income Tax Act.
b. Import/ procure goods without payment of Customs/
Excise duty
c. Exemption from Service tax
d. Exemption from CST.
Difference between SEZS and EPZS
The main difference between the SEZ and the EPZ is that the
SEZ is an integrated township with fully developed infrastruc-
ture on international standards whereas EPZ is just an
industrial part. In fact, all existing EPZs have been asked to
convert themselves into SEZs. However, some units are not
interested in the conversion on account of the sale into DTA at
concessional rate of duty is not available in SEZs. The Govern-
ment has asked such units to move out to the Domestic Tariff
Area (DTA).
A note on Agriculture Export Zones (AEZS)
Agricultural. Export Zones (AEZs) have been set up by. the
Ministry of Commerce, GOI, with a view to promote agricul-
tural exports from the country and provide remunerative
returns to the farming community in a substantial manner.
Further, with the intention to give primacy to promotion of
agricultural exports, it has been decided to identify product
89
 specific Agricultural Export Zone from geographically contigu- Star Trading House on achieving the performance level as
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

ous area. mentioned below.

State Governments may identify product specific Agri export Category Average FOB
value during
FOB value
during the
Average NFE
earnings made
NFE earned
during the
zone for end to end development for export of specific the preceding
three licensing
preceding
licensing
during the
preceding three
preceding
licensing
products from a geographically contiguous area. State Govern- years, in
Rupees
year, in
Rupees
licensing years,
in Rupees
year, in
Rupees
ment may evolve a comprehensive package of services provided (1) (2) (3) (4) (5)
EXPORT HO USE 4 crores 6 crores 3 crores 5 crores
by all State Government Agencies, State Agricultural Universities TRADING 20 crores 30 crores 15 crores 25 crores
HOUSE
and all institutions and agencies of the Union Government for STAR TRADING 100 crores 150 crores 75 crores 125 crores
intensive delivery in these zonesSuch services which would be HOUSE
SUPER STAR 300 crores 450 crores 225 crores 375 crores
managed and co-ordinated by State Government would include TRADING
HOUSE
provision of pre/post harvest treatment and operations, plant
protection, processing, packaging, storage and related research & In addition to the double weightage available under paragraph
development, etc. APEDA will supplement, within its 12.7, the double weightage on FOB or NFE on the export of
schemes and provisions, efforts of State Governments for agriculture product for recognition as status holders shall be
facilitating such exports. available.

Objective Information Requirements

In a fast changing international trade environment and with a A database on agricultural products and markets including
view to providing remunerative returns to the farming commu- aspects of commercial intelligence relevant to exports will be
nity in a sustained manner, efforts will be made to provide established. Assistance shall be provided to the exporters,
improved access to the produce/ products of the Agriculture growers’ organisations, trade association for conducting
and Allied sectors in the international market. surveys/feasibility studies, market studies etc.
Some Important Agricultural Export Zones
EPCG Scheme
Agriculture exporters shall be eligible for the facility of EPCG Location Name of product (s) Location Name of Product (s)
scheme as described in Chapter-6 of the Policy. The export West Bengal Pineapple Maharashtra Grapes & Grape Wine
Karnataka Gherkins Tripura Pineapple
obligation shall be determined in accordance with paragraph 6.2 Uttaranchal Lychee Uttar Pradesh Mangoes
of the Policy but the licence holder shall not be required to Punjab Vegetables Maharashtra Mangoes
Uttar Pradesh Potatoes Jammu Apple
maintain the average level of exports as specified in sub &Kashmir
paragraph 6.5(v) of the Policy. Punjab Potatoes Tamil Nadu Flowers
Andhra pradesh Mangopulp & Fresh Madhya Potatoes, Onions &
Such exporter shall have the facility to move or to shift the Vegetables Pradesh Garlic
capital goods within the zone provided he maintains accurate
record of such movements. However such equipments shall AEZ would be identified by the State Government, who may
not be sold or leased by the licence holder. This facility shall also evolve a comprehensive ‘package of services provided by all
be available to service providers, setting up common State Government agencies, State agricultural universities and. all
infrastructural facilities such as sorting, grading, polishing, institutions and agencies of the Union Government for
packaging, cold storage, transport equipment/ refrigerated vans, intensive delivery in these zones.
vapour treatment heat treatment plant, X-ray screening facility
Such services, which would be managed and co-ordinated by
etc.
the State Government, would include provision of pre-harvest
The units setup in the notified Agriculture Export Zone shall and post-harvest treatment and operations; plant protection,
be entitled to the benefits available under the scheme. A service processing, packaging, storage and related research and develop-
provider in the Agriculture Export Zone may import equip- ment, etc. Agricultural and Processed Food Products Export
ment under the EPCG scheme for supplying services to Development Authority (APEDA) will supplement, within its
agriculture exports. The export obligation may be offset by the schemes and provisions, efforts of the State Governments for
service provider by earning foreign exchange in lieu of services facilitating such exports.
rendered.
Facilities for Units Located in AEZS
Duty Exemption/remission Scheme
a. The agriculture .exporters are entitled to import of capital
a. The agriculture exporter shall be entitled to the facility for goods under EPCG Scheme.
import of inputs like fertilizers, pesticides, insecticides,
b. The agricultural exporters are entitled to imports of inputs
packing material etc. under Advance Licence/DFRC/DEPB
like, fertilizers, pesticides, insecticides; packing materials, etc.,
scheme as given in Chapter-7 of the Policy subject to the
under Advance Licence, Duty Free Replenishment Certificate
eligibility criteria and conditions enumerated under the
(DFRC) and Duty entitlement Passbook (DEPB) Schemes.
scheme.
b. The agriculture exporter shall be eligible for recognition as A note on Negative List of Exports 2002-07
Export House/Trading House/Star Trading House/ Super The negative list consists of goods the import or export of
which is either .prohibited, restricted through licensing or
otherwise to be canalised through a designated government
agency. The negative list of exports, as per the EXIM Policy

90 11.675.1
2002-07, contains the following four categories of export
items:-
a. Prohibited Items :- The prohibited items are completely
banned from exports. The following categories of. items are
banned from exports :-
• All forms of wild animals including their parts and
products.
• Special chemicals as notified by the DGFT.
• Exotic birds as notified by the DGFT.
• Beef.
• Sea shells, as specified.
• Human skeleton.
• Peacock tail feathers including handicrafts and articles
made there of.
• Manufactured articles and shavings of Shed Antlers of
Chital and Sambhar.
• All items of plants as specified by the DGFT.
• Tallow, fat and/or oils of any animal origin excluding
fish oil.
• Sandalwood items as notified by the DGFT.
• Red sanders wood in any form.
b. Restricted Items :- The restricted items are allowed for
exports under special licence issued by the DGFT. Some of
restricted export items are as follows:-
• Dress materials, ready-made garments, fables or textile
it’s wit imprints of excerpts or verses of the Holy
Quran.
• Horses - Kathiawadi, Marwari and Manipuri breeds. ,
• Fresh and frozen silver prom frets of weight less than
300 gms.
• Paddy (Rice in husk).
• Seaweeds of all types. ,
• Fodder including wheat and rice straw.
• Chemical fertilizer of all types.
• Whole human blood and all products derived from it.
• Silkworm, silkworm seeds and silkworm cocoons.
• Deoiled groundnut cakes containing more than 1% oil.
c. Canalised Items :- The canalised items can be, exported
without an export licence through designated State’ Trading
Enterprises (STEs). Some of the canalised items are :-
Items Canalising Agency
Onions (Except Banglore Export permitted through Specified STEs
Rose onion and
Krishnapuram onion)
Niger Seeds Tribal Cooperative Marketing Federation of
India(TRIFED), NEW Delhi.
National Agriculture Coopertive Marketing
Federation Of India (NAFED)
Gum Karaya Tribal Coopertives Marketing Federation of India
(TRIFED), New Delhi.
Iron ore, manganese ore, Metals and Minerals Trading Corporation (MMTC)
and Chrome ore.
Crude oil Indian Oil Corporation Limited.
11.675.1
d. Freely Exportable Items :- The freely exportable items,
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
can be exported without an export licence or permission
from the DGFT. However, export of such items is subject
to certain procedures or conditions.
Item Description Procedures or Conditions
Military stores as notified by DGFT 'No objection certificate from the
Department of Defence Production and
supplies.
Exotic birds, Such as bangali finches, Subject to Pre-shipment inspection;
White finches and Zebra finches.
Bones and bone products Subject to a certificate from Chemicals
and Allied Products' Export ,Promotion
Council
Basmati Rice Subject to registration of contracts with
the Agricultural and processed Food
products export Development Authority
(APEDA)
A note on Open General Licence (OGL) List
Open General Licence (OGL) list contains those items, which
can be exported without any restrictions or licensing formalities
to all permitted destinations. The following four OGLs are in
operation :-
a. OGL No.1 :- Applies to export by land to any country
adjacent to India and having no sea port of its own.
b. OGL No.2 :- Applies to export of bonafide samples.
c. OGL No.3 :- Applies to the items that can be exported on
fulfilment of the conditions against each of the items.
d. OOL No.4:. Applies to items that can be exported directly
by the canalising agency mentioned against each items.
A note on Export Obligation
Export obligation means the obligatioI1 of the importer to
undertake export of product or products in term of quantity,
value or both, as may be prescribed or specified by the licensing
or competent authority in order to compensate for the imports
undertaken.
Objectives of Export Ob1igation
a. The main objective of export obligation is to compensate
for the outflow of foreign currency due to imports
undertaken under certain schemes such as EPCG scheme.
b. The EPCG scheme enables the Indian exporters to import
capital goods at 5% customs duty subject to export
obligation.
Advantages of Export Obligations
a. Accessibility to imported raw materials and capital goods
subject to export obligation would enhance the
competitiveness of Indian exporters in terms of quality up
gradation.
b. Due to, export obligation, importers will be required to
export compulsorily. This would increase exports and
would generate foreign exchange for the economy.
A note on Counter Trade
Counter trade is a form of international trade in which certain
export and import transactions are directly linked with each
other and in which import of goods are paid for by export of
goods, instead of money payments;
91
 In the modern economies, most transactions involve monetary • Insure the risk of the trader’s insolvency
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

payments and receipts, either immediate or deferred. As against • Arrange payment for sales of the customer’s (exported)
this, counter trade refers to a variety of unconventional product before you lose control of your goods
international trade practices which link exchange of goods,
• Use an escrow account for receipts, and export goods to the
directly or indirectly, in an attempt to dispense -with currency
value of the amount of hard currency in escrow (foreign
transactions.
exchange permission for the escrow account may be needed
The Philippine International Trade Corporation (PITC) is from the buyer’s country)
tasked with countertrade, an international transaction premised
• Ask the customer to provide a government guarantee for
on some form of reciprocity. It is used to leverage government
any shortfall of the amounts expected from the proceeds of
importation with trade and investments to be provided by
sale counter-traded goods, especially if you are committing
foreign suppliers.
resources to make goods to order
Counter trade helps government offices or other local institu-
tions by facilitating the introduction of investments, technology • Insure the risk of non-honoring of the government
transfer, research and development, donations, specialized guarantee
training/skills and related activities without additional cost to • Obtain political risk cover on the buyers country in relation
the government. to the risk of frustration of your export contract and on the
frustration of the import contract.
Forms of Counter Trade
a. Barter: Barter refers to direct exchange of goods against Question Bank
goods of equal value, with no money and no third party Q1. Write a note on the Negative List of Export.
involved in it. Q2. Write a brief note on canalisation of exports.
b. Compensation Deal: Under this arrangement, the seller Q3. Explain Niche Marketing as an export strategy.
receives a part of the payment in cash and the .rest in
Q4. Write note on the Open General Licence (OGL).
products.
Q5. Write note on the Special Economic Zones.
c. Buy Back: Under the buy back agreement, the supplier of
plant, equipment or technology agrees to purchase goods Q6. Write note on the Agriculture Export Zones.
manufactured with that equipment or technology.
d. Counter purchase : Under the counter purchase agreement,
the seller receives the full payment in cash but agrees to
spend an equivalent amount of money in that country
within a specified period.
d. Trade-for-Debt or Debt-for-Goods. A loan or credit
obtained by the government is paid for (fully or partially) in
goods or services of the debtor country.
e. Offset. Foreign suppliers commit to introduce investments,
technology transfer, training and skills upgrade, research and
development, donation or other similar products that will
promote the industrial and economic growth of the country
as well as provide employment opportunities, support
social and civic programs, generate/save foreign exchange,
and fund and support environmental projects for
sustainable growth.
Checklist for Counter-trade
Counter-trade and barter are trading techniques used by
countries with a limited supply of foreign currency, but which
need to import goods. Instead of paying in precious hard
currency, the customer asks to pay in goods. In many cases these
will not be goods for which there are already established trading
patterns, rather they will be goods that would not otherwise be
exported. This will mean that there is unlikely to be a means of
pricing them (as there would be, for example, for a fixed grade
of a mineral).
• Use a lawyer to write the agreements
• Use a counter-trade specialist (e.g a commodity trader with
counter-trade expertise)

92 11.675.1
 EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 14:
EXPORT PROCEDURE

Introduction • A partnership firm under the Indian Partnership Act,

1932.);
Export Procedure
• A sale trader should seek permission from the local
• Registration’ Stage.
authorities, as required.
• Shipment Stage.
b. Opening-Bank Account: - The’ exporter should open a
• Pre-shipment Stage current account in the name of the firm or company with a
• Post-shipment Stage. commercial bank which is authorised by the Reserve Bank
Quality Control and Pre-shipment Inspection of India (RBI) to deal in foreign exchange. Such bank also
serves as a source of pre-shipment and post-shipment
• Introduction.
finance for the exporter.
• Concept of quality
c. Obtaining Importer-Exporter Code Number (lEC
• Need of Inspection No.): - Prior to 1.1.1997, it was obligatory for every exporter
• Types of Inspection to obtain CNX number from the RBI. However, since then,
• Procedure. IEC number issued by the Director General for Foreign
Trade (DGFT) has replaced the CNX number. The
• Methods
application form for obtaining IEC number should be
Sales Tax Exemption accompanied by fee of Rs. 1000.
• Procedure for Registration. d. Obtaining Permanent Account Number- (PAN):
• Procedure for Exemption. Export income is subject to a number of exemptions and
deductions under different sections of the Income Tax Act.
Procedure for Excise Clearance For claiming such exemptions and deductions, the exporter
• Introduction. should register his organisation with the Income Tax
• Conditions Authorities and obtain the Permanent Account Number
• Procedure. (PAN).
e. Obtaining Sales Tax Number: - Exportable goods are
Shipping and Customs Formalities
exempted from sales tax, provided, the ‘exporter or his firm
Procedure for Realisation of Export Proceeds is registered with the Sales Tax Authorities. , For this
Question Bank purpose, the exporter is required to make an application in
the prescribed form to the’ Sales Tax Office (STO) in whose
Introduction jurisdiction his {exporter’s). Office is situated
Export procedure consists of several commercial and regulatory
f. Registration with, Export Promotion Council (EPC) ::
formalities, which an exporter is required to complete during
It is obligatory for every exporter to ,register with the
the course of export trade transactions. These formalities are
appropriate Export Promotion Council (EPC) and obtain
very complex and time-consuming and involve considerable
the ‘Registration-cum-Membership Certificate’ (RCMC).
documentation. Hence, the exporters must possess adequate
The benefits provided in the current EXIM Policy are
knowledge of such formalities. At the same time, it should be
extended only to the registered exporters having valid
ensured that the rules- and regulations. of not only exporting
RCMC.
country but also of importing Country are duly complied with.
Last but not least, it should be ensured that all the required g. Registration with ECGC: - The exporter should also
documents, whether commercial or regulatory, are prepare and register with the Export Credit and Guarantee Corporation
filed with the appropriate authorities. of India (ECGC) in order to secure overseas payments
against political and commercial risks. It also helps the
Registration Stages exporters in obtaining the financial assistance from
The exporter is required -to register his organisation with a commercial banks and other financial institutions.
number of institutions and authorities, which directly or
h. Registration with other Authorities: - The exporter
indirectly help him in the smooth conduct of export, trade. The
should also register with various other authorities, such as: -
registration stage includes: -
• Federation of Indian Export Organisation (FIEO),
a. Registration of the Organisation: - The form of
organisation selected by the exporter must. Be registered • Indian Trade Promotion Organisation (ITPO),
under the appropriate Act of. the country.) • Chambers of Commerce (COC),
• A joint stock company under the Companies Act, 1956.); • Productivity Councils, etc.

11.675.1 93
 Shipment Stages
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Export, cargo can be exported to the overseas buyer by sea, air
or land. However, shipment by sea is the most popular and
generally resorted to, as it is comparatively cheaper. Besides, the
ship’s capacity is far greater than other modes of transportation.
Nevertheless, transportation by air is utilized for export of
expensive items like, diamonds, gold, etc. The shipment stage
includes the following steps.:-
a. Reservation of Shipping Space: - Once the export
contract is finalised, the I exporter reserves the required
space in the vessel for shipment. On accepting the exporter’s
request, the shipping company issues a Shipping Order. The
original copy of the shipping order as given to the exporter
and the duplicate instruction by the shipping company to
the commanding officer of the ship that the goods as per
the details given should be received on board.
b. Arrangement of Internal Transportation up to the Port
of Shipment :-The exporter makes necessary arrangements
for transportation of goods to the port either by road or
railways. On loading goods into the railway wagon, the
railway authorities issue a ‘Railway Receipt’, which may be
either ‘freight paid’ or ‘freight to pay’. It serves as a title to
the goods. The exporter doses the railway receipt in favour
of his agent to enable him to take delivery of the goods at
the port of shipment.
c. Preparation and Processing of Shipping Documents :-
As the goods reaches the port of shipment, the exporter
should issue detailed instructions to the C&F agent for the
shipment of cargo along with a complete set of the
documents listed below:-
• Letter of Credit along with the export contract or export
order.
• Commercial Invoice (2 copies)
• Packing List or Packing Note.
• Certificate of Origin.
• GR Form (original and duplicate)
• ARE-I Form.
• Certificate of Inspection, where necessary (original copy)
•Marine Insurance Policy.
d. Customs Clearance: - The cargo must be cleared from the
Customs before it is loaded on the ship. For this, the above
mentioned documents, along with five copies of shipping
bill, are to be submitted to the Customs Appraiser at the
Customs House. The Customs Appraiser ensures that all
the formalities relating to exchange control, quality control,
pre-shipment inspection and licensing have been complied
with by the exporter. After verification, all documents,
except the original GR, original copy of Shipping Bill and
one copy of Commercial Invoice, are returned to the C&F
agent.
e. Obtaining ‘Carting Order’ from the Port Trust
Authorities: - The C&F agent, then, approaches the
Superintendent of the concerned Port Trust for obtaining
the ‘Carting Order’ for moving the cargo inside the dock.
After obtaining the Carting Order, the cargo is physically
94
moved into the port area and stored in the appropriate
shed.
f. Customs Examination and Issue of ‘Let Export Order’:
- The Customs Examiner at the port of shipment physically
examines the goods and seals the packages in his presence.
The same can be arranged for at the factory or warehouse of
the exporter by making an application to the Assistant
Collector of Customs. The Customs Examiner, if satisfied,
issues a formal permission I’ for the loading of cargo on
the ship in the form of a ‘Let Export Order’.
g. Obtaining ‘Let Ship Order’ from the Customs
Preventive Officer: - ‘Let Export Order’ must be
supplemented by a ‘Let Ship Order’ issued by the Customs
Preventive Officer. The C&F agent submits the duplicate
copy of Shipping Bill, duly endorsed by the Customs
Examiner, to the Customs Preventive Officer who endorses
it with the ‘Let Ship Order’.
h. Obtaining Mate’s Receipt and Bill of Lading: - The
goods are then loaded on board the ship for which the Mate
or the Captain of the ship issues Mate’s Receipt to the Port
Superintendent The Port Superintendent, on receipt of port
dues, hands over the Mate’s Receipt to the C&F Agent. The
C&F Agent surrenders the Mate’s Receipt to the Shipping
Company for obtaining the Bill of Lading. The Shipping
Company issues two to three negotiable and two to three
non-negotiable copies of Bill of Lading.
Pre-shipment Stage
Pre-shipment stage consists of the following steps:
a. Approaching Foreign Buyers: - In order to secure an
export order, a new exporter can make use of one or more
.of the techniques, such as,’ advertising in international
media, sales promotion, public relation, personal selling,
publicity and participation in trade fairs and exhibitions.
b. Inquiry and Offer: - An inquiry is a request from a
prospective importer about description of goods, their
standard or grade, size, weight or quantity, terms of
payments, etc. On getting an inquiry, the exporter must
process it immediately by making an offer in the form of a
Performa invoice.
c. Confirmation of Order: - Once the negotiations are
completed and the terms and conditions are finalised, the
exporter sends three copies of Performa Invoice to the
importer for the confirmation of order. The importer signs
these copies and sends back two copies to the exporter.
d. Opening Letter of Credit:- The documentary credit or
letter of credit is the most appropriate and secured method
of payment adopted to settle international transactions. On
finalization of the export. Contract, the importer opens a
letter of credit in favour of the exporter, if agreed upon in
the contract.
e. Arrangement of Pre-shipment Finance: On securing the
letter of credit, the exporter procures a pre-shipment finance
from his bank for procuring raw materials and other
components, processing and packing of goods and transfer
of goods to the port of shipment.
11.675.1
f. Production or Procurement of Goods: - On securing the
pre-shipment finance from the bank, the exporter either
arranges for the production of the required goods. or
procures them from the domestic market as per the
specifications of the importer.
g. Packing and Marking: - Then the goods should be
properly packed and JXl8.rkedwith necessary details such as
port of shipment and destination, country of origin, gross
and net weight, etc. If required, assistance can be taken from
the Indian Institute of Packing (IIP).
h. Pre-shipment ‘Inspection’ - If the goods to be exported
are subject to compulsory quality control and pre-shipment
inspection then the exporter should contact the Export
Inspection Agency (EIA). For obtaining an inspection
certificate.
i. Central Excise Clearance: - The exporters are totally
exempted from the payment of central excise duty.
However, the exemption should be* claimed in one of the
following ways: -
• Export under Rebate.
• Export under bond.
j. Obtaining Insurance Cover: - The exporter must take
appropriate policies in order to insure risks: -
• ECGE policy in order to cover credit risks.
• Marine policy, if the price quotation agreed upon is CIF.
k. Appointment of C&F Agent: - Since exporting is a
complex and time- consuming process, the exporter should
appoint a Clearing and Forwarding (C&F) agent for the
smooth clearance of goods from the customs and
preparation and submission of various export documents.
Post Shipment Stage
The post-shipment stage consists of the following steps: -
a. Submission of Documents by the C&F Agent to the
Exporter: - On the completion of the shipping procedure,
the C&F agent submits the following documents to the
exporter:-
• A copy of invoice duly attested by the Customs.
• Drawback copy of the shipping bill.
• Export promotion copy of the shipping bill.
• A full set of negotiable and non-negotiable copies of bill
of lading.
• The original L/C, export order or contract.
• Duplicate copy of the ARE-I form.
b. Shipment Advice to Importer: - After the shipment of
goods, the exporter intimates the importer about the
shipment of goods giving him details about the date of
shipment, the name of the vessel, the destination, etc. He
should also send one copy of non-negotiable bill of lading
to the importer.
c. Presentation of Documents to Bank for Negotiation: -
Submission of relevant documents to the bank and the
process of getting the payment from the bank is called
“Negotiation of the Documents” and tile documents are
11.675.1
called ‘Negotiable Set of Documents’. The set normally
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
contains: -
• Bill of Exchange, Sight Draft or Usance Draft.
• Full set of Bill of Lading or Airway Bill.
• Original Letter of Credit.
• Customs Invoice.
• Commercial Invoice including one copy duly certified
by the Customs.
• Packing List.
• Foreign exchange declaration forms, GR/SOFTEX/PP
forms in duplicate.
• Exchange control copy of the Shipping Bill.
• Certificate of Origin, GSP or APR Certificate, etc.
• Marine Insurance Policy, in duplicate.
d. Dispatch of Documents :- The bank -negotiates these
documents to the importer’s bank in the manner as
specified in the L/C. Before negotiating documents, the
exporter’s bank scrutinises them in order to ensure that all
formalities have been complied with and all documents are
in order. The bank then sends the Bank Certificate and
attested copies of commercial invoice to the exporter.
e. Acceptance of the bill of exchange: - Bill of Exchange
accompanied by the above documents is known as the
Documentary Bill of Exchange. It is of two types:
• Documents against Payment (Sight Drafts): - In
case of sight draft, the drawer instructs the bank to
hand over the relevant documents to the importer only
against payment.
• Documents against Acceptance (Usance Draft): -
In case of usance draft, the drawer instructs the bank
to hand over the relevant documents to the importer
against his ‘acceptance’ of the bill of exchange.
d. Letter of Indemnity: - The exporter can get immediate
payment from his bank on the submission of documents
by signing a letter of indemnity. By signing the letter of
indemnity the exporter undertakes to indemnify the bank in
the event of non-receipt of payment from the importer
along with accrued interests.
e. Realisation of Export Proceeds :- On receiving the
documentary bill of exchange, the importer releases
payment in case of sight draft or accepts the usance draft
undertaking to pay on maturity of the bill of exchange. The
exporter’s bank receives the payment through importer’s’
bank and is credited to exporter’s account.
f. Processing of GR Form: - On receiving the export
proceeds, the exporter’s bank intimates the same to the RBI
by recording the fact on the duplicate copy of GR. The RBI
verifies the details in duplicate copy of GR with, the,
original copy of GR received from the Customs. If the
details are found to be I in order then the export transaction
is treated to be completed.
g. Realisation, of Export” Incentives: - If the exporter is
eligible for export incentives, then he should submit claim
95
 for the same accompanied by the bank certificate to the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
appropriate authority.
Quality Control and Pre-shipment
Inspection
Concept of Quality
Quality of a product is defined as a set of attributes or specifica-
tions including packaging specifications in relation to a given
product. It is the manufacturer who first decides the quality of a
product before introducing it in the market. This may be done
keeping in view the national or the inter~ national standards of
quality as laid down by the respective national or international
standards bodies. The level of quality - high medium or low--
depends upon how rich or poor these specifications are. It the
specifica- tions are of very high order, the level of quality would
be high; on the other hand, if the specifications are poor or
weak, then the quality would be termed as low quality. Between
the high and low quality lies the medium range of the quality.
These quality specifications may then be modified during
negotiations with the foreign buyer to suit his/ her require-
ments. Finally, the quality of the export product is determined
with reference to the specifications as laid down by the buyer.
Thus, quality should be understood in its relative sense and not
in the absolute sense of the term.
Need for Pre-shipment Inspection
An exporter faces competition not only from the fellow
exporters from his own country but also from other Countries.
He should formulate a proper quality strategy to gain a competi-
tive edge over others in the market. The goods should be
properly inspected to ensure that the quality of the export
goods is maintained as desired by the buyer. Goods of poor
quality spoil not only their own market but also bring bad
name to the image of the country itself. I t is, thus, in the
business interest of the exporter to send shipment of the right
quality to the buyer. This would also facilitate effective penetra-
tion and sustenance in the export markets by improving the
brand image of the goods. The Government of India had also
recognised the need for effective pre-ship-ment inspection long
back in 1963 itself when the Export (Quality Control and
Inspection) Act, 1963 was enacted to provide for sound
development of the export trade through quality control and
pre-shipment inspection.
Types of Pre-shipment Inspection
There are primarily two different types of pre-shipment
inspection namely:
I. Voluntary Inspection
II. Compulsory Inspection
1. Voluntary Inspection
The following are the different forms of voluntary pre-
shipment inspection of the export shipments:
1. By the exporter himself
2. By the buyer’s representative
3. By the buying agent in the exporter’s country
4. By the inspection agencies in the private sector
96
2 Compulsory Inspection
Compulsory pre-shipment inspection is conducted by the
following agencies of the Government of India:
• Export Inspection Council through its Export Inspection
Agencies
• Textile Committee
• Development Commissioner (Handicrafts)
• Central Silk Board
Voluntary Inspection
1. Inspection by the exporter himself
The primary responsibility for inspection of the goods rests
with the exporter himself. He should conduct the
inspection of the goods during the process of
manufacturing, at the stage of finished product and also in
regard to the packaging and packing materials. It is essential
that the manufacturer should install proper quality control
system in the factory to check the quality at all stages of
manufac-ture of the goods. The merchant exporter should
enter into an arrangement with the supplier of goods to
provide for inspection during the process of manu-facture
as well as for the finished product. If needed, the services
of qualified quality control personnel should be taken for
this purpose.
2. Inspection by buyer’s representative
Many a time, the foreign buyer may arrange for inspection
of goods through his own representative in the exporter
country before the goods are dispatched by the exporter.
The exporter can send the shipment only when the buyer’s
representative issues a satisfaction report to the exporter.
The advantage to the exporter is that the buyer cannot raise
the question of substandard quality or the poor quality of
the goods once his representative clears the shipment of the
goods.
3. Inspection by buying agent
In cases where the export order is placed with the exporter
through a buy-ing agent in his country, the goods can be
dispatched only after the buying agent has issued the
satisfaction report to the exporter. Buying agents conduct
inspec-tion at different stages to ensure the shipment
conforms to the quality requirements of the exporter. The
buying agent conducts inspection of the quality at the time
of purchase of the raw materials, during the manufacturing
process; at the finished product stage and finally before
packaging and packing of the goods. The exporter can send
the shipment only after getting this certification of
inspection from the buying agent.
4. Inspection by private sector agencies
Sometimes, the buyer may specify an inspection agency in
the exporter’s country to satisfy himself as regards quality
of the goods. In such a case, the exporter should approach
that agency in his country and get the pre-shipment
inspection completed. In India, one of the leading agencies
in the private sector is the SGS India Ltd. with its head
office in Mumbai. The exporter should ascertain the
procedure and documentation formalities of the agency
11.675.1
 concerned so that the inspection of goods can be arranged
to ensure timely shipment of goods.
Compulsory Inspection
Compulsory pre shipment inspection is carried out by various
agencies of the Government in accordance with the regulations
framed by the Government of India from time to time. The
most significant legislation to provide for sound envelopment
of the export trade through quality control and pre shipment
inspection is the Export (Quality Control and Inspection) Act
1963. Under this Act, the Central Govern-ment is empowered
to
• notify commodities which shall be subject to quality control
or inspection or both prior to export;
• specify the type of quality control or i(inspection which shall
be applied to a notified commodity;
• establish, adopt or recognise one or more standard
specifications for a notified commodity; and
• prohibit the export in the course of International Trade of
a notified com-modity unless it is accompanied by a
certificate issued under Section 7 that the commodity
satisfied the condition relating to quality control or inspec-
tion, or it has affixed or applied to it a mark or seal
recognized by the Central Government as indicating that it
conforms to the standard specifications applicable to it
under clause ( c )
Under this Act, the Government of India have established the
Export Inspec-tion Council to advise the Government
regarding measures for the enforcement of Quality Control and
Inspection in relation to commodities intended for export. The
Council, established on 1.1.1964, is a statutory body corporate
with its own seal.
The Government of India has established five Export Inspec-
tion Agencies one each at Bombay, Calcutta, Cochin, Delhi and
Chennai under section 7 of the Export (Quality Control and
Inspection) Act 1963 w.e.f. 1.2.1966. These agencies work under
the administrative and technical control of the Export Inspec-
tion Council. Besides, the Export Inspection Council has also
recognized number of private agencies to act as inspection
agencies to issue pre shipment inspection certificate”
In order to promote exports of quality goods as per the
international standards, the Government of India has’
introduced compulsory Quality Control and’ Pre--Shipment
Inspection for 90% of the items of export under one or the
other system as per the Export (Quality Control and Pre-
shipment Inspection) Act, 1963. Some of these items are:
a. Food and agricultural products;
b. Chemicals and allied ,products;
c. Engineering ‘goods;
d. Textiles;
e. Coir, jute and leather products such as footwear, etc.
The Government of India has set up Export Inspection
Council (EIC) to monitor the, quality of goods meant for
exports. The EIC has set up five Export Inspection Agencies
(EIA) at Mumbai, Kolkata, Cochin, Delhi and Chennai. The
EIAs has a network of nearly 62 offices throughout India.
11.675.1
These EIAs have certain specific areas under their jurisdiction.
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
For example, the EIA of Mumbai has jutsdiction over
Maharashtra, Gujarat and Goa. ‘
Procedure for Pre-shipment Inspection
Those exporters, who are approved under Self-Certification and
IPQC, have to submit their applications in a prescribed
‘Intimation for Inspection’ form to the Export Inspection
Agency The Export Inspection. Agency issues the* Inspection
Certificate on the basis of their performance reports as submit-
ted by the EIA’s officials during the checks at all levels of
production carried out by them. Spot checks may also be’ carried
out whenever required. However, the units not approved under
Self-certification or IPQC systems are required to undergo the
following procedure :-
a. Application to EIA :- The exporter has to apply in the
prescribed Intimation for Inspection’ form (in duplicate) to
EIA at least 7 days. before the expected date of shipment
along with the following documents:-
• Copy of export contract;
• Copy’ of letter of credit;
• Details of packing specifications;
• Commercial invoice giving evidence of FOB value of
export consignment;
• Crossed cheque/D.D. in favour of EIA towards
inspection fees;
• Declaration regarding importer’s technical specifications.
b. Deputation of Inspector :. After getting the ‘Intimation
for. Inspection’, the EIA deputes an inspector to conduct
the pre-shipment inspection at the exporter’s factory or
warehouse. The exporter should keep goods ready for
inspection on the day: and time allotted for inspection.
c. Inspection and Testing :- The inspector conducts
inspection randomly and prepares the report to be
submitted to EIA. The exporter is required to arrange for
facilities required for the inspection. Where such facilities are
not available, inspection may be carried out at private
independent laboratories.
d. Packing and Sealing of Goods :- If the inspector is
satisfied with the quality of goods, he issues order for
packing of goods in his presence. After packing, the
consignment is marked and sealed with the official seal of
the Export Inspection Agency (EIA).
e. Submission of the Report to EIA and Issue of
Inspection Certificate :. The report prepared by the-
inspector is submitted to the Deputy Director of .EIA. If
.the report is favourable, the Deputy Director of EIA
issues’ an inspection certificate in triplicate.
• The original copy is required to be submitted to the
Customs.
• The duplicate copy is dispatched to the importer.
• The triplicate copy to be retained by the exporter for his
record.
f. Issue of Rejection Note:- If the report submitted by the
inspector is not favourable, the Deputy Director of EIA
issues a rejectioI1 note.
97
 g. Appeal against Rejection. Note :- The exporter can file an
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
appeal against the rejection note within 10 days from the
date of the receipt of such note. On receiving the appeal,
the EIA convenes a meeting of the Appellate Panel. The
panel reviews the inspection report and if necessary
examines the consignment again. The decision of the
Appellate Panel is final and is binding on both the parties,
the exporter and the ,Export Inspection Agency.
Units Exempted from the Inspection Procedure
a. Export Houses, Trading Houses, Star Trading Houses and
Super star Trading Houses.
b. Approved 100% EOUs and EPZ units.
a. Exporters who are registered with the Textile Committee.
b. Goods marked with ISI, AGMARK, BIS-14000, ISO-
9000.
Items notified under the Export(Quality Control & Inspection)
Act 1963 have also been exempted from compulsory pre-
shipment inspection provided the exporter produce a firm letter
from the overseas buyer to the effect that he does not want pre-
shipment inspection from any official Indian inspection agency.
However this exemption would not be available if the item
happens to be a potential health hazard or safety hazard.
Methods of Quality Control and Pre-shipment
According to the prevailing law in India, a fairly large number of
export goods are sub-jected to compulsory quality control and /
or inspection by the agencies authorized by the Government of
India before being allowed to be exported from the country. In
1965, the Government enacted the Export (Quality Control and
Inspection) Act as a single compre-hensive legislation to
provide for the sound development of export trade of India.
Accord-ingly, the Export Inspection Council was set up to
formulate and supervise the inspection schemes with the help
of Export Inspection Agencies, which have a network of offices
spread all over the country. These agencies have trained man-
power and are equipped with laboratory facilities to carry out
inspection tests and issue inspection certificates.
There are three systems for quality control and inspection. These
are:
i. Consignment-wise Inspection;
ii. Inprocess Quality Control; and
iii. Self-certification.
Consignment-wise Inspection
Under this system, each arid every export consignment is
subjected to a detailed inspection by the Export Inspection
Agencies based on a financial sampling plan. If the sample is
found to conform to the recognised specifications/standard , an
inspection certificate for export is issued to the exporter. The
Inspection Certificates carry a specific validity period within
which the export consignment must be shipped.
This system is applicable to all the notified products by the
Export Inspection Council other than those for which the In
process Quality Control system is applicable. Procedurally, for
obtaining the Inspection certificate, the exporter has to apply to
the Export Inspection Agency well in advance to avoid ship-
98
ment delays. The application is to be made on pre-scribed form
known as Notice of Intimation along with:
i. Crossed cheque or Demand Draft for the inspection fee
ii. Copy of Commercial Invoice
iii. Copy of Export Contract
iv. Importer’s Technical Specifications
This application will be registered in the office of Agency, which
will appoint an Inspector for carrying out physical examination
of the goods.
The Inspector will examine the goods in the exporter’s premises
with reference to the agreed specifications, which should not be
inferior to the notified specifications. Samples may be drawn
and sent to the laboratory, if required. Thereafter, the Inspector
prepares the Field Inspection Report, which becomes the basis
for the issuance of the Inspection Certifi-cate. The original of
the certificate is to be submitted to the customs authorities for
clear-ance of goods for export.
Inprocess Quality Control
Under this system, export-oriented manufacturing /processing
units are approved as “export- worthy” units because they
possess the requisite infrastructure for manufacturing/ process-
ing products of standard quality. Such a unit is allowed to
inspect and clear goods for export without-an inspection by the
Export Inspection Agency. The Agency will issue certificate of
inspection ‘on the declaration by the unit. ‘For the approval of a
unit, it is to apply to the Export Inspection Agency on the
prescribed Performa, After a preliminary visit by the officer of
the agency, a panel of experts will be appointed. This panel
thoroughly, investigates the quality control facilities of the unit
right from the raw material stage to packing. It submits its
report to the, agency with its recom-mendations. On the basis
of these recommendations, the unit is accorded the status of an
export-worthy unit.
For obtaining the inspection certificate under this system, the
exporter submits the following documents to the Export
Inspection Agency:
i. Application (Notice of Intimation)
ii. Crossed Cheque/Demand Draft for fee
iii. A Copy of Commercial Invoice
iv. Importer’s Technical Specifications.
On receipt of these “document(s, the Agency will issue
inspection certificate in triplicate. The original certificate is for the
customs authorities,
Self-certification
With the experience gained over the years in operating the
Compulsory Quality Control and Pre-shipment Inspection
Scheme in India, there has been a qualitative change in the
inspection system also. Recently, self-certification system has
been introduced which is based on the concept that a manufac-
turing unit having established reputation for its products with
sufficient in-built responsibility for quality assurance, could be
permitted to certify its own products for export. For the
purpose of operating this system, a manufactur-ing unit found
qualifying against the prescribed norms, which amongst other
include the following:
11.675.1
a. Product Quality
b. Design and Development
c. Raw Materials /Bought out Components
d. Organisation and personnel for Quality Control
e. Process Control
f. Laboratory
g. Quality Audit
h. Packaging
i. After-sales-service; and
j. House-keeping and Maintenance
The unit approved under this system is recognised by notifica-
tion under section 7 of the Act as the Agency for Quality
Control and Inspection of specific products manufactured in
the unit. The system removed the need for the manufacturing
unit to seek certificate of inspec-tion from an outside Agency
which provides an added advantage in the mechanism of
exportation.
Procedure for Registration with the STO
Sales tax is a tax imposed by the State government on goods
sold in or outside India. However, exportable goods are
exempted from sales tax, provided the exporter or his firm is
registered with the Sales Tax Authorities. Such exemption is
granted on both ;-
a. Goods exported.
b. Goods purchased from the local market for export purpose.
The following is the procedure for registration with the Sales
Tax Authorities ;-
a. Application to STO :- The exporter is required to make an
application in the prescribed form to the Sales Tax Office
(STO) in ‘whose jurisdiction his (exporter’s) office is
situated. The application should be accompanied by the
following documents; -
• Statement of Sales and Purchase.
• Partnership deed or Memorandum and Article of
Association in original.
• Xerox copy of the first and last page of the rationing
card of proprietor or partners or directors.
• Two latest passport size photograph of the applicant.
• Certificate under Municipal Act, Factory Act, Shop and
Establishment Act and other licences.
• Required court fee stamps.
• On receiving the application, STO deputes an inspector
to visit the office of the exporter.
b. Inspection of Documents: - The inspector inspects
relevant books and documents such as;-
• Sales and purchase register.
• House rent or tax receipt.
• Memorandum and Article of Association, in the case
of a company.
• Certificate of Incorporation, in the case of a company
• Partnership deed, in: the case of a partnership firm.
11.675.1
• Ration card.
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
• Any other relevant documents.
c. Report by the Inspector :- The inspector drafts a report’
and submits it to the STO. The STO verifies the report and
may call the exporter personally if certain clarifications are
required.
d. Submission of a Security Bond:- The exporter is required
to submit a security bond to the STO before getting the
sales tax registration number. such security bond should be
supported by another firm registered with the STO.
e. Granting Sales Tax Number:- On receiving the security
bond the STO grants sales Tax Registration number to the
exporter.
Procedure for Exemption from Sales Tax
On getting the sales tax registration number the exporter is
eligible for sales tax exemption. But for claiming this exemption
he is required to apply in “H” form to the concerned STO.
a. Obtaining “H” Form:- The registered exporter is required
to apply to the concerned STO for obtaining H form. He
should submit the following documents.
• A copy of letter of credit or confirmed export order.
• A copy of invoice where goods are purchased from the
local market for export purpose.
• A copy of the shipping bill duly certified by the
customs authority.
The exporter has to affix required court fee stamp on each H
form issued to him.
b. Processing of ‘H’ Forms :- After shipment of goods the
exporter is required to fill up necessary details in ‘H’ form
which is prepared in triplicate. The exporter retains one copy
with himself and gives the other two to the seller/
manufacturer from whom he had purchased goods for
export purpose.
c. Sales Tax Claim:- The manufacturer submits ‘Sales tax
return’ with one copy of “H” form to the STO and other
copy is retained by him for reference. On receiving sales tax
return the STO issues refund order for the refund of sales
tax already paid.
Central Excise Formalities
It is common practice all over world that the exports are not to
bear the burden of indirect taxes. export goods are either
exempted from such taxes or these taxes are levied at the central,
state and local levels on the inputs as well as on the final
products. Import and excise duties levied on production and
packing inputs are refunded under the Drawback Rules. Central
Excise duties on the inputs used in manufacturing export
products as well as on final export products is either exempted
through production under bond or is refunded after export.
The Government of India has laid down procedure for either
getting the duty refunded or exemption from payment of duty.
Excise Duty Refund
Excise duty is a tax imposed by the Central gO\1ermnent on
goods manufactured in India. This duty is collected at source,
Le., before removal of goods from the factory premises. The’
exporters are totally exempted from the central excise duty.
99
 However, necessary clearance must be obtained by the exporter
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
in one of the following ways:-
a. Export under Rebate :- Under this system, an exporter is
required to pay excise initially and can claim it from the
Central Excise department after the shipment of goods.
However, this leads to blockage of finance.
b. Export under Bond :- Under this system, an exporter is
required to execute a bond, in favour of excise authorities,
for a sum equivalent to the amount of excise chargeable on
such goods. Such bond should be supported by an
appropriate bank guarantee to safeguard excise department’s
financial . interest against non-sanctioning of excise refund.
Procedural Formalities
Let us now discuss various procedural formalities of excise
rebate.
Refund Procedure under Rule 12: The authorities involved in
the Rule are: i) Jurisdic-tional Central Excise Authority known
as Central Excise Range Superintendent under whose jurisdic-
tion the manufacturing unit is located; ii) Maritime Central
Excise Authority located at the port. Rebate may be either
claimed from Jurisdictional Assistant Collector of Central
Excise or Maritime collector.
The documents required under Rule 12 are:
1. Invoices to be filled in four copies.
2. AR 4/AR 5 Form to be filled in six copies.
The procedure followed is as under:
i. The exporters prepare four copies of Invoices giving all
detail of the consignment.
ii. The excisable goods, which are to be exported under claim
for rebate, are to be marked as export cargo ‘in individual
packages.
iii. These marks and numbers are to be specified on AR4/AR5
Forms, all the 6 copies. Personal Ledger Account (PLA) is to
be filled in specifying the amount of duty applicable to the
export consignment as debit. In PLA the credit balance of
the deposit account spent by the individual manufacturer
with the central excise authority is shown. Each time when
goods are cleared, the amount of duty applicable to the
goods to be cleared is debited and the balance is shown in
the balance column
iv. All 6 copies of AR4/ AR5 Form are to be presented to the
Range Superintendent before clearance of the cargo. Under
the Self-Removal Procedure (SRP) Presence of the central
excise officer at the factory at the time of clearance is not
necessary. But in those cases where physical examination by
the central excise officer is solicited before the clearance of
the cargo, 6 copies of AR4/AR5 Forms should be
presented to the Range Superintendent at least 24 hours
before the goods are to be removed from the factory.
vii. After verifying the details given in the afore-mentioned
documents, the Range superintendent allows clearance of
the cargo from the factory for onward transmission to the
port of shipment. Following endorsement are to be given
in all the 6 copies of AR4/ AR5 Forms.
“Allowed to export under claim for Central Excise Rebate”.
100
vii. The original and duplicate copies of AR4/ AR5 Forms are
handed over to the exporter; the triplicate copy is sent to the
Maritime Central Excise Collectorate-Refund section, having
jurisdiction over the port wherefrom the goods are to be
shipped; the fourth copy is sent to the Chief Accounts
officer (CAD) of the Maritime Central Excise Collectorate
concerned; the 5th copy is retained by Range Superintendent
for his record and future reference. The sixth copy is also to
be given to exporter or his authorised agent.
viii.The original, duplicate. and sixtuplicate copies of AR4/AR5
Forms are to be submitted to the Export Department of
Customs House alongwith other shipping documents to
prove that formal central excise clearance has been obtained
from the jurisdictional Central Excise Authority.
ix. If custom officer is satisfied, he would make endorsements
in the original, duplicate and sixtuplicate copies of AR4/
AR5 Forms. The officer returns original and sixtuplicate
copies to the exporter and sends duplicate copy to the
Rebate sanctioning Authority.
x. Rebate claim may be filed either from Maritime Collector or
Jurisdictional Assistant Collector of Central Excise.
xi. Following documents should be filed for claiming rebate:
a. Application in prescribed form.
b. Original copy of AR4/AR5 Form.
c. Duplicate copy of AR4 in sealed cover received from
customs officer, if required
d. Duly attested (copy of Bill of lading
e. Duly attested copy of shipping Bill (Export
promotion copy)
f. Disclaimer certificate in case where claimant is other
than exporter.
Conditions for Central Excise Clearance
As a part of further simplifications and rationalisation of excise
rules announced by the Finance Minister, a new set of Central
Excise Rules, 2001 has come into effect from 1 st March 2002.
The procedure for export of excisable goods (Except to Nepal
and Bhutan) is subject to certaiI1) conditions and limitations :-
Conditions and Limitations :- (under Payment of Excise
Duty)
a. The excisable goods can be exported directly from a factory
or warehouse after the payment of excise duty.
b. The excisable goods must be exported within 6 months
from the date on which they were cleared for export from
the factory of manufacturer or his warehouse.
c. The market price of the excisable goods at the time of
exportation is not less than the amount of rebate of duty
claimed.
The amount of rebate of duty admissible is not less-than
Rs. 500.
Conditions and Limitations :- (without Payment of Excise
Duty)
a. The exporter is required to furnish a General Bond (Surety
or Security) to the Assistant Commissioner of Central
11.675.1
 Excise or the Maritime Commissioner for a sum equivalent 3. Triplicate - Pink.

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

to the duty chargeable on the goods.
b. The excisable goods must be exported within 6 months
from the date on which they were cleared for export from
the factory of manufacturer or his warehouse.
Procedure for Central Excise Clearance
The following is the procedure for obtaining central excise
clearance :-
a. Application to the Assistant Collector of Central Excise
(ACCE) :- .” The exporter is required to make an
application to the Superintendent or the Inspector of
Central Excise, having jurisdiction over the factory of
production or warehouse of the exporter, by filling up four
copies of ARE-I form having the following distinctive
colours for easy verification and processing :-
1.Original-White.
2.Duplicate-Buff.
4.Quadruplicate - Green.
5. Extra Copy - Blue.
b. Information to the Range Superintendent :- The ACCE
informs the. range superintendent, in whose area the
exporter’s factory or warehouse is located. On receiving
instructions from the ACCE the range superintendent
deputes an inspector for clearance of goods for exports.
c. Sealing of Goods :- The inspector verifies the goods
mentioned in the application and the particulars of duty
paid or payable. If satisfied, he seals each package or the
container in the manner as m9:Y be specified by the
Commissioner of Central Excise and endorses each copy of
the application.
d. Processing of ARE-I Forms:- ARE-I as endorsed by the
inspector are processed as under:-

ARE-I ARE-I ARE-I ARE-I ARE-I

(Original) (Duplicate) (Triplicate) (Quadruplicate) (Quintuplicate)

retained by the Retained by the exporter for

Return to the exporter Range claiming other export incentives
Superintendent

Submitted to he Commissioner of Custom at the port of shipment

Sent to the Maritime Commission Returned to the

Returned to or Exporter
The Exporter sent to the excise Rebate Audit Section
In case rebate is to be claimed by EDI

Claim of Excise
refund

ARE-I (Original) The superintendent or Inspector of Central Excise returns

ARE-I (Duplicate)
ARE-I (Triplicate)
ARE-I (Quadruplicate)
ARE-I (quintuplicate)
the original and duplicate copy of ARE-I to the exporter.
The triplicate copy of ARE-I is sent to the Maritime
Commissioner at the port of shipment or to the excise
Rebate Audit section in case rebate is to be claimed by
electronic declaration on Electronic data Inter-change
(EDI) system of customs.
The quaruplicate copy of ARE-I is retained by the
superintendent or Inspector of Central Excise.
Th quintuplicate copy of ARE-I is returned to the exporter
for claiming any other incentive.

11.675.1 101
 e. Examination of Goods at the place of Export:- At the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
port of shipment the exporter presents goods together
with original ,duplicate and quintuplicate copy of the ARE-
I to the Commissioner of Customs. The Commissioner of
Custom examines the Consignments. If satisfied he
certifies the goods for export by an endorsement on all the
copies of ARE-I. The original and quintuplicate copies are
returned to the exporter while the duplicate copy is sent to
the Maritime Commissioner.
a. Submission of the claim :- For claiming rebate, the
exporter is required to submit the following documents
along with the prescribed application in form “C” to the
assistant or Dupty Commissioner of Central Excise or
Maritime Commission of Central excise:-
• Original copy of ARE-I duly endorsed by the
Customs officer;
• Duplicate copy of ARE-I received from the custom
officer in a sealed cover;
• Duly attested copy of Shipping bill.
• Duly attested copy of Bill of Lending or Airway Bill;
• Duplicate copy of Central Excise Invoice under which
Central Excise was paid on goods cleared for exports.
f. Verification of the Application :- Assistant or
Deputy.Commissioner of Central Excise compares details
listed in the different copies of ARE-I
• The original copy received from the exporter;
• The duplicate copy received from the Customs officer;
• The triplicate copy received from the Central Excise
officer.
If he is satisfied that the exports are not under claim for
duty drawback, he sanctions the rebate.
g. Refund of Duty:- lf any refundable amount is not paid to
the applicant within three months from the date of filing
the claim, interest at a rate of 20% p.a. is paid for the period
between the expiry of three months and date of refund.
1. Under rebate on excise duty, the Chief Excise Accounts
Officer issues a cheque.
2. When export is under bond, the Chief Excise Accounts
Officer issues a letter Confirming credit given in the
exporter’s bond account.
The rebate claim can also’ be claimed by electronic
declaration on Electronic Data’ Inter-change (EDI) System.
h. Cancellation of Documents :- If the excisable goods are
not exported, the Assistant Commissioner of Central
Excise or Deputy Commissioner of Central Excise cancels
the export documents on request of the exporter.
Customs Clearance Formalities
According the Section 40 of, the Customs Act, the person in-
charge of the conveyance vessel, vehicle, aircraft, etc., cannot
permit loading of export cargo at the Customs Station unless
and until a. formal permission to the export given by the
authorised Customs Officer is presented.
102
Before granting the permission, ‘the Customs Officer ensures
that the goods being exported are in accordance with different
regulations, particularly in terms of the following :-
a. The goods are of the same type, sort and value as have been
declared by the exporter.
b. The duty or success leviable thereon has been properly
determined and paid
c. Provisions of Export (Control) .Order, Export . (Quality \
Control and Inspection) Act and Foreign Exchange
(Regulation) ‘Act are complied with.
Legal Framework
Section 50 of the Indian Customs Act requires the exporter to
file a declaration in a prescribed form and submit supporting
documents to enable the customs authorities to check declara-
tions made by the exporter. The objectives of the customs
control are:
i. to ensure that nothing goes out of the country against the
laws of the land and that prohibitions and restrictions
regarding outward cargo are duly enforced by the. customs-
authorities;
ii. to ensure authenticity of the value of outward cargo
according to the customs valuation rules to check over and
under invoicing;
iii. to assess and realise export duty/cess/charge according to
the customs Tariff Act and any other fiscal legislation;
iv. to check that all the relevant regulatory provisions enforced
by various authorities in the country have been duly
complied with in respect of export; and
v. to provide export data through the customs returns.
Customs Clearance Stages
There are four stages of customs involvement. These are:
1. Processing of documents at the Customs House i.e. die
main office. This stage involves: i) checking up of
documents to ensure that all relevant documents have been
submitted; ii) verification of quantity and value of goods;
iii) verification and determination of rate of duty and
collection of the duty amount; (iv) direction for the
customs officer in the docks for physical examination of
goods;
2. Physical examination of goods in the docks in accordance
with the examination’ order given at the Customs House;
3. Supervision of loading by the Customs Preventive Officer;
and
4. Post-shipment endorsements by the Customs Preventive
Officer.
Documentary Requirements
For movement of goods by air or by sea, the customs permis-
sion for shipment is given on a prescribed document, known as
Shipping Bill. In other cases (Le. by road/rail) the document is
known as Bill of Export. There are four types of Shipping Bill/
Bill of export.
These are:
i. Dutiable Shipping Bill/Bill of Export for those goods
which attract export duty/cess;
11.675.1
ii. Drawback Shipping Bill/Bill of Export for those goods
which are covered by the Duty Drawback scheme;
iii. Free Shipping Bill/Bill of Export for those goods which
neither attract export duty/ cess nor are covered by the Duty
Drawback scheme;
iv. EX-bond Shipping Bill/Bill of Export for those goods,
which are shipped from ,the customs, bonded warehouse.
Exporter or his agent submits the following documents to the
customs department.
i. Shipping Bill (in duplicate, triplicate or quadruplicate) duly
filled in and signed.
ii. Declaration regarding truth of statement made in the
Shipping Bill
iii. Invoice copy G
iv. R Form
v. Export Licence (wherever required)
vi. Quality Control Inspection Certificate (wherever required)
vii. Original Contract wherever available or correspondence
leading to contract
viii. Contract registration certificate (wherever applicable)
ix. Letter of credit (wherever applicable)
x. Packing List
xi. AR4/AR5 Forms (original and Duplicate)
xii. Any other documents
Shipping and Customs Formalities
The following is the procedure for shipping and customs
clearance
a. Preparation and Submission of Export Documents :-
For the clearance of cargo from customs, the exporter 01'
his agent is required to submit the following set of
documents alol1gwithwith five copies of shipping bill to
the Customs Appraiser at the Custom House
• Letter of Credit along with the export contract or
export order
• Commercial Invoice (2 copies
• Packing List or Packing Note
• Certificate of Origin.
• GR Form (original and duplicate)
• ARE-I Form.
• Original copy of Certificate of Inspection, where
necessary.
• Marine Insurance Policy.
b. Verification of Documents :- The Customs Appraiser
verifies the details listed in each document and ensures that
all the formalities relating to exchange control, quality
control, pre-shipment inspection and licensing have been
complied with by the exporter. If satisfied, he issues a
‘Shipping Bill Number’, which is very important from
exporter’s point of view.
c. Valuation of the Goods :- The Customs Appraiser
assesses the shipping bill and values the goods. The value
of goods as determined by the Customs
11.675.1
Appraiser is considered for all future transactions, especially
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
for the claim of incentives. All documents are returned to
the exporter or his agent, except :
• Original copy of GR to be forwarded to the RBI.
• Original copy of Shipping Bill.
• One copy of Commercial Invoice:
The validity of assessed shipping bill is for one month
only. If the exporter fails to deliver the goods in that
period; he will have to undergo the above procedure again.
d. Obtaining ‘Carting Order’ from the Port Trust
Authorities :- The C&F agent, then, approaches the
Superintendent of the concerned Port Trust for obtaining
the ‘Carting Order’ for moving the cargo inside the dock.
After obtaining the Carting Order, the cargo is physically
moved into the port area and stored in the appropriate
shed.
e. Customs Examination and Issue of’ Let Export Order’:-
The Customs Examiner at the port of shipment physically
examines the goods and seals the packages in his presence.
The same can be arranged for at the factory or warehouse of
the exporter by making an application to the. Assistant
Collector of Customs. The Customs Examiner, if satisfied,
issues a formal permission for the loading of cargo on the
ship in the form of a ‘Let Export Order’. The above
procedure is now processed through Electronic Data
Interchange (EDI) System.
f. Obtaining ‘Let Ship Order’ from the Customs
Preventive Officer :- ‘Let Export Order’ must be
supplemented by a ‘Let Ship Order’ issued by the Customs
Preventive Officer. The C&F agent submits the duplicate
copy of Shipping Bill, duly endorsed by the Customs
Examiner, to the Customs Preventive Officer who endorses
it with the’ ‘Let Ship Order’.
g. Obtaining Mate’s Receipt and Bill of Lading :- The
goods are then loaded on board the ship for which the Mate
or the Captain of the ship issues Mate’s Receipt to the Port
Superintendent. The Port Superintendent, on receipt of
port dues, hands over the Mate’s Receipt to the C&F Agent.
The II C&F Agent surrenders the Mate’s Receipt to the
Shipping Company for obtaining the Bill of Lading. The
Shipping Company issues two to three negotiable and two
to three non-negotiable copies of Bill of Lading.
Procedure for Realisation of Export Proceeds
The following is the procedure for the realisation of export
proceeds :-
a. Presentation o/Documents to the Bank for Negotiation :-
After shipment of goods, the exporter is required to
submit the shipping documents to an authoiised dealer
within 21 days of the date of shipment for negotiation.
Submission of relevant documents to the bank and the
process of getting the payment frain the bank is called
“Negotiation of the Documents” and the documents are
called ‘Negotiable Set of Documents’. The set normally
contains :-
• Bill of Exchange, Sight Draft or Usance Draft.
103
 • Full set of Bill of Lading or Airway Bill. Q3. Explain the procedure involved in shipment stage of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

• Original Letter of Credit. export.

• Customs Invoice. Q4. Explain the procedure involved in post-shipment stage
of export.
• Commercial. Invoice including one copy duly certified
by the Customs. Q5. What are the different methods of Quality Control and
Pre-shipment Inspection?
• Packing List.
Q6. Explain the procedure for pre-shipment inspection.
• Foreign exchange declaration forms, GR/SOFTEX/PP
forms in duplicate.
• Exchange control copy of the Shipping Bill.
• Certificate of Origin, GSP or APR Certificate, etc.
• Marine Insurance Policy, in duplicate.
b. Despatch of Documents :- The bank negotiates these
documents to the importer’s bank in the manner as
specified in the L/C. Before negotiating documents, the
exporter’s bank scrutinises them in order to ensure that all
formalities have been complied with and all documents are
in order. The bank then sends the Bank Certificate and
attested copies of commercial invoice to the exporter.
• Acceptance of the Bill of Exchange :- Bill of
Exchange accompanied by the above documents is
known as d1e Documentary Bill of Exchange. It is of’
two types :-
• Documents against Payment (Sight Drafts) :- In
case of sight draft, the drawer instructs the bank to
hand over the relevant documents to the importer only
against payment.
• Documents against Acceptance (Usance Draft) :-
{p case of usance draft, the drawer instructs the bank
to hand over the relevant documents to the importer
against his ‘acceptance’ of the bill of exchange.
c. Letter of Indemnity :- The exporter can get immediate
payment from his ‘bank on the submission of documents
by signing a letter of indemnity. By signing the letter of
indemnity the exporter undertakes to indemnify the bank in
the event of non-receipt of payment from the importer
along with accrued interests.
d. Realisation of Export Proceeds :- On receiving the
documentary bill of exchange, the importer releases
payment in case of sight draft or accepts the usance draft
undertaking to pay on maturity of the bill of exchange. The
exporter’s bank receives the payment through importer’s
bank and is credited to exporter’s account.
e. Processing of GR form:- On receiving the export proceeds
the exporter’s bank intimates the same to the RBI by
recording the fact on the duplicate copy of GR. The RBI
verifies the details in duplicate copy of GR with the original
copy of GR received from the Customs. If the details are
found to be in order then the export transaction is treated
to be completed.
Questions Bank
Q1. List the authorities with which an exporter is required to
register before exporting.
Q2. Explain the procedure involved in pre-shipment stage of
export.

104 11.675.1

LESSON 15:
PROCEDURES FOR CLAIMING EXPORT INCENTIVES
• Objectives
• Introduction
• Need for Procedural Formalities
• Duty Drawback Scheme
Drawback Rates
Procedure for Claiming Duty Drawback
• Refund of Central Excise
Export Under Claim of Rebate Under Rule 12 (i) (A)
Export Under Claim for Rebate of Duty on Excisable
Materials used in the Manufacture of Export Goods
Rule 12 (i)(B)
Export of Goods Under Bond Under Rule 13
• Duty Exemption/Remission Scheme
Duty Exemption Scheme
Duty Remission Scheme
• Tax Exemption
Income Tax Exemption
Sales Tax Exemption
• Let Us Sum Up
• Terminal Questions
Objectives
• After studying this unit, you should be able to:
• explain the need for procedural formalities of export
incentives
• describe the process of claiming duty drawback
• explain the methods of claiming excise incentives under
various schemes of central excise rules
• describe various facilities of duty exemption scheme
• describe the procedure of exemption under income-tax,
sales tax, etc.
Introduction
You have learnt about the infrastructure and various export
incentives provided by Govern-ment of India in previous
chapter. These incentives are instrumental for the export
promotion in India. Moreover, exporters are required to comply
various procedural formalities for fuller realisation of export
incentives on a regular basis. In this Unit, you will learn the
procedure of claiming incentives under duty drawback rules and
central excise rules. You will also be acquainted with various
facilities of duty exemption scheme and tax exemption scheme.
Need for Procedural Formalities
Procedural formalities prescribed for claiming various export-
incentives need timely and proper compliance on the part of
exporters. This alone will ensure fuller realisation of export
incentives on a regular basis. Delays and cuts in the realisation
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
of export incentives will upset the fund-flow position of the
export firm on the one hand, and will render the export effort
unremunerative on the other. It is therefore, essential for the
exporters to develop a complete understanding about the
procedural and documentary formalities for timely prepa-ration
and submission of claims of export incentives to the appropri-
ate authorities on a regular basis. It may be desirable to prepare
an action plan by the export department of the firm for filing
claims of export incentives to different authorities on a planned
basis.
Unfortunately, exporters in India are required to approach a
number of authorities for realisation of export incentives
against each export transaction. The task of the exporters has
been rendered further difficult and complicated because of the
fact that each incentive- disbursement authority has prescribed
its own exclusive procedure and documentary requirements for
processing claims of export incentives. Thus, besides multiplic-
ity of authori-ties to be approached for realising claims of
export incentives, exporters are also required to follow different
procedural and documentary formalities in each case.
Moreover, as per the existing rules, export incentives are to be
claimed on post- export ,basis, i.e., after effecting exports.
However, the basic documents required for filing these claims
emanate from the process of physical shipment of export cargo.
Hence, exporters have to take necessary care and precautions at
the time and stage of export-shipment to claim the export
incentives. Exporters have to see, that the claims of export
incentives after the shipment are not adversely affected due to
incomplete or inadequate information in the documents
supporting the fact of actual shipment of export cargo. This
calls for the need for a total plan of action from factory to
realisation of incentives against each export transaction.
Duty Drawback Scheme
The scheme of Duty Drawback is governed by the ‘Customs
and Central Excise Duties Drawback Rules’ compiled and
notified by ‘Drawback Directorate’ of the Department of
Revenue, Ministry of Finance of the Government of India.
Under these rules, customs duties and central excise duties on
raw materials, components and packing materials used in export
products are refunded back to the exporter, on post-export
basis. In other words, import duties and central excise duties on
material inputs for export products are allowed to be , drawn-
back (i.e. refund) under the incentive scheme of duty drawback.
Thus the drawback refers to the rebate of duty chargeable on
any imported or excisable material used in the manufacture of
goods exported from India. According to the Drawback Rules
1995, draw-back has been permitted not only on materials/
inputs used in the manufacture but also processed or subjected
to any other operation for export of goods from India.
Drawback is given both to the manufacturers, exporters or
merchant-exporters and export/trading houses, etc. Levy of
105
 interest on delayed payment of drawback has also been
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
permitted. Interest at such rate as may be fixed by the Board
would be leviable in case payment against a claim for drawback
is not made within three months of filing the claim in the
prescribed manner. Drawback will not be allowed if the total
foreign exchange spent on inputs used in the goods exported is
more than the FOB value of the exports or the value addition
is negative. Draw-back will also not be allowed if the export
value of goods is less than the value of the im-ported material
used in the manufacture of the export goods or where the sale
proceeds of the exported goods are not received within the
specified limit. Drawback will also not be admis-sible if MODV
AT is availed of.
Drawback Rates
Two types of drawback rates are available. They are:
i. All Industry Rates: These are published in the form of
notification by the government every year and are normally
valid for one year.
ii. Brand Rates or Special Brand Rates: These are fixed on
the individual request of an exporter/manufacturer.
The rates at which the incentive of duty drawback will be
granted to individual exporter have been specified product-wise
in the drawback schedule specified under the drawback rules. -
Sometime the amount or rate of drawback are not determined
in respect of export goods. In such cases the manufacturer or
exporter of such goods may apply in the prescribed form .
Application for Fixation of Drawbacks Rates’. The application
should be submitted to the Department of Revenue, Ministry
of Finance or with the Customs House/Central Excise
Collector ate in whose jurisdiction their manufacturing unit is
located. The application must be submitted within 60 days
from the date of export.
The documents prescribed for such application are as under:
i. Application for Fixation of Drawback Rates
ii. OBI Statement I
iii. DBK Statement II
iv. DBK Statement III
v. Relevant facts including the proportion in which the
material or components are used in the production or
manufacture of goods and duties paid on such material or
components.
A copy of such application should be sent directly to the
Director (Drawback), Ministry of Finance, New Delhi. On
receipt of the application, the customs/central excise officer will
verify the application and forward to the Director (Drawback),
Ministry of Finance, Govern-ment of India, New Delhi for
fixation of Brand Rate. If satisfied, he will determine the
amount or rate of drawback in respect of such goods. The
Government have also provided simplified procedure of brand
rate fixation without insisting on pre-verification of data by the
Drawback Department.
Procedure for Claiming Duty Drawback
The claim of Duty Drawback (DBK) is processed and passed
for payment, primarily on the basis of the relevant information
given in the drawback copy of shipping bill. The exporters are
106
required to file the drawback copy of shipping bill in triplicate,
in quadruplicate if any export assistance is applicable, well in
advance in the Export Department or Central Registra-tion Unit
at the port or ICD Container Freight Station/Air Cargo
Complex, etc. The DBK Shipping Bill must indicate the DBK
Schedule No. of the export product, product description, DBK
rate and total amount of drawback claim. In addition, it should
also have a declaration that exports are being made under a
claim of duty drawback. At the same time, there should also be
a declaration that the duties of customs and central excise have
been paid in respect of the material inputs used in manufacture
of export goods as also in respect of container or packing
materials. Exporters have to make sure that no separate claim is
being made for rebate of central excise duties under the Central
Excise Rules.
The Shipping Bills and other documents are scrutinised and
examined by the concerned customs officer. Duplicate and
Triplicate copies of the Shipping. Bills with suitable examina-
tion order are returned to the exporters for presenting them to
the Docks Appraising Officer. The Custom Officer gives
examination report on both the copies of shipping bills and
returns duplicate and triplicate copies to the exporters and
original copy is retained. Exporters present duplicate and
triplicate copy of shipping bills duly examined by the customs
office to the Docks Appraising Officer alongwith the export
goods. If the officer finds it in order, he endorses ‘Let Export’
order on both copies of the shipping bills. Triplicate copy of
the shipping bill is deemed to be a claim for the drawback. If
claims are found admissible and in order, are sanctioned. The
amount is credited in the ledger account of the exporter
maintained in the Drawback section.
Documents: The claim for duty drawback is filed alongwith the
following documents:
i. Copy of export contract or letter of credit, as the case may
be.
ii. Copy of packing list.
iii. Copy of AR4 form, wherever applicable.
iv. Insurance certificate whenerever necessary.
v. Copy of communication regarding rate of drawback (if
applicable)
vi. Copy of Test Report (if required)
vii. Declarations (if required)
viii. Declaration regarding not availing MODV AT
ix. Certificate from the Jurisdictional Excise Superintendent (if
applicable)
x. Any other documents.
Where an exporter desires that he may be granted the incentives
of drawback provisionally, he may, after making the application,
apply in writing to the Drawback Directorate. He may request
that a provisional amount be granted to him towards on export
of such goods, pending determination of the amount or rate
of drawback. However, for making provisional claims of duty
drawback an exporter may be required to execute a general bond
for the amount of drawback claim, with the Collector of
Customs at the port from which the said goods are exported.
11.675.1
If the rate of drawback is less than three- fourth of the duties
paid on the materials or compo-nents used in the production
or manufacture of the said goods, he may within sixty days
from the date of export, make an application in writing to the
Drawback Directorate for fixation of appropriate amount or
rate of drawback. The procedure and documents required for
such application is the same mentioned earlier for fixation of
drawback rates.
Duty Drawback Credit Scheme: As an export promotional
measure, the Government of India have authorised the Reserve
Bank of India to instruct the commercial banks (Authorised
Dealers in Foreign Exchange) to grant interest-free credit to the
exporters. The credit is given against their Duty Drawback
entitlements pending scrutiny, sanction and payment by the
Custom House. Such interest-free credit is being made available
to exporters in India for a period of90 days. However, the
scheme is applicable only for export of such products for which
Drawback rates have already been determined either on all-
industry rate basis or on brand-rate basis.
Drawback on export by post: Where goods are to be exported
by post under a claim of drawback, the outer surface of the
packing must be marked as ‘DRA WBACK- EXPORT’.
In such cases, the exporters will submit to the postal Authori-
ties a Drawback Claim Form instead of a shipping bill giving
details regarding drawback schedule number, product descrip-
tion, drawback rate and amount.
Refund of Central Excise
Refund of central excise is an important fiscal incentive for
export promotion. As you know, exports should not bear the
burden of indirect taxes. Hence, exportable goods are either
exempted from such taxes or these taxes are refunded, if
exemption is not possible. In India, excisable goods are free
from the incidence of excise duty levied by the central govern-
ment, both on finished product and raw materials. The scheme
is governed by the section, 37 of the Central Excise and Salt Act,
1944 as amended from time to time. It has been amended on
September 22, 1995 . In lieu of the Rules 12, 12A and 191A of
the Central Excise Rules, only one Rules 12 operates for exports
under claim for rebate of duty. The rebate is granted on the
duty levied at finished product and on inputs for this finished
product. Rule 13, 191-B, and 91-BB of Central Excise Rules
have been integrated into Rule 13. This rule is applied for
exports of goods in bond and utilisation of non- duty paid
raw material for manufacture and exp0l1 of excisable goods.
Manufacturer’s of export product are required to register their
factories with the local Central Excise Authorities, by opening
Personal Ledger Account (PLA). In PLA, the credit balance of
the deposit account opened by individual manufacturers with
the Central Excise Authority is shown. At the time of removal
of a consignment, the amount of duty actually levied on the
consignment is shown as debit entry. After the proof of
exportation, the equivalent amount is again entered on the
credit side. PLA is not needed in case of exporters under bond
because the duty has not been actually paid.
Documents: The major excise document are:
Invoices: Invoices are prepared in four copies. The original copy
is for the buyer, duplicate for the transporter, triplicate for the
11.675.1
Central Excise Officer and fourth copy for manufacturer’s
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
record.
AR4/ AR5 Forms: It is prepared in sixtuplicate. Both AR4 and
ARS forms can be used for export in Bond or under Rebate of
Central Excise duty. Let us first learn how they are used.
AR4 form is to be used where either finished stage duty is not
paid or its rebate is to be claimed later on. It can be elaborated as
under:
i. Form A R4 is to be used in case of exports in Bond, of all
goods without payment of duty on finished item (not on
inputs).
ii. AR4 Form is also used where finished stage duty is paid
and a rebate thereof is to be claimed after export.
Form AR5 is used where goods are manufactured/exported
without the payment of duty or inputs (input stage duty). It
can be elaborated as under:
i. AR5 form is used where no duty is paid on production
inputs and the finished stage duty is also not paid on
account of their export being made in bond.
ii. AR5 form is also used where inputs stage duty is not paid
but duty on finished goods is paid and the rebate thereof is
to be claimed after export.
Form C: It is an application for refund of excise duty. It
contains details like AR4 Form No. and date of Shipping bill,
name and address of the factory and its licence number, tariff
classification of the goods exported and shipment details.
Export under Claim of Rebate under Rule 12(I)(A)
Under the Central Excise Rule 12(i)(A), rebate of duty paid on
export of duty paid goods shall be granted. The rule permits to
grant rebate on all excisable goods except mineral oil and goods
supplied as ship stores. The facility is available on export of
goods to all countries other than Nepal and Bhutan. Let us
discuss the procedure in detail.
Removal of Goods Without Examination: Exporters are
allowed to remove the goods for export without getting the
goods examined by the Central Excise Officers. AR4 Forms are
prepared in sixtuplicate. The exporter retains the original and
duplicate copies of AR4 Forms for presenting along with the
consignment to the customs officer. The exporter delivers
triplicate, quadruplicate, quintuplicate and sixtuplicate copies to
Superintendent of Central Excise having jurisdiction over the
factory or the warehouse. These forms should be deliv-ered
within twenty-four hours of the removal of the consignment.
The jurisdictional superintendent shall examine the information
and verify the facts of payment of duty. If the is satisfied with
the information, he will sign and put stamp on R4 Forms. He
sends the triplicate copy to the rebate sanctioning authority,
quadruplicate to the chief accounts officer in the collectorate
headquarters, the quintuplicate to the office copy, retained by the
central excise officer and sixtuplicate to the exporter.
Exports under Central Excise Seal (After Examination):
Exporters are allowed to remove the goods for export in a seal.
The sealing of goods is done by the Central Excise Officers.
The. sealed exportable goods are not examined by the customs
officers at the port. For this purpose, exporters are required to
107
 submit 6 copies of AR4 forms to the superintendent of central
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
excise having jurisdiction over the factory or warehouse. These
for, should be submitted at least twenty four hours before the
removal of the exportable goods. The superin-tendent of
central excise or his inspector may go for sealing of goods. He
examines the goods, relevant information and verifies the
factors of payment of duty. He may also draw samples, if
necessary, in triplicate. Two sets of the sealed samples are
handed over to the exporters for delivering to the customs
officer at the port. The officer retains third set for his record. If
the officer is satisfied with the details of exportable goods, he
would sign on all six copies of AR4 forms and allow the
clearance of goods. He returns original, duplicate and
sixtuplicate copies to the exporter for presenting to the customs
officer at the port. The officer sends triplicate copy to the rebate
sanctioning authority, quadruplicate to the chief accounts officer
at his collectorate headquarters and retains the quintuplicate copy
for records. The exporter shall use the sixtuplicate copy for the
purposes of claiming drawback.
Submission of Forms at the Customs Officers: The
exporters present the original, duplicate and sixtuplicate copies
of AR4 forms to the customs officer at the port alongwith the
con-signment. The custom officer examines and verifies the
goods and other relevant facts. In case of export under seal, he
ensures that it is not broken. If he is satisfied, he allows the
export of the goods.
The custom officer makes endorsement on the original,
duplicate and sixtuplicate copies of AR4 forms. He returns
original and sixtuplicate copies to the exporter, and sends
duplicate copy to the rebate sanctioning authority.
Filing Claim for Rebate: Exporters have been granted option
of claiming rebate either from Maritime Collector or Jurisdic-
tional Assistant Collector of Central Excise. The exporters are
required to tile the claim within six months from the date of
export. The claim should be f1iled in the prescribed form
alongwith original copy of the AR4 form duly endorsed by the
custom officer certifying the export of the goods. Maritime
Collector of Central Excise or Jurisdic-tional Assistant Collector
will compare the original AR4 form with the triplicate copy of
AR4 form received from the Superintendent, Central Excise. If
he is satisfied he shall sanction the rebate either in whole or in
part as the case may be.
Documents: Following documents are required to be tiled for
claiming rebate:
i. Application in prescribed form
ii. Original copy of AR4 form
iii. Duplicate copy of AR4 form in sealed cover received from
custom officer, if required.
iv. Duly attested copy of Bill of Lading
v. Duly attested copy of Shipping Bill (Export Promotion
Copy)
vi. Disclaimer Certificate in case claimant is other than exporter.
Export under Claim for Rebate of Duty on Excisable
Materials used in the Manufacture of Export Goods (Rule
12(i)(b)
108
Under Central Excise Rule 12(i)(B) rebate has been granted on
the duty paid on raw materials inputs used in the manufacture
of the finished goods exported from India’ except to Nepal or
Bhutan. Rebate may be granted on any excisable materials used
in the manufacture and packing of the goods exported. The
rebate of input stage may be claimed on the export pf all
finished goods whether excisable or not. In order to claim this
rebate on the input stage, the export must be in the name of
the exporter. The rebate may be granted on the duty paid on
raw materials, consumab1es, components, semi- finished
goods, assemblies, sub-assemblies, intermediate goods,
accessories, parts and packing materials required for manufacture
of export goods.
The rebate on input stage can not be claimed where:
i. the finished goods are exported under claim for duty
drawback.
ii. The finished goods are exported in discharge of export
obligation under a Value Based Advance Licence or a
Quantity Based Advanced Licence issued before 31 -03--
1995.
iii. The facility of input stage credit is availed under MODV A
T provisions under Chapter V AA of Central Excise Rule,
1944.
The manufacturer of finished goods are required to file a
declaration in quintuplicate to the Collector of Central Excise
having jurisdiction over the factory. The declaration shall contain
details of finished goods to be exported, the details of
materials required and their consump-tion ratios. The Collector
of Central Excise may nominate suitable officer for verifying the
declaration. The officer shall examine and verify the information
furnished by the manufac-turer. If the officer is satisfied, he
may grant permission to the applicant for manufacture and
export of finished goods under claim for Rebate of Central
Excise duties paid on materials/ inputs used in the manufac-
ture of finished goods.
Procedural Formalities: The manufacturers are required to
prepare ARS Forms in Sixtuplicate. He shall submit them to the
Jurisdictional Superintendent of Central Excise atleast 24 hours
before the removal of the goods for export from the factory.
Where export goods are dutiable, the manufacturer may avail
the facility of export, without payment of Central Excise duty
on finished goods under Central Excise Bond (Rule l3(i)(a).
Finished goods may also be exported after payment of Central
Excise duty leviable on finished goods under claim of Rebate
(Rule 12(i) (a)).
The exportable goods under AR5 form will be moved directly
from the place of manufacture to the place of export. The
packages are required to be marked legibly in ink or oil colour in
a durable manner with progressive number. The Superinten-
dent of Central Excise shall examine and verify the facts,
certificates and declaration made by the manufacturer. If the
Superinten-dent is satisfied, he will allow the clearances for
exports by signing and putting stamp on AR5 forms. The
Superintendent shall draw samples wherever feasible in
triplicate. He would hand over two sealed samples to the
manufacturer or his authorised agent for delivering to the
custom officer at the point of export. He would retain the third
11.675.1
set for record. The export consignment shall be sealed by the
Superintendent of Central Excise before permitting clearances.
The Superintendent of Central Excise will hand over original,
duplicate and sixtuplicate copies of AR5 forms to the exporter.
Triplicate copy will be sent to the Jurisdic-tional Assistant
Collector of Excise. Quadruplicate copy to be given to Chief
Accounts Officer at the Collectorate headquarter.
The original, duplicate and sixtuplicate copies of the AR5 forms
shall be presented by the exporter or his agent to the customs
officer at the point of export alongwith the goods, Shipping
Bill and sealed samples. The custom officer shall examine them
carefully. If he is satisfied, he may clear the goods for shipment.
After the shipment of the goods, the custom officer would
make endorsements in the original, duplicate and sixtuplicate
copies of the AR5 forms by putting his signature and stamp.
He would give the original and sixtuplicate copies to the
exporter. The duplicate copy will be sent to the Assistant
Collector of Central Excise.
The exporter will use the original copy of AR5 form for
claiming rebate from the Jurisdictional Assistant Collector of
Central Excise. Sixtuplicate copy will be presented in the custom
house for record.
Claiming of Rebate: The application for rebate is made to the
Jurisdictional Assistant Collector of Central Excise. Where
exports are under claim for rebate under Rule 12(i) (a), the same
should be claimed in the combined application for rebate.
Documents: Following documents should be submitted for
filing claims:
i. Original copy of AR5 form duly endorsed by the custom
officer.
ii. Duly attested copy of Shipping Bill (Export Promotion
Copy).
iii. Duly attested copy of Bill of Lading! Airway Bill.
iv. Duplicate copy of Central Excise Invoice (Where rebate
under Rule 12(i) (a) is also being claimed).
v. Duplicate copy of the AR5 form received from the custom
officer in a sealed cover (if obtained).
If the Assistant Collector is satisfied, he will sanction the rebate.
Export of Goods under Bond under Rule 13
The exporters have been permitted to export the excisable
goods without the payment of central excise duty. Exporters ~e
required to execute a bond with the Central Excise Authority
equivalent to the amount of excise duty on the basis of their
estimate. A II the excisable items and the raw materials required
for their production are covered under this scheme.
There are also provisions for export under bond on a regular
basis. This is covered under Rule 14. For this purpose, Running
Bond Account is maintained. In this case, the amount of bond
is determined on the basis of the excise duty involved in export
transaction over a period of time, generally regarded as transit
period. Exporters are required to maintain a bond account of
requisite value with the Central Excise Authority of the region,
whenever ‘any block transfer are made in favour of other central
excise authority, debit shall be made in the account. Suitable
11.675.1
debit shall also be made whenever exports are allowed against
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
the bond.
On acceptance of the proof of export the bond account shall be
credited to the extent the debit was made while permitting the
exports. The running bond account shall be credited after the
block transfer is returned by the other authority
There are six types of bonds. These are: Bl (Surity) and BI
(Security), Bl (General Surity), and B1 (General Security), B 16
(General Surety) and B 16 (General Security). B 1 (Surety) and B
1 (Security) bonds are to be executed for an individual excisable
consignment. The export-ers can execute a consolidated B 1
general bonds to cover a series of export from his factory or B
16 bonds with the prescribed excise authority. Manufacturer
exporters who have executed B 16 bond are not required to
execute separate bond to cover duty on goods exported without
payment of duty.
Manufacturer-exporters other than those registered with EPCs
and Central Excise, Export Houses, etc., are required to execute
B 1/B 16 bond with 100% security/bank guarantee. Merchant
exporters other than registered exporters shall execute B I bond
with 25% security/ bank guarantee.
Procedure: Packages in which goods to be exported are packed,
shall be legibly marked in ink or oil colour or in such other
durable manner as the Commissioner of Central Excise may
allow. Exporters shall prepare Invoices, AR4/AR5 forms and
execute the relevant bond for this purpose.
Removal of Goods Without the examination of Central
Excise Authority: As you have learnt, exporters are allowed to
remove the goods without the examination of Central Excise
Author-ity. Exporters shall prepare AR4/AR5 Forms in
sixtuplicate. They will deliver triplicate, quadruplicate, quintupli-
cate and sixtuplicate copies of AR4/AR5 forms to-the
Jurisdictional Superintendent of Central Excise. The forms
should be submitted within twenty four hours of the removal
of goods. The exporters shall retain the original and duplicate
copies for present-ing to the custom officer at the point of
export alongwith the consignment. The Jurisdictional Superin-
tendent of Central Excise shall examine the consignment and
relevant information. If he is satisfied, he would a How the
clearance of goods. He would send the triplicate copy to the
authority before whom the bond is executed. He would send
quadruplicate copy to the Chief Account Officer and retain the
quintuplicate copy for his record. Sixtuplicate copy will be
returned to the exporter.
Removal of goods after the examination of Central Excise
Authority: In this case, the exporter shall submit AR4/AR5
forms in sixtuplicate to the Jurisdictional Superintendent of
Central Excise. Exporters are required to submit the application
forms twenty four hours before the removal of goods. The
Excise Authority shall examine the goods and relevant
information. He may draw the samples in triplicate When
necessary. Two sets of sealed sample will be returned to the
exporter for delivering to the customs officer at the point of
export. The third set will be retained for his record. If the
Excise Officer is satisfied, he would a How the clearance of
goods. He shall return original and duplicate copies of AR4/
109
 AR5 forms to the exporter for presenting to the Custom
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Officer at the point of export. The sixtuplicate copy shall be
given to the exporter in a sealed cover for handing over to the
Custom Officer. The triplicate copy shall be sent to the authority
with whom the exporters have signed the bond. Quadruplicate
copy will be sent to the Chief Account Officer at the headquar-
ter. Quintuplicate copy shall be retained for records.
The exporters shall present original, duplicate and sixtuplicate
copies of AR4/AR5 forms to the custom authority at the point
of export alongwith the consignment. The custom officer will
check the consignment and verify the relevant information. If
he is satisfied, he would clear the goods for shipment. After the
shipment of the goods, the custom officer would make
endorsements on original, duplicate and sixtuplicate copies of
AR4/AR5 forms. He would return original and sixtuplicate
copies to exporters. The duplicate copy will be sent to the
authority before whom the bond was executed.
Documents: Following documents shall be filed by the
exporter as a proof of export of goods
i. Original copy of AR4/AR5 forms.
ii. Duplicate copy of AR4/AR5 forms in a sealed cover
received from Custom Officer.
iii. Duly attested copy of Bill of Lading.
iv. Duly attested copy of Shipping Bill (Export Promotion
Copy).
Duty Exemption Secheme
Registered exporters are eligible for the facility of duty free
import of raw materials, compo-nents, packing materials, etc.,
required for manufacture of the product for executing export
orders. Duty Exemption Scheme enables import of inputs
required for export production. Duty Remission Scheme
enables post export replenishment/remission of duty on
inputs used in the export product. Let us discuss them in detail.
Duty Exemption Scheme
An advance licence is issued under duty exemption scheme to
allow import of inputs, which are physically incorporated in the
export product. Let us learn them in detail.
Advance Licence: An advance licence is issued for duty free
import of inputs subject to actual user condition according to
the EXIM Policy. Such licences other than the advance licence for
deemed export, are exempted from payment of basic customs
duty, surcharge, additional customs duty, anti-dumping duty
and safeguard duty, if any. Advance licence can be issued for: i)
physical exports ii) Intermediate supply and iii) Deemed exports
The licences are issued to the manufacturer exporter or the
merchant exporter. The licences and/or materials imported
there under sha1l not be transferable even after completion of
export obligation. The licences are issued to make a positive
value addition. The licences are subject. to the fulfillment of a
time bound export obligation as specified in the policy.
Advance Licence for Intermediate supply: Advance licence
may be issued for intermediate supply to a manufacturer-
exporter for the import of inputs required in the manufacture
of goods to be supplied to the ultimate exporter/deemed
exporter holding another advance licence.
110
Advance licence for deemed export: Advance licence can be
issued for deemed export to the main contractor for import of
inputs required in the manufacture of goods to be supplied to
the categories mentioned in the policy. An advance licence for
deemed export can also be availed by the sub-contractor of the
main contractor to such project. The licences sha1l be exempted
from basic customs duty, surcharge and additional customs
duty only.
Duty Remission Scheme
Duty Remission Scheme consists of Duty Free Replenishment
Certificate and Duty Entitlement Passbook Scheme. The
scheme allows drawback of import charges on inputs used in
the export product. Let us learn them in detail.
Duty Free Replenishment Certificate (DFRC): This
certificate is issued to a merchant exporter or manufacturer
exporter for the import of inputs used in the manufacturer of
goods without payment of basic customs duty, surcharge and
special additional duty. Such inputs shall be subject to the
payment of additional customs duty equal to the excise duty at
the time of import.
Duty Free Replenishment certificate shall be issued only in
respect of export products covered under the Standard Input
Output Norms (SIONS) as notified by DGFT. This certifi-cate
shall be issued for import of inputs, as per SION, having same
quality, technical charac-teristics and specifications as used in the
end product indicated in the shipping’ bill. The validity period
of this licence shall be 12 months. DFRC and the material
imported against it shall be freely transferable. The certificate
shall be subject to a minimum value addition of 33%. The
other provisions under DFRC are as follow:
Jobbing, repairing etc. for re-export: Import of goods
including restricted items, supplied free of cost may be permit-
ted for the purpose of jobbing without a licence as per the
terms of notification issued by Department of Revenue .
Export Obligation: The Period for fulfillment of export
obligation shall be as prescribed in the policy.
Advance Release Orders: An advance licence holder except
advance licence for intermediate supply and the holder of DFRC
intending to source the inputs from indigenous sources/
cenalising agencies / EOU/ EPZ/ SEZ/ EHTP/ STP units in
lieu of direct import has the option to source them against
advance release orders denominated in foreign exchange/
Indian rupees.
Back to Back Inland Letter of Credit: An advance licence
holder except advance licence for intermediate supply and the
holder of DFRC may avail the facility of back to back inland
letter of credit instead of Advance Release order.
Prohibited Items: Prohibited items shall not be imported
under this scheme.
Compliance with Export Policy: The restricted goods may be
exported without specific export licence under advance licence
issued with prior import condition. In such case, the exported
product shall be manufactured only out of the imported inputs
under advance licence.
11.675.1
Re-import of exported goods under advance licence:
Goods exported under advance licence/ DFRC/DEPB may be
re-imported in the same or substantially the same form subject
to the specified condition.
Admissibility of drawback: In case of advance licence, the
drawback shall be available in respect of any of the duty paid
materials, whether imported or indigenous, used in the goods
exported.
Value addition: The following formula is used for value
addition.
Value addition = A-B/Bx 100
A = FOB value of the export realised /FOR value of supply
received
B = CIF value of the in ported inputs covered by the licence,
plus any other imported materials used on which the benefit of
duty drawback is being claimed.
Duty Entitlement Passbook Scheme (DEPB): The exporters,
who are not desirous of availing the licensing facility, may avail
the facility of DEPS. The objective of this scheme is to
neutralise the incidence of customs duty on the import content
of export product. The neutralisation is provided by way of
grant of duty credit against the export goods.
Under this scheme, an exporter may apply for credit as a
specified percentage of FOB value of exports made in freely
convertible currency.
This credit is made available for the import of raw materials
intermediates components, parts, packing material etc. The
holder of DEPB shall have the option to pay additional
customs duty, if any, in cash as well. The other provisions are as
follow:
Validity: DEPB shall be valid for a period of 12 months from
the date of issue.
Transferability: DEPB and / or the items imported against it
are freely transferable.
Applicability of drawback: The exports made under the
DEPB scheme shall not be entitled for drawback.
Tax Exemption:
In order to promote export, various taxes and duties have been
exempted. Let us now discuss them.
Income Tax Exemption
As a measure of export promotion, various tax incentives are
granted under the incomtax act. The major incentives are:
i. The part of the profits derived from export of specified
goods or merchandise of exporters and/or the supporting
manufacturers is deducted from the total profit.
ii. A’ specified amount of profits of companies engaged in the
business of hotel or of a tour operate or a travel agent is
deducted from the total profit.
iii. There is a provision for the tax relief on export of
computer software and for the import of system.
iv. The profits from export or transfer of film NT software,
TV news software, telecast rights are partially deducted.
v. There is a provision for tax relief to an Indian Company or
resident taxpayer by giving a specified deduction of 50% of
11.675.1
the profits from project exports in computing the taxable
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
income.
vi. There is a provision for ten year tax holiday to units in
FTZ/EPZ/1 00% EOU ending with the year 20 I 0-20 11.
vii. There is a provision for tax exemption of plantation
subsidy.
viii. Rebate on royalties, commissions, dividends etc .from
certain foreign enterprises are granted.
ix. Tax relief is provided on remuneration received from
abroad by teachers. Professors, etc.
x. Tax relief is provided to playwrights, artiste, sportsman, etc.
xi. Tax rebate is given on remuneration received on services
rendered outside India.
xii. There is a Provision for deduction of the profit from
business of export or transfer of film software, television
software, etc.
Sales Tax Exemption
Purchase of goods meant for exports are exempted from sales
tax. However, the purchaser of goods has to be a registered
dealer for the class of goods meant for exports: He is allowed
to furnish a satisfactory proof of export of goods to the seller
of goods, along with Form-H. Proof of export can be in the
form of export-invoice and Bill of Lading (non-negotiable
copy) or Airways Bill or postal receipt etc. The seller will then
submit the proof of export along with Form-H to the sales tax
Authorities.
The exporter has to fill-in Form-H in triplicate and issue
original and duplicate copies to the supplier and retain the
triplicate copy for his own record. The supplier submits original
of Form-H and proof of export to the Sales Tax Authority.
Thus for availing the benefit of sales tax exemption, the
exporter should first get the items concerned covered under his
local sales tax registration certificate and apply for issuance of
Form-H. The exporter should enclose the following documents
for issuance of Form-H.
i. Copy of shipping bill, duly certified by the customs
authority.
ii. Copy of Invoice duly certified.
iii. Copy of letter of credit.
iv. Copy of confirmed export order.
Let us sum up
Exporters are required to comply various procedural formalities
for fuller realisation of export incentives on a regular basis.
Export incentives are to be claimed on post-export basis.
Therefore exporters have to take necessary care and precautions
at the time and stage of export shipment. Exporters have to
furnish adequate information in the documents support-ing
the fact of actual shipment of cargo for the export claims.
Government of India have provided various schemes of
export incentives.
Under the scheme of duty drawback customs and central excise
duties on raw materials, components and packing materials
used in export product are refunded to the exporters on post-
export basis. Duty drawback can be claimed by the exporter at
111
 the all industry rates as specified in drawback rules or at the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

brand rates as determined separately on the request of the

exporter. The scheme is governed by the customs and central
excise duties drawback rules.
Excisable goods are free from the incidence of excise duty levied
by the central government both on finished product and raw
materials. Rule 12(i)(A) of Central Excise permits rebate of
duty paid on export of duty paid on finished goods. Rule
12(i)(B) permits rebate on the duty paid on raw materials/
inputs used in the manufacture of the finished goods exported
from India. Rule 13 permits the export of goods under bond.
The major documents are Invoices andAR4/ARS Forms.
Registered exporters are eligible for the facility of duty free
import of raw materials, compo-nents, packing materials etc.,
required for the manufacture of the product for executing
export orders. Duty Exemption Scheme enables imports of
inputs required for export peoduction. Duty Remission Scheme
enables post export replenishment/remission of duty on
inputs used in the export product.
Terminal questions
1. Analyse the need for action-plan by an exporter for timely
and proper compliance with different formalities for
claiming export incentives.
2. Explain the procedure for:
a. fixation of brand-rate for duty drawback.
b. making a claim of duty drawback on exports.
c. claim of duty drawback under ‘duty drawback credit
scheme’.
3. Discuss the formalities prescribed under Central Excise
Rules for:
a. claiming rebate of central excise under Rule
b. export under central excise bond under Rule 13
4. Discuss the procedure for obtaining Advance Licence under
Duty Exemption Scheme.
5. What is duty remission scheme? Explain various provisions
for duty remission scheme?
6. Explain the formalities claiming sales tax exemption.

112 11.675.1
 EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 16:
MARINE INSURANCE

• Introduction Marine Insurance Contract is an agreement where by the

• Meaning
• Principle
• Features
• Types of Marine Insurance
• Insurance Claim
• Procedure for Filling Marine Insurance
• Documents for claim
• ISO-9000
• ISO-14000
Introduction
Marine Insurance is a contract under which the insurer under-
takes to indemnify the insured against losses, caused due to
perils of the sea. Here perils of the sea include :-
a. Sinking of ship.
b. Damage to the ship and cargo due to dashing of the waves.
c. Dashing of the ships on the rocks.
d. Fire or explosion on the ship.
e. Spoilage of cargo due to sea water.
f. Destruction of the ship and cargo by the crew or captain of
the ship, piracy and such other risks.
Section 3 of the Marine Insurance Act, 1963 defines a contract
of marine insurance as an insurance cover for marine cargo, air
cargo and post parcels. Thus, marine insurance is used to cover
transportation by any of the following modes of transit singly
or jointly: -
a. Sea, air or land.
b. Inland water voyages.
e. Rail/road.
d. Air.
e. Post.
It provides insurance or protection to goods in ‘transit’ and also
extends to storage of goods provided such storage is incidental
to transportation.
Meaning of Marine Insurance
Cargo (Marine) insurance is governed by the Marine Insurance
Act, 1963, the Insurance Act, cargo or marine insurance is an
insurance cover for marine Insurance Act, cargo or marine
insurance is an insurance cover for marine cargo, air cargo and
post cargo parcels. The purpose of cargo insurance is to protect
goods against physical loss or damage during transit.
All export consignments should preferably be insured even if
the terms of sale do not provide for it. All goods on consign-
ment basis must be insured by the exporter only.
insurance company (insurer) undertakes to indemnify the owner
(insured) of a ship or cargo against risks which are incidental to
marine adventure. (Section 3 of the Marine Insurance Act,
1963).
The parties to a contract of insurance of follows:
1. The insurance company also known as underwriters who
assume the liability when the loss takes place.
2. The insured, i.e. the on who either procures an insurance
policy or becomes beneficiary thought the insurance.
Principles Governing the Contract of
Insurance
The contracts or insurance are based on the following principles:
1. Principle of utmost good faith i.e. the insured must
disclose to the insurer all the material facts or circumstances
which are known to him or which ought to be known to
him in the ordinary course of business.
2. Principle of insurable interest i.e. no person can enter into a
valid contract of insurance unless he has insurable interest
in the object or the life insured. Insurable interest is
understood as an interest in the preservation of a thing or
continuance of a life, recognized by law. Thus one can have
an insurable interest only when one would stand to benefit
financially by the continuance of the life or object insured
otherwise financial loss would result.Thus,a person can take
policy on his ship an owner of the goods can take policy on
cargo and person entitled to receive freight can take policy on
freight. All such persons have insurable interest in the
subject matter. Without insurable interest such contracts are
merely wagering agreements which are not valid contracts.
3. Principle of indemnity i.e. the contracts of insurance only
indemnify a loss resulting from risk covered under the
policy. However the cargo owner are usually allowed a
reasonable anticipated profit. In other words we can say that
the marine insurance policy provides a commercial
indemnity rather than indemnity in a strict legal sense.
4. Causal proxima: This principle implies that the insurer
becomes liable to pay for loss if the insured peril or risk is
the proximate cause of loss. Thus the insurer would not
pay for the loss to the goods if they are stolen because of
unworthy packing in case the policy covers the risk theft,
pilferage and non delivery. In this case the proximate cause
of loss is the faulty packing which facilitated the goods to
be stolen. Since this is not covered under the risks specified
in the policy the insurer would not indemnify the loss.
Contents of an Insurance Policy
According to section 25 of the Act, a marine insurance policy
must specify:

11.675.1 113
 i. The name insured, or of some person who effects the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
insurance on behalf of the insured.
ii. The subject matter insured and the risk insured against
losses.
iii. The voyage or period of time or both, as the case may,
covered by the insurance,
iv. The sum or sums insured.
v. The name or names of the insurer or insurers.
Who can Insure?
The shippers/exporters have an insurable interest by virtue of
their ownership of goods and they can insure. Similarly the
buyer to whom the goods are sent can also insure by virtue of
his acquiring an interest in the goods at a later date. In practice
insurance is effected either by shippers/exporters or buyer
depending upon their contract of sale of goods. There are
mainly three types of sales of goods in the overseas trade as
follows:
1. CIF (Cost, Insurance and Freight)
2. CFR(Cost and Freight)
3. FOB(Free on board)
These terms of sale are agreed upon mutually by both the
parties to the contract. It is recommended by the Reserve Bank
of India that the exporter should obtain the seller’s contingency
insurance to protect himself against the possible loss to the
goods taking place before the insurable interest passes on to the
buyer. This policy is not negotiable to the overseas buyers and
the claims under the his policy are paid in India in rupees.
In case the exporter is paying insurance premium on behalf of
the foreign buyer, then he is required to declare that:
a. insurance charges on the shipment have to be borne by him
in terms of his contract with the overseas buyer and that he
is not making payment on behalf of any non resident.
b. He is defraying the insurance charges in respect of the
shipment in question on account of the overseas buyer and
he undertakes to add the amount on the invoice and recover
the same from the buyer in an approved manner.
Features of Marine Insurance Policy
The basic features of marine policies are as follows:
1. The marine cargo insurance policies are freely assignable as
the consignee finally takes the goods pass through various
hands before the consignee finally takes their delivery. The
assignment of insurance policy is allowed in terms of
section 52 and 53 of the Marine Insurance Act 1963.A
Marine Insurance Policy can be assigned either before or
after the loss.
2. The assignment is done by endorsement and delivery.
3. Insurable interest of the claimant must exist at the time of
loss of the cargo.
4. The value of the insurance policy is the sum agreed between
the insured and the insurer. Thus these policies are always
on agreed value basis. Since contracts of insurance provide
for indemnity the loss suffered by the insured is not just
the loss suffered by the insured is not just the loss
represented by the value of the goods but also the
114
amount of profit that the parties would have earned from
the sale of those goods. That is why the marine insurance
policies are taken for a value equal to 110% of the CIF value
of the goods i.e. 10% more than the CIF value to account
for the anticipated profits.
5. The contract of marine insurance is a contract of commercial
indemnity and not pure indemnity because this insurance
provides for indemnity against the loss of profits as well.
6. The duration of the marine insurance policy is based on the
institute cargo clause yet it is provided to include the period
of transit, the time of discharge of the goods and the time
of arrival of the goods. Generally the duration of the policy
covers time upto 30 days after arrival of the goods in case
of air shipments and 60 days after the arrival of shipments
by sea to allow for the transportation of cargo from the
final port of discharge to the warehouse of the importer.
Types of Marine Insurance Policies
The contract of cargo insurance in international trade transac-
tions takes three forms. It comes into being when either a
specific Voyage (and time) policy or an open cover or an open
policy is procured.
1. Specific Voyage Policy
2. Open Cover
3. Floating Policy
3. Time Policy
4. Mixed Policy
5. Valued Policy
6. Unvalued Policy
7. Fleet Policy
8. Specific Cover Policy
1. Specific Voyage Policy
A Voyage policy covers the risks that may arise during a
journey from specific place to another.
The terms and conditions of the insurance are set out in the
appropriate I.L.U. (Institute of London Underwrites) and
other clauses. The clauses cover mainly the perils and risk
covered under the policy as well as conditions related to the
insurable value and claims.
According to the Indian Stamp Act, each policy must be
stamped. The stamp duty is recoverable from the insured.
For creating transferability, the policy is required to be
assigned by blank endorsement by writing “for and on
behalf of” followed by the name of the insured (e.g.,
exporting firm) and the signature of the director or partner.
The insurance policy comprises “MAR” Policy form, which
contains no insurance condi-tions. And the Institute clauses
(A, B or C and War and Strike Clauses) which contain
insurance conditions. It must be noted that Duration
Clauses, which provide warehouse-to-warehouse cover, are
part of the Institute Cargo Clauses. Hence, unless
specifically deleted, the warehouse-to-warehouse cover is
deemed to be effective. In this way, voyage policy also
becomes a Time policy.
11.675.1
2. Open Cover
Open cover is an insurance arrangement designed specifically
to the need of those firms, which have substantial import
export turnover and frequent transactions. Such firms are
spared the inconvenience of negotiating insurance contracts
every time the transaction is to be made. Main features of
an open cover arrangement are as follows:
i. Unlike an insurance policy, open cover is not an
enforceable contract. Instead it is an agreement under
which the insurance company would honour and
accept declarations of shipment of cargos and issue
stamped specific certificate of insurance against each
declaration.
ii. Under an open cover arrangement, agreement between
the insured and the insurer is reached about the subject
matter (e.g., goods) insured, packing conditions,
voyages, risks covered, rates and other conditions of
the cover. The insured can obtain’ insurance cover
within these agreed conditions.
iii. No premium is charged when an open cover is issued,
but the insurance companies usually require the
insured to furnish either a bank guarantee or cash
deposits towards payment of premium against each
declaration, as declarations are made.
vi. The validity period of an open cover is twelve months.
v. It is customary to make an open cover agreement
subject to two limitation clauses--Par Bottom and Par
Place clauses. The effect of these clauses is to limit the
liability of the insurance company to an agreed
amount. Thus, if the loss in an accident is more than
this amount, the loss will be partly recoverable upto
the agreed amount. For example, in an open cover, if
the limitation clause was for Rs. 10 lakhs and the loss
were Rs. 20 lakhs, the insurance company will pay only
Rs. 10 lakhs.
vi. An open cover may be cancelled by either party by
giving 30 days notice in writing. This stipulation does
not cover war and strikes risks for ocean voyage. For
ocean voyages other than from/to USA, the notice
period for cancellation of War and strikes risks is seven
days and for shipments from/to USA it is 48 hours.
vii. When the loss takes place, claim will be awarded with
reference to insurable value calculated on the basis of
c.i.f. plus 10 per cent.
viii. The duty of the insured is to declare each and every
shipment as soon as known. Unintentional failure to
report shipment will be condoned by the insurance
company. However, if the insured does not willfully
report shipments, the insurance company may hold
the open cover null and void for all subsequent
shipments.
3. Floating Policy
Also known’ as open policy, it has much in a common with
the open cover. This policy benefits clients with substantial
turnover and a large number of dispatches. Thus, it covers a
11.675.1
series of consignments with all stipulations of the open
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
cover, except that:
i. Open policy is an enforceable contract of insurance and
is hence, duly stamped; and
ii. Open policy is for an agreed amount, against which a
series of consignments may be dispatched and declared
as a result of which the sum insured will gradually
diminish by the amount of each declaration until it is
finally exhausted.
iii. Even though the open policy ceases on expiry of one
year from the date of. its issue, the sum insured is of
paramount importance. Therefore, the sum insured
may exhaust prior to the expiry of the policy.
iv. Open policy is subject to cancellation by either party
after giving 15 days notice of cancellation in writing.
3. Time Policy :- Under this policy, the subject matter of
insurance, i.e ship and/or cargo, is insured for a specific
period of time. It is taken in case of hull insurance, i.e.
insurance of the ship.
4. Mixed Policy :- This type of policy is taken for a specific
period and for a definite voyage. For example, a policy can be
taken for two months for the voyage starting on 2nd June
2001 from Bombay to Singapore.
5. Valued Policy :- In this case, the value of subject matter is
agreed upon between the insured and the insurer at the
time of taking out the policy. This facilitates easy settlement
of claims in the event of loss.
6. Unvalued Policy :- In this case, the value of subject matter
is not agreed upon at the time of taking out the policy. It is
determined only in the event of loss. It is also called as
‘Open Policy.
7. Fleet Policy :- This policy is taken for a fleet of ships or
vessels belonging to the same company. It is suitable for
those companies, which own a number of vessels.
8. Specific Cover Policy :- This policy is taken to cover
different risks for a single shipment. This policy is not
advisable for a regular exporter, as he will have to take a
separate policy every time he exports.
Insurance Claim
When there is a loss, the insured is to proceed to claim the loss
recovery from the insurer. The cardinal principle about insurance
claims is that the insured has to fulfil the clearly defined
responsibilities.lf he does not fulfill these responsibilities, the
insurer can refuse to pay.
Procedure for Obtaining Marine Insurance Policy
The following is the procedure for obtaining marine insurance
policy :-
a. Selecting the Insurance Comp. :- General insurance
business in India is, the monopoly of General Insurance
Corporation ((TIC) of India and its four subsidiaries.
However, if an exporter intends to insure with a foreign
company, then prior permission of the RBI must be
obtained.
b. Deciding the Appropriate Type of Policy :- There are
various types of, marine insurance policies issued by the
115
 GIC to suit the requirements of the exporters. The exporter
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
should decide the appropriate type of policy tailing into
consideration his requirements.
c. Application to the Insurance Company :- When the
goods are ready for . despatch the exporter’ should apply to
the insurance company in the’ prescribed ‘Declaration Form’
giving the following details :-
• Address of the exporter and importer.
• Description of goods;
• Marks, ,numbers and kind of packages.
• Value of packages.
• Transportation from the warehouse to its final
destination.
• Risk to be- covered for insurance.
• Any other information as required:
d. Payment of Premium. :. The insurance premium
charges may vary from company’ to company and country to
country. Payment on marine insurance. policy’ call . be made
in rupees’ provided exporter. certifies that insurance charges
op the shipment in question have to be borne by him.
e. Issue of the Insurance Policy :- After the completion of
all the formalities the exporter has to produce the Bill of
Lading and the name, of the ,ship ~ the insurance
company. The insurance company issues the insurance
certificate (in triplicate) as per the declaration given by the
exporter policy generally contains the following details :-
• Name and address of the exporter.
• Type of policy and description of the risks covered.
• Description of the goods insured.
• Amount of sum assured and premium paid.
• Date of issue and the period of policy.
• Special conditions and warranties.
• Special instructions regarding the procedure to be
followed in the event of loss.
f. Processing of the Policy :- The exporter submits the
original policy to the bank with his other documents. The
second copy of the policy is sent to the importer and the
third copy is retained ,by the exporter for his own
information
Procedure for Filing Marine Insurance Claim
The following procedure should be followed in the event of/
occurrence of marine loss :-
a. Intimation of Loss :- In the event of claim arising, the
marine insurance company or its nearest office or its
overseas agent as mentioned’ in the policy should be
intimated’ about the loss without delay The claim on
carriers, customs and -bailees should be filed within the
prescribed time limit under registered post with an
acknowledgement due.
b. Appointment of the Surveyor:- On receiving the
intimation, the insurance company appoints a surveyor to
determine the cause and extent of loss. The following
details are necessary in the Survey Report :
116
• Whether the packing was sufficient ?If not,
• What improvements are recommended ?
• How claim could have ‘been minimised ?
• Was’ there failure of jnsured to protect interest by not
taking measures to avoid or ‘minimise loss or not
protecting the rights of recovery ,from carriers Port,
etc.?
c. Landing Remarks :- The insured should also obtain
landing remarks from the Port Authorities.
d. Submission of Claim :-” The insured should submit the
following documents to finalise claim properly :-
• Original policy.
• Original invoice and packing list.
The following documents, inter alia, are required to be
submitted by the exporter to the insurance company:-
• Claim billon duplicate.
• Original’ Insurance Policy duly discharged.
• Original Invoice.
• Copy of Bill of Lading.
• Copy of packing list showing weight specification.
• Ship Survey Report.
• Insurance Survey Report.
• Port trust Landing Remark Certificate.
• Copy of claim lodged with carriers, customs and
bailees.
• Reply received. from carriers or Port Trust Authorities
and/or correspondence exchanged.
• Any other documents required by the Insurance
Company
e. Finalisation of the Claim :- On verification, if the insurer
is satisfied with the claim, it pays the amount of claim to
the insured or the person authorised to ‘receive the claim as
per the policy. If the claimant is of Indian origin, the claim
is paid in Indian rupees irrespective of the currency in which
relative policies have been issued. Where the claimant is not
the resident of India, the insurer may settle the claim in
foreign currency.
Responsibilities of the Insured
It is the duty of the insured or his agents, in all cases, to take
such measures as may be reasonable to avert or minimise a loss.
Further, it is also his duty to protect rights of the insurer of
recovery from the carriers, port authority and others. In
particular, the duties of the insured or his agent are:
i. Lodge claim on the carriers, port authorities and other
intermediaries for any missing packages;
ii. If the loss or damage is apparent or visible, make an
application to the agents of the carriers, port authority,
customs authority and the insurer (or agent) to arrange
joint survey within 3 days of discharge of cargo from the
vessel (7 days in case of air consignment);
iii. If the loss was not apparent at the time of taking delivery
of cargo, give notice in writing to the carriers and other
11.675.1
 parties within 3 days of delivery of cargo (7 days in case of
air consignment);
iv. Lodge a proper monetary claim on carriers, port authority
and customs authority;
v. In case of any missing package, get a log entry made with
the port authority and lodge a claim on carrier and port
authority;
vi. If missing packages are traced subsequently, clearance may
be made only after a joint survey;
vii. The claims on carriers,. customs and port authorities
should be filed within the time-limits prescribed under the
relevant laws
Documents for Claims
The claims on the insurers should be submitted duly sup-
ported by the following documents:
i. Original insurance policy or certificate of insurance duly
endorsed by the insured;
ii. Full set of Bill of Lading in respect of total loss claims.
Otherwise non-negotiating copy of the Bill of Lading,
Airway Bill, Railway, etc., as applicable;
iii. Copy of invoice with packing/weight list;
iv. Insurance survey Report or other documentary evidence to
substantiate cause and extent of loss;
v. Joint ship survey Discrepancy Certificate issued by the
carriers; Port authority Landing Remarks certificate;
vii. Casualty report when a vessel is missing or lost;
viii. Ship Master’s protest or an authenticated copy of extract
from ship’s Log book in case vessel encountered heavy
weather or other casualty during the voyage;
ix. In case of short landing claims, a Short Landing Certificate
issued by the carrier or port authority;
x. A landed but Missing Certificate from port authority in
case where package has landed but is missing;
xi. In the event of General Average claim for refund of GA
Deposit; the GA Deposit Receipt and GA Counter-
Guarantee;
xii. Triplicate copy of Bill of Entry (in case of India) ;
xiii. Copies of Letter lodging claims on the carriers, port
authority, etc;
xiv. Copies of correspondence exchanged with carriers to
examine whether the claimant has taken necessary
measures;
xv. Letter of subrogation duly stamped and signed; and
xvi. Any other document as may be asked for by the insurers.
A Note on Clearing and Forwarding Agents
Export-import procedures are very complex and time-consum-
ing. Therefore, every exporter should avail services of Clearing
and Forwarding (C&F) agents who are expert and well versed
with the customs-and shipment procedures. For smooth and
timely shipment of goods, ,the exporter’ must appoint a
competent C&F agent who is able to, inter alia, provide the
following services.
11.675.1
Essential Services
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
a. Transportation of goods to docks and arrangement of
warehousing at port.
b. Warehousing facilities before the goods are transported to
docks.
c. Booking of shipping space or air freighting and advice on
relative cost of sending goods by sea and air.
d. Arrangement for loading of goods on the board.
e. Equipped with information on shipping lines and freight
to different destinations, and various charges payable by
exporters.
f. Obtaining marine insurance policies.
g. Preparation and processing of shipping documents, Bills of
Lading, Dock Receipt, Export Declarations, Consular
Invoice, Certificate of Origin, etc
h. Forwarding of banking collection papers.
Optional Services
The following services are provided by the leading C&F agents
at the specific requst of the exporter:
1. providing warehousing facilities abroad atleast in some of
the major international markets in case the importer refuses
to take delivery of the goods for any reason.
2. providing assistance to bring the goods back to India if the
situation so demands.
3. Providing assistance to locate the goods in case the
shipment is misplaced or the cargo is stranded at some
port.
4. Making arrangements for assessment of damage to the
gods t file claim with the insurance company.
Thus, the C&F agent offers various services to the exporter.
While planning for distribution logistics the exporters should
in the first instance, appoint C&F agent to provide him the
required services. There are no standaredised rates of charges
taken by these agents . The exporter should negotiate with these
agents the amount of fees payable to them in relation t the
desired services. The selection of a good and reliable agent
should be made keeping in view the agency commission the
services offered and his experience in the product/country for
transportation.
A note on ISO 9000
The discussion on quality control or pre-shipment inspection
will remain incomplete if due consideration is not given to ISO
9000.
The International Standards Organisation (ISO) is a non-
governmental organisation established in 1947. The objectives
of ISO are :-
a. To promote the development of standardisation ,and
related activities in the world with a view to facilitating the
international exchange of goods and services, and
b. To develop cooperation in the sphere of intellectual,
scientific, technologically and economic activity.
The ISO-9000 Series of Standards evolved by the International
Standards Organisation has been accepted worldwide as the
117
 norm assuring high quality of goods. The ISO-9000 is also the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
hallmark of a good quality oriented system for suppliers and
manufacturers.
The ISO-9000 Series of Standards are generic and not specific to
any particular product. They can be used by manufacturing and
service industries alike. They spell out how a company can
establish, document and maintain an effective and economic
quality control system, which will demonstrate to the customers
that the company is committed to quality.
Objectives of ISO-9000
a. Increased customer confidence in the company.
b. A shift from a system of inspection, to one of quality
management.
e. Removing the need for multiple assessments of suppliers.
d. Gaining management commitment.
e. Linking quality to cost-effectiveness.
d. Giving customers what they need.
Methods of Implementation of ISO-9000
a. Management education.
b. Writing a quality policy.
e. Writing a quality manual.
d. Nominating a quality representative.
e. Identifying responsibilities.
f. Identifying business procedures.
g. Listing down procedures.
h. Writing work instructions.
It is thus clear that the ISO-9000 Series of Standards constitute
the concept of Total Quality Management (TQM).
The ISO-9000 Series is a set of five individual, but related,
international standards on quality management and quality
assurance.
ISO-9000 It contains basic definitions, concepts and guidelines for
the series.
ISO-9001 It covers design, development, production, installation
and servicing systems.
ISO-9002 It covers production and installation system.
ISO-9003 . It covers only final product inspection and test.
ISO-9004 It provides guidelines for internal use by a producer
developing its own Quality
opportunities System to meet business needs and take
advantage of
A Note on ISO- 14000
180-14000 is a series of standards on environmental manage-
ment tools and systems. It deals with a company’s system for
managing its day-to-day operations as they have an impact on
the environment.
a. Environmental Management System.
b. Conducting audits of the environmental management
system.
c. Top management’s commitment to-continuous
improvement, compliance and pollution prevention.
118
d. Creating and ‘implementing environmental policies.
e. Integrating environmental considerations in operating
procedures.
f. Training employees in regard to their environmental
obligations.
Let us Sum Up
Marine insurance or Cargo is the practice of providing risk cover
to the cargo-owners against loss or damage that the cargo may
suffer in transit due to accidents and mishaps. The perils, which
cause loss or damage may be due to natural calamities (Act of
God) as well as man, made accidents. Traders obtain insurance
covers in international business because of two reasons - legal
and commercial. Since law protects the intermediaries who
handle and transport cargo, the cargo-owners will be able to
recover loss from the insurance company, when such loss can’t
be legally recovered from the intermediaries. Commercially,
insurance cover is essential to be obtained by the exporter when
it is the requirement under an export contract, as in the case of
c.i.f. contract.
A marine insurance contract is between the insured and the
insurance company; which is in the nature of a financial
indemnity. The insurance company undertakes to make good
the loss to the maximum value as agreed with the insured perils
or risks. Loss is payable only when it has been proximately
caused by the insured peril. The insurance value is agreed on the
basis of the c.i.f. value of goods plus a percentage (generally, ten
percent). Insurance policies to cover the payable customs duties
are also issued in case of import cargo.
The cargo insurance policy can have a very wide scope to cover all
possible perils and losses. It provides protection against total
loss (actual and constructive) and partial loss (general average
and particular average) against maritime, extraneous, war and
strike perils. The policies are generally fixed on the basis of
standard terms and conditions stated in the Institute Clauses -
Institute cargo, war and strike clauses. The Institute cargo
clauses fall under three kinds A, Band C. Clause ‘c’ gives the
least and Clause’ A’ provides the maximum covers. Cargo
clauses also provide warehouse-to-warehouse cover.
The insured has certain responsibilities to fulfil, if he is to
recover the loss from the insur-ance company without a hitch.
Not only should he perform his duty to protect his direct
interest but also that of the insurance company by lodging
claims against the third parties. Further, he should follow the
laid-down procedure and file the claim with necessary docu-
ments.
Questions Bank
Q1. What are the methods of realising various export
incentives?
Q2. Explain the different types of marine insurance policies.
Q3. Explain the procedure for obtainiI1g marine insurance
policy.
Q4. What are the steps involved in filing marine insurance
claim?
Q5. Write a note on Clearing and Forwarding agents and ISO
9000.
11.675.1

LESSON 17:
EXPOR T DOCUMENTATION
1. Introduction
2. Master Documents and Aligned documentation System
3. Proforma Invoice.
4. Commercial Invoice
5. Packing List
6. Mate’s Receipt
7. Bill of Lading
8. Certificate of Origin
9. Shipping Bill
10. Consular Invoice
11 Bill of Entry
12. Airway Bill
13. GR Form
14. Distinguish Between:-
• Commercial Invoice and Consular Invoice.
• Certificate of Origin and consular Invoice
• Mate’s receipts and Bill of Lading.
Introduction
At the outset it must be mentioned that improved system of
documentation for exports announced by the government of
India on 31 March , 1991 is fine and should be adopted by the
exporters as far as possible. However a word of caution would
be in order. To date we have arrangements with only 80
countries around the word where UN key Layout(Master
documents) are followed. With these countries Indian exporter
could jolly well use the improved version of documents
announced by the government of India as per the New Exim
policy 1992-97.
For the remaining countries (other than 80 countries where UN
key Layout (Master Documents) is not in use, the Indian
exporter has to ascertain from the importer of his requirements
and must comply to his dictates for documentation. The basic
dictum for the exporter’s comply 100% the Letter of Credit
requirements for Documentation, otherwise exporter could be
in problem and his payment may be stopped. Moreover
exporter prepares export documents not for his own conve-
nience but largely to meet the requirements of the overseas
importer who largely conveys it through the Letter of Credit.
Treatment in this chapter is therefore slightly exhaustive of
documents where the old requirements have also been kept in
view while introducing master documents.
Export documentation work constitutes a heavy charge on our
export activity. It is complex cumbersome and costly. This is
partly due to the nature of export trade itself involving as it
does a number of intermediary organizations and authorities at
different stages of export activity between the seller and the
buyer. All these, in turn, generate a lot of paperwork and
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
procedural formalities. The documents material to an export
sales contract are not many in number. However the problem is
complicated due to the heavy paper work and the procedural
formalities that are required to be complied with before the
essential documents can be procured.
The procedural and documentary formalities associated with
exports have been evolved and practiced over the years by
different authorities/organizations to suit their own conve-
nience without much regard to the repercussions they might
have on the total export activity. The resultant mass of paper-
work caused much inconvenience and inordinately long delay in
the movement of goods. There was a need for a total approach
to the problem. This meant evolving not only simple export
documents and procedures in each of the individual areas of
export activity but also ensure their compatibility and harmony
in the totality of export operation.
Notwithstanding the need for such an approach to the proce-
dure generated problems, it has been appreciated that the task
of procedural simplification is a containing an long-term one
requiring. In some cases prior amendment of the statutes,
policies and regulations they stem from One of the ways in
which this has been done is through the use of standardized
document in our export trade.
The documents use differed in size and layout, despite the fact
that most of the information requirements are common to a
number of them Because of the difference in their sizes and
designs, these documents has to be completed individually.
This method of preparation of documents was susceptible to
errors and discrepancies, which, even through minor, caused
delays at different stages in the processing of documents, costly,
hold up of consignments at checkpoints and terminals, and
ultimately in the realization of export proceeds.
Legal Provision
According to the Customs Act (Section 40), the person incharge
of a Convey-ance-vessel, vehicle, Aircraft, etc., cannot permit
loading of export Cargo at the Customs Station unless and
until the formal permission to export given by the proper
Customs Officer, is presented. Before granting the permission,
the Cus-toms Officer, however ensures that the goods being
exported are in accordance with the different regulations,
particularly in terms of the following:
a. The goods are of the same type, sort and value as have been
declared by the exporter,
b. The Duty or Cess leviable thereon has been properly
determined and paid,
c. Provisions of Export (Control) Order, Export (Quality
Control and Inspection) Act and Foreign Exchange
(Regulation) Act are complied with.
The Customs Act (Section 50) further states that the exporter,
in case of goods to be exported in a vessel or aircraft, has to
119
 present the Shipment Bill and other connected documents to
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
the proper officer. Any export ship-ment therefore, involves the
preparation of several document declarations and certificates, on
the basis of which the Customs Authorities grant neces-sary
permission. There are also several documents required for
submission to the Port Authorities. In addition, a few more
documents are required if the export product(s) fall(s) within
the purview of the Export Assistance Schemes and Facilities.
Export Documentation
Once the goods are ready, an exporter has to prepare and execute
various documents at different tages of sending the shipment
of goods to the im-porter. These documents are important for
two reasons:
a. as an evidence of shipment and title of goods and
b. for obtaining payment
The various documents are therefore, of vital interest to the
exporter and the Bank which is the usual media of payment.
The documentary require-ments are both regulatory and
operational in nature and have to comply with the Rules and
Regulations of the Indian Government as well as the import-
ing country for different types of products. These requirements
are different for different types of products. When exporting
for the first time, exporters should, always find out from their
buyers the documents required for the product concerned.
Accuracy and completeness are a prime necessity in documents
covering export shipments. Whether two or twenty copies of
the Invoice are required by the buyer, the same should be
supplied as, the buyer probably has some reasons for it. Minor
discrepancies of any kind either in the date itself or in the typing
in the documents, which look harmless sometimes assume a
men. acing form. Erasures and strike over in typing or changes
or additions made in ink must never be indulged as these only
arouse the suspicion that the documents have been tampered
with. Any alteration or addition made by an Authority issuing
the documents must be endorsed properly, with the signa-tures
of the person issuing the documents only. If the documents
are not the correct ones or if they are not filled in correctly to the
last, the importer may not be able to get the goods when the
ship carrying them arrives. This may seem obvious but it bears
emphasis since both the requirements and penal-ties are greater
beyond comparison in export than in domestic trade.
The main purpose of the documents accompanying a shipment
is to pro-vide a specific and complete description of the goods
so that they can be assessed correctly for Duty purpose and meet
the Import Licensing require-ments or Import Quota Restric-
tions imposed on the goods for clearance pur-pose. If there are
any discrepancies in the documents and or if the required
documents are not produced, the shipment may not be allowed
for import or may even be confiscated by the Customs of the
importing country. There is a plethora of documents in export
trade - different forms, applications and documents are required
to be filled in for obtaining Export Licences, complet-ing Pre-
shipment Inspection, for Customs Clearance and shipping, for
ob-taining payment and export finance and for claiming export
benefits like Duty Drawback, etc.
120
The experienced exporter, because of the complexity of
documentation, will find it a good idea to have the various
documents prepared for him by a Shipping and Forwarding
Agent or should take advice from a fellow exporter. The
Exporter should also develop a habit of thoroughly scrutinis-
ing the docu-ments for any possible errors or discrepancies and
if any errors or discrepan-cies are found, must rectify them
immediately before dispatching them to the Bank of buyer.
Standarised Pre-shipment Export Documents
The Government of India has made it mandatory for every
exporter to use standardised preshipment export documents
w.e.f September 1, 1991. This is popularly known as Aligned
Documentation System (ADS), based on UN Layout Key. The
ADS Methodology involves the preparation of documents on a
uniform and standardA4 size of paper. The documents are
aligned to one another in such a way that, the common items
of information are given the same relative slots in each of the
documents included in the System. This makes it possible to
prepare one Master document embodying the informa-tion
common to all the documents included in the aligned series and
to run off all the aligned documents from the same Master
document with the help of suitable marking reproduction
techniques. The Pre-shipment documents on a Standard Layout
were first introduced by Sweden in 1956 followed by Denmark,
Finland and Norway. It was later that most of the European
coun-tries, USA, Australia, etc, have adopted this ADS system.
Advantages:- The ADS system offers the following advantages:
1. Dispenses with the conventional documentation practices.
2. Brings in uniformity in documentation.
3. Ensures economy, speed, accuracy and convenience.
4. Facilitates expeditious checking and processing of
documents at dif-ferent stages.
5. Generates as many copies as required of Commercial and
Regulatory Documents from their respective Master Copies
through Photo-copying Machines.
Documentation Practices in India
In India, on an average, about 25 documents are associated with
the Preshipment stage to export transaction. These documents
are classified into two categories namely, Commercial and
Regulatory. The Commercial documents are those which, by
Customs of Trade, are required for effecting physical transfer of
goods and their ‘title’ from the exporter to the importer.
Regulatory Preshipment documents are those which have been
prescribed by different Government Departments/Bodies in
compliance of the require-ments of various Rules and Regula-
tions under relevant laws like Exchange Control Regulations,
Export Trade Control, Customs, etc.
The Government of India, therefore identified some export
documents for standardization with the help of the concerned
official and commercial interests in the country. The documents
taken up for standardization include: Invoice, Certificate of
Origin, Packing List, Bill of Lading, mate’s receipts, Shipping
Bill. Different forms in respect of each of these documents
used in the country were examined from the point of view of
standardization and putting them in to an aligned system. The
11.675.1
common items of information appearing in each of these
documents were recorded to develop a common denominator a
master documents- from which the repetitive information
could be reproduced in one run on all the documents leaving
only the information specific to individual documents to be
filled in separately. Any information on the master which is not
required on a particular document can be omitted by different
masking techniques at the reproduction stage
Master Documents
All these problems of late have been avoided by following a
system which provides an alternative to the repetitive, unpro-
ductive and time consuming work necessitated by the exporter’
compulsion to prepare separately a number of documents all
containing practically the same information. This system is
known as the’ Aligned Documentation System’. Already in use
in a number of countries, this system is reported to have made
for simplicity, convenience, speed, accuracy and economy in
documentation work.
United nations key Layout has mace it possible to many
countries to reproduce in one run the repetitive information on
all the export documents from just one document called the
‘Master Document’. As a result, exports in these countries have
been able to reduce the documentation costs by 50 to 70%.
The documentation of simplified export documents has
reduced the burden of the exporters and has given a push to
the country’s ongoing export drive. The exporters now can save
atleast 50% of the time and cost on documentation. It will thus
help in expediting decision-making process. Virtually eliminate
the chances of errors and facilitate electronic transmission of
export documentation and data. Therefore simplification of
export documentation and procedures are key measures to
promote exports.
Earlier Indian exporters were required to submit 25 documents
to various agencies and authorities merely to ship the goods.
Each document had to be individually prepared. The news
system standardized these document and aligned then to each
other on basis of united nations key layout which has already
been adopted by most of Indians trading partners. Thus now
instead of typing out 25 documents, exporters prepare only
two master documents.
The new system also includes simplification and relaxation of
related procedures, which will further reduce the delays and time
component currently involved in export effort. It is expected
that as fallout of the introduction of the new system, a self
propelling process towards further rationalization of documen-
tation and procedural requirements would get in motion in all
the conceived organizations. And at the end of it the exporter
should be able to spend his resource and energy more on
export production and marketing than on meeting the de-
mands of archaic export procedures.
In the new set up attempts have been made first to standardize
and simplify each document and secondly to align them to each
other using as far as possible the UN Key Layout. These aligned
documents are in time with the proforma used by countries
with whom more than 80% of India’s foreign trade is trans-
acted.
11.675.1
The two master documents- one for commercial use and
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
the other for regulatory documents meant for customs, RBI
and port trust-have maximum advantage of alignment and
minimum cost and time for preparing individual documents.
The two- master documents contain all the information that
was common to individual documents. Earlier, there were a
plethora, of commercial document which include among
others, invoice, packing, list intimation for inspection insurance
declaration form, shipment advice and the exchange control
declaration form.
Thus the one run method of preparation of Documents
involves the use of standardized and aligned documents.
Aligned Documentation System (ADS) is based on the UN
layout key. Under this system, different forms used in the
international trade transaction are printed on paper of the same
size and in such way that the. Common items of information
are given .the, same relative slots in each of the documents.
For the purpose of Aligned Documentation System docu-
ments, have been, classified as under
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 commerce
documents in the export documentation framework as
many as ‘14 have been standardised and aligned to one
another. These are performance 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
However, shipping order and bill of exchange could not be
brought within the fold of the Aligned Documentation
System.
The following are the 16 Commercial documents generally
involved at the pre- shipment stage:-
1. Proforma invoice
2. Commercial Invoice
3. packing List
4. Shipping Instruction
5. intimation of Inspection
6. certificate of Inspection
7. Insurance Declaration
8. Certificate of Insurance
9. Shipping Order
10. Mate’s Receipt
11. Bill of Lading/Combined Transport Document
12. Application for Certificate of Origin
13. Certificate of Origin
14. Bill of Exchange
15. Shipment Advice
121
 16. Letter to the Bank for Collection/Negotiation of -
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Documents
b. Regulatory Documents: - 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, ex port 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.
It is proposed to conduct training and orientation programmes
at all export centers to familiarize the exporting community
with the new system.
The regulatory documents associated with the pre- shipment
stage of an Export Transaction are given below:-
1. Gate Pass-I/Gate Pass-II (now deleted)
2. AR-4 Form
3. Shipping Bill/Bill of Export
4. Export Application/Dock Challan/Port Trust Copy of
Shipping Bill
5. Receipt for Payment of Port charges
6. Vehicle Chit
7. Exchange Control Declaration (GRIPP) Forms
8. Freight Payment Certificate’
9. Insurance Premium Payment Certificate
Out of the above 9 Regulatory documents, four have been
standardised.In fact, these four documents have been reduced
to only three. The receipt for payment of Port Charges has been
incorporated in the Export Application/ Dock Challan/Port
Trust Copy of Shipping Bill, thus one document has been
completely eliminated.
Guidelines for Commercial Documents and Master
Document 1
Paper size and specifications The ADS, as discussed earlier,
involves the use of standardised trade documents aligned to
one another. All the docu-ments under the system are to be
prepared onA4 size of paper, measuring 297mm * 210mm
with standard margins - 10mm top, 20mm left, 6mm width
and 180mm in length. The size of the individual boxes should
be strictly as per specifications. Maximum tolerance is 1 mm.
The captions inside boxes should be printed in 6 points, sans-
serif face and should be located as near to the top left of the
boxes as possible. As the documents are to be generated
mechanically, it is important for the paper to be of a consistent
specification, with grammage of 70 to 85 gm, by all users. The
paper should be stable in conditions of 50 to 60% relative
humidity. Needless to emphasis that accu-racy in layout and
printing is an essential requirement.
Master document I :-The Master document will be. typed on a
sheet of paper in light blue ink. The mask for the photocopier
may be made of a transparent polyester film (of 0.004 in. or
122
0.005 in. thickness) with white opaque patches to blank out
unwanted information from the Master document or it may
also be cut from an opaque white plastic sheet. After the’
desired information is typed on Master document - I, the
relevant mask is laid over it. Both the Master document and the
mask over it are then fed to the photocopying machine. The
desired information is then automatically reproduced on the
relevant document through transparent or open portion of the
mask. Any additional information, which is specially required to
be given in any par-ticular documents, can be either pre-printed
or inserted in the relevant box as and when required.
Guidelines for Regulatory Documents and Master
Document II
Paper size and specification As against the Commercial
documents which are designed onA4 size of paper, Regulatory
documents are to be prepared on foolscap size of paper
measuring 34.5 cms * 21.5 cms, The margins are, top 1.5cms,
bottom 1.5 cms, left 1.8 cms and right 0.5 cms. The inside
measure-ment are 31.5 cms * 19.2 cms. The measurements of
individual boxes, as indicated in the Master document - II,
should be strictly adhered to. The paper to be used for these
documents should be of consistent specifications.
Reproduction technique The three Regulatory documents
under reference have been so aligned that their respective
common data requirements have been accommodated on the
front side of each of these documents. This makes it possible
to prepare a single Master document (as illustrated in Master
document - II) from which the front side of all the three
documents can be run off at one go without/using any mask.
The caption Master document – II would, however need to be
blanked out to prevent its reproduction on the blank forms of
the Regulatory documents with pre-printed titles. The blank
forms of shipping Bills/Bills of Export, GR Forms and the
Port Trust docu -ments will have a common pre-printed
Declaration, as to the correctness of the particulars furnished in
these documents. Besides, the exporters will also attach other
relevant Declaration(s) with the Shipping Bill/Bills of Ex-port,
as per the printed statement to this effect on these documents.
The Master document in respect of the Standardised Forms of
Shipping Bill/Bill of Export, Exchange Control Declaration
(GR) Form and the Port Trust documentis a sort of three- in-
one, as it seeks to present the common requirements on the
front side of each of these documents. The form of Shipping
Bill, however, does incorporate several pieces of information
which are not required by the Customs but are required by the
Reserve Bank of India under the Foreign Exchange Regulations
Act.
Conversely, these are some details which are required by the
Customs Authorities but not required by the RBI. Similarly, the
Port Trust document may also have on its face some informa-
tion with which Port Authorities are hardly concerned. In the
interest of alleviating the burden of the Exporter in the
preparation of these documents individually and to facilitate
preparation of these three documents from a single Master
document, this minor conces-sion on the part of each of these
authorisation is not only desirable but also necessary. While the
front side of these three Regulatory documents can be prepared
11.675.1
from Master Document - I, necessary provision has been made
on the reverse side of these documents. It will be useful if the
following points are kept in view while completing the Master
Document-II from which the Regulatory documents are to be
generated:
i. All the columns in Master document- II should be
completed and nec-essary information typed within the
relevant boxes or columns with-out any overlapping. The
Caption Master document-II should be suit-ably covered to
prevent its impression on the documents to be gener-ated
through the Master.
ii. With a view to achieving total legibility, and having due
regard to the layout of the documents, it is necessary that
typewriter and not a fountain pen should be used by the
exporters.
iii. As the Master document II embodies all the information
which is common to the front side of the three Regulatory
Documents it would need to be prepared separately. The
three documents with the requi-site number of copies may
be photocopies from the Master Document- II on Bank
forms of the documents with pre-printed captions. No
masks need to be used. .
iv. Each copy of the three documents should be signed in ink
by the exporter Forwarding Agent, as the case may be, so
that it becomes a legally valid document.
v. Six versions of Master document-II have been designed
and Forward-ingAgentsExporters should use the relevant
Master document-II, depending upon the type of Shipping
Bill of Export required to be filled.
Master Document-II (A): For shipping Bill for Export
of Duti-able goods and
Shipping Bills of Ex-port
goods under Claim for Duty
Drawback.
Master Document-II (B): For Shipping Bills for Export
of Duty Free Goods.
Master Document-II (E): For Shipping Bills for export
of Goods Ex-bond.
Master Document-II (E): For Bills of Export of Duty
Free Goods
Master Document-II (F): For Bills of Export of
Goods Ex-bond.
vi. As regards Shipping Bills different forms have been designed
for different types of Shipping Bills, namely, Shipping Bills
for Duty Free goods, Shipping Bill for Duty Free goods Ex-
bond, Shipping Bill for Dutiable goods and Shipping Bill
for goods under Claim for Duty Drawback. A separate
Form exists for Bill of Export. Appropriate Form should
be used depending upon the type of goods to be ex-
ported.
vii. As the Port Trust document incorporated the receipt for
payment of port charges (called Export Application at
Bombay Port), it may be necessary for the Exporters/
Forwarding Agents to prepare this docu-ment in triplicate.
While the original of the Port Trust document is meant for
11.675.1
keeping record of receipt and shipment of goods, the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
dupli-cate copy is to be used as the receipt for payment of
Port charges. The triplicate copy of this document will serve
the purpose of the Shipper’s copy as record of shipment
and payment of Port charges in respect to the goods
handled by the Port Trust.
viii. On the reverse of the Port Trust document Export
Application/Dock Challan/Port Trust copy of Shipping
Bill- space has been provided for completion of carting
permission and Customs formalities. Par-ticulars have also
been made for acknowledgement of goods ‘on Board’ by
the Master of Vessel. This seeks to do away with the practice
for Kacha Notes of any interim document required to be
issued by the Master of Vessel prior to the issue of ‘Mate’s
Receipt’ in respect of consignments shipped on-board.
With the adoption of the Aligned Documentation System
involving the use of two Master documents, it will be possible
for the exporters and other concerned agencies bodies to avail
the advantages of ‘System approach’ to Export documentation.
Need for Preparing Export Documents
Export documents have to be prepared for various purposes,
viz.
1. Declaration of Exports as per Exchange Control
Regulations of the country.
2. Transportation of the goods.
3. Customs clearance of the goods.
4. Other purposes.
Some of the forms for preparing documents have been
standardised under the Aligned Documentation System
introduced w.e.f. 1.10.1991.
Declaration forms :-There are four main declaration forms
which are pre. scribed. These are called GR, PP, VP/COD and
Softex Forms. All exports to which the requirement of
declaration applies must be declared on appropriate forms as
indicated below:
GR Form: Used for exports to all countries made
otherwise than by Post.
PP Form Used for exports to all countries by Parcel
Post, except when made On ‘’Value Payble”
or “Cash on Deliv-ery” basis
VP COD FORM Used for exports to all countries by Parcel
Post under arrangements to realise proceeds
through Postal channels on “Value
Payable” or Cash on Delivery” basis. Used
for export of Computer Software in non-
physical form.
SOFTEX While Export Declaration are to be made in
a set of to copies (original and duplicate) of
GR or PP form, VP/COD forms are to be
submitted in a single copy.
GRIPP forms are printed in distinctive colours and each set
bears a printed number which appears on both copies of the
Form. They are avail. able for sale with Reserve Bank of India.
However, exporters can get these forms through Authorised
123
 Dealers also. VP/COD Forms are sold directly to exporters by
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Reserve Bank of India.
Export Declaration Forms have utmost importance and are
binding on the exporter. It is therefore necessary, that enough
care is taken while de-claring exports on these forms with special
reference on the following points:
i. Name and address of Authorised Dealer through whom
proceeds of exports have been or will be realised should be
specified in the rel-evant column of the form.
ii. 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.
iii. It should be clearly indicated in the form whether the export
is on ‘Outright sale basis’ or ‘on Consignment basis’ and
irrelevant clauses must be struck out.
iv. Under the item ‘Analysis of Full Export value’, a break up
of the full export value of goods under FOB value, freight
and insurance should be furnished in all cases, irrespective
of the terms of the contract.
Disposal of Copies of Export Documentation Form
i. 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 Ship-ping Bill.
The value declared by exporter will also be verified by
Customs and they will also record the assessed value.
Duplicate copy of GR Form will again be presented to
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 excep-
tion to submission of GR forms to the Customs
Authorities has been made in case of deep Sea fishing.
ii. a. PP Forms are to be first presented to an Authorised
Dealer for counter signature. The Form will be
countersigned by the Au-thorised Dealer only if the
Post Parcel is addressed to his Branch or
Correspondent Bank in the country of import. The
concerned Overseas Branch or Correspondent Bank is
to be instructed to deliver the Post Parcel against
payment or acceptance of relevant Bill, as the case may
be.
b. For Post Parcel addressed directly to the consignee, the
Author-ised Dealer will countersign the Form,
provided
1. 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
2. the full value of the shipment has been received in
advance by the exporter through an Authorised
Dealer, or
124
3. the Authorised Dealer is satisfied on the basis of
standing and track record of the exporter and
arrangements made for re-alisation of the export
proceeds that he could do so. If the Authorised
Dealer is not satisfied about the standing, etc., of
the exporter, the application is rejected. No
reference is en-tertained by the Reserve Bank in
such cases.
4. In the case of VP/COD Forms only one copy is
required to be com-pleted and submitted to Post
Office along with the relative parcel at the time of
dispatch.
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-physi-cal form by direct data transmis-
sion through dedicated earth stations/satel-lite links. The
export of computer software in physical form is subject to
normal declaration on GRIPP Form and regulations applicable
thereto will also be applicable to such exports. However, export
of software in non-physi-cal form is fraught with many risks
and special guidelines have been framed for handling such
exports.
Export Invoice
Invoice is a document of content. It’s the exporter’s bill for
goods and sets forth the terms of sale. The invoice is a basic
document. As a document of contents it must fully identify
the overseas shipment and serve as a basis for the preparation
of all other documents, which in greater or lesser detail
reproduce information from it. The exporter should strictly
follow the requirements of the importer in regard to invoicing.
The standard document in respect of the invoice based on the
United Nations Key Layout, which has been accepted as the
basis of this document in many entries. The information
requirements of the document have been determined after
examining a number of forms of invoices used by leading
export organizations and after series of discussions with the
representatives of the Department of Customs and Central
Excise and the Federation of Custom House Agents’ Associa-
tions in India.
Invoices based on the suggested design will be acceptable not
only in many countries but will also help facilitate processing of
documents at various stages. The Declaration given at the
bottom (left hand) of the Invoice follows the UN recommen-
dation. The standard Invoice can be reproduced from the
master by masking only three columns, i.e. Notify Party,
Insured Value and No. of Original Bs/L No, and Date on the
invoices. But under the present procedure for customs clearance
and shipment of export cargo, this information, and particularly
in respect of the B/L No. and Date, will be available to
exporters only after shipment has been effected. Where required
under letter of credit, such information will need to the banks
for negotiation. But for this, the rest of the information can be
reproduced from the master
The information referred to in the preceding lines can be given
above the columns for Country of Origin and Final Destina-
tion in the order of name of shipping line, ETD (port of
11.675.1
shipment), ETA (destination port) and B/L No. and Date.
Unused space, in the Buyer’s column and below the Consignee’s
Column can be utilised for incorporation of any other informa-
tion which may be special to a transaction. Value and Origin
Clauses can be printed on the back side of the Standard Invoice.
There may be cases when exports are required to give detailed
descriptions or specifications of the various items forming part
of the consignment exported in one lot. In such cases,
exporters are advised to use Continuation sheets’ to the
Invoice.
Proforma Invoice
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.
It is proposed to conduct training and orientation programmes
at all export centers to familiarize the exporting community
with the new system.
Contents of Proforma Invoice
a. Name and address of the exporter.
b. Name and address of the importer.
c. Mode of transportation, such as Sea or Air or Multimodal
transport.
d. Name of the port of loading,
e. Name of the port of discharge and final destination.
f. Provisional invoice number and date.
g. Exporter’s reference number.
h. Buyer’s reference number and date.
i. Name of the country of origin of goods.
j. Name of the country of final destination.
k. Marks and container number.
l. Number of packing descriptions.
m. Description if goods given details terms of internationally
accepted price quotation,
n. Signature of the exporter with date.
Importance of Proforma Invoice
a. It forms the basis of all trade transactions.
b. It may be useful for the importer in obtaining import
licence or foreign exchange.
Commercial Invoice
Commercial invoice is an important and basic export docu-
ment. 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
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.
This is the first basic and the only complete document among
all commercial documents for the shipment. Besides fulfilling
11.675.1
the obligation under the export contract, the exporter needs this
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
document for a number of other purposes including: i)
obtaining export inspection certificate ii) getting excise clearance
iii) getting customs clearance and iv)securing incentives. Thus,
this document is prepared at both the pre- shipment and post
shipment stages.
In the first place, Commercial Invoice is a document of
contents that describes details of goods sent by exporter. It is
the statement of account, which must contain identification
marks and numbers, description of goods and quantity of
goods.
Every shipment has identification marks, which identify the
cargo with various documents. These are private marks. which
are made on the packages. These marks could be either in the
form of symbols (say, a star, triangle. rectangle, etc.) or numeri-
cal. Similarly. Every package under a shipment is numbered,
usually written serially. The commercial invoice must specify the
serial numbers given in a particular consignment.
Commercial invoice must describe the goods shipped by the
exporter. The description of goods must correspond exactly
with the description given in the contract or the letter of credit
It means that there should not be any difference (including
spelling) between these descriptions. Thus. if a contract
describes the goods as “Ten Thousand Pairs of Blouses and
Skirts”. the exporter should not describe them as ‘’Ten Thou-
sand Blouses and Ten Thou-sand Skirts”. though logically both
the descriptions mean the same.
Sometimes description of the goods includes the number of
packages and the type of packing material. Thus. if the contract
specifies shipment to be made in “ten new gunny bags’” the
exporter should send the contracted goods and describe them
as needed. If the commercial invoice wrongly describes the
shipment as “ten gunny bags” instead of “ten new gunny
bags’” the bank may refuse to honour shipping documents and
not pay for them.
The quantity described on the commercial invoice should
neither be less or more than the contracted quantity. In other
words. the exporter should not ship less than contracted
quantity, unless the contract permits part shipment. However, if
the goods are being shipped under a letter of credit. part
shipment is permitted, unless it is specifically prohibited. On
the other hand. quantity shipped should not be more than the
contracted quantity. This is so even if the exporter may not be
charging for the additional quantity.
Second function of the commercial invoice is that it is the
seller’s bill given to the buyer. As a bill, it must contain the
name and address of the buyer, unit price, amount and
authorised signatures with designation. Unless required by the
buyer, the total invoiced value should be net of any commis-
sion or discount; in other words, it should be the realisable
amount of goods as per the trade terms. Sometimes a contract
requires a detailed I breakup of the amount to be recorded on
the invoice for enabling the customs authority in the importing
country to calculate import duty.
The name and address given in the commercial invoice should
be the same as given in the export contract or the letter of credit.
125
 as the case may be. Under a letter of credit, unless otherwise
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
specified the commercial invoice must be made out in the name
of the applicant I of the credit. As in the case of quantity to be
recorded on the invoice, the amount should neither be less nor
more than the stipulated amount in the contract or the letter of
credit. The only exception is that if the contract or the letter of
credit permits part-shipment, an individual invoice can be less
than the total amount.
The commercial invoice also sets forth the terms of sale ( i. e.
fob/cif /c&f),etc. mode and date of shipment and terms of
payment. It can also serve as a packing list and a certificate of
origin. A packing list shows details of goods contained in each
pack of shipment. When the law in an importing country does
not specifically require a separate certificate of origin issued by a
third party. it can be self- certified by the exporter on the
commercial invoice. Exporters themselves according to the
requirements of their business devise the format of Commer-
cial invoice. Look at Annexure I where the format of
Commercial invoice has been given.
Contents of Commercial Invoice
a. Name and address of the exporter.
b. Name and address of the consignee.
c. Name and the number of Vessel or Flight.
d. Name of the port of loading.
e. Name of the port of discharge and final destination. ‘
f. Invoice number and date.
g. Exporter’s reference number.
h. Buyer’s reference number and date.
i. Name of the country of origin of goods.
j. Name of the country of final destination.
k. Terms of delivery and payment.
l. Marks and container number.
m. Number and packing description.,
n. Description of goods giving details of quantity, rate and
total amount in terms of internationally accepted price
quotation.
o. Signature of the exporter with date.
Significance of Commercial Invoice
a. It is the basic document useful in preparation of various
other shipping documents.
b. It is used in various export formalities such as quality and
pre;:-8hipment inspection, excise and customs procedure
etc. -
c. It is also useful in negotiation of ~documents for
collection and claim of incentives.
d. It is useful for accounting .purposes to both exporters as
well as importers.
Packing List
This may be shown on invoice or separately, and should contain
item by item, the contents of cases or containers or of a
shipment with its weight and description set forth in such a
126
manner as to permit checks of the contents by the customs on
arrival at the port of destination as well as by the recipient.
The packing list is a relatively simpler document and the whole
of the information can be reproduced from the master by
masking information not desired on the packing list. Special
information, if any, can be given in the blank space in the lower
third portion of the document.
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
individual pack, while the packing list is a consolidated state-
ment of the contents of a number of cases or packs.
Contents of Commercial Invoice
a. Name and address of the exporter.
b. Name ‘and address of, the consignee.
e. Name and the number of Vessel or Flight.
d. Name of the port of loading.
e. Name of the port of discharge and final destination.
f. Invoice number and date.
g. Name of the country of origin of goods.
h. Name of the country of final destination.
i. Marks and container number.
j. Number and packing description.
k. Description of goods in terms of quantity and special
remarks, if any.
l. Signature of the exporter with date.
Normally, ten copies of the packing note/list should be
prepared. The first is to be sent with the shipping documents,
two copies in advance to the buyer, one to the shipping agent
and the remaining retained by the exporter.
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 fade evidence that I
goods are loaded in the vessel. The mate’s receipt is first handed
over to the f 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.
Types of mate’s receipts
a. 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.
b. Qualified Mate’s Receipt :- The Commanding Officer of
the ship issues a qualified mate’s receipt, when the goods are
not packed properly and the shipping company does not
take any responsibility of damage to the goods during
transit.
11.675.1
Contents of Mate’s Receipt
a. Name and logo of the shipping line.
b. Name and address of the shipper.
c. Name and the number of vessel.
d. Name of the port of loading.
e. Name of the port of discharge and place of delivery.
f. Marks and container number.
g. Packing and Container description.
h. Total number of containers and packages.
i. Description of goods in terms of quantity.
j. Container status and seal number.
k. Gross weight in kg. and volume in terms of cubic meters.
l. Shipping bill number and date.
m. Signature and initials of the Chief Officer.
Significance of Mate’s Receipt
a. It is an acknowledgement of goods received for export on
board the ship.
b. It is a transferable document. It must be handed over to the
shipping company in order to get the bill of lading.
c. Bill of lading, which is the title of goods, is prepared on the
basis of the mate’s receipt.
d. It enables the exporter to clear port trust dues to the Port
Trust Authorities.
Bill of Lading
Bill of lading is issued by the shipping company or its agents
stating that goods are either being shipped or have been
shipped. Essentially a transport document. it serves many
purposes in international commerce.
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. A bill of lading serves three main purposes:-
i. This document evidences the contract of affieightment
(transport) between the shipping company and the shipper
(exporter or importer).
ii. It is a receipt given by the shipping company for cargo
received by it.
iii. It is a document of title (This is the most significant
function of the bill of lading).
Let us first understand the meaning of the term “evidence of
the contract of affreightment”. When goods are to be carried by
any carrier (say. a ship), the contract of affreightment will
contains terms and conditions of carriage. In particular, this
contract will mention the responsibility of the carrier (e.g..
shipowner) in providing space. receiving. loading carrying and
unloading of the cargo. Thus. if there is any loss or damage to
the cargo when it is in the custody of the carrier. the contract will
provide for the circumstances in which the carrier can be held
11.675.1
liable for the loss or damage. Further, in case the carrier is to be I
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
liable for loss or damage. the contract will provide for the
amount of claim which carrier will be required to pay to the
cargo owner. A bill of lading also contains printed terms and
conditions of the contract of affreightment on it However. it is
not considered as a Conrad by itself; instead it is the most
important evidence of the contract. Law courts all over the
world have held that in case of a dispute, the aggrieved party
may produce any other evidence, which may controvert a printed
clause in the bill of lading. Any other evidence could be a specific
agreement in which for example, the ship owner may have
agreed to a higher amount of liability than the standard
amount. Thus, in such cases, the ship owner does not have a
defence that his maximum liability is as printed in the bill of
lading.
Bill of lading is a receipt issued by the shipping company on its
agents. Law requires that as a receipt, it must contain leading
identification marks, number of packages or quantity or weight
or any other unit of account, and apparent order and condition
of the goods.
Bill of lading is the only evidence to file a claim against the
shipping company in the event of non-delivery, defective
delivery or short-delivery of the cargo at the destina-tion. As a
result, this document indicates that the contracted goods have
been either given into the charge of the shipping companies or
shipped by the exporter by the named ship on the date specified
on the bill of lading. If shipment is according to the contract
terms, the exporter gets the right to demand the sale amount
from the importer while the importer is entitled to get delivery
of the goods at the destination. Look at Annexure 2 where a
speci-men of bill of lading has been given.
For the bill of lading to be negotiable in fact three requirements
must be fulfilled:
1. it must be made out to the order to the shipper.
2. It must be signed by the steamship company.
3. It must be endorsed in blank by the shipper.
Types of bill of lading
a. 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.
b. Claused Bill of Lading :- A bill of lading qualified with
certain adverse remarks such as, “goods insufficiently packed
in accordance with the Carriage of Goods by Sea Act,” is
termed as a claused bill of lading.
c. Through Bill of Lading :- It covers goods being
transhipped enroute but where the first carrier has the
responsibility as the principal carrier for all stages of the
journey. For example, goods may be shipped from Bombay
to Dubai and transhipped from Dubai to a port in Latin
America.
d. Trans-shipment B/L: It has similar characteristic as the
Through B/L except that in this case the first carrier acts
only as an agent for effecting Trans-shipment of cargo.
127
 e. Stale Bill of Lading :- A bill of lading that has been held
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
too long before it is passed on to a bank for negotiation or
to the consignee is called a stale bill of lading.
f. 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.
g. 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.
The Design of Bill of Lading
The design for the bill of lading is based on the Standard Bill
of Lading recommended by the International Chamber of
shipping. A number of shipping lines in India’s overseas trade
are already issuing bills of lading on the ISO A4 size paper.
However. In some case, these bills of lading are based on the
old pattern.
The Standard Bill of Lading included in the aligned series can be
reproduced from the master by using the relevant mask. The
Chief Officer of the ship through the port trust issues bank
forms of bills of lading are supplied by shipping companies to
shippers who prepare these documents and present them for
signature at the shipping to the shipper. While preparing “To
Order Bills of Lading care should be taken to mask the
Consignee box also. The words Unto Order May be typed in
the Consignee box and the name and address of the Consignee
given in the box for the Notify Party. The other details on the
bill of lading will be completed by the office of the shipping
company before the document is signed and handed over to the
shipper in exchange for the mate’s receipt.
Bill of lading is a document of title that will enable the lawful
holder of any of the original Bill to take delivery of the goods
at the stipulated port of destination. Thus, a claimant of title to
goods is required to surrender an original BIL (also popularly
known as negotiable copy of B/L) for claiming goods from the
shipping company or its agents. A bill of lading is not a
negotiable instrument, though it is transferable by endorsement
and delivery. What is the purpose of transferability of the bill
of lading? Transferability enables the banks to pay money to the
exporter against surrender of shipping documents, including
B/L, even before the goods reach the destination. Similarly, it
enables the goods to be resold by the importer before goods
reach the destination. For creating transferability, the bill of
lading has to be made in such a way that the’ goods are
consigned to the ‘order of a party. The party could be either the
exporter himself, or a negotiating or paying, bank or any other
party as provided in the contract or letter of credit. For example,
if B/L is prepared in the following way, it can be transferred
through endorsement in the same manner as in a cheque. There
are three main columns in B/L. These are Consignor (Shipper);
Consignee or Order of and Notifying party. Notifying party is
the party to whom the shipping company is to send “notice of
arrival”. Transferability can be created by filling- up these
columns in the following manner:
Consignor: ABC Company, New Delhi
128
Consignee: (Or Order of) Bank of XYZ, New Delhi
Notifying party: KNM, London
By not striking-off the words “Or Order Of “and. writing the
name of the negotiating bank, the bank becomes the first
endorsee. Title to goods will be transferred from the negotiat-
ing bank to the paying bank to importer on endorsements by
the negotiating and the paying banks in succession.
In contrast to the “Order BIL” is the consignee-named B/L
The consignee-named B/L is made out in the name of a
specific party. Hence, title to goods cannot be transferred to a
third party. The exporter should not ship goods under this
kind of B/L as goods can be released by the shipping company
at the destination without the presentation of the ‘original ‘B/
L. Thus, if payment from the importer has not been secured,
the exporter may lose hold over goods and may not get paid.
However, if payment in advance has been received or if goods
are being shipped under irrevocable letter of credit, the con-
signee named B/L is a valid document.
According to international commercial practice, BIL along with
other shipping documents must be presented to the bank not
later than twenty- one days of the date of shipment as given in
BIL. Sometimes the buyers may also specify the last date or the
number of days after shipment by which the documents must
be submitted to the bank. Where the exporter does not follow
this stipula-tion, the documents are said to have become “stale”
and B/L in such case will be known as Stale B/L A State B/L is
one which is tendered to the paying bank at so late a date that it
is impossible for it to be dispatched to the consignee in time to
reach him before the goods themselves arrive at the destination
port.
Example An exporter sent off his goods but forgot to send
the Bill of Lading to the customer. Without this document the
customer was unable to obtain the goods at the Port of
destination, so the goods had to be stored at the docks until
the Bill arrived. The customer sent the storage charges to the
exporter, maintaining that because the exporter’s fault, the
charges had been incurred. He sued the exporter for the costs of
the storage, and won.
Contents of Bill of Lading
a. Name and logo of the shipping line.
b. Name and address .of the shipper.
c. Name and the number of vessel.
d. Name of the port of loading.
e. Name of the port of discharge and place of delivery.
f. Marks and container number.
g. Packing and container description.
h. Total number of containers and packages.
i. Description of goods in terms of quantity.
j. Container status and seal number.
k. Gross weight in kg. and volume in terms of cubic metres.
1. Amount of freight paid or payable.
m. Shipping bill number and date.
n. Signature and initials of the Chief Officer.
11.675.1
Endorsement on Bill of Lading
By practice and custom he bill of lading has been transferable.
If however, the bill requires the goods to be delivered to a
particular named person and does not include a reference to his
assignees, the bill of lading is not transferable. It is only rarely
that a bill of lading would be drawn this way.
The consignee or consignor as the case may be, can transfer the
B/L either by a special endorsement, i.e. an endorsement which
names the transferee to whom delivery is to be made or by an
endorsement in blank to be bearer. The holder may, however,
convert the blank endorsement into a special endorsement by
inserting, the name of a person to whom delivery is to be
made. It is then called the “endorsement in full”
Sending of Bill of Lading to Importer
B/L are mad out in sets and any number of copies may
constitute the set according to the requirements of the particular
transaction and the importer. The number of copies to be
made out will be indicated by the importer before the shipment
takes place. In case there is no such indication, normally, two
copies. One set of documents is sent by the first class airmail
and the second by the following mail, so that if one is lost.
Delivery of the goods can be taken by the importer because of
the second set.
Significance of Bill of Lading for Exporters
a. It is a contract between the shipper and the shipping
company for the carriage of the goods to the port of
destination.
b. It is ari acknowledgement indicating that the goods
mentioned in the document have been received on board
for the purpose of shipment.
c. A clean bill of lading certifies that the goods received on
board the ship are in order and good condition.
d. It is useful for claiming incentives offered by the
government to exporters.
e. 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
a. It acts as a document of title to goods, .which is
transferable by endorsement and delivery.
b. The exporter sends the bill of lading to use bank of the
importer so as to enable him to take the delivery of goods.
c. 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 of Bill of Lading for Shipping Company
a. It is useful to the shipping company for collection of
transport charges from the importer if not collected from
the exporter.
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
11.675.1
in the country whose name is mentioned in the certificate. Certificate
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
of origin is required when :-
a. The goods produced in a particular country are subject to
preferential tariff rates in the foreign market at the time
importation.
b. The goods produced in a particular country are banned for
import in the foreign market.
Types of the Certificate of Origin
a. Non preferential Certificate of Origin :- Non-
preferential certificate of origin is required in general by all
countries for clearance of goods by the importer, on which
no preferential tariff is given. It is issued by :-
• The authorised Chamber of Commerce of the
exporting country.
• Trade Association of the exporting country.
b. Certificate of Origin for availing Concessions under
GSP:- Certificate. of origin required for availing of
concessions under Generalised System of Preferences (GSP)
extended by certain countries such as France, Germany, Italy,
BENELUX countries, UK, Australia, Japan, USA, etc. This
certificate can be obtained from specialised agencies, namely;
• Export Inspection Agencies.
• It. Director General of Foreign Trade.
• Commodity Boards and their regional offices.
• Development Commissioner, Handicrafts.
• Textile Committees for textile products.
• Marine Products Export Development Authority for
marine products.
• Development Commissioners of EPZs.
c. Certificate for availing Concessions under
Commonwealth Preferences (CWP) :- Certificate of
origin for the purpose of Commonwealth Preference is also
known as ‘Combined Certificate of Origin and Value’. Two
member countries, Le, require it. Canada and New Zealand
of the Commonwealth. For concession under
Commonwealth preferences, the certificates or origin have
to be submitted in special forms obtainable from the High
Commission of the country concerned.
d. Certificate for availing Concessions under other
Systems of Preference :- Certificate of origin is also
required for tariff concessions under the Global System of
Trade Preferences (GSTP), Bangkok Agreement (BA) and
SAARC Preferential Trading Arrangement (SAPTA) under
which India grants and receives tariff concessions on
imports and exports. Export Inspection Council (EIC) is
the sole authority to print blank Certificates of . Origin
under BA, SAARC and SAPTA which can be issued by such
agencies as EPCs, DCs of EPZs, EIC, APEDA, MPEDA,
FIEO, etc.
Contents of Certificate of Origin
a. Name and logo of chamber of commerce.
b. Name and address of the exporter.
e. Name and address of the consignee.
129
 d. Name and the number of Vessel of Flight.
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
e. Name of the port of loading.
t. Name of the port of discharge and place of delivery.
g. Marks and container number.
h. Packing and container description.
i. Total number of containers and packages.
j. Description of goods in terms of quantity.
k. Signature and initials of the concerned officer of the issuing
authrity.
l. Seal of the issuing authority.
Significance of the Certificate of Origin
a. Certificate of origin is required for availing of concessions
under Generalised System of Preferences (GSP) as well as
under Commonwealth Preferences (CWP). ‘
b. It is to be submitted to the customs for the assessment of
duty and clearance of goods with concessional duty.
c. It is required when the goods produced in a. particular
country are banned for import in the foreign market.
e. It helps the buyer in adhering to the import regulations of
the country.
f. 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.
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 :-
a. Customs copy.
b. Drawback copy.
c. Export promotion copy.
d. Port trust copy.
e. Exporter’s copy.
Free Shipping Bill is used for export of goods which neither
attracts any Duty/Cess nor is entitled to Duty Drawback on
their exportation. Dutiable Shipping bill is used in case of
goods subject to Export Duty/Cess but mayor may not be
entitled to Duty Drawback. Drawback Shipping Bill or Bill of
Exports is used in the case of goods which are entitled to
Drawback. Ship. ping Bill for Shipment Ex-bond is for use in
case of imported goods for Re. exports and which are kept in
Bond.
Following documents are required for the processing of a
Shipping Bill:
a. GR Forms in duplicate for shipments to all countries.
b. Four copies of Packing list giving contents, quantity, gross
and net weight of each Package.
c. Four copies of Invoices indicating all relevant particulars
such as no. of packages, quantity, unit rate, total FOB/CIF
value, correct and full description of goods, etc. (One copy
130
of this Invoice is to be pasted on the duplicate copy of
Shipping Bill).
d. Contract, Letter of Credit, Purchase Order
e. Inspection/Examination Certificate.
The Formats presented for the Shipping Bill are as under:
1. White Shipping Bill for export of Duty Free goods
prepared in tripli-cate in the Standardised Format.
2. Green Shipping Bill for export of goods under claim for
Duty Draw- back prepared in quadruplicate in the prescribed
Form.
3. Yellow Shipping Bill for export of Dutiable goods prepared
in triplicate in the prescribed Form.
4. Pink Shipping Bill for export of Duty Free goods ex-Bond
prepared in triplicate in the prescribed Form.
Where the goods are to be cleared by the Land Customs, Bill of
export is prepared instead of Shipping Bill. Bill of Exports are
also of four types i.e. white, green, yellow and pink for the
purpose stated above. Standardised Formats of the Bill of
Export are also available with the booksellers who deal with
Exim publications.
Types of Shipping Bill
Based on the incentives offered by the government, customs
authorities have introduced three types of shipping bills:-
a. Drawback Shipping Bill :- Drawback shipping bill is
useful for claiming the customs drawback against goods
exported.
b. Dutiable Shipping Bill :- Dutiable shipping bill is
required for goods which are subject to export duty.
c. Duty-free Shipping Bill :- Duty-free shipping bill is useful
for exporting the goods on which there is no export duty.
Application for export is used for seeking customs permis-
sion of export goods to the neighboring countries like
Bangladesh by road, river or rail. This is of Three Types, namely,
for export of “Free”, “Dutiable” and “Drawback” cargos.
Customs declaration form for goods sent by post parcel is a
standard form for all types of cargo. However, for claim-ing
duty drawback, the exporter has also to file another document
known as “Form D”. Port authorities in India have specified
documents for bringing the cargo into the shed for shipment as
well as for payment of port charges. This document is called
port - trust copy of shipping bill in Bombay dock challan in
Calcutta and Export application in Madras and Cochin. Like the
shipping bill, the clearing and forwarding agent of the exporter
prepare this document.
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 By Air
Drawback Shipping Bill Green Green
Dutiable shipping Bill Yellow Pink
Duty free Shipping Bill White Pink
11.675.1
Contents of shippining bill
a. Name and address of the exporter.
b. Name and address of the importer.
c. Name of the vessel, master or agents and flag.
d. Name of the port at which goods are to be discharged.
e. Country of final destination.
f. Details about packages, description of goods, marks and
numbers, quantity and details of each case.
g. FOB price and real value of goods as defined in the Sea
Customs Act.
h. Whether Indian or foreign merchandise to be re-exported
i. Total number of packages with total weight and value.
Significance of shipping bill
a. Shipping bill is the main customs. document, required by
the customs authorities for granting permission for the
shipment of goods.
b. The cargo is moved inside the dock area only after the
shipping bill is duly stamped, i.e., certified by the customs.
c. Duly endorsed shipping ,bill is also necessary for the
collection of export incentives offered by the government.
d. It is useful to the Customs Appraiser while determining the
actual value of goods exported.
Consular Invoice
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 impor-
tant document, which needs to be submitted for certification to
the Embassy of the importing country concerned. The main
purpose of 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 im-
ported 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 alongwith other shipping
documents.
Significance of Consular Invoice for the Exporter
a. It facilitates quick clearance of goods from the customs in
exporter’s as well as importer’ country.
b. Certification of goods by the Consulate of the importing
country indicates that the importer has fulfilled all
procedural and licensing formalities for import of goods.
c. It also assures the exporter of the payment from the
importing country.
11.675.1
Significance of Consular Invoice for the Importer
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
a. It facilitates quick clearance of goods from the customs at
the port of destination and therefore, the importer gets
quick delivery of goods.
b. The importer is assured that the goods imported are not
banned for imports in his country.
Significance of Consular Invoice for the Customs
Office
a. It makes the task of the customs authorities easy.
b. It facilitates quick calculation of duties as the value of goods
as determined by the Consulate is considered for the
purpose.
Bill of Entry
The bill of entry is a document, prepared by the importer or his
clearing agent in the prescribed form under Bill of Entry
Regulations, 1971, on the strength of which clearance of
imported goods can be made.
When goods are imported is a particular country, the importer
has to pay the necessary import duty. For this purpose,
necessary information about the goods imported must be given
to the customs authorities “in a prescribed form called bill of
entry form. Bill of entry is. a document, which states that. the
goods of the stated values and description in the specified
quantity have entered into the country from abroad. The bill of
entry is drawn in triplicate. The customs authorities may ask the
importer to supply other documents like invoice, broker’s note
and insurance policy, etc. in order to verify the correctness of the
information supplied in the bill of entry form.
For the purpose of giving information in the bill of entry
form, goods are classified into three categories namely :-
1. Bill of entry for home consumption (white in colour):
where an importer wants to get his goods cleared in one lot,
he has to present the Bill of entry for home consumption.
2. Bill of entry for warehousing (into bond, yellow in
colour): Where an importer wants to shift goods to a
warehouse and thereafter gets his goods.
cleared in small lots, he has to present ‘into bond’ bill of
entry. Reason may be that he is unable to pay duty leviable
on all goods at one instance or may be because of storage
problem.
3. Ex-Bond Bill of Entry (Green in Colour): When an
importer wants to remove goods from the warehouse, he
has to present an Ex-bond bill of entry which is green in
colour.
Bill of Entry is not required in the following cases:
a. passengers baggage
b. favour parcels
c. mail box and post parcels.
d. boxes, kennels of cargos containing live animals or birds.
e. unserviceable stores, e.g. dunnage wood, empty bottles,
drums etc. of reasonable value .
f. ship’s stores in small quantities for personal use.
131
 g. cargo by sailing vessels from customs ports when landed at
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
open bundles only
The importer has to fill up a separate bill- of entry form for
different classes of goods. In India, separate forms are not used
but all the entries are made in one form. The free goods are
marked as free in the entry form itself. The importer has to pay
the duty before securing the possession of the goods.
Contents of Bill of Entry
a. Name and address of the importer.
b. Name and address of the exporter.
c. Import licence number of the importer.
d. Name of the port/ dock where goods are to be cleared.
e. Description of goods.
f. Value of goods.
g. Rate and amount of import duty payable.
h. Other relevant documents.
Airway Bill
An airway bill, also called an air consignment note, is a receipt
issued by an airline for the carriage of goods. As each shipping
company has its own bill of lading, so each airline has its own
airway bill. .
Airway Bill or Air Consignment Note is not treated as a
document of title and is not issued in negotiable form.
Contents of Airway Bill
a. Name of the airport of departure and destination.
b. The names and addresses of the consignor, consignee and
the first carrier.
c. Marks and container number.
d. Packing and container description.
e. Total number of containers and packages.
f. Description of goods in terms of quantity.
g. Container status and seal number.
h. Amount of freight paid or payable.
i. Signature and initials of the issuing carrier or his agent.
Importance of Airway Bill
a. It is a contract between the airlines or his agent to carry
goods to the destination.
b. It is the document” of instructions for the airline handling
staff.
c. It acts as a customs declaration form.
d. Since, it contains details about freight it also represents
freight bill.
Gr Form
GR Form is an exchange control document required by the
Reserve Bank of India (RBI). As per the exchange control
regulations, an exporter has to realise the proceeds of the goods
he has exported within 180 days of their shipment from India.
In order to ensure this, the RBI has introduced the GR
procedure.
132
GR form is to be submitted in duplicate to the Customs at the
port of shipment along with the shipping bill. Customs will
give their running serial number on both the copies after
admitting the customs shipping bill. Customs authorities. will
certify the value declared by the exporter on both the copies of
the GR form at the space earmarked and will also record the
assessed value. They will then return the duplicate copy of the
form to the exporter and retain the original for transmission to
the RBI. Within 21 days from the shipment of goods, exporter
must lodge the duplicate copy of GR together with relative
shipping documents with the authorised dealer named in the
GR form for negotiation of export bills.
After the documents have been negotiated, the authorised
dealer will report the transaction to the RBI. The duplicate- copy
‘of GR form together with a copy of invoice will be retained by
the authorised dealer till full export proceeds have been realised
and thereafter submitted to the RBI.
On account of introduction of Electronic Data Interchange
(EDI) System at certain customs offices where shipping bills are
processed electronically, the existing declaration in GR form has
been replaced by a declaration in form SDF (Statutory Declara-
tion Form).
Other Documents
Customs Invoice Countries like U.S.A., Canada, etc., need
Customs’s In-voice. It is generally made out on a special form
prescribed by the Customs Authorities of the importing
country and helps for allowing entry of goods in the importing
country at preferential tariff rates. The Invoice Forms are
generally available at the Consular Officer of the importing
country and are required to be signed and witnessed after duly
filling out the same.
Legalised/visaed Invoice These are the Invoices sworn for
their genuine-ness by the seller as being correct, before the
appropriate Consulate/Cham-ber of Commerce Embassy as
the case may be, and they bear the stamp and authentication of
the Consulate/Chamber of Commerce Embassy as being in
order. A nominal charge is collected by them from the seller for
doing this. These Invoices are required by some of the Latin
American Countries. There is no prescribed form of this
Invoice.
Certified invoice At times the exporter is called upon to certify
on the Invoice, that the goods are of particular origin or
manufactured/packed at a particular place and in accordance with
specific contract. When Certificates as such appear on the
Invoice, it is called as a Certified Invoice.
Bill of exchange/draft A Bill of Exchange also known as
Draft contains an order from the credit to the debtor to pay a
specified amount to a person mentioned therein. The maker of
a Bill is called the “Drawer”, the person who is directed to pay is
called the “Drawee” and the person who is entitled to receive
payment is called the “Payee.”
When it is drawn on a foreign firm it is termed as a Foreign
Draft or Bill of Exchange. It is prepared either in an interna-
tional currency or Indian Rupees depending on the terms of the
contract. Accordingly, the Bill is known by the name of currency
in which it is drawn. For example, a Bill drawn in US dollars is
11.675.1
known as ‘Dollar Bill’ and when prepared in rupees, being
termed as ‘Rupees Bill’.
When the goods are shipped by Sea, the bills are drawn in sets
and two sets of documents, including drafts are mailed to the
foreign correspondent through an authorised dealer for
presentation to the Drawee (importer). Each one bears a
reference to the other.
A Bill of Exchange or Draft is of two types: (I) ‘Sight Draft’ or
‘Draft at Sight’ and (ii) “Usance Draft” or “Usance Bill”.
When the Drawer i.e. exporter expects the Drawee i.e. importer
to make ; payment immediately after the Draft is presented to
him, it is called a ‘Sight : Draft’. Unless and until the Draft is
received, the Negotiating/Collecting Bank does not hand over
the Shipping documents and the buyer cannot take delivery of
goods.
As there is no Aligned document for Draft the same can be
prepared by the Exporter in the usual format
Certificate of inspection Inspection Certificate, indicating
that goods have been inspected before shipment, is needed
under some contracts or by some countries. This Certificate is
generally required to be issued by one of the authorised
independent Inspection Agencies/Surveyors in the exporter’s
coun-try. The Certificate is issued in the Aligned document
Form.
Black list certificate This is to certify that the ship/aircraft
carrying the goods has not touched a particular country on its
journey or that the goods are not of a particular country. This
certificate is usually called for when countries have strained
political relations with another.
Weight note This document is used to confirm that the
Packets/Bales, etc., are of a particular weight and not more than
the stipulated weight as per contract. It may at times give gross
weight and net weight of the whole consignment.
Manufacturer’s/supplier’s quality/inspection certificate
This is a Certifi-cate to the effect that the goods which have been
manufactured/supplied are as per the requirement of the
Contract of Sale.
Languages certificate Importers in the European Economic
Community Countries require Languages Certificate along with
the GSP Certificate in respect of hand loom cotton fabrics
classifiable under NEMEX Code 55.09. Indian exporters
should apply for this certificate simultaneously or sepa-rately.
The Language Certificate is issued in quadruplicate, three copies
of which are given to the exporter. He should transit one copy
to his overseas importer, along with other documents, for
realisation of export proceeds.
The Languages Certificate is issued by the Textile Committee
against a small fee.
Manufacturer’s certificate In addition to the Certificate of
Origin, some countries require a Manufacturer’s Certificate to the
effect that goods shipped have actually been manufactured and
are available.
Certificate of chemical analysis To ensure that the quality
and grade of items like metallic ores, pigments, etc., is the same
as specified in the Sale Contract, importers may require the
11.675.1
exporter to send a Certificate of Chemical Analysis from a
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
recognised analyst.
Certificate of shipment This Certificate is issued by the
Shipping Agent and ensures that a certain lot of goods have
been shipped.
Health/veterinary/sanitary certificates When the goods
that are exported are foodstuffs, marine products, hides, live
stocks, etc., usually depending upon the goods which are being
imported, a certificate from the Health /veterinary/ Sanitary
Authorities is called for by the overseas buyers. This is because
the importer desires to know if the goods are fit for human
consumption.
Certificate of conditioning Certificate issued by a Competent
Office in which, on the basis of the ascertained humidity factor,
the dry weight of wool or silk is reckoned and certified. .
Antiquity certificate This Certificate is required in the case of
export of antiques. It is issued by the Archaeological Survey of
India.
Certiflcate of measurement Freight can be charged either on
the basis of weight or measurement. When it is charged on
weight basis, the weight declared by exporter is accepted.
However, Certificate of measurement from the Indian Cham-
ber of Commerce or any other approved organisation may be
obtained by the exporter and given to the shipping company
for calculation of necessary freight. This Certificate contains the
name of vessel, the Port of destination, description of goods,
quantity, length, breadth, depth, etc. of packages.
Car/Lorry ticket This Ticket is prepared for admittance of
cargo through the Port gate. This is also known as ‘Vehicle
Ticket or Gate Pass’. This includes the details of export cargo,
i.e. shipper’s name, car/lorry numbers, marks on packages,
quantity and description.
Shut out advice It is a statement o(packages shut out by a ship
and is prepared by the shed concerned and sent to the exporter
showing the particu-lars of packages, for disposal arrangement.
Short shipment form Short Shipment Form is an application
to the Cus-toms Authorities at Port advising the short
shipment of goods and for claim-ing the return of the Duty
and/or Cess paid on such short shipping goods.
Shipping advice A Shipping Advice is used to inform the
overseas customer about the shipment of goods. The Shipping
Advice is prepared in Aligned docu-ment. The Exporter only
advises );his importer about the Invoice number, Bill of
Lading/Airway Bill number and date, name of the vessel with
date, the port ,of export, description of goods and quantity
and the date of sailing of the vessel.
133
 Distinction between - Mate’s Receipt and Bill of Lading
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

Mate’s Receipt Bill of lading

1. Meaning:- Mate’s is a receipt by the Bill of lading is the Official document
Commanding Officer of the ship when issued by the shipping company
the cargo is loaded on the ship. acknowledging the receipt of goods on
board the vessel.
2. Purpose:-It is issued in order to It is issued in order to enable the
enable the exporter or his agent to importer to take the delivery of goods
secure bill of lading from the shipping at the port of destination.
company.
3. Evidence:- It is an evidence of It is a contract between the shipper and
goods having been loaded on board the shipping company for the carriage
the ship of goods from the port of loading to
the port of destination.
4. Types:- It is of two types : It is of several types :
~ Clean mate's receipt. ~ Clean and claused bill of lading,
~ Qualified mate's receipt ~ Transhipment bill of lading.
~ Stale bill of lading.
~ Freight Paid & Collect bill of lading
5.Details of Fright:-It does not It does specify whether bill of lading is
specify whether the fright is paid on freight paid or not.
goods on not.
6. Issuing Authority:- It is issued by It is issued by the shipping company or
the Commanding Officer of the ship its agent.
or his mate.
7. Title of Goods:- It is not a title of It is a document of title of goods
goods.
8. Negotiability:- It is not a It is a negotiable instrument
negotiable document.
9. Sequence:- It is prepared before the I t is prepared on the basis of the mate's
bill of lading. receipt.

134 11.675.1
Distinction Between - Certificate of Origin and Consular Invoice

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

Certificate of Origin
1. Meaning:- The certificate of origin states
that. The goods exported are originally
manufactured in the country whose name
is mentioned in the certificate
2. purpose:-Certificate of origin is required
q For claiming the benefit preferential
tariff rates.
q In case goods' produced in a
particular country are banned for
import in the foreign market.
3. Legislation :-It does not require any
legislation from the Consulate of the
importing country situated in the exporting
country.
4.Issuing Authority : It is issued by the It is issued only by the Consulate of the.
Chambers of Commerce, Export Promotion importer's country situated in the exporter's
Councils or Authorised Trade Associations. country.
Consular Invoice
Consular invoice is a certificate issued by the
Consulate of the importer's country situated
in the exporter's country certifying the
volume, value, quality, grade, source, etc., of
the goods imported.
Consular invoice is required in order to
provide accurate information about the
volume, value, quality, etc." of the goods
imported to the authories of the importing
country for the purpose of assessing import
duties.
It does require legislation from the Consulate
of the importing country situated in the
exporting county.

Distinction Between - Commercial Invoice and Consular Invoice

Commercial Invoice Consular Invoice

1. Meaning:- Commercial invoice is the Consular invoice is a certificate issued by
statement of account of sale prepared by the the Consulate of the importers country
exporter after the execution of export order situated in the exporters country certifying
giving details about the goods shipped. the volume, value, quality,grade,source, etc.
of the goods imported.
2. purpose:- It is required : It is required in order to provide accurate
~ In preparation of various shipping information about the volume, value,
documents. quality, grade, source, etc., of the goods
imported to the authorities of the importing
~ In pre-shipment inspection, excise
country for the purpose of assessing import
and customs procedures. duties.
~ In negotiation of documents for
collection and claim of incentives.
3. Significance:- . It is a secondary document and as such is
It is a primary document and is required for required when desired by the importer
the preparation of various other shipping
documents
4. Contents:- It contains the terms and It contains accurate information about the
conditions of sale as well as detailed volume, value, quality, grade, source, etc., of
description of the goods to be exported the goods exported
5. Cost:- since, it is prepared by the exporter
himself he needs not to pay any charges for
the same.

11.675.1 135
 Lets Sum Up
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Documentation in export business is complex but .not difficult
to understand if one knows the reasons of making documents
at different stages of export transactions. Some of these
documents are made or secured at the preshipment stage while
others are made or secured after the shipment has been made.
The need for export documents arises due to commer-cial, legal
and incentive perspectives. Commercial perspective helps in
protecting the respective interests of the exporter and importer.
Regulatory perspective emphasises to follow the regulatory
provisions of that particular country. Incentive perspective helps
in getting various incentives according to the prevailing policy of
the government.
Main commercial documents in C.l.F. contract are: Commercial
invoice, Bill of lading! Airway bill, Post parcel receipt, Insurance
policy/Certificate and bill of exchange. The details required to
be mentioned in these documents will depend upon the terms
and conditions of the export contract/letter of credit.
Commercial invoice performs many functions. It is a document
of contents and a bill. It gives information about the shipment
and payment terms and also acts as a certificate of origin. Bill of
lading and airway bill are transport documents and act mainly as
receipt of cargo given by the carrier. Bill of lading, in particular,
is also a document oftitle and for this reason it acquires the
transferability. Insurance policy/certificate will enable the assured
(exporter/importer/bank, etc.) to claim compensation from the
insurance company for loss or damage to the goods caused by
the perils insured against. Bill of exchange protects the interests
of the exporter by linking the payment for goods with the
other documents. In other words, the banking channel will
ensure that the importer does not get the charge of goods
unless he has either paid for the goods or has obligated himself
to make the payment after the expiry of an agreed period. This
is to be done by accepting and honouring of the Bill of
Exchange by the importer.
The legal regulatory documents fulfil the legal requirements of
the concerned countries. In India, law stipulates that for anyone
to be in the export business, registration with the licensing
authorities (Importer- Exporter code No.) is essential. But if
such exporter also wants to claim certain specified export
incentives, he will have to get the Registration-Cum-Member-
ship Certificates from the concerned export promotion
organization. In addition, the exporter has to follow documen-
tation and procedural formalities for any consignment that is
shipped. Main documents for these purposes are GR/PPVP/
COD/SOFTEX FORM (under Foreign Exchange Management
Act). Export Licence/Permit. Export Inspection Certificate,
Shipping Bill (customs clearance) and port Trust Copy of
Shipping Bill Dock Challan/Export Application (Port Clear-
ance). In addition to docu-ments needed in exporting country
the importing country may also specify documents to be
obtained by the exporter. These documents are generally in the
nature of certificates of . origin and quality. Documents are also
needed for claiming export incentives; some of the main
documents are Invoice and AR41 AR5 Forms (excise rebate).
Drawback Copy of Shipping Bill (Duty Drawback)
136
Faced with the problem of the non- standardized documenta-
tion’ Aligned Documentation System’ has been developed. In
line with system. Government of India has also developed
Standardized Pre- shipment Export Documents. With the help
of this system. Several documents can be prepared from a
Master document. Import documents include IEC No and Bill
of Entry.
Questions, Bank
Ql. What is the significance of the Aligned Documentation
System?
Q2. What are the contents of Commercial Invoice?
Q3. Explain the components of Mate’s Receipt.
Q4. What are the different types of Bill of Lading?
Q5. What is the significance of Certificate of Origin?
Q6. What is the significance of Consular Invoice?
Q7. Distinguish between Mate’s Receipt and Bill of Lading.
Q8. Distinguish between certificate of Origin and Consular
Invoice.
Q9. Distinguish between Commercial Invoice and Consular
Invoice.
Q10. What do you mean by “Application for export .
Q11. State whether the following Statements are True or False.
i. GR Form is required to be filled in duplicate for all
exports in physical form other than by post.
ii. RBI Code Number is required for the purpose of
monitoring the flow of foreign exchange against
export of goods by a firm.
iii. Softex form is required to be prepared in duplicate for
export of computer software in non-physical form.
iv. When goods are exported by road or by rail, the
document used for this purpose is called shipping bill.
v. Drawback shipping bill is used for export of goods
entitled to duty drawback.
Fill in the Blanks
i. Under the Foreign Exchange Regulations, exporters from
India have to declare exports on... form for all exports in
physical form other than by post.
ii. The application for getting the Export Inspection Certificate
is the... ............
iii. Shipping Bill is prescribed by... authority.
iv. Customs Invoice is prescribed by the………country.
v. The document prescribed for obtaining GSP facility is
called................
vi. ………….. is the document prescribed by the Indian
Railways for getting a priority in the allotment of wagons
for movement of export consignments.
vii. Main documents for claiming rebate in central excise duty are
……….. and………….
Ans.11 (i) True (ii) false (iii) True (iv) True (v) False.
Ans:12 I) CNX From and GR form ii) Intimation for inspec-
tion iii) Customs iv) Importing v) GSP Certificate of Origin vi)
Forwarding note. vi) Invoice and Ar4/AR5 Forms.
11.675.1

LESSON 18:
EXPORT FINANCE
• Objectives
• Introduction
• Institutional framework
• Pre-shipment finance
• Packing Credit
• Advance against Incentives
• Pre-shipment Credit in Foreign Currency
• Post shipment finance
• Negotiation of Export Documents Under Letters of
Credit
• Purchase/ Discount of Foreign Bills
• Advance against Bills Sent on Collection
• Advance against Goods Sent on Consignment
• Advance against Export Incentives
• Advance against Undrawn Balances
• Advance against Retention Money
• Post-shipment Export Credit Guarantee and Export
Finance Guarantee
• Post-shipment Credit in Foreign Currency
• Export under deffered payment
• Deferred credit facilities
• Role of export import bank of india.
• Recent development in export financing
• Lets sum up
• Answers to Check Your Progress
• Terminal Questions
Objectives
After studying this unit, you should be able to:
1. describe the procedure of pre-shipment credit
2. explain various types and procedure of post-shipment
credit .
3. explain the role of Export Import Bank of India.
4. describe the recent development in export finance.
Introduction
You have learnt various provisions of Exchange Regulations in
Unit 6. Export financing is another important area of export
business. Export finance refers to the credit facilities ex-tended
to the exporters at pre-shipment and post-shipment stages. It
includes any loan to an exporter for financing the purchase,
processing, manufacturing or packing of goods meant for
overseas markets. Credit is also extended after the shipment of
goods to the date of realisation of export proceeds. In this
unit, you will learn various schemes of finance avail-able to
exporters at pre-shipment and post-shipment stages. You will
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
also be acquainted with the role of EXIM Bank in export
finance.
Institutional Framework
Institutional framework for providing finance comprises
Reserve Bank of lndia, Commercia1 Banks, Export Import
Bank of India and Export Credit and Guarantee Corporation.
Reserve Bank of India, being the central bank of country, lays
down the policy frame work and pro-vides guidelines for
implementation.
Finance short or medium term, is provided exclusively by the
Indian and foreign commercial banks which are members of
the Foreign Exchange Dealer’s Association. The Reserve Bank
of India function as refinancing institutions for short and
medium term loans respectively, Provided by commercial banks.
Export Import Bank of India, in certain cases, participates with
commercial bank in extending medium term loans to exporters.
Commercial banks provide finance at a concessional rate of
interest and in turn are refinanced by the Reserve Bank! Export
Import Bank of India at concessional rate. In case they do not
wish to avail refinance, they are entitled for an interest rate
subsidy. Export Credit & Guarantee Corporation (ECGC) also
plays an important role through its various policies and
guarantees providing cover for commercial and political risks
involved in export trade.
Pre-shipment Finance
Pre-shipment finance is provided to the exporters for the
purchase of raw materials, process-ing them and converting
them into finished goods for the purpose of export. Let us
discuss various pre-shipment advances available to the export-
ers.
Packing Credit
The basic purpose of packing credit is to enable the eligible
exporters to procure, process, manufacture or store the goods
meant for export. Packing credit refers to any loan to an exporter
for financing the purchase, processing, manufacturing or
packing of goods as defamed by the Reserve Bank of India. It
is a short-term credit against exportable goods.
Packing credit is normally granted on secured basis. Sometimes
clear advance may also be granted. Many advances are clean at
their initial stage when goods are not yet acquired. Once the
goods are acquired and are in the custody of the exporter banks
usually convert the clean advance into hypothecation! pledge. Let
us first discuss the detail procedure of packing credit.
Eligibility: Packing credit is available to all exporters whether
merchant exporter, Export/ Trading/ Star Trading/ Super Star
Trading Houses and manufacturer exporter. Manufacturers of
goods supplying to Export/ Trading/ ST/ SST Houses and
Merchant exporters are eligible for packing credit. The-foreign
buyer through the medium of a reputed bank gives the credit
to eligible exporters, for specified purposes against irrevocable
137
 letter of credit. It is also available against a confirmed or firm
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
export order/contract placed by the buyer for export of goods
from India.
Running Account Facility: The RBI has permitted banks to
grant packing credit advances even without lodgement of-L/ C
or firm-order/ contract under the scheme of Running Ac-count
Facility subject to, the fol1owing.conditions .
i. The facility may be extended, J1rcwid.ed the need for
Running Account facility has been established by the
exporters to the’ satisfaction of the bank.
ii. The bank may extend this facility only to those exporters
whose track record has been good.
iii. L/C or firm order is produced within a reasonable period
of time. For Commodities under selective credit control,
banks should insist on production of LlCs or firm orders
within one month from the date of sanction.
iv. The concessive credit available ~in respect of individual
pre-shipment credit should not go beyond 180 days.
Packing credit may also be given under the Red Clause letter of
credit. In this method, credit’ is given at the instance and
responsibility of the foreign bank establishing the LlC. Here,
the packing credit advance is made against a simple receipt and is
unsecured.
Amount:- The loan amount is decided on the basis of export
order and the credit rating of the exporter by the bank. Gener-
ally the amount of packing credit will not exceed FOB value of
the export goods or their domestic value whichever is less. It
can be to the extent of domestic value of the goods even
though such value is higher than their FOB value provided the
goods are entitled to duty draw back and also covered by the
Export Production Finance Guarantee of the ECGC.
Period:- The packing credit can be granted for a maximum
period of 180 days from the date of disbursement. The banks
are authorised by RBI to extend this period. This period can be
extended for a further period of 90 days, in case of non-
shipment of goods within 180 days. The extension can be done
provided the banks are satisfied that the reasons for extension
are due to circumstances beyond the control of the exporters.
Pre-shipment credit may be given for a longer period upto a
maximum of270 days, if the banks are satisfied about the need
for longer duration of credit.
Rate of Interest:-The interest payable on pre-shipment finance
is usually lower than the normal rate, provided the credit is
extinguished by lodging the export bills on remittances from
abroad. If the exporter fails to do so they would not be able to
avail concessional rate of interest.
In order to avail the packing credit; exporters are expected to
make a formal application to the bank giving details of credit
requirements along with the required documents.
Advance Against Incentives
When the value of the materials to be procured for export is
more than FOB value of the contract, the exporters may get
packing credit advance more than the FOB value of the goods.
The excess of cost of production over the FOB value of the
contract represents incentives receivables. For example, when the
138
domestic price of goods exceeds the value of export orders, the
difference represents duty drawback entitlement. Banks can
grant ad-vances against duty drawback at pre-shipment stage
subject to the condition that the loan is covered by Export
Production Finance Guarantee of Export Credit Guarantee
Corporation (ECGC). This guarantee enables banks to sanction
advances at the pre-shipment stage to the full extent of cost of
production. The extent of cover and the premium are the, same
as for packing credit guarantee.
Pre-shipment Credit in Foreign Currency
This is an additional window to rupee packing credit scheme.
This credit is available to cover both the domestic and imported
inputs of the goods exported from India. The facility is
available in any of the convertible currencies. The credit will be
self-liquidating in nature and accordingly after the shipment of
goods the bills will be eligible for discounting/ rediscount-ing
or for post-shipment credit in foreign currency. The exporters
can avail this finance under the following two options.
i. the exporters may avail pre-shipment credit in rupees and,
then, the post-shipment credit either in rupees or in foreign
currency denominated credit or discounting/ rediscounting
of export bills.
ii. The exporters may avail pre-shipment credit in foreign
currency and discounting/ rediscounting of the export bills
in foreign currency.
PCFC credit will also be available both to the supplier units of
EPZ/ EOU and the receiver units of EPZ/ EOU. The credit in
foreign currency shall also be available on exports to Asian
Clearing Union (ACU) Countries. This will be extended only °!l
the basis of confirmed! firm export orders or confirmed L/Cs.
The Running Account facility will not be available under the
scheme.
Post-shipment Finance
It may be defined as “any loan or advance granted or any other
credit provided by a bank to an exporter of goods from India
from the date of extending the credit after shipment of goods
to the date of realisation ion of export proceeds. It includes any
loan or advance granted to an exporter on consideration of or
on the security of, any duty drawback or any cash receiv-ables by
way of incentive from the government.
While granting post-shipment finance, banks are governed by
the guidelines issued by the RBI, the rules of the Foreign
Exchange Dealers Association of India (FEDAI), the Trade
Control and Exchange Control Regulations and the Interna-
tional Conventions and Codes of the International Chambers
of Commerce. The exporters are required to obtain credit limits
suitable to their needs. The quantum of credit depends on
export sales and receivables.
Post shipment finance is granted under various methods. The
exporter may choose the type of facility as per his requirement.
The Banks scrutinise the documents submitted for compliance
of exchange control provisions like:
i. the documents are drawn in permitted currencies and
payment receivable as permitted method of payment;
ii. the relevant GR/PP form duly certified by the customs is
submitted and particulars as stated in the GR/PP form are
11.675.1
 consistent with the documents tendered as well as the sale
contract! firm order etc./ letter of credit;
iii. the documents are submitted within the time limit
stipulated and in case of delay suitable explanation is made;
iv. the period of usance is in consonance with the time limit
prescribed for realisation of export proceeds.
Let us now discuss various types of post-shipment finance.
1. Negotiation of Export Documents Under Letters of Credit
Where the exports are under letter of credit arrangements,
the banks will negotiate the export bills provided it is drawn
in conformity with the letter of credit. When documents are
pre-sented to the bank for negotiation under L/C, they
should be scrutinized carefully taking into account all the
terms and conditions of the credit. All the documents
tendered should be strictly in accordance with the L/C
terms. It is to be noted that the L/C issuing bank under-
takes to honour its commitment only if the beneficiary
submits the stipulated documents. Even the slightest
deviation from those specified in the L/C can give an excuse
to the issuing bank of refusing the reimbursement of the
payment that might have been already made by the
negotiating bank.
2. Purchase/Discount of Foreign Bills
Purchase or discount facilities in respect of export bills
drawn under confirmed export contracts are generally
granted to exporters who enjoy bill purchase/discounting
limits sanctioned by the bank. As the security offered by the
issuing bank under letter of credit arrangement is not
available, the financing bank is totally dependent upon the
credit worthi-ness of the foreign buyer. The documents,
under the Documents against Payment (DIP) arrangements,
are released through foreign correspondent only when
payment is received. Whereas in the case of Documents
against Acceptance (D/A) bills, documents are delivered to
the overseas importers against acceptance of the draft to
make payment on maturity. Since the financing banks are
open to the risk of non-payment, ECGC policies issued in
favour of exporters and assigned to banks are insisted
upon.
Under the policy, ECGC fixes limits and payment terms for
individual buyers and the financ-ing bank has to ensure that
the limit is not exceeded so that the benefits of policy are
avail-able. Banks also secure a guarantee from ECGC on the
post-shipment finance extended by them either on a
selective or whole turnover basis. Banks sometimes do
obtain credit reports on foreign buyers before they purchase
the export bills drawn on the foreign buyer.
3. Advance against Bills Sent on Collection
Post-shipment finance is granted against bills sent on
collection basis in the following situations:
i. when the accommodation available under the foreign
bills purchase limit is exhausted
ii. when some export bills drawn under L/ C have
discrepancies.
11.675.1
iii. where it is customary practice in the particular line of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
trade and in the case of exports to countries where
there are problems of externalisation.
Under the above situation, the bank may send the bill on
collection basis and finance the exporter to some extent out
of the total bill amount. The amount advanced will be
liquidated out of the export proceeds of the export bill and
the balance paid to the exporter.
Exporters may avail themselves on the forward exchange
facility where they do not wish to be subjected to exchange
risk on account of the new procedures for overdue export
bills.
4. Advance against Goods Sent on Consignment
Sometimes exports are effected on consignment basis. In
such condition payment is receiv-able to sale of goods.
Goods are exported at the risk of exporter for sale. The
banks may finance against such transaction subject to the
exporter enjoying specific limit for such purpose. The
overseas branch/ correspondent of the bank is instructed to
deliver documents against Trust Receipt.
5. Advance against Export Incentives
Advances against the export incentives are given at the pre-
shipment stage as well as the post-shipment stage.
However, the major part of the advance is given at the post-
shipment stage. The advance is granted to an exporter in
consideration of or on the security of any duty drawback
incentives receivable from the Government. The banks
follow their own procedure in granting the advance. The
most common practice is to obtain a power of attorney
from the exporter executed in their favour by the banks. It
is sent to the concerned government department like the
Director General of Foreign Trade, Commissioner of
Customs, etc. These advances are not granted in isolation. It
is granted only if all other types of export finance are
extended to the exporter by the same bank.
6. Advance against Undrawn Balances
In some of the export business, it is the trade practice that
the bills are not drawn for the full invoice value of the
goods. A small part of the bills is left undrawn for payment
after adjust-ments due to difference in weight quality, etc.
Advances are granted against such undrawn balances. In this
case the export proceeds must be realised within 90 days.
The advances are granted provided the undrawn balance is
in conformity with the normal level of balances left
undrawn subject to a maximum of 5% of the full export
value. The exporters are supposed to give an undertaking
that they will surrender the balance proceeds within 6
months from the date of shipment.
7. Advance against Retention Money
Banks grant advances against retention money, which is
payable within one year from the date of shipment. The
advances are granted upto 90 days. If such advances extend
beyond one year, they are treated as deferred payment
advance which are also eligible for concessional rate of
interest.
139
 8. Post-shipment Export Credit Guarantee and Export
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Finance Guarantee
Post-shipment finance given to exporters by banks through
purchase, negotiation or dis-count of export bills or
advances against such bills qualifies for this guarantee.
Exporters are expected to hold appropriate shipments or
contracts policy of ECGC to cover the overseas credit risks.
Export Finance Guarantee cover post-shipment advances
granted by banks to exporters against export incentives
receivable in the form of duty drawback, etc.
9. Post-shipment Credit in Foreign Currency
The exporters have the option of availing of exports credit
at the post-shipment stage either in rupee or in foreign
currency. The credit is granted under the Rediscounting of
Export Bills Abroad Scheme ( EBR) at LIBOR linked
interest rates. The scheme covers export bills with usance
period upto 180 days from the date of shipment.
Discounting of bills beyond 180 days requires prior
approval from RBI. The exporters have the option to avail
of pre-shipment credit and post-shipment credit either in
rupee or in foreign currency. If pre-shipment credit has been
availed of in foreign currency, the post-shipment credit
necessarily to be under the EBR scheme. This is done
because the foreign currency pre-shipment credit has to be
liquidated in foreign currency.
Exports under Deferred Payments
You have learnt that all export proceeds must be surrendered to
an authorised dealer within 180 days from the date of ship-
ment. Exporters are required to obtain permission from the
Reserve Bank through authorised dealers in the event of non-
realisation of export proceeds within the prescribed period.
However, realising the special needs of exports of engineering
goods and projects, Reserve Bank has formulated special
schemes permitting deferred credit arrangements. This will
enable realisation of export proceeds over a period exceeding six
months. Hence, contracts for export of goods and services
against payment to be secured partly or fully beyond 180 days
are treated as deferred payment exports. The credit extended is
termed as deferred payment term credit.
For financing under deferred credit system a single point
approval mechanism within a three tier system operates.
This system includes:
i. Commercial banks who are authorised dealers in foreign
exchange in India, can provide in principle clearance for
contracts valued upto Rs. 25 crores. They can avail refinance
from EXIM bank.
ii. EXIM bank is empowered to give clearances for contracts of
value of above Rs. 25 crores and upto Rs. ) 100 crores.
iii. A working group considers proposals of contracts of value
beyond Rs. 100 crores. The working group consists of
representatives of all the above institutions to provide
single window clearance.
Deferred credit facility is normally allowed only for export of
engineering goods, turnkey projects involving rendering of
services like designing, civil construction and erection and
140
commissioning of plant or factory alongwith supply of
machinery, equipment and materials. Project exports eligible for
export finance are as follows:
i. Turnkey projects: These projects involve supply of
equipment alongwith related services like design, detailed
engineering, civil construction, erection and commissioning
of plants, etc.
ii. Construction projects: involve civil works, steel structural
works as well as associated supply of construction materials
and equipment.
iii. Technical and consultancy service contracts involve
provision of personnel, furnishing of knowhow, skills,
operation and maintenance services and management
contracts.
These services include:
a. Engineering services contracts involve supply of services
such as design, erection, commissioning or supervision of
erection and commissioning.
b. Consultancy services contracts involve preparation of
feasibility studies, project reports, preparation of designs
and advice to the project authority on specifications for
plant and equipments.
Deferred Credit Facilities
Export of goods on deferred payment terms can be financed
under suppliers credit or buyer’s credit. Let us first understand
what they are,
Supplier’s Credit: The exporter extends credit directly to the
overseas buyer and seeks refinance from commercial banks/
EXIM bank.
Buyer’s Credit: It is a loan extended by a financial institutions
or a consortium of financial institutions to the overseas buyer
for financing a particular contract. Let us discuss buyer’s Credit
in detail.
Under this scheme, credit is granted by EXIM Bank jointly with
an authorised dealer to foreign buyers in connection’ with
export of capital goods and turnkey projects from India. The
exporters are paid out of the buyer’s credit on a non-recourse
basis on their complying with the terms of the export contracts
to be financed under the scheme. Before the exporter enters into
any contract providing for credit terms to be financed under
buyer’s credit scheme, they should have detailed discussion with
the bankers. While considering proposals under the scheme, the
following factors are taken into account by EXIM Bank:
i. competence and capability of Indian exporters in complying
with the proposed commercial terms of the contract;
ii. justifiability of the contract on commercial considerations;
iii. economic viability of the overseas projects concerned of the
importer and general economic conditions of his country~
iv. credit worthiness of foreign borrower.
Reserve bank’s permission is also required for the purpose of
granting credit under the scheme since payment will have to be
made to the exporter on behalf of non-resident buyer. The
authorised dealer in Form DPX 6 should make application to
the Reserve Bank for the purpose.
11.675.1
Export Import Bank of India: Pre- shipment
Export Credit in Foreign Currency
In addition to the pre- shipment credit in foreign currency
granted by the commercial banks, the Export- Import Bank of
India (EXIM Bank) also offers the facility of pre- shipment
export credit in foreign currency to only specified categories of
the exporters unlike the PCFC offered by commercial banks to
all categories of the exporters. The specified categories of
exporters are as follows:
a. Export House/Trading House with annual export turnover
exceeding Rs 10.00 crores.
b. Manufacturing units with minimum export orientation of
25% of pro-duction or export turnover exceeding Rs. 5
crores, whichever is lower. For this purpose only physical
exports of commodities are taken into ac-count. Such
exports could be made either directly or through Trading
Houses.
c. The exporter should have satisfactory.
The Export Import Bank of India provides this facilities to the
exporters through commercial banks. Such credit is granted to
pay for the import of inputs required for export production.
This credit is granted on the basis of the firm export order or
the letter of credit.
Salient Features
The salient features of this scheme are as follows:
1. EXIM Bank raises short-term foreign currency funds on a
revolving basis from one or more Syndicates of overseas
lenders. Such funds are then made available by the EXIM
Bank to the commercial banks in India who opt to avail of
PCFC for on-lending to eligible exporter customers for
import of eligible items. The commercial banks will, in
turn, allocate PCFC limits to their customers on the basis
of their assessment of import requi.rement for export
production. The advances granted under PCFC to the
exporters is fully liquidated from the export proceeds of the
relative export bill.
2. The maximum period of an advance under PCFC will not
generally exceed 180 days.
3. The applicable rate of interest on credit available to the
exporter will be two per cent over and above the interest rate
at which the funds are raised by the EXIM Bank. Exporters
may also have to pay management fee, commitment, fee,
etc, if applicable.
4. The repayment of the pre-shipment credit will be made out
of sale pro-ceeds of export shipment in respect of which
the exporter availed of the facility.
Role of Export Import Bank of India
Export-Import Bank of India was set up in 1982, for the
purpose of financing, facilitating and promoting foreign trade
of India. It is the principal financial institution in the country
for coordinating working of institutions engaged in financing
exports and imports. The major functions of EXIM bank are
as follows;
Finance: The present focus of EXIM Bank is on export
finance. The Bank finances export of Indian machinery,
11.675.1
manufactured goods, consultancy and technology services on
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
deferred payment terms. Exim Bank finance is also available at
export production stages.
Services: EXIM Bank provides information, advisory services
to enable exporters to evaluate the international risks, export
opportunities and competitiveness.
Research & Analysis: Research & Analysis carried out on
specific industry sub sectors with export potential, and interna-
tional trade related subjects are provided to exporters. Look at
Table 7.1 where details of various programmes offered by the
EXIM Bank have been shown.
Table 7.1 lending and service programmes of EXIM Bank
Programme Use
For Indian Entities Enables Indian exporters to extend term
Export (Supplier's) Credit credit to Overseas importers, of eligible
Indian goods
Financing of Rupee Enables companies to meet cash flow deficits
of projects being executed overseas on cash
Expenditure for projects
Export Contracts payment terms
Finance for Consultancy And Enables Indian exporters of consultancy and
Technology Services technology services to extend term credit to
overseas Importers
Pre-shipment Credit Enables Indian exporters to buy raw material
and other Inputs for export contracts
involving cycle time exceeding six months.
Finance for Deemed Exports Enables Indian Companies to meet cash flow
deficits of contracts secured in India and
financed by multilateral funding agencies.
Foreign Currency Pre-shipment Enables eligible exporters to access finance
credit for import of raw materials and other inputs
needed for export Production
Finance for EOU's & Units in Enables Indian companies to acquire
EPZs indigenous and imported machinery and
other assets for export Production
Foreign Currency Lines of Credit Enables eligible export-oriented units to
for imports acquire imported machinery for export
production.
Export Vendor Development Enables vendors of export-oriented units to
Finance acquire plant & machinery and other assets
for increasing export capability
Export Product Development Enables Indian firms undertake product
Finance development, R & D for exports.
Overseas Investment Finance Enables Indian promoters to finance equity
contribution in joi nt ventures/ WOS set up
abroad.
Software Training Institutes Enables setting up of institutes for software
training.
Marketing Finance Enables exporters to implement market
development Programmes and finances
productive capabilities through loan
financing.
Production Equipment Financ e Enables eligible export-oriented units to
acquire equipment.
Services Enables Indian exporters to raise finance
Underwriting from capital markets through public/ rights
issues of equity shares/ debentures with the
backing of EXIM Bank's underwriting
commitment.
Forfaiting Enables Indian exporter to convert credit sale
to cash sale on without recourse basis.
Enables Indian companies to provide
requisite guarantees to facilitate execution of
export contracts and import transactions
Guarantee Facility Enables Indian companies to provide
requisite guarantees to facilitates execution of
export contracts and import transactions.
L/C Confirmation Confirmation of L/Cs covering import of
capital goods
141
 permitted to provide International Export Factoring. In this
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Project preparatory services Enables Indian Consultancy firms undertake
Overseas project preparatory studies in developing system, the exporter enters into an export factoring agreement
countries by grant/loan financing.
Business advisory & Technical Enables Indian consultancy firms undertake
with exporter’s factor. The exporters ship goods to approved
Assistance Services overseas specific assignments in select countries foreign buyers. Each invoice is made payable to a specific factor
through grant financing in the importer’s country. Copies of invoices and shipping
Cooperation Arrangement with Enables Indian consultants secure documents are sent to the Importer’s factor. Exporter’s factor
African Management services assignments in various projects that are
Co.(AMSCO) Amsterdam managed by AMSCO in different parts of will make prepayment to the export against approved export
sub-saharan Africa through grant financing. receivables. On receipt of payments from the importer on due
Africa Enterprise fund Enables Indian Consultancy firms to date of invoice, importer’s factor remits the fund to the
undertake specific assignments to assist small
and medium entrepreneurs in Sub -Saharan exporter’s factor. The exporter’s factor pays to the exporter after
Africa. deducting the amount of prepayments.
Africa project development Enables Indian Consultancy firms undertake
Facility. specific assignments in Sub-Saharan Africa Forfaiting: Forfaiting refers to the non-recourse discounting of
through grant financing. export receivables. It is a mechanism of financing exports that
EC Investment partners Facility Enables setting up of joint ventures in India involves less risk and enhances international competi-tiveness.
between Indian companies and enterprises in
the European Community It converts a credit sale into cash sale for an exporter. In this
For Commercial banks Enables bank to offer credi t to Indian system forfaiting agency discounts international trade receivables
Refinance of Export credit exporters of eligible goods, who extend term of the exporter. The forfaiter pays the exporter in cash and
credit over 180 days to importers overseas.
undertakes the risk associated with the export deal. The exporter
Small scale industry Export Bills Enables bank to rediscount exports bills of
Rediscounting their SSI customers with usance not
surren-ders, without recourse to him, his rights to claim for
exceeding 90 days. payment on goods delivered to an importer.
Relending facility Enables banks overseas to make available
term finance to their clients for import of
All exports of capital goods and other goods made on medium
eligible Indian goods. to long term credit are eligible to be financed through forfaiting.
Refinance of Term Loans to Enables banks to offer credit to eligible In India, EXIM bank plays an intermediary role between the
EOUs export oriented units to acquire indigenous Indian exporter mid the overseas forfaiting agency. The exporter
and imported machinery and other assets for
export production. approaches EXIM bank for forfaiting transaction. The bank
Bulk Import Finance Enables banks to offer finance to importers receives bills of exchange or promissory notes from the
for bulk import of consumable inputs. exporter and sends them to the forfaiter for discounting.
Guarantee cum Refinance Enables banks to protect their own cash flow Subsequently, the bank arranges for the discounted proceeds to
Supplier’s Credit as also its Exporter client’s cash flow on
account of default by overseas buyer. Protects be remitted to the Indian exporter. The bank issues appropriate
the bank by not treating the advance as a certificates to enable Indian exporters to remit commitment fees
non-performing asset for provisioning
purpose.
and other charges. RBI has allowed Authorised dealers to
For Overseas Entities Enables overseas financial institutions, undertake forfaiting of medium term export receivables.
Lines of Credit foreign governments, their agencies to onlend
term loans to finance import of eligible goods Let Us Sum Up
from India. Export finance is provided at the pre-shipment and post-
Buyer’s Credit Enables overseas buyer to import eligible shipment stages. In India, the export credit facilities are
goods from India on deferred credit terms.
provided largely by commercial banks, RBI and EXIM banks
offer refi-nance. EXIM bank, in certain cases, participates with
Recent Developments in Export
commercial banks in extending medium and long-term credit to
Financing
exporters. In India, pre-shipment finance is offered in the form
As stated earlier, offer of attractive credit terms is a crucial factor
of(i) Packing credit (ii) Advance against incentives and (iii) Pre-
in winning export contracts. Hence, financial institutions are
Shipment Credit in Foreign Currency (PCFC). Packing credit
offering several innovative financial services to exporters. Some
facilities are provided to the exporters for making necessary
of these services are discussed below:
arrangements for executing export contracts. The basic purpose
Factoring: It is an attractive way of providing export finance to of packing credit is to enable the eligible exporters to procure,
exporters. In this system, factor bears the complete credit risk. process, manufacture or store the goods meant for export. It is
Who is a factor? A factor is a special type of agent who, extended on the strength of either the letter of credit or
depending upon the type of agreement, offers a variety of confirmed export contracts. Gener-ally the amount of packing
services. These services include coverage of credit risk, collection credit does not exceed FOB value of the export goods or their
of export proceeds, maintenance of accounts receivables and domestic value whichever is less. When the value of the
advance of funds. Purchase of receivables of its clients without materials to be procured for export is more than FOB value of
recourse is the most important service of the factor. A big the contract, the exporters may get the credit against the
advantage to the exporter is that it is without recourse financing. receivables export incentives. The pre-shipment finance is also
This means that the risk of non-payment by the importer is to made available in foreign currency.
be borne entirely by the factor.
The credit provided by a exporter after the shipment of goods
In India, International Export Factoring services on with is referred to the post-ship-ment credit. The quantum of credit
recourse basis have been approved by the RBI. It provides a depends on export sales and receivables. Various types of post-
new dimension to management of export receivables. SBI shipment credits are: (i) Negotiation of Export Documents
Factors and Commercial Services Pvt. Ltd., Bombay have been

142 11.675.1
under letter of credit (ii) Purchase/ discount of foreign bills (iii)

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

Advance against bills sent on collection basis (iv) Advance
against goods sent on consignment basis (v) Advance against
export incen-tives (vi) Advance against undrawn balances (vii)
Advance against retention money (viii) Post-shipment export
credit guarantee and export finance guarantee and (ix) Post
shipment credit in foreign clemency. Deferred credit facilities are
offered for export of engineering goods, turnkey projects and
consultancy projects.
Export Import Bank plays an important role in promoting
exports from India through its various financing schemes. It
refinances to commercial banks in respect of credit extended by
them to exporter, gives loans to Indian companies for financing
exports under deferred payment, provides lines of credit and
buyer’s credit to overseas entities. The bank also advises Indian
exporters on matters pertaining to terms of payment, export
financing, etc. Factoring and Forfaiting are the recent develop-
ments in export financing.
Terminal Questions
1. What is the purpose of extending packing credit to
exporters? Explain the procedures of packing credit.
2. What do you mean by pre-shipment finance? Enumerate
the methods of pre--shipment finance. Describe the
procedure of pre-shipment credit in foreign currency.
3. What is post - shipment finance? Explain various methods
of post-shipment finance.
4. Explain the procedures of export under Deferred payments.
5. Describe the role of Export Import Bank of India.
6. Write short notes on:
i. Pre-shipment Credit in Foreign Currency
ii. Post-Shipment Credit in Foreign Currency
iii. Buyer’s Credit
iv. Factoring
v. Forfaiting
7. State whether following statements are True or False.
i. Generally the amount of packing credit will not exceed
FOB value of the export goods or domestic value
whichever is less.
ii. Banks are authorized to extend packing credit for a
further period of 180 days.
iii. Pre-shipment credit in foreign currency can not be
granted on exports Asian Clearing union countries.
iv. Whenever exporter wants he can avail the post
shipment advance against bills sent on collection basis.
v. Advances against the export incentives are given at the
pre-shipment stage as well as the post shipment stage.
Answers
(i) true (ii) false (iii) false (iv) false (v) true.

11.675.1 143
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 19:
PROCESSING OF AN EXPORT ORDER
• Objectives
• Introduction
• 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
• Excise Rebate
• Duty Drawback
• Let Us Sum Up
• Terminal Questions
Objectives
After studying this unit, you should be able to: .
• describe different stages, preparation and processing of
documents for pre-shipment andpost-shipment formalities
• explain specific points to be examined while confirming the
receipt of the export order
• explain documentary requirements for obtaining excise and
customs clearance of export cargo
• describe formalities for c1aiming major export incentives
• enumerate documents to be submitted to the Bank.
Introduction
You have learnt the regulatory framework of foreign trade, the
export sales contract the range of documentation formalities in
export- import trade and Electronic Data Interchange System in
Units 1.2,3 and 4. An export exercise is concluded successfully
after the exporter has been able to deliver the consignment in
accordance with the export contract and receive payment for the
goods. In this unit you will learn various steps involved in the
processing of an export order at per- shipment, shipment and
post- shipment stages. You will also learn various formalities
of claiming export incentive.
Nature and Format of Export Order
Processing of an export order starts with the receipt of an
export order. An export order may !,e 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 instru-
ment evidencing the conclusion of a contract.
144
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 pay-
ment, 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 exam-
ined 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.
11.675.1
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..
Manufacturing or Procuring Goods
Every export firm has devised internal procedures to suit
specific requirements for ensuring production or procurement
of goods, packing, marking and labelling, and dispatching to
the port for shipment. A systematic approach to these activities
could be to send a delivery note, in duplicate to the production
department. In the case of a merchant- exporter, the marketing
department may send a: similar document known as purchase
order.
Specific instructions are given on the above-mentioned docu-
ment to the production/procurement department for
undertaking production and transport activities. Besides
mentioning the time period within which these activities are t9
be completed, delivery note/purchase order may give such
details as: product specification, quantity required, packing,
marking and labelling requirement, excise clearance requirement,
intimation to transport department if any. The marketing or
export department should also instruct the production/
procurement department to retain one copy of the delivery
note/ purchase order and confirm the delivery (i.e., transporta-
tion to the port) on the duplicate copy.
The purchasing, processing manufacturing and packing of
goods for exports are facilitated by the packing .credit facility
given by the commercial banks in India. Under the export credit
(interest subsidy) scheme, the Reserve Bank of India enables
the commercial banks to extend pre-shipment and post-
shipment credit to exporters manufacturers, as well as merchant
exporters.
Pre- shipment credit is given to an exporter to fiancé working
capital needs for purchase of raw materials, processing them
11.675.1
and converting them into finished goods for the purpose of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
exports. This facility is accorded on the basis of either the letter
of credit or the confirmed export order or any other evidence of
the order. The rate of interest charged is concessional one.
Banks also grant post- shipment credit to bridge the time- gap
between. the shipment of the goods and the realisation of sale
proceeds.
Packing credit advances are normally granted on secured basis,
which may mean collateral security through a third party
guarantee or mortgage of immovable property. Once the goods
have been acquired they are to be hypothecated. The banks have
evolved their own docu-mentation and procedural systems for
granting the credit. Generally, following disbursement proce-
dure is followed:
i. The exporter hands over the export order letter of credit to
the bank, which will accept it and affix a rubber stamp on it
reading ‘export finance granted’.
ii. The bank will calculate the drawing power of the exporter
on the basis of a number of factors, including the value of
export order/letter of credit.
iii. Funds will be released by debiting to the packing credit
account and credit to exporter’s account.
iv. Goods will. generally be required to be sent through the
approved transport agencies and forwarding agents.
v. Goods will be suitably insured while in the warehouse and
in transit.
On the basis of the laid down procedures, the exporter will
approach the bank for the pre-shipment credit. This credit is
granted to enable the reporter to manufacture/ procure and
pack the goods for shipment overseas.
Central Excise Clearance
The Central Excise and Salt Act of India and the related rules
provide the refund of excise duty paid. This also provides
exemption from the payment of excise duty both on the final
export production and inputs used in the manufacture of
export products, popularly known as rebate in excise duty. The
documents used are Invoice and AR4/ AR5 forms.
As soon as goods are ready for dispatch to the port for
shipment, the production depart-ment of export firm is to
apply to the central excise authority for excise clearance of the
goods.
The exporters prepare six copies of AR4/AR5 forms. The
exporters are now allowed to remove the goods for export on
their own without getting the goods examined or after the
examination by the Central Excise Officers. In case of without
examination, exporter submits 4 copies of 1):R4 /ARS form to
the superintendent of Central Excise having Jurisdiction over
the premise of the exporter within twenty-four hours of the
removal of the consignment. The Superintendent examines the
AR4/AR5 form and having being satisfied, signs the form and
return it to the concerned persons.
Sometimes the exporter desires sealing of the goods by the
Central Excise Officers so that the custom officers at the port of
shipment may not examine the export goods. hi such case, the
exporter submits AR4/ AR5 forms in sixtuplicate to the
145
 superintendent of Central Excise having jurisdiction over the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
premises of the exporter. The superintendent may depute an
inspector of Central Excise or may himself go for selling and
examination of export cargo. After be is. satisfied, he allows the
clearance of cargo.
Pre-shipment Inspection
Government of India notifies, from time to time, a number of
goods whose export is subject to compulsory quality control or
pre- shipment inspection. Consequently, the Indian customs
authorities will require the submission of an inspection
certificate issued by the designated. agency bef6repermitting the
shipment to take place. The basis of inspection is usually the.
importer’s specification, except in the case of export of goods
involving safety or health hazards, where notified minimum
standards are enforced.
Inspection of export goods may be conducted under
1. Consignment-wise Inspection
2. In-process Quality Control and
3. Self-Certification
Let us discuss consignment-wise inspection. Before the excise
authorities seal packs, the process of pre-shipment inspection
must be completed. The production department is to apply to
the, Export Inspection Agency for nominating an inspector for
conducting examina-tion of the export goods. The application
is to be made on a prescribed form known as Notice of
Inspection and submitted to the Agency with the following
documents:
I. A copy of the commercial invoice
II. Crossed cheque of demand draft as inspection fee
III. A copy of export contract
IV. Importer’s technical specifications and/or approved sample.
After the inspector has completed inspection, the Export
Inspection Agency will issue the Inspection Certificate in
triplicate. The original certificate is for the customs verification.
It is submitted to the customs authorities, along with other
documents, before permission to ship goods is granted. The
second copy may be sent to the buyer, if needed. The third copy
is for the exporter’s record.
Appointment of Clearing and Forwarding
Agents
Clearing and forwarding agents, also known as freight forward-
ers, perform a number of functions on behalf of the exporter.
They provide specialised help in the exporter’s ware-house to
the importer’s warehouse by undertaking the procedural and
documentary formali-ties. lie helps in packing, marking and
labelling of consignment, arrangement for transport to the
port. arrangement for shipment overseas, and customs clearance
of cargo, procurement of transport and other documents.
However, the main function of the agent is to obtain customs
clearance of goods, ship them and procure the relevant trans-
port document (Bill of Lading or Airway Bill). For performing
the desired functions, the exporter is required to give detailed
instructions to his agent, who in turn will charge fee for these
activities. On completion of the process of clearance by the
excise authorities as well as obtaining the Inspection Certificate,
146
the production department despatches the consignment to the
port of shipment by either road or rail. Information to this
effect is sent to the export department by signing the Delivery
Note or by preparing a Dispatch Advice alongwith the follow-
ing documents:
a. Railway Receipt or Lorry Way Bill
b. Invoice
c. A R4/ A R5 form ( Original and Duplicate)
d. Inspection Certificate (Original)
On receipt of these documents, the export department will
appoint a clearing and forwarding agent by signing and sending
a document, generally known as Shipping Instruction Sheet or
simply the Shipping Instructions. This document contains full
details of instructions of the exporter as well as details or the
consignment to be shipped. Alongwith this document,
following documents will be sent to the agent:
a. Commercial Invoice (Generally 8-10 copies with at least one
completed)
b. Customs Declaration Form in Triplicate (This is a legal
requirement whereby the exporter states that the
declarations made to the customs authorities by the agent
on his behalf are true)
c. Packing list, if needed
d. Original Letter of Credit/Contract
e. Inspection Certificate (Original)
f. GR Form- Original and Duplicate (it is a foreign exchange
declaration form)
g. AR4/AR5 form (Original and Duplicate) Invoice
h. Railway Receipt/lorry Way Bill
Transpotation of Goods to Port of
Shipment
You have already learnt the documents relating to transporta-
tion of goods to the port of shipment. Transportation and
movement of goods to the port for shipment involve follow-
ing activities:
• Packing, marking and labelling of consignment
• Arrangement for movement of goods either by road or by
rail.
An export-worthy packing helps in minimising freight and
delivery costs. It also eliminates the possibility of the insurance
company’s refusal to pay a claim in the event of a loss or
damage to goods in transit. If there are specific instructions on
packing in the export con-tract, these must be followed. After
the goods are packed, the packages are to be properly marked
and labelled. Proper marking helps in quick and safe transporta-
tion of goods. Mark-ing serves the purpose of identification of
goods, handling, shipping and delivery of goods upto the
importer. Labels are either stencils or affixed on the packs which
contain handling instructions. These labels are usually in the
pictorial form for easy understanding of the instructions.
After the production department has completed the excise
clearance and pre-shipment inspection formalities, the export
goods are packed, marked and.’ labelled. At the same time. the
export department takes steps to reserve space on the ship
11.675.1
through which goods are to be sent. Shipping space can be
reserved either through the clearing and forwarding agent or
freight broker who work on behalf of the shipping company or
directly from the shipping company. After the space has been
reserved, the shipping company will issue a document known
as Shipping Order. This document serves as a proof of space
reservation.
Information on space reservation is given to the production
department for making transport arrangements to the port.
Where the consignment is sent through a road carrier, no
specific formality is involved. The production department
engages a reliable carrier and books the consignment to the port
(generally in the name of the clearing and forwarding agent).
Lorry! Truck receipt is issued which is sent, alongwith other
documents, to the clearing and for-” warding agent at the port
town for taking delivery of the cargo.
However, for sending cargo by rail, laid down procedure is to be
followed for obtaining allotment of wagon on a priority basis
under a scheme of the Railway Board. According to this
scheme, wagons are allotted on the priority basis for carrying
export goods to the port town for sh1pinent. Following
documents are submitted to the booking railway yard/Station.
1 Forwarding Note (A railway document)
2 Shipping Order (as proof of reservation of shipping space)
3 Wagon Registration Fee Receipt
After wagons have been allotted, goods are loaded, for which
railways will issue Railway Receipt (RR). This receipt, alongwith
other documents, is sent to the clearing and forwarding agent at
the port town. At this stage, the production export department
makes an application to the insurance company for insurance
cover (internal as well as overseas) and’ obtains insurance
policy/certificate in duplicate with appropriate risk coverage.
Port Formalities and Customs Clearance
On receipt of the documents sent by the export department,
the clearing and forwarding agent takes delivery of the cargo
from the railway station or the road transport company and
arranges its storage in the warehouse. He also initiates action to
obtain customs clearance and permission from the port
authorities to bring cargo into the shipment shed.
The objectives of customs control are:
a. to ensure that the goods go out of the country after
compliance with different laws concerning export trade
b. to ensure authenticity of value of export goods to check
over/under invoicing
c. to correctly assess and collect export duty, if applicable
d. To compile data on cargo movements.
For complying with these objectives, the customs grant
permission for export at two stages. Firstly, documentary checks
are made at the office of the customs (i.e. Customs House).
Secondly, physical examination of goods is made in the
shipment shed to verify that the goods being exported are the
same as have been declared on the documents submitted at the
Customs House. The document on which customs give
clearance for export is the Shipping Bill.
11.675.1
The clearing and forwarding agent is to file following docu-
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
ments with the Customs House:
a. Shipping Bill (4-5 copies)
b. Contract! correspondence leading to the contract (Original)
c. Letter of Credit, where applicable (Original)
d. Commercial Invoice (one for each of the shipping Bill)
e. GR Form (Original and Duplicate)
f. Inspection Certificate (Original)
g. AR 4/ AR 5 Form (Original and Duplicate)
h. Packing list, if needed
i. Any other document needed by the customs
The Customs Appraiser/Examiner examines these documents
and appraises the value having regard to the following consider-
ation:
1. That the value and the quantity declared in the shipping bill is
the same as in the export order or letter of credit.
That the formalities regarding exchange control, pre- shipment
quality control inspection etc. have been duly completed. After
examination of documents and appraisement of value, the
Customs Examiner/Appraiser makes an endorsement on the
duplicate copy of the shipping Bill. He also gives directions to
the Dock Appraiser about the extent of physical examination
of the ‘cargo to be conducted at the Docks. All the Documents,
except GR (original) Form, the original Shipping Bill and a copy
of the Commercial Invoice are returned to the Forwarding
Agent to be presented to the Dock Appraiser.
After taking delivery of documents from the Export Depart-
ment, Forwarding Agent Presents the Port Trust Document to
the Shed superintendent of the port. He obtains carting order
for bringing the export cargo to the transit shed for physical
examination by the Dock Appraiser and for their shipment.
After bringing the cargo into the shed he presents the following
documents to the Dock Appraiser for conducting physical
examination of the cargo.
1. Duplicate, triplicate and export promotion copies of the
shipping Bill Commercial Invoice
2. Packing List
3. AR 4 /AR 5 form (original and duplicate) and Invoice
4. Inspection Certificate (Original)
5. GR Form (Duplicate)
The Dock Appraiser after conducting physical examination
records examination report and makes “Let Export” endorse-
ment on the duplicate copy of the Shipping Bill. He hands it
over to the forwarding Agent alongwith all other documents to
be presented to the preventive officer of the customs depart-
ment who supervises the loading of cargo on board the vessel.
The preventive officer makes an endorsement “Let ship” on the
duplicate copy of the Shipping Bill. The duplicate copy of the
Shipping Bi\! is then handed over to the agent of the shipping
company. This constitutes an authorisation by the customs to
the shipping com-pany to accept the cargo on the vessel.
After the goods are loaded on board the vessel, the captain of
the ship issues a receipt known as ‘Mate’s Receipt’ to the Shed
147
 Superintendent of the port. The forwarding agent then makes a
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
payment of the port charges and takes delivery of the Mate’s
Receipt. He presents the Mate’s Receipt first to the preventive
officer who records the certificate of shipment on all the copies
of the shipping Bill, original and duplicate copies of AR4/ AR5
form. He returns the Export promotion copy, a copy of
Drawback shipping Bill and presents the Mate’s Receipt to the
shipping company and requests it to issue the Bill of Lading
(2/3 negotiable and a few non-negotiable as required).
Dispatch of Documents by Forwarding
Agent to the Exporter
After obtaining the Bill of Lading from the shipping company,
the agent sends the following documents to the exporter.
a. One copy of the Commercial Invoice duly attested by the
customs
b. Export promotion copy of Shipping Bill
c. Drawback copy of Shipping Bill
d. Full set of ‘Clean On Board Bill of Lading’ together with
non- negotiable copies
e. Original letter of credit! contract order Copies of Customs
Invoice, if any
f. AR 4/ AR 5 (Duplicate) and Invoice
g. GR Form (Duplicate).
Certificate of Origin and Shipment
Advice
On receipt of the above documents, the exporter makes an
application to the chamber of commerce and obtains a ‘Certifi-
cate of Origin ‘ in duplicate. Incase of export shipment to
countries offering GSP concession, the GSP Certificate of
Origin will have to be procured by the exporter from the
concerned authority like Export Inspection Agency.
The exporter then sends. ‘Shipment Advice’ to the importer
intimating the date of shipment of the consignment by a
named vessel and its expected time of arrival (ETA) at the
destina-tion port. The following documents are also sent
alongwith the shipping advice so that the impol1er may start
making arrangements for taking delivery of the consignments.
a. A non- negotiable copy of the Bill of Lading
b. Commercial Invoice
c. Packing List
d. Customs Invoice
Presentation of Documents to Bank
The exporter presents the following documents to the bank for
negotiation/ collection:
a. Commercial invoice (Requisite number of copies) Certificate
of Origin (two copies
b. Customs Invoice (Requisite number of copies) GR Form
(Duplicate)
c. Packing List (requisite number of copies)
d. Full set of Clean-on-Board Bill of Lading (Negotiable plus
Non- negotiable copies as required)
e. Additional copies of the Commercial Invoice for
Certification by the Bank
148
f. Original Letter of Credit/Export Contract
g. Bank Certificate in the prescribed form in duplicate
h. Marine Insurance Policy/Certificate
i. Bill of Exchange
Claiming Export Incentives
You have learnt the processing of an export order at pre-
shipment, shipment and post shipment level. Let us now
discuss the process of claiming export incentives.
• Excise Rebate
After completing the post-shipment formalities, the clearing
and forwarding agent will file the following documents
with the Maritime Central Excise Collector or Jurisdictional
Assistant Collector of Central Excise for claiming the
refund of excise duty or for obtaining release from bond, as
the case may be.
a. AR4/ AR5 Form (Duplicate copy), which has been
certified by the customs preventive officer
b. Non-negotiable copy of the Bill of Lading and lor
shipping Bill certified by the customs preventive officer
Additional documents to be submitted for claiming
refund excise duty are: (a) Application for Refund in
Form C and (B) Pre-receipt
• Duty Drawback
For claiming Duty Drawback, the exporter’s agent will me
the customs attested copy of the Drawback Shipping Bill,
alongwith the following documents, with the Drawback
Department of the Customs House.if
a. Drawback Claim proforma (prescribed application form
in five copies)
b. Bank or Customs Certified copy of Commercial Invoice
c. Non-negotiable copy of Bill of Lading
d. Any other specifically prescribed document.
After finding the claim to be correct, the Drawback Department
will dispatch the cheque of the claim amount to the exporter.
Alternatively, if the exporter so desires, this amount will be sent
to the exporter’s bank for being credited to his account with
intimation to the exporter.
Let Us Sum Up
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
specifica-tions, terms of shipment and payment and submis-
sion 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 under-
taken 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
11.675.1
number of factors and grants credit to the extent determined by Q2. What are the documents needed for i) Central Excise

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

the value of the confirmed export order. The credit amount is Clearance and ii) Securing Inspection Certificate?
used for manufacturing! procuring and packing goods Q3. Describe the process of preparing goods for exports and
The clearance from the central Excise authorities is needed so their transit to the port of shipment.
that the exporter can get rebate in the central excise duty paid/ Q4. What are the supporting documents to be submitted
payable on the exported goods. For this purpose, AR4/ AR5 alongwith the shipping Bill for getting customs
Form and Invoice are to be completed. Clearance is completed permission for exports?
when the certified AR 4/ AR 5 (Original and Duplicate) is given
Q5. What are the three stages at which customs permission to
to the production department.
export is obtained?
The production department also applies to the Inspection
Q6. Make a flow chart of processing of an export order upto
Agency for obtaining inspection certificate. This certificate is
the shipment stage.
issued when the inspector visits the factory/ warehouse and
examines the goods. The original Inspection certificate will be Q7. What documents are required to be submitted to the
required to be submitted to the customs authority for obtain- bank after goods have been delivered to the carrier?
ing permission to ship goods. Q8. Describe ,the formalities for claiming duty Drawback.
Export goods are sent to the port town either by road or by rail. Some Useful Books
The Indian Railways accord priority in allotment 6fwagons Export Import Policy, Ministry of Commerce, Government of
needed for moving export consignments, for which the India (Recent Edition), New Delhi.
essential requirements is to first reserve space on the ship. Space N. Janardhan, Electronic Commerce, Indian Institute of
reservation may be done either through the freight broker or Foreign Trade (Recent Edition), New Delhi.
the clearing and forwarding agent. The proof of space reserva-
tion is the shipping order. Nabhi’s Exporters Manual and Documentation, A Nabhi
Publication (Recent Edition), New Delhi.
At the port two formalities are to be completed. The first is to
obtain permission from the port authority to bring cargo inside Nabhi’s New Import Export Policy, A Nabhi Publication
the shipment shed. The second formality is to obtain permis- (Recent Edition), New Delhi. Ram Paras, Export-What, Where,
sion from the customs authority to export the goods. The How (Recent Edition), Anupam Publisher, Delhi.
customs permission is granted at three stages- documentary
deara’1ces, 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 docu-
ments with the Customs House. After appraising the value of
the goods, the concerned customs officer notes down instruc-
tions 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, documenta-tion
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.
Terminal Questions
Q1. Describe the steps involved in the receipt, examination
and confirmation of an export order.

11.675.1 149
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 20:
EXPOR T ASSISTANCE IN INDIA
• Objectives
• Introduction
• Importance of Export Assistance
• Export Promotion Measure in India.
• Expansion of Production Base for Exports.
i. Relaxation in Industrial Licensing Policy/MRTP/
FERA/Foreign Collaborations
ii. Liberal Import of Capital Goods
iii. Export Processing Zones (EPZ), Export Oriented
Units (EOU), Special
iv. Economic Zones (SEZs), Electronic Hardware
Technology Parks (EHlTP) and Software Technology
Park Units (STP)
v. Assured Supply of Raw-Material’ Imports
vi. Eligibility for Export/Trading/Star Trading/Super Star
Trading Houses
vii. Export Houses Status for Export of Services
• Rendering Exports Price-Competitive
i. Fiscal Incentives
ii. Financial Incentives
• Strengthening Export Marketing Effort
• Let Us Sum Up
• Answers to Check Your Progress
• Terminal Questions
Objectives
After studying this unit, you should be able to :
• explain the importance of export assistance in India
• describe various assistances provided for the expansion of
production base for export . explain the fiscal and financial
assistances provided to the exporters
• describe the measures taken by the Government of India to
strengthen the export marketing - effort.
Introduction
The Export-Import policy 1992-97 brought about many
fundamental changes -in India’s external trade policy. It
gradually laid the foundation of globalisation ‘of Indian
economy by initiating liberalization and making Indian
industries to face competition from foreign MNCs. Until 1992,
Indian markets were highly protected and the Indian govern-
ment used to give many incentives to the Indian exporters. But
many6f these incentives were’ withdrawn by the 1992-97 and
subsequent policies.
Importance of Export Assistance
Export promotion was accorded a very low priority during the
initial progmmme of economic development in India. During
the 1950s and almost up to mid 1960 export-promotion was
150
not at all considered as an essential element in India’s economic
development process. Easy and adequate availability of external
assistance from World Bank and other international agencies as
well as developed countries has provided India with more than
adequate amount of foreign exchange for financing develop-
ment as well as essential imports. Hence, the urgency of earning
foreign exchange through expanding exports was not there. In
addition, because of the large size of the domestic market in
India, ‘import substitution’ rather than the’ export promotion’
was considered as a more useful strategy for India’s economic
development process. Similarly during the period of the First
Three Five year plans over 1950-51 to 1965--66" Indian
economy was in a formative stage. Consequently India’s capacity
to export manufactures or industrial products was extremely
limited. Hence, on this account as well, India could not look at
international markets especially because of her extremely limited
capacity to offer supplies of- industrial products.
However after 1965-66, the aid flows to India were substantially
reduced. Consequently, for the first time India was made to
depend significantly on her exports for acquiring foreign
exchange to meet her needs of essential imports. Moreover, by
the second-half of 1960s, a number. of industries especially in
the engineering, chemicals, leather, marine and other sectors
have reached a stage from where they were looking for an
opening in international market.
Government of India had therefore, considered it as appropri-
ate to lay emphasis on the need for export promotion so as to
enable the country to meet the’ need of imports. Fortunately, it
received an encouraging response from the industrial sector
which was also looking for international markets. Over the last
couple of decades export promotion has assumed critical
importance in Indian economy. Export growth has become the
main determinant of economic growth in India. The process
of globalization and liberalization has further enhanced the
need of strengthening the support of export-import trade
business of the country. Moreover, with the increasing burden
of debt-servicing on the one hand and the situation of aid-
fatigue on the other, exports have now emerged as the only
viable source of meeting the foreign exchange needs of Indian
economy. Hence, the feasibility of financing almost entirely
depends upon the growth in Indian export. It may, therefore,
be ,stated that the future eco-nomic growth in India is insepara-
bly linked with growth in Indian exports. Hence, export,
promotion is being an overriding consideration in policy
formulation. Export promotion’ policy in India has three main
segments. They are as follows:
a. Policies for increasing Investment and production in export
sector.
b. Price-support measures for rendering exports more
competitive.
11.675.1
c. Measures for strengthening marketing effort by the export
sector.
Export Promotion Measure in India
The assistance extended to the Indian exporters are asunder :
Import Facilities for Exporters
a. Duty Free Replenishment Certificate (DFRC) :- DFRC
is issued to a merchant exporter or manufacturer exporter
for the duty free import of inputs such as raw materials,
components, intermediates, consumables, spare parts,
including packing materials to be used for export
production. Such licence is given subject of the Julfi1ment
of time bound export obligation.
b. Duty Entitlement Passbook Scheme (DEPB) :- Under
the DEPB scheme, an exporter may apply for credit as a
specified percentage of FOB value of exports, made in
freely convertible currency. The credit shall be available
against such export products and at such rates as may be
specified by the Director General of Foreign Trade (DGFT)
by way of public notice issued in this behalf, for import of
raw materials, intermediates, components, parts, packaging
materials, etc.
c. Export Promotion Capital Goods Scheme (EPCG) :-
EPCG scheme was introduced by the EXIM policy of 1992-
97 in order to enable manufacturer exporter to import
machinery and other capital goods for export production at
concessional or no customs duties at all. This facility is
subject to export obligation, i.e., the exporter is required to
guarantee exports of certain minimum value, which is in
multiple of tl;1e value of capital goods imported.
Duty Exemption Schemes
a. Duty Drawback (DBK) :- The Duty Drawback Scheme is
administered by the Directorate of Drawback, Ministry of
Finance. Under this scheme, an exporter is entitled to claim:-
• Customs duty paid on the import of raw materials,
components and consumables.
• Central excise duty paid on indigenous raw materials,
components and consumables utilized in the
manufacture of goods meant for export.
b. Excise Duty Refund :- Excise duty is a tax imposed by the
central government on goods manufactured in India. This
duty is collected at source, i.e., before removal of goods
from the factory premises. Export goods are totally
exempted from central excise duty. However, necessary
clearance has to be obtained in one of the following ways.
~ Export under rebate.
~ Export under bond:
c. Octroi Exemption :- Octroi is a duty paid on
manufactured goods, when they enter the municipal limits
of a city or a town. However, export goods are exempted
from octroi.
Fiscal Incentives
a. Exemption from Income Tax :- In order to enable
exporters to plough back their earnings and promote
exports, the Government of India has given tax exemption
11.675.1
to exporters on export earnings under section 80 HHC
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
provision of the Income Tax Act. For example, for the A.Y.
2002-03, 60% of the export income is exempted from tax.
At the same time, a ten year tax holiday is provided to
100% EOUs and units in EPZs.
d. Sales Tax Exemption :- Sales tax is a tax imposed by the
State government on goods sold in or outside India.
However, exportable goods are exempted from sales tax,
provided the exporter or his firm is registered with the Sales
Tax Authorities. This exemption is given on the following
categories of goods :-
• Goods exported.
• Goods purchased from the local market from export
purpose.
Marketing Assistance
a. Market Development Assistance (MDA) :- The
government of India has set up a separate fund under the
head Marketing Development Assistance (MDA) for
developing marketing abilities of Indian exporters. It is
granted by the Ministry of Commerce for export market
development and research abroad. The amount granted
under MDA varies from 25% to 60% of the actual
expenditure incurred.
b. Market Access Initiative (MAI) :- Under this scheme,
financial assistance is available to the export promotion
councils, C industry and trade associations and other eligible
entities on the basis of the competitive merits of proposals
received in this regard for undertaking marketing studies,
setting up of common showrooms, warehousing facility,
participation in sales promotion campaigns, publicity
campaigns, international trade fairs, seminars, buyers-sellers
meet, etc.
Supply of Raw Materials
a. Industrial Raw Material Assistance Centres (IRMAC)
Scheme :.IRMAC is established by the government of
India as,,-{i subsidiary of STC. Such centres import raw
materials in bulk and supply them to the registered
exporters against a valid import licence. This enables
exporters to get timely supply of raw materials at reasonable
prices, I~MAC has’ been further simplified- by removing
the actual user clause.
b. Back to-Back Inland Letter of Credit :- The facility of
Back-to-Back Inland letter of credit was announced by the
EXIM policy 1992-97 and came into effect from 1st April
1995. 13ack.to-back L/C is one, which can be opened In
favour of local suppliers of raw materials or goods so as to
enable exporters to got raw materials or goods for export
on credit basis. It is a kind of pre-shipment finance
procured by the exporter for the processing of export order.
Institutional Measures
a. Institutional Measures :- The Government of India
(GOI) has established a number of organisations to
promote and expand export trade. These organisations are:-
• Indian Institute of Foreign Trade (11FT) to provide
training facilities.
151
 • Indian Institute of Packaging (lIP) to upgrade,
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
packaging standards.
• Export Promotion Councils (EPCs) to undertake
export promotion activities.
• Export Inspection Council (EIC) to upgrade quality
standards.
• Export Credit Guarantee .-Corporation (ECGC) to
protect exporters against payment rises.
• Indian Council of Arbitration (ICA) to settle and solve
disputes between importers and exporters. Apart from
the above institutions, there are a number of other
organisations such as Federation of Indian Export
Organisation (FlEa), EXIM Bank, etc.
Expansion of Production Base for
Exports
The first prerequisite of export promotion policy is to ensure
larger exportable surpluses. In. other words, if a country wants
to exports more, it must have more to export. It will have more
to export only if more and more is produced for export. Hence,
it calls for increasing flow of production and investment
resources into the export sector.
Relaxation in Industrial Licensing Policy/MRTP/
FERA/Foreign Collaborations
With a view to facilitate relatively easier creation/expansion of
production capacities for increasing export potential of Indian
economic, necessary relaxations have been provided for in the
policies for industrial licensing, MRTP (Monopolies and
Restrictive Trade practices Act) and Foreign Exchange Regula-
tions, etc. The Foreign Exchange Regulation Act has been
liberalised and Foreign Exchange Management (FEMA) Act,
1999 has been operationalised. The rupee has been made fully
convertible for all approved external transac-tions. As a result,
exporters of goods and services and those who are in receipt of
remit-tances are able to sell their foreign exchange at market
determined rates. The importers and foreign travellers are also
able to buy foreign exchange at market determined rates.
Exporters have also been allowed to maintain foreign currency
accounts. There is general liberalisation of remittance of foreign
exchange for visits abroad, agency commission; export claims,
reduction in export value, reimbursement of expenses incurred
on dishonoured export bills, consular fees, etc. Consequently,
creation of additions of production capacities for export is
liberally allowed, both in the large-scale as well as small-scale
sectors. Foreign collaboration and foreign capital investment is
also liberally permitted for the export sector. 100% foreign
equity has been permitted to the units in EPZ/EOU/EHTP/
STP. All these policy measures are envisaged to go long way in
facilitating easy expansion as Well as technological up gradation
of export base in India through attracting larger flows of
investment and other resources.
Liberal Import of Capital Goods
Import policy of India has made specially liberal provisions for
easy import of capital goods of all types. Accordingly, imports
of machinery and equipment are allowed without import
licence. In addition special provisions have been made for
import of capital-goods at a concessional rate of import duty.
152
Export Promotion Capital Goods (EPCG) Scheme has been
introduced for liberal import of capital goods.
Export Promotion Capital Goods Scheme: New Capital
goods including computer software systems may be imported
under the Export Promotion Capital Goods (EPCG) scheme.
Under this provision, capital goods including jigs, fixtures, dies,
moulds and spares upto 20% of the CIF value of the capital
goods may be imported at 5% customs duty: This import is
subject to an export obligation equivalent to 5 times CIF value
of capital goods on FOB basis or 4 times the CIF value of
capital goods on NFE basis to be filled over a period of 8 years.
This period is reckoned from the date of issuance of licence.
Import of capital goods shall be, subject to Actual User
condition till the export obligation is completed.
Export Processing Zones (EPZ), Export-Oriented Units
(EOU), Special Economic Zones (SEZs), Electronic
Hardware Technology Parks (EHTP) and Software
Technology Park Units (STP)
Units undertaking to export their production ‘of goods may be
set up under Export Processing Zones (EPZ) scheme, Export
Oriented Units (EOU) scheme, Special Economic Zones
(SEZs) scheme, Electronic Hardware Technology park (EHTP)
scheme or Software Technology Park (STP) scheme. Such units
may be engaged in manufacture, services, trading, development
of software, agriculture including agro-processing, aquaculture,
animal husbandry, bio-technol-ogy, floriculture, horticulture,
pisciculture, viticulture, poultry, sericulture, and granites may I
export all products except prohibited items of exports.
These units import all types of goods without payment of
duty including capital goods for manufacture, production or
processing provided they .are not prohibited items, Second
hand. capital goods may also be imported in accordance with
the provisions of the policy: Supplies from DT A to these units
will be regarded as deemed exports. Foreign equity upto 100%
is permissible to these units. These units shall be exempted
from payment of corporate income tax for 10 years.
Assured supply of raw material imports
As regards making available the supplies of imported raw
materials to the export sector, the import policy provides the
scheme of Duty exemption and Duty Remission. The duty
exemp-tion scheme enables import of inputs required for
export production. The duty remmission scheme enables post
export replenishment/remission of duty on inputs used in the
export product.
Under duty exemption scheme, an advance licence is issued to
allow import of inputs which are physically incorporated in the
export product. Advance licence is issued for duty free import
of inputs as defined in the policy subject to actual user condi-
tion. Such licences are exempted from’ payment of basic
customs duty, surcharge, additional customs duty, antidumping
duty and safeguard duty, if any. Advance licence can be issued
for (i) physical exports (ii) ,intermediate supplies and (iii)
deemed exports. Duty Remission Scheme consists of Duty Free
Entitlement Certificate and Duty Entitlement Passbook
Scheme.
11.675.1
Eligibility for export/trading/star trading/super star Export of services for recognition of export houses

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

trading houses Category Average free Free Foreign Average NFE NFE earned
foreign exchange earned made during the
Export/Trading/Star Trading/Super Star Trading Houses have exchange earning during during the preceeding
been accorded special status. When exporters achieve the earning during the preceding preceding licensing
specified level of exports over a period, they may be recognized the preceding licensing year licensing year year in
three licensing in rupees in rupees rupees
as EH/TH/STH/SSTH. Exports made both in free foreign year in rupees.
exchange and in Indian rupees shall be taken into account for Service Export 4 crore 6 crore 3 crore 5 crore
House
recognition. The objective of this scheme is to recognise them International 20 crore 30 crore 15 crore 25 crore
as the respective houses”with a view to building marketing Service export
House
infrastructure and expertise required for export promotion. The International 100 crore 150 crore 75 crore 125 crore
exporters, registered with FlEO or EPC are, eligible for this star service
export house
purpose. The export performance criteria may be based on International 300 crore 450 crore 225 crore 375 crore
either f.o.b. value of exports or net foreign exchange earnings. super star
service export
Let us discuss them in detail. house
i) F.O.B. Criteria: The manufacturing or merchandising
units, who have achieved the following targets can be The service status holders sha1l be entitled to all the facilities
accorded the status of above mentioned Export Houses. provided in the policy.
Deemed exports are not counted for this purpose. Look at Rendering export price competitive:-
Table for this criteria. The second pre- requisite of export promotion policy is to
FOB Criteria render the exports increasingly price competitive in international
Category of Houses Average FOB value of FOB value of eligible
market. A number of Price support measures in the form of
exports during the export during fiscal as well as financial incentives have therefore been provided
preceding three Licensing preceding Licensing
year, in Rupees year in Rupees for the export sector in India.
Export House Rs. 15 crores Rs. 22 crores The need for price- support measures in the form of export
Trading house Rs. 75 crore Rs. 112 crore
incentives, arises on two accounts. First, price levels in interna-
Star trading House Rs. 375 crores Rs. 560 crore
Super star trading houses Rs. 1125 crores Rs. 1680 crores
tional markets are invariably the lowest, because of the high
degree of competition therein. On the other hand, Indian
ii) Net Foreign Exchange Earnings: Exporters have an economy, has over the years emerged as a high economy with
option for obtaining the status of Export and other low productivity. Hence, for success full and viable export effort
Houses based on the following Net Foreign Exchange there is the need for incentives to provide the price support for
Earnings. Look at Table for this criteria. rendering India’s exports competitive and viable.
Net foreign exchange criteria Secondly, incentives exports also become necessary to neturalise
the domestic market -pull on Indian exporters. Hence, export
Category of Houses Average Net Foreign Net Foreign Exchange
Exchange Value of eligible Value of exports made incentives also aim at encouraging trade and industry in India to
exports during the during the preceding
preceding three licensing licensing years increasingly undertake export effort on a sustained basis.
years
Export house Rs. 12 crores Rs. 18 crores
Under the export promotion policy of India, various types of
Trading House Rs. 62 crores Rs. 90 crores incentives have been provided for a price-support measures.
Star trading house Rs. 312 crores Rs. 450 crores These include (a) Fiscal Incentives and (b) Financial Incen-tives.
Super star trading house Rs. 937 crores Rs. 1350 crores
Fiscal incentives
Exporters have also an option to get recognition for one year. Fiscal incentives for export promotion include (i) duty draw-
In this case relaxation in above earnings has been permitted. back, (ii) central excise rebate and (iii) income tax exemption, on
EH/TH/STH/SSTH are entitled to the following special export profits.
benefits: i. Duty Drawback: In the manufacturing of many export
i) Import Facilities products imported or indigenous raw materials and
ii) Marketing Development Assistance. components are used on which customs or central excise
iii) Foreign Currency, Accounts duty has been paid. When the finished products are
exported in which duty paid inputs are used, a part or
iv) Foreign Exchange Facilities
whole of the amount of such duty is allowed -to be drawn
v) Golden Status Certificate back by the exporter or if is refunded to him. This results in
vi) Other facilities as specified in the policy substantial reduction in the cost of material inputs for
export-production. In other words, import duties and
Export houses status for export of services
central excise duties, on material inputs for export activity
Service providers sha1l be eligible for recognition as service
are allowed to be drawback by the exporters under the
Export House, International
incentives policy for duty drawback. The scheme of Duty
Service Export House, International Star Service Export House, Drawback has been formulated by the Drawback Director
International Super Star Service Export House on achieving the under the Central Board of Revenue and Customs from the
performance level as below: Ministry of Finance. Details regarding Drawback Scheme can

11.675.1 153
 be had from ‘Drawback Rules’ as notified by the office of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Drawback Director. Refund of Duty Drawback is granted
on post-export . basis. The benefit Of duty drawback has
been provided on the basis of (a) all industry rates or (b)
brand rates separately fixed for individual manufacturers of
the export products. The incentive of duty drawback helps
reduce significantly the material cost of export products. It
is very important for countries like India, which have
simple manufactures to offer for exports which are very
much influenced by the material cost. You will learn detail
procedure of Duty Drawback in next lesson.
ii. Central Excise Rebate: Under this scheme, the Central
Excise Duties on the inputs . and final product or on the
output proposed for export, are refunded to the exporter.
It helps in further reduction in the overall cost of
production for exports. The scheme also provides for a
Bond System under which outright exemption from
Central Excise Duties can be claimed by the exporter. The
scheme is operated as per Central Excise Rules notified by
the Central Excise department. You will learn in detail
about the Central Excise Rebate in next lesson
iii. Income-Tax Exemption: . In order to promote exports,
income tax exemption has been granted under Income Tax
Act. This exemption scheme is to be phased out over a five
year period i.e. by 2004-2005 for all exporters other than
EPZ/EOU/EHTP/STP units. The major exemptions are
as follows:
1. Part of the profits derived from export of specified
goods or merchandise is deducted for the computation
of income tax.
2. Specified amount of profits of companies engage in
the business of hotel or of . a tour operator or a travel
agent is deducted.
3. There is a partial tax relief on export of computer
software and for import of system. The benefit can
also be claimed by a supporting software developer
from 1-4-1999..
4. The profits from export or transfer of film VT
software, TV news software, telecast rights are partially
deducted.
5. 50% of the profits from project exports is deducted in
computing taxable income of the Indian company or
resident tax payer.
6. 10 years tax holidays is granted to units in FTZIEPZ
and 100% EOU ending with 2010-2011. . necessary link or channel’ between production and sales. Hence,
7. There is a tax rebate on remuneration received on
services rendered outside India and other rebate as
specified in the policy.
iv. Sales tax Exemption: There is no tax on sales made for
export purpose. The exporter need not pay sales tax either
on the goods purchased from manufacturers or traders.
Financial Incentives
The major scheme of financial incentives include interest
subsidy, financial assistance scheme for agricultural, horticultural
and meat exports.
154
i. Interest Subsidy: Export sector in India has also been
given interest subsidy under which the working capital is
made available by the banks to the export sector at a
concessional or subsidised rates of interest. Under this
scheme working capital required for pre- shipment credit as
well as post- shipment credit is provided to the export
sector at concessional rates of interest. This measure helps
Indian exporters. to reduce the working capital cost of
export operation.
ii. Financial Assistance Scheme for Agricultural, Horticultural
and Meat Exports:
In order to promote the exports. of agricultural,
horticultural and meat products, agricultural and processed
food products Export Development Authority (APEDA)
Provides financial assistance for the following purposes:
a. Feasibility studies, surveys, consultancy and data base
up gradation
b. Development of infrastructure
c. Export promotion and market development
d. Packaging development
e. Quality control
f. Upgradation of meat plants
g. Organisation building and Human Resource
Development
h. Air freight assistance for export of horticultural
products export by air
i. Generation of relevant research and development
through research institutions.
Thus, export incentives in the form of tax- concessions or fiscal
incentives, as well as financial incentives, playa major role in
rendering Indian exports, competitive in the international
market. However, in view of the highly competitive nature of
international market, every country in the world makes an all-
out effort to increase her exports, for which various types of
different fiscal and financial incentives are provided. Thus, the
practice of incentives has almost become universal, covering
both developed as well as developing countries.
Strengthening Export Marketing Effort
The third pre- requisite of export promotion is the marketing
effort. It may be noted that ‘export’ is primarily a ‘sale’ transac-
tion. Production can be converted into ‘sale’ only through the
marketing effort. In other words ‘marketing effort’ provides the
success on the export front is dependent upon the marketing
effort. Export promotion policy in India therefore, pays special
attention to the need for improving and strengthening export
marketing effort. With this objective, the Government of India
have established a very comprehensive network of institutions
for servicing the export sector.
In other words; an effort has been made to provide the
necessary infra structure for servicing the export sector, particu-
larly to improve the export marketing effort. With this object in
view, Government of India have established a number of
specialized institutions for providing necessary services and
assistance to individual corporate units from the export sector.
11.675.1
Institutions established for strengthening export marketing
effort include Export Promotion Council, Commodity Boards,
Special Authorities and Industry Associations. These are the.
key institutions servicing export effort ~t individual corporate
level product-wise. The primary ‘function of these institutions
is to provide the exporter with export marketing guid-ance and
advice as well as complete information and details covering
almost all the critical elements involved in export marketing
effort at the individual corporate unit level on a continuous
basis.
In addition, separate institutions have also been established for
providing technical and specialized services to the export-sector
in India. These institutions provide necessary guidance, help
and assistance to individual corporate units, especially in the
field of packag-ing, quality control, risk coverage, long- term
credit, trade fairs and exhibitions, settlement of disputes,
package service and market information.
For supplementing the export-effort by the private sector,
Govt, of India have also estab-lished a number of Corpora-
tions in the Government sector for directly undertaking export
-import activity. Various state Governments have also estab-
lished Export Corporations for promoting exports from
different states respectively.
Market Development Assistance: This assistance is provided
for overall development of I overseas markets. It is provided
for sponsoring, inviting trade delegations within and outside
the country, market studies, publicity, setting up of ware-
houses/showrooms, research and development, quality control,
etc. MDA is largely available to Approved Organisations,
Export Houses/Consortia of Small Scale Industries, Individual
exporters or other sponsored persons. The assistance is given
for air fare, daily allowance, participation in fairs and’ exhibi-
tions, etc. The assistance is disbursed by the FIEO and Ministry
of Commerce.
External Marketing Assistance Scheme for Jute: The
External Marketing Assistance Scheme provides grant of market
assistance at the rate of 5% and 10% of FOB value realisation
on export of specified diversified products. The benefit is
available to both manufacturer- exporters and merchant
exporters.
Lets Us Sum Up
Of late export promotion has assumed critical importance in
Indian economy. Export growth has become main determinant
of economic growth. With the increasing requirements of
imports, exports have now emerged as the only viable source of
meeting the foreign ex-change needs. Government of India
have provided various incentives for export promotion. Export
promotion policy include (i) policies for increasing investment
and production in export sector (ii) price support measures for
rendering exports more competitive, and (iii) measures for
strengthening marketing effort by the export sector.
There has been relaxations in industrial licensing policy MRTP,
foreign exchange regulation, foreign collaboration to increase the
flow of production and investment resources into the export
sector. Apart from the provisions made for liberal import of
capital goods, Export Processing Zones, Export-Oriented
Units have been given completely licence-Fee and duty- free
11.675.1
import facilities for all production inputs. Duty Tee licence
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
schemes have been granted’ to the registered exporters for
supplies of adequate quantities of material inputs required for
export. Export House, Trading House, Star Trading House and
Super Star Trading House have been given special facilities to
promote the export business. In order to make India’s export
competitive, price viable support incentives have been given to
the exporters. Fiscal incentives include (i) duty drawback (ii)
central excise rebate and (iii) income-tax exemption on export
profits.
The scheme of financial incentives include interest subsidy on
working capital and financial assistance scheme for Agricultural,
Horticultural and Meat Exports.
The success on the export front is crucially dependent upon the
marketing of the products. Hence, special efforts have been
made for improving and strengthening export marketing effort.
Government of India have established a number of specialised
institutions for provid-ing necessary services and assistance to
the exporters, Marketing Development fund provides necessary
financial assistance for market promotion.
Questions Bank
State whether the following statements are true or False:
Q1. i. In the beginning India followed a policy of import
substitution.
ii. Import policy has made provision for easy import
of capital goods of all types.
iii. there is completely licence free and duty free import
facility for all production inputs for Export
processing Zone and Export Oriented Units.
iv. An advance licence is granted only to the
manufacturer exporter.
v. Foreign equity upto 75% is permissible to EPZ and
EOUs.
Answers to Check Your Progress
j) True ii) True iii) False iv) False v) False
Terminal Questions
1. Explain the facilities/concessions for increasing the
production-base for exports from India.
2. Analyse the different price support measures introduced in
India for rendering India’s exports more competitive.
3. Why the role of marketing effort is crucial in export
promotion? Describe the measures undertaken in India for
strengthening export marketing effort.
4. Explain the rationale for price-support measures for export
promotion in India.
5. “Export Incentives have become a universal practice”.
Discuss.
6. Explain the framework of export incentives in India and
analyse as to how far it provides a total approach to export
promotion.
155
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 21:
EXPOR T PROMOTION ORGANISATIONS
• Objectives
• Introduction
• Importance of Institutional Infrastructure
• Govt. Policy Making and Consultations
• Indian Trade Promotion Organisation (ITPO).
• Indian Institute of Foreign Trade (11FT).
• Indian Institute of Packaging (lIP).
• Indian Counsel of Arbitration (ICA).
• Federation of Indian Export Organisation (FIEO).
• Marine Products Exports Development Authority
(MPEDA).
• Export Processing Zones (EPZ).
• 100% Export Oriented Units (EOUs).
• Facilities for Units in EOUs, EPZs,EHTPs & STPs.
• M. Visvesvaraya Industrial Research & Development Center
(MVIRDC).
• Chamber of Commerce (COC). - ,
• Question Bank.
Objectives
After studying this unit, you should be able to:
• explain the importance of the institutional infrastructure for
export promotion in India
• describe the role of government policy making and
consultative body in the export
• promotion
• explain the functions of export promotion councils and
commodity boards
• describe the role of various service institutions engaged in
export promotion
• explain the importance of government trading
organisations engaged in the export of specified
commodities.
Introduction
Export business requires special knowledge and business
acumen. Exporters need guidance and assistance at different
stages of the export effort. For this purpose, the Government
of India have set up several institutions whose main functions
are to help the exporter in his work. In this unit, you will learn
the role of these institutions in export promotion.
Importance of Institutional
Infrastructure
Export marketing effort is of vital importance for the success
of apart-promotion programme in any country. For undertak-
ing international marketing operations” an exporter needs
special guidance and assistance in critical areas like packaging,
market promotion and publicity, quality certification, risk
156
coverage, market intelligence, finance and credit support etc. It is
only with the support and services rendered by specialised
institutions, exporter is able to successfully convert his ‘produc-
tion’ into ‘sales in international market. Consequently, any
country, including India, engaged in the task of export promo-
tion, has to establish specialised institutions for strengthening
export-marketing effort for the country as a whole. This along
will have the way for creating an export environment and
export- culture, on the foundation of which the export
marketing effort at the corporate level can be effectively launched
on an intensive and sustained basis.
With this object in view, Government of India have established
a number of specialised institutions in the country for provid-
ing the necessary services and assistance to individual corporate
unit for a successful export effort. In view of the widely
diversifying nature of the export markets in different parts of
the world and an equally diverse and varied nature of products
and services traded in international market, Government of
India have established specialised institutions at production/
industry level for assisting exporters from different. sectors.
Institutions engaged in export efforts fall in six distinct tiers. At
the top is the Department of Commerce of the Ministry of
Commerce. This is the main organisation to formulate and
guide India’s trade policy. At the second tier, there are deliberate
and consultative organisations to ensure that export problems
are comprehensively dealt with after mutual discussions be-
tween the Government and the Industry. At the third tier are
the commodity specific organisations which deal with problems
relating to individual commodities and/or groups of com-
modities. The fourth tier consists of service institutions which
facilitate and assist the exporters to expand their operations and
reach out more effectively to the world markets. The fifth tier
consists of Government trading organisations specifically set up
to handle export/ import of specified commodities and to
supplement the efforts of the private enterprise in the field of
export promotion and import management. Agencies for
export promotion at the State level constitute the sixth tier. Let
us now discuss each of them in detail.
Government Policy Making and
Consultations
Appropriate government policies are important for successful
export effort. In view of the increasingly important and critical
role of foreign trade in economic development, a separate
Ministry of Commerce has been entrusted with the responsibil-
ity of promoting India’s interest in international market. The
Department of Commerce, in the Ministry of Commerce has
been made responsible for the external trade of India and all
matters connected with the same. The main functions of the
Ministry are the formulation of international commercial policy,
negotiation of trade agreements, formulation of country’s
export-import policy and their implementation. It has created a
11.675.1
network of commercial sections in Indian embassies and high
commissions in various countries for export- import trade
flows. It has set up an “Ex-porters Grievances Redressal Cell”
to assist exporters in quick redressal of grievances.
Board of Trade: For ensuring a regular consultation, monitor-
ing and review of India’s foreign trade policies and operations,
Government of India have set up a Board of Trade with
representatives from Commerce and other important Minis-
tries, Trade and Industry Associa-tions, and Export Service
Organisations. It is an important national platform for a regular
dialogue between the Government and the trade and industry.
The deliberations in the Board of Trade provide guidelines to
the Government for :appropriate policy measures for corrective
action.
Cabinet Committee on Exports: With a view to ensure
regular and effective monitoring of India’s foreign trade
performance and related policies, Cabinet Committee on
Export has also been set up.
Empowered Committee of Secretaries: For speedier and
quicker decision-making, an Empowered Committee of
Secretaries has also been established to assist the Cabinet
Commit-tee on Exports.
Grievances Cell: Grievances Cell has been set up to entertain
and monitor disposal of grievances and suggestions received. It
is a cell meant for speedy redressal of genuine grievances.
Grievances Committees headed by Director General of Foreign
Trade and head of concerned Regional Licensing Authority have
been constituted in the respective licensing offices. The Com-
mittee also include representatives of FIEO, concerned Export
Promotion Council/Commodity Board and other departments
and organisations. The grievances may be addressed to the
Grievance Cell of the concerned Licensing Authority in the
prescribed Performa.
Director General of Foreign Trade (DGFT): DGFT is an
important office of the Ministry of Commerce, to help the
formulation of India’s Export-Import policy and implementa-
tion thereof. It has set up regional offices in almost all States
and Union Territories of India. These offices are known as
Regional Licensing Authorities. There is an Export Commis-
sioner in the DGFT office who functions as a nodal point for
all export promotion schemes. The Regional Licensing offices
also act as Export facilitation centres.
Director General, Commercial Intelligence & Statistics
(DGCI& S): DGCI& S has been entrusted with the task of
compilation and publication of data on India’s Foreign Trade.
It brings out various publications relating to Foreign Trade of
India. The major publications are as under:
i. Monthly Statistics of Foreign Trade of India
ii. Monthly Press Notes on Foreign Trade’.
iii. Monthly Brochure of Foreign Trade Statistics of India
(Principal Commodities and Countries)
iv. Indian Trade Classification based on Harmonised
Commodity Description and Coding System
v. Indian Trade Journal
Ministry of Textiles: Ministry of Textiles is another Ministry
of Government of India which is responsible for policy
11.675.1
formulation, development, regulation and export promotion
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
of textile sector including sericulture, jute and handicrafts, etc. It
has a separate Export Promotion, . Division, offices, advisory
boards, development corporations, Export Promotion
Councils, and Commodity Boards. The advisory boards have
been constituted to advise the govern-ment in the formulation
of the overall development programmes in the concerned
sector. It also devises strategy for expanding markets in India
and abroad. The four advisory boards are as under:
i. All India Handloom Board
ii. All India Handicrafts Board
iii. All India Powerloom Board
iv. Wool Development Board
There are Development Commissioners, Handicrafts and
Handlooms, who advises on matters relating to the develop-
ment and exports of these sectors. There are Textile
Commissioner and Jute Commissioner who advise on the
matters relating to the growth of exports of these sectors.
Textile Committee has also been set up for ensuring of textile
machine manufac-tured indigenously, especially for exports. It
also issues certificates of origin and other special certificates.
States Cell: The cell has been created under Ministry of
Commerce. Its functions are to act as a nodal agency for
interacting with state Government or Union Territories on
matters concerning exp0l1 or import from the State or Union
Territories. It provides guideline to State level export
organisations. It assists them in the formation of export plans
for each cases.
Development Commissioner, Small Scale Industries
Organisation: The Directorate has the headquarter if! New
Delhi and extension centres located in almost an States and
Union Territories. They provide export, promotion services
almost at the doorsteps of the small scale industries and cottage
unit. The important functions are:
i. to help the small scale industries to develop their export
capacities
ii. to organise export training programmes
iii. to collect and disseminate information
iv. to help such units in developing their export markets
v. to take up the problems and other issues. related to small
scale industries
Besides, there are Directorates of Industries, National Small
Industries Corporation and State Corporations for the promo-
tion or exports from small scale industries.
Technical and Specialised Services
Assistance
Export marketing effort at the individual corporate level also
needs to be reinforced through a number of technical and
specialised service inputs. These cover important and crucial
areas like packaging, quality control, risk coverage, promotion
and finance. Let us now discuss them in detail.
Indian Trade Promotion Organisation
(ITPO)
Indian Trade Promotion Organisation was set up by the
Ministry of Commerce, Government of India, on 1 st January
157
 1992 with its headquarters at New Delhi after the merger of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Trade Development, Authority (TDA) and Trade Fair Authority
of India ,(TFAI). It has five regional offices at Mambai,
Bangalore, Kolkata, Kanpur and Chennai and four in Germany,
Japan, UAE and USA.
As a premier trade promotion agency of the Government of
India, the ITPO provides a road spectrum of services to trade
and industry so as to catalyse the growth of bilateral trade,
particularly India’s exports and technological upgradation and
modernization of different industry segments.
Functions of Indian Trade Promotion
Organisation
a. Organises Trade Fairs and Exhibitions :- It organises
various trade fairs and exhibitions at its exhibition complex
in Pragati Maidan and other centres in India. It also extends
the use of Pragati Maidan for holding pf trade fairs and
exhibitions by other fair organisers both from India and
abroad.
b. Involves the State Governments :- It enlists the
involvement and support of the State Governments for the
promotion of India’s foreign trade. It promotes
establishment of facilities and ,infrastructure for holding
trade’ fairs in state capitals or other suitable locations in
India, in consultation with the State Governments
concerned.
c. Assists in Technological Upgradation and Product
Development :- It provides assistance to Indian
companies’ in locating suitable foreign collaborators for
transfer of technology, joint ventures, marketing tie-ups
and investment promotion. It also assists Indian
companies in product development and helps them to
adapt to meet buyer’s requirements.
d. Helps in establishing Overseas Contacts :- It helps in
establishing a durable contacts between Indian suppliers
and overseas buyers. It organises ‘buyer-seller meets with a
view to bring buyers and sellers together. It also invites
overseas buyers and organises their meetings with Indian
suppliers..
e. Other Services:-
• To identify and nurture specific export products with
long-range growth prospects.
• To conduct in-house and need-based research on trade
and export promotion.
• To participate in overseas trade fairs and exhibitions.
• To organize seminars, conferences and workshops.
• To encourage and involve small and medium scale
units in export promotion efforts.
Indian Institute of Foreign Trade (11FT)
Indian I Institute of Foreign Trade was set-up in 1963 by the
Government of India a’s an autonomous body registered
under the Societies Registration Act. It was set up with the
prime objective of professionalising the country’s foreign trade
management and increase exports by developing human
resource, generating, analysing and disseminating data and
conducting research.
158
Functions of Indian Institute of Foreign
Trade
a. Training :- The IIFT has been recognised as a centre of
excellence for imparting training and education in
international business. Its specialisation in intentional
business and a global outlook makes it unique among
management schools in the country. It offers an inspiring
learning environment, which transforms the’ bright young
students into talented creative professionals.
b. Collects and Supplies Information :- 11FT conducts
,market studies and surveys in the overseas markets. It tries
to find out demand for Indian products in overseas market.
It supplies this information to the exporters. The exporters
can use such information while making their export
marketing decisions.
b. Organises Seminars and Workshops :- 11FT organises
seminars and workshops in a number of export marketing
areas, such as export pricing, export promotion, etc.
Exporters can take advantage of such workshops and
seminars by taking active part them.
d. Trade Delegations :- 11FT sends delegates abroad to study
overseas markets and also to interact with overseas
importers. At the same time, it invites delegates from
abroad, who can study Indian market conditions and can
also interact with Indian exporters.
e. Publications:. A large part of the lIFT’s research work is
published in the form of study reports, monographs,
status papers, etc. for wider dissemination among the
business community, government departments and
academic fields. The institute publishes :-
• Foreign Trade Review (FTR), a quarterly journal.
• Focus WTO, a bimonthly magazine.
• Technology Exports, quarterly newsletter.
f. Research and Consultancy :- IIFT has so far brought out
over 570 research studies and surveys. It also acts as a
consulting house for solving the problems of the exporters
and importers. It analyses the international business
environment and develops appropriate corporate strategies
for the overseas markets.
g. Management Development Programmes :- Combining a
unique ‘blend of research and consultancy, lIFT has been a
pacesetter in addressing to the needs of business executives
by continuously aligning the focus of its Management
Development Programmes with the changing realities. As a
result, its intensive short duration programmes have
received the most enthusiastic response.
Indian Institute Packaging (LIP)
The Indian Institute of Packaging was set up as a national
institute jointly by the Ministry of Commerce, Government of
India, and the Indian Packaging industry and allied interests in
1966, with its head quarters and principal laboratories at
.Mumbai and regional laboratories at Kolkata, Delhi and
Chennai.
It is a training cum research institute pertaining to packaging
and testing. Over the years, it has built up a very strong and
11.675.1
capable expertise in various fields of packaging sciences and
technologies. It has excellent infrastructural facilities, which cater
to the various needs of the package manufacturing and package
user industries, both with regard to the domestic distribution
and export market requirements.
Functions of Indian Institute of
Packaging
a. Training Programmes :- It organises a number of
training programmes pertaining to packaging and also
provides suggestions in regard to packaging.
b. Testing Facilities :- It also undertakes testing of packaging
materials and packages to ensure export quality.
c. UN Certification :- All dangerous goods packages need a
UN certification mark before they can be dispatched. IIP is
the only authorised body in India to give this certification.
d. Environmental Cell :- The institute has an environment
cell, which guides exporters as to what type of material can
be used or incorporated in the packaging of their products
so as to reduce environmental threats.
e. Research and Development:- It undertakes research and
development programmes for creating and ,improving
overall infrastructural facilities for achieving packaging
improvement so as to prevent losses during transportation
f. Collection and Dissemination of Information :. It
collects information on various packing and packaging
strategies and disseminate them to the exporter for their
benefits. An up-to-date information 01:1 packaging
developments can be availed on its website, “http:/ /
www.iip-in.com...
g. International Recognition :- The institute is international
organisations. It is recognised by Industrial Development
Organisation (UNIDO) and Centre (ITC) for consultancy
and training.
h. International Membership :- It is a member of the Asian
Packaging Federation (APF); the Institute of Packaging
Professionals (IOPPA), USA; the, Institute of Packaging
(lOP) UK; Technical Association for Pulp and Paper
Industry (TAPPI) and the World Packaging Organisation
(WPO).
i. Other Functions :-
• It also carries out graphic designing for international
products.
• It advises the government of India for all export
related packages.
It is not binding or compulsory for an organisation or company
to be a member of lIP. However, on being a member one can
avail the benefits of services provided by lIP, specially testing
facilities for packages to ensure high quality.
Indian Council of Arbitration (ICA)
Indian Council of Arbitration (ICA) was set up in accordance to
the recommendations of the Committee on Commercial
Arbitration constituted by the Ministry of Commerce, Govern-
ment of India. It was set up on 15th April 1965 as an
autonomous non-profit organisation registered under the
11.675.1
Societies Registration Act, 1860. The main objective of the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Council is to promote the use of commercial arbitration,
particularly in the course of India’s export trade.
ICA is a member of the Federation of International Commer-
cial Arbitral Institution and has’ mutual co-operation
agreements with the International Court of Arbitration, the
London Court of Arbitration and apex arbitration bodies in
Thailand, Republic of Korea, Yugoslavia, Bulgaria, Romania,
Malaysia, Australia, USA, Denmark, Mauritius, Russia, Ger-
many, Egypt, Switzerland, Japan, Philippines, Sri Lanka, South
Africa and more.
Functions of Indian council of arbitration
a. The council provides arbitration facilities for all types of
domestic and international commercial disputes.
b. It uses its network of offices for conciliation of
international trade complaints received from Indian and
foreign parties, for non-performance of contracts or non-
compliance with arbitration awards.
c. It organises arbitration meetings, conferences, training
programmes, etc., for company executives, businessmen,
lawyers, arbitrators, etc., from time to time in different parts
of the country.
d. It conducts research and publishes informative literature on
different aspects of commercial arbitration, including a
quarterly Arbitration Journal.
e. It provides information arid advice to interested parties
regarding the drafting of trade contracts, arbitration laws
and facilities and dispute settlement procedures in India and
in other parts of the world.
f. It keeps abreast of the latest developments, in the field of
international commercial arbitration and maintains co-
operative links with national and international arbitration
bodies throughout the world.
Federation of Indian Export Organisation
(FIEO)
Federation of Indian Export Organisations (FIEO) is an apex
body of various export promotion organisations. It was set up
in October 1965. It represents the Indian entrepreneurs’ spirit
of enterprise in the global market. It has kept pace with the
country’s evolving economic and trade policies and has provided
the content, directing and thrust to India’s expanding interna-
tional trade. As the apex body of all Indian export promotion
organisations, FIEO works as a partner of the Government of
India to promote Indian exports.
Functions of Federation of Indian Export
Organisation
a. International Linkage:-
• It has forged strong links with counterpart
organizations in several countries as well as
international agencies to enable direct communications
and interaction between India and world businessmen.
• It is registered with UNCTAD as a national non-
government organisation, and has direct access to
information and data originating from UN bodies and
159
 world agencies like the IMF, ADB, ESCAP, World
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Bank, FAO, UNIDO and others,
b. Dissemination of Information :-
• It has bilateral arrangements for exchange of
information as well as for liaisoning with several
overseas chambers of commerce and trade and
industry associations.
c. Liaisoning with the Government :-
• It sends representations on policy matters to Central
and State (Regional) Governments.
• It helps in. establishing contacts between the
government and commercial bodies both in India and
overseas’.
d. Market Development Assistance (MDAJ) :- The Ministry
of Commerce, Government of India, through FIEO,
reimburses certain percentage of the expenditure incurred by
the recognised exporters, such as all types of export houses,
on sales-cum-study tours, participation in exhibitions and
fairs abroad, advertisements in foreign media, etc.
e. Market Research and Development Department :- The
Market Research and Development department offers the
following services to the exporters community :-
• Arranging meetings with diplomats, incoming
delegations and buying missions.
• Inviting delegations.
• Organising trade fairs and exhibitions in India as well
as abroad.
• Opening foreign offices and warehouses.
• Organising seminars for promotion of international
trade.
• Opening new FIEO offices abroad.
f. Publicity Department :- The Publicity department of
FIEO performs the following functions :-
• Bringing out various special supplements in Indian
and overseas dailies in order to project the selected
finished products in India and abroad.
• Creating and telecasting episodes in NEPC channel to
promote India’s prominent brands in various
countries covered by the channel.
• It has published Directory of Foreign Buyers and
Dictionary of Indian Exporters.
• It publishes a fortnightly magazine, “FIEO News”, to
cover developments in the field. of international trade
concerning India.
Marine Products Exports Development
Authority (MPEDA)
Marine Products Export Development Authority (MPEDA)
was constituted in 1972 under the Marine Products Export
Development Authority Act 1972. The headquarter of MPEDA
is located at Kochi in Kerala. The Authority operates two
overseas trade promotion offices, one at Tokyo (Japan) and the
other at New York (USA). The role envisaged for the MPEDA
under the statue is comprehensive, which covers organisation,
160
coordination, regulation and growth of the export of marine
products with special reference to the quality, processing,
packaging, storage, transport, shipment, marketing extension
and training in various aspects of the industry.
Functions of Marine Products Exports
Development Authority
a. To promote seafood exports by liaisoning. with Indian
exporters and overseas importers.
b. To develop contacts with government agencies and officials
to remove identified constraints.
c. To promote the image of Indian sea products in overseas
markets through publicity campaigns.
d. To create awareness on the capabilities of Indian processing,
packaging, quality and inspection procedures.
e. To find suitable joint venture. partners for deep sea fishing,
aquaculture projects, processing and marketing value added
products, etc.
f. To implement development measures vital to the industry
like distribution of insulated fish boxes, putting up fish
landing platforms, improvement of peeling sheds,
modernisation. of industry such as upgrading of plate
freezers, installation of machinery, generator sets, ice making
machineries, quality control laboratory, etc.
h. To promote brackish water aquaculture for production of
prawn for export.
i. Promotion of deep-sea fishing projects through test
fishing, joint venture and equity participation.
j. To undertake various market promotion programmes, such
as :-
• Conducting overseas market survey.
• Collecting data and maintenance of data bank. -’
• Providing assistance for market development.
• Undertaking publicity through media and producing
literature and films on trade promotion.
• Sponsoring of sales team and delegations abroad.
• Inviting overseas importers and experts for export
promotion visits to India.
• Organising buyer-seller meets in overseas markets.
• Participating in overseas trade fairs and exhibitions.
• Organising trade fairs and exhibitions in India. For
example, MPEDA organises seafood trade fair and
exhibition every alternate year in India.
Export Processing Zones (EPZS)
Export Processing Zones (EPZs) are industrial estates, which
form enclaves from the Domestic Tariff Areas (DTA) and are
usually situated near seaports or airports. They are intended to
provide an internationally competitive duty free environment
for export production at low cost. This enables the products of
EPZs to be competitive, both quality-wise and price-wise, in the
international market. There are seven EPZs in India at :-
a. Kandla (Gujarat).
b. Santacruz (Mumbai).
11.675.1
c. Falta (West Bengal).
d. Noida (UP).
e. Cochin (Kerala).
f. Chennai (Tamilnadu).
g. Visakhapatnam (Andhra Pradesh).
Government has also permitted’ development of EPZs by
private, state or joint sector. The Inter-Ministerial Committee
on private EPZs has already cleared three proposals for setting
up of private EPZs in Mumbai, Surat and Kancheepuram.
Difference between EPZS and SEZS
The main difference between the SEZ and the EPZ is that the
SEZ is an integrated township with fully. developed infrastruc-
ture on international standards whereas EPZ is just an
industrial part. In fact,-all existing EPZs have been asked to
convert themselves into SEZs. However, some units are not
interested in the conversion on account of the sale into DTA at
concessional rate of duty is not available inSEZs. The Govern-
ment has asked such units to move out to the Domestic Tariff
Area (DTA).
Facilities Aavailable to Units in EPZS
a. Each zone provides basic infrastructure such as developed
land for construction of factory sheds, standard design
factory buildings providing ready-built sheds, roads, power,
water supply and drainage.
b. Customs clearance is arranged within the zones at no extra
charge.
c. Provision has also been made for locating banking, post
office facilities and offices of clearing agents in the Service
Centre located in each Zone.
(For more details refer EOU/SEZ/EHTP/STP units)
100% Export Oriented Units (100% EOUS)
The Export Oriented Units (EOUs) Scheme, introduced in early
1981, is complementary to the EPZ scheme. It adopts the same
production regime but offers a wider option in location with
reference to factors like source of raw materials, port, hinterland
facilities, availability of technological skills, existence of an
industrial base and the need for a larger area of land for the
project.
EOUs have been established with a view to generating addi-
tional production capacity for exports by providing an
appropriate policy framework, flexibility of operations and
incentives.
(For more details refer to EOU/SEZ/EHTP/STP units)
EOUs, EPZs, Electronic Hardware Technology Park Units
(EHTPs) & Software ‘Technology Park Units (STPs)
Units undertaking to export their entire production of goods
and services may be set up under :-
a. The Export Oriented Unit Scheme;
b. The Export Processing Zone Scheme.,
c. The Electronic Hardware Technology Park Scheme
d. The Software Technology-Park Scheme.
11.675.1
Activities undertaken BV such units
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
a. Manufacturing, servicing, repairing; remaking,
reconditioning, re-engineering including making, of gold /
silver,/platinum/ jewellery and articles thereof;-
b. Agriculture including agro-processing, -aquaculture, animal
husbandry, bio-technology, floriculture, horticulture,
pisiculture,viticulture, poultry, sericulture and granites;
c. Export of all products except goods mentioned as
restricted and prohibited items of exports in ITC (HS)
Classification of Export and Import items.
d. Software units may undertake export using data
communication links or in the form of physical exports
including export of professional services.
e. Units for generation distribution of power can also be
setup in EPZs.
f. No trading unit is permitted
Facilities for Units Located under EOU/
EPZ/STP/EHTP Schemes
a. Importability or Procurement of Goods from Domestic
Tariff Areas :- An EOU/EPZ/EHTP/STP unit can
import or procure from the domestic sources, free of duty,
all its requirements of capital goods, raw materials,
consumables, spares, packaging material, office equipments,
etc.
• No licences are required for such import or domestic
procurement.
• Such units can utilise goods imported or domestically
procured ,over a period of 2 years.
b. Exemption from Duties ;. They are exempted from most
of the duties and levies such as state levies including sales
tax, anti-dumping duties, etc.
c. Income Tax Concession :- They are also entitled for
concessions in respect of
payment of income tax under various sections of the
Income Tax Act, 1961.
d. Exemption from Industrial Licensing :- They are
exempted from industrial licensing for manufacture of
items reserved for Small Scale Industry sector.
e. Sub-contracting:- They can, with the permission of the
Customs Authorities, sub-contract part of the production
and production process in DTA.
f. Inter-Unit Transfer :-They can supply to other EOU/
SEZ/EHTP/STP units without payment of duty and such
supplies are counted towards fulfilment of export
obligation.
g. Supplies from DTA :- Supplies form DTA to EOU/SEZ/
EHTP/STP units are regarded as ‘Deemed Exports’ and
the DTA supplier is eligible for the deemed export benefits.
h. DTA Sale :- Units, other than gems and jewellery units,
may sell goods and services upto 50% of. FOB value of
exports, subject to fulfilment of minimum NFEP on
payment of applicable duties. No DTA sale is permitted in
case of motor cars, alcoholic liquors, tea (except intent tea)
and books.
161
 i. Export Obligation :- They can achieve export performance
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
and Net,Foreign Exchange Earning as a Percentage of
exports (NFEP) cumulatively over a period of 5 years.
Virtually no penal action is taken for shortfalls during the
first three years of operation.
j. 100% Foreign Equity :- 100% Foreign Direct Investment
(FDI) in the manufacturing sector is permissible to the
EOU/SEZ/EHTP/STP units. For FDI in services and
trading sector, the sectoral norms as notified by the
Department of Industrial Policy and Promotion are
applicable.
k. Other Entitlements:-
• Can procure duty-free inputs for supply of
manufactured goods to advance licence holders.
• Are exempted from State Trading regime except in
limited cases.
• Can club their exports with exports of their parent
company for purposes of Obtaining Trading or
Export House status.
• Manufacturers processors who have acquired quality
status with specified certification from identified
agencies are eligible for double weightage for
recognition as status holder.
• Can repatriate their profits freely without any dividend-
balancing requirement.
M. Visvesvaraya Industrial Research and
Development Centre
The World Trade Centre, Mumbai has been named as the M.
Visvesvaraya Industrial Research and Development Centre after
the name of Dr. M. Visvesvaraya, an engineer and a scientist. It
was established in 1970 as a non-profit company licensed under
Sec. 25 of the Companies Act. The Council of Management
comprising of industrialists, representatives from Central and
State governments and apex Trade Promotion Organisations,
governs it.
MVIRDC became of a member of WTCA in 1971 after which
it was known as WTC, Mumbai. It consists of three centrally
air-conditioned building. The arcade comprises of various state
Emporia, banks, offices, shops and showrooms. It also houses
the prestigious Expo-Centre (exhibition hall). Centre- I
comprises of areas leased to various organisations connected
with world trade, business and industry such as EXIM bank,
RBI, EPCs, etc. It also houses WTC offices as well as meeting
rooms. Centre-II has been entirely leased out to the Industrial
Development Bank of India. (IDBI)
Functions of World Trade Centre
a. Trade Information Services :- WTC offers the IMPEX
Data Bank facility. It is India’s first ever computerised
database on imports and exports. It comprises of details
on export and import transactions. It helps in identifying
products in demand for export or import, locate markets,
evaluate competitive prices, understand the market players,
etc.
b. WTCA Online :- WTCA online is a unique internet based
website, providing a one-stop source for global business
162
information through strategic alliances with leading
information and service providers. WTCA online offers
quality products representing the best international trade
information and services at discounted prices.
c. Trade Education Services’:- World Trade Institution
(WTI), the educational wing of WTC Mumbai, was. set up
in 1991. It was the pioneer in introducing a six months
Post Graduate Diploma in Foreign Trade (PGDFT) and
Post Graduate Diploma in Foreign Exchange and Risk
Management (PGDFERM). It has been certified as ‘Best
Practice Institute’ by WTCA, New York.
d. Foreign Trade Facilitation Cell :- A Foreign Trade
Facilitation Cell has been set up in order to :-
• To give advice on starting of import/export business
and authorities to be approached for solving import/
export problems.
• To make recommendations to the government in
regard to the EXIM Policy and procedure.
e. International Trade Library :- It is an exclusive source of
business information. Businessmen and students can easily
access various sources of trade information through the
large collection of trade directories, journals and related
publications. Market reports on different products by ITC
and cm are the main strengths of this library.
f. Business Services :- Specific business meetings can be
“Organized for the visiting overseas businessmen for their
products of interest. A minimum two weeks advance notice
is required. WTC also offers state of the art support
facilities, video conferencing, Temporary office space,
meeting rooms, translation capabilities, etc.
g. Research and Development :- The Centre has conducted
research work on diverse topics like Multimodal Transport,
Agro-based Industries, European Union Market, etc. As a
follow up to such studies the Centre has brought out
research publications. Current thrust of Centre’s research
activity is on the implications of the WTO agreements on
India’s foreign trade.
h. Other Services :- Apart from the above services, the WTC
also provides exhibition facilities, facility of WTC clubs
(lounge and dining services for members and guests)
different publications’ such as Trade Promotion Bulletin
(monthly), Current Research and Development Briefs
(Monthly), WTC Intercom (Quarterly), etc.
Chamber of Commerce (COC)
Manufacturers, industrialists and traders in different regions as
per their needs and requirements establish the Chamber of
Commerce and Industry. The membership of Chamber of
Commerce is open to all. They playa prominent role in the
export promotion activities of trade and industry. They arrange
periodic meetings which help in :-
a. An exchange of information and compilation of data,
indicating the present state of the export activities in a
particular trade or industry.
b. An exchange of views and formulation of specific remedial
policies, which will be taken up with the Government.
11.675.1
Membership of the Chambers and Associations is open to all

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

members of trade and industry. The discussions therein are
amongst professional people who have a thorough knowledge
of a trade or an industry. This can be an excellent forum to
project practical, viable and sound suggestions for removing
impediments or changing policies in the national interest.
Many of these Chambers or Associations have separate sections
or cells dealing with the export trade, which are helpful in
interpreting government policies to members, disseminating
data on export markets and also making representations to the
government.
Question Bank
Ql. What are the common functions of Export Promotion
Council?
Q2. What is the difference between EPCs and Commodity
Boards?
Q3. What are the functions of Commodity Boards?
Q4. Why were Export Inspection Agencies constituted?
Q5. What role does Indian Trade Promotion’ Organisation
play in export promotion?
Q6. Write note on Indian Institute of Foreign Trade.
Q7. Explain the role of Indian Institute of Foreign Trade in
promotion of exports.
Q8. What role does Indian Council of Arbitration play in
export promotion?
Q9. Explain the role of Federation of Indian Export
Organisation in export promotion? Q.10 What are
Export Processing Zones? How do they help in
promoting exports?
Qll. What is 100% EOU? What are its benefits?
Q12. Write a brief not on All India Handicrafts Board.
Q13. Write a not on MPEDA.

11.675.1 163
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 22:
STATE TRADING IN INDIA
• Introduction
• Objectives of state trading
• Functions
• Advantages
• State trading in india
• Export development measures
• Weakness & future plans of stc
• Future of stc
• Chart on stc
• Question bank
Introduction
There is no precise definition of State trading. There are various
types of’ government participation in foreign trade, all of which
can be defined as State trading. For example, in the centrally-
planned economies the entire foreign trade is nationalised and
is, therefore, conducted directly by government departments or
government-owned corporations. On the other hand, there are
countries, which are essentially free enterprise economies, but
export and import of specific commodities are entrusted to
government trading organisations or departments. For
example, import of raw and unmanufactured tobacco is a State
monopoly in France. The Government Food Agency of Japan
regulates the import, export and internal distribution of rice;
wheat and barley. Similarly, Japan Monopoly Corporation which
is a State body has the exclusive rights of tobacco importation.
The Australian Wheat Board has the exclusive rights for exports
of wheat. There are many such instances all over the world. ,
The third variety of State trading is found in mixed economics
like India. In I India, State participation in foreign trade is
mostly done through government-owned trading organisations
or through government departments. The government-owned
trading corporations are, h9wever, commercial entities registered
under the Companies Act and have, the same rights and
obligations as any private sector firm.
Rationale of State Trading
State hading is resorted to for a number of reasons. In the
centrally. planned economies, foreign trade as a matter of State
policy is nationalised. Foreign trade in those countries is to be
conducted by State trading organisations because otherwise the
central planning mechanism will not function properly. In the
developed free enterprise economies, State trading sometimes is
practised as a source of revenue. That is why it is found that
trade in products like alcohol and tobacco is subject to State
monopoly. Similarly, trade in drugs and arms and ammunition
is managed through State bodies in the interest of health and
national security of the country. State trading in a number of
agricultural products is quite common because State interven-
tion is necessary to avoid large fluctuations in the prices and
164
preventing deterioration in the income of the agricultural
producers.
State trading, however, is more commonly practised in the
developing economies. The reasons behind this are varied. First;
such countries may not have adequately developed private sector
trading bodies which can effectively participate in international
commerce and also protect the national interest. Secondly, the
private sector bodies, though possessing adequate trading ex-
pertise, will be solely motivated by profit consideration.
However, it may be necessary from the national standpoint to
promote new export items and cultivate new export markets
ever. by sustaining short-terms losses. This can be done only by
government bodies having act developmental role and which
are backed by the government so that the financial losses do not
hamper the pursuit of long-term objectives. Thirdly, the
centrally-planned economies have emerged as important export
markets for a large number of developing countries including
India. Since the foreign trade of these countries is in-variably
conducted through State trading organisations, it is found that
government trading bodies are in a better position to negotiate
with their counterparts in the centrally-planned economies.
Canalisation of Imports
State participation in imports in generally motivated by some
other considerations. These are:
(a) to reap the advantage of bulk buying,
(b) to mop up any excess profit which the private sector firms
might enjoy in import business, and
(c) to ensure proper internal distribution of the imported
items and to maintain stable domestic price level.
Advantage of Bulk Buying
There are essentially three elements which can be associated with
the advantage of bulk purchase. First, a bulk purchaser may get
better discount and trading terms. Secondly, since the bulk
purchaser will be a monopolist, the possibility that prices of
commodities, in short supply can be pushed up by competitive
bidding by the Indian importers, is eliminated. Thirdly, since
the international markets of many importable items are
monopolistic, State trading will give rise to countervailing
power which may mitigate to some extent the ill effects of the
monopolistic market structure.
Mopping up of Excess Profits
In a situation where demand for imports exceeds the supply of
imports, there is bound to be a premium on imported
materials. If the import licence is issued to an importer, the
premium will accrue to him. Further, ‘the extent of the
premium will be determined by the market forces. The higher is
the excess demand for imports, the higher will be the premium.
If the premium is high it means not only a correspondingly
larger windfall profit to the importer but also a rise in the cost
11.675.1
of production of those items which use the imported material
as input. Both these problems can be solyed through State.
trading for two reasons: First, because the State trading
organisations having the monopoly right to import are
government organisations, the premium will accrue to the
government. Secondly, the magnitude of the premium will also
not be a problem because the government can decide on the
prices at which the State trading organisations will release the
imported materials in the domestic market.
Maintenance of Internal Distribution
If foreign exchange availability poses no problem and the
import trade is completely free, internal distribution of
imported items at fair and equitable prices will not create any
problem. But since such conditions generally do not prevail in a
developing country, sporadic scarcity of imported items will
occur. ‘To avoid these problems, it may be necessary to hand
over the import of essential items to government trading
organisations which can plan the import operation in such a
way that a steady in flow will be. maintained. This will avoid
sudden scarcities and consequent spurt in domestic prices.
Objectives of State Trading
A country may undertake state trading to achieve one or more
of the following objectives:
i. To achieve its political objectives,
ii. To boost its export trade,
iii. To enlarge domestic planning programmes by purchasing
products required to fill a gap in the plans and by
controlling outside economic forces that may affect these
plans,
iv. To improve the country’s balance of international
payments;
v. To control foreign exchange,
vi. To maintain national security and defence by furthering
military preparedness and by preventing potential enemies
from receiving strategic materials,
vii. To acquire specific products either because they can be
obtained at lower cost or because they are scarce at home or
abroad,
viii. To advance domestic interests by improving bargaining
power in trade or by protecting trade against foreign
competition.
Function of the State Trading
Corporation
At the outset, the main function of STC was to deal with
bilateral trading practices, especially in the socialist countries. But
today it has become a premier trading house having branches in
almost all the trading countries of the world. It deals in nearly
300 commodities spread over 84 countries of the world.
Trading Activities of the STC
a. Direct Trading :- Direct trading includes those goods
where STC has monopoly to deal with. Such goods are
procured, packed and shipped by STC while import items
are purchased from the foreign countries by STC offices
located there.
11.675.1
b. Indirect Trading :- In the case of indirect trading, the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
contracts for the sale or the purchase of commodities are
negotiated by STC while the actual fulfilment of the
contracts is entrusted to the private businessmen enrolled
by the STC.
c. Canalised Trade :- Canalised trade includes the import or
export of certain items through the concerned agencies of
STC. The canalised items of export include sugar, castor oil,
molasses, groundnut extractions, etc. Canalised items of
imports include edible’ oils, writing and printing paper,
non-edible oils, etc.
d. Export Promotion Measures:-
• It provides financial and raw material assistance.
• It participates in trade fairs and exhibitions.
• It undertakes product research.
• It undertakes market research.
e. Other Activities :- STC also performs servicing functions,
thereby bringing buyers and sellers together and assisting
them in fulfilling contracts.
• It helps the government departments and, industrial
concerns in processing supplies of plant and machinery
from abroad.
• In some cases, it settles trade disputes between the
Indian and foreign parties.
The corporation is successful in introducing several new
commodities for exports and in developing new markets for
Indian goods. In recent years, the STC is also taking active
interest in marketing research, advertising and sales promotion.
,However, it is a public sector organisation with usual difficul-
ties and limitations of its own.
Services Rendered by the State Trading Corporation
a. To the Indian Industry :- STC helps thousands of Indian
manufacturers to find markets abroad for their products’. It
assists them in making the best use of raw materials and
production infrastructure, guides and helps them in their
marketing efforts. Some of the services offered by STC to
the Indian manufacturers include :-
• Provides financial assistance to the Indian exporters on
easy terms.
• Imports machinery and raw materials for export
production.
• Assists in the areas of marketing, technical know-how,
quality control, packaging, documentation, etc. ,
• Supply of imported goods in small quantities as per
the requirements of buyers.
• Helps in exhibiting the products .of small scale
manufacturers in the international trade fairs and
exhibitions.
• Market intervention on behalf of the Government:
b. To the Overseas Buyers :- STC acts as an expert guide for
the overseas buyers interested in Indian goods. It helps
them in finding the best Indian manufacturers, undertakes
negotiations, fixes delivery schedules, overseas quality
165
 control, etc., and tries to provide a complete satisfaction to
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
the overseas buyers.
c. To the Indian Consumers :- Indian consumers are also
benefited from STC’s expertise and infrastructure. STC
imports essential commodities in order to cover shortfalls
arising in the domestic market during the periods of
scarcity. Generally, it imports the items of daily requirements
such as sugar, wheat, pulses, etc., so as to stabilise their
prices.
Advantages of State Trading
One of the important features in most countries in the post-
war years has been the rapid extension of the function of the
state in commercial fields. In most countries trade is closely
regulted by the state, while in others it is partly or wholly
conducted by state organs. In India, too, the trend towards
state participation is becoming increasingly significant.
The controls over international trade are, in some respect, the
most dangerous of all, and they stem from state trading. Private
enterprise economies have a considerable admixture of
governmental trade. State trading may be assumed for pur-
poses of governmental responsibilities for defence, the desire to
protect important sources of taxation and control public
morals. The limitation of foreign exchange and shipping, plus
the need for saving manpower were responsible for state
trading and bulk purchases during the war and in the war
period of reconstruction. There was an element of monopoly
selling and monopoly buying. The argument for the perpetua-
tion of the system rested on economies of scale. If foreign
producers, for example have assured markets in governmental
bulk purchase contracts, they would cease to worry about
marketing problems and would concentrate on efficient
productions, passing on a part of the gains of efficiency to the
consumer in the form of lower prices of goods.
Few countries are willing however, to allow a foreign govern-
ment to deal directly with private producers in important
markets without intervention. Such foreign government may
yield to the big buyers to squeeze down prices, and improve
their terms of trade. This calls for an organisation on the
selling side. With both the buyer and seller orgainsed, there
should solution and which frequently results in a stalemate, and
always leads to complaints
State Trading in India
State trading in India has a fairly long history. State trading in
imports is first discussed followed by a discussion on State
trading in exports.-
State Participation in Imports
The advisability of taking over imports’ of certain specified
item was first considered by the Government of India in 1948.
The context was the abnormal increase in the price of East
African cotton of which India was a bulk importer. The margin
between the prices at which the import was negotiated by the
Government and the domestic price thereof was so high that
suggestion was made that the Government of India should
directly import the East African cotton so that the margin
between the domestic price and the c.i.f. price could accrue to the
Government. The Government, however, took a decision not
166
to take over import trade in East African cotton.1 Since then
State trading in imports was discussed by various committees
and by 1956 the Government had come to the conclusion that
there should be government corporations which were to be
entrusted with the function of import of specific items. Two
factors persuaded the Government that canalisation of imports
for some items . was necessary. The first factor was the gradually
increasing trade with the’ socialist countries. Private traders in
India had not the expertise in dealing with the Government
trading organisations in these countries, and therefore, faced
problems while negotiating export import contracts. Since
under the rupee-payment arrangement exports and imports
have to balance; the Government of India have the responsibil-
ity to see that the import plan is fulfilled. A State trading
organisation, through which imports could be canalised, would
be an effective instrument to achieve this result. The second
factor was the artificial scarcity created by small importers who
had been given import licences to make abnormal profits.
The State Trading Corporation of India (STC) was set up by
the Govern-ment of India in 1956 which was designated as the
sole import agency of such items as the, Government may
decide from time to time. STC, however, would import other
items as well apart from the canalised items. The functions of
the STC as given in the Memorandum of Association are as
follows:
i. To organise and undertake trade with the State trading
countries as well as other countries in commodities
entrusted to the company for such purpose by the Union
Government from time to time and to undertake the
purchase, sale and transport of such commodities in India
or anywhere else in the world.
ii. To undertake at the instance of the Union Government
import and/or internal distribution of any commodities in
short supply with a view to stabilising prices and
rationalising distribution, and
iii. To generally implement such special arrangement for
imports, ex-ports; internal trade and/or distribution of
particular commodities as the Union Government may
specify in the public interest.
Very high margin of profit earned by the importers of certain
consumer commodities like cassia, betel nuts, cloves, etc., for
which adequate foreign ex-change could not be allocated due to
tight foreign exchange position, prompted the Government to
take the decision of complete import canalisation of items
where either the speculative profit or profit due to a wide
disparity between the domestic demand-supply position was
likely to be high. The success of the State canalising agency in
arranging bulk import by items, initially canalised, such as raw
silk, caustic soda, soda ash, etc. at favourable prices also gave the
Government more confidence in enlarging the sphere of
import canalisation.
By canalising the import of speculative items, the Government
managed to appropriate the. profit which otherwise would have
gone to the quota holders. The profit made in these operations
helped the Government to pursue another policy objective, viz.,
export promotion. The State Trading Corporation was directed
11.675.1
by the Government to push up export of items which are
difficult to sell, and therefore may involve financial losses.
“In order to offset the losses on export of difficult-to-sell
items. import of certain scarce commodities, such as betelnuts,
cloves, copra, etc., are canalized through the State Trading
Corporation. When imports of these items……. Are
canalised through the STC, the corporation mops up a portion
of the large profit which is available on these commodi-
ties…….”!
The maintenance of an equitable distribution of imported
materials as well as to keep the interests of the unorganised
sector of the industry in fact are also considerations which force
the Government to use the instrument of import canalisation.
Stabilisation of raw material prices is another objective which
was sought to be achieved through the instrument of import
canalisation. Import of mercury was canalised in 1961. The
domestic sale price of mercury had shot up in 1960 to Rs. 3,500
per flask against a of. price of only Rs. 1,000 per flask. The
reason of such an abnormal rise in price was speculation. The
canalisation of import through the State Trading Corporation
immediately produced the desired result. The State Trading
Corporation fixed its sale price at Rs. 1,800 per flask and the
domestic sale price stabilised at Rs. 2,200 per flask. However, for
the manufacturers of caustic soda, who needed mercury as a
basic raw material, the STC charged significantly lower price, viz.,
a 15 per cent markup on the of. price of Rs. 800-900 per flask.
For others, the price was Rs. 1,800 as indicated above. Thus,
canalisation in effect achieved two objectives: first, to ensure
supply of imported raw material at reasonable prices to the
domestic I manufacturers, and secondly, to mop up the excess
profit which inevitably I would be there, when adequate foreign
exchange could not be allocated for ‘ the importation of an
item.
The following items have been canalised for import (subject to
changes from time to time):
Newsprint, Wool, Palm oil (edible), Rayon grade woodpulp,
Synthetic ~ rubber, Caprolactum, Alkaloid benzene, Endrine
technical, Chlorine diphosphate, Palm oil (soap), Sunflower
seed oil, Sisal/manila hemp, Paraxylene, Tallow, Carbaryl
technical, Tetracycline HCL, Poly filament yarn, Ampicil trihyd,
Art silk yarn, Chloram powder, Pot. Chloride, Soyabean oil,
DMT, ME glycol, Cement, Sugar, White printing paper, Non-
ferrous metals, Asbestos fibre, Antimony metals, Mercury and
AG fluorspar.
Impact of Canalisation
Analysing the impact of canalisation, the Ministry of Com-
merce submitted before the Estimates Committee:
“The effect of canalisation of import through State agencies has
resulted in savings in foreign exchange on imports on account
of bulk purchases and also on account of bulk shipments and
in supply of raw materials to consumers in the country at
reasonable rates”
Other Advantages are Stated to be
a. import and distribution in a planned and phased manner,
b. long-term supply arrangements,
11.675.1
c. self-generation of foreign exchange through special link
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
arrangements,
d. equitable distribution in India through’associations/
consortia”.2
However, views of the trade and industry in respect of import
canalization were not always favourable.
A major complaint of industry and trade has been regarding the
pricing policy and the high service charges. It has been pointed
out that in the case of some items, specially raw materials, t9i
prices charged by the STC have been excessive. Another
complaint has been the absence of close liaison between
industry and trade and the State trading agencies. At present,
trade and industry have no means of knowing how exactly are
the State trading agencies- fixing their prices.
Anlaysing the Indian situation, Mr. Boothaligam, Director
General, NCAER, and a former Secretary to the Government of
India, submitted before the Estimates Committee:
“Canalisation could be justified and be beneficial only in areas
where two tests can be met. The first is that the organisation
must be equipped to work and actually work in such a manner
that bulk purchases are made economically taking advantage of
favourable changes in the world market. The second is that the
final user must get his material at least as cheaply and as quickly
as he might have if allowed to import himself.”
To conclude, the observations made by the Estimates Commit-
tee may be noted:
“The Committee agrees that canalisation is no doubt a question
of policy which only the Government is competent to decide.
They would, however, suggest that the canalisation of import
of a commodity may be done if it serves public interest. They
would also stress that before canalisation of import of
commodities was decided upon, all the important factors,
including the capacity of the Corporation, should be taken into
consideration. They recommended that after canalisation is
decided upon, the Government must exercise vigilance to see
that it served the purpose for which it was undertaken”.
Canalisation of Exports
The basic objectives of State trading in exports are as fo11ows:
a. It was observed in the case of certain products that there
was secular decline in the total value of exports. It was
thought that a govern-ment trading organisation would be
able to reverse this trend by concerted action.
b. In some cases the inter se competition among the Indian
exporters was resulting in lower unit value realisation. Entry
of State trading organisation in the international market
through which exports were to be canalised could result in
the improvement of unit value realisation. .
c. There are certain products for which. there maybe a
premium in Lie international market. By canalising export
of such products, excess profits from export operation can
be mopped up by the Govern-ment.
d. Another objective of canalisation was to eliminate under
invoicing. It was found that sometimes the Indian
exporters were quoting lower prices in their invoices while
the world prices for such products were considerably higher.
167
 This led to the suspicion that the country had been losing Performance of the State Trading Corporation
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

foreign exchange because of the malprac-tices adopted by

Performance Indicators
certain exporters.
e. Canalisation was also thought of as an instrument to Annual Turnover (2000-2001) Rs. 1040 Crore (US$ 228 million)
improve the bargaining power of Indian exporters. It was Equity Rs. 30 Crore (U8$ 6.6 million)
found that the principal buyers in Western Europe and the Profit after tax (2000-2001) Rs. 3 Crore (U8$ 0.7 million)
United States were large corpora-tions and to negotiate Net Worth (as on 31.3.2001) Rs. 421 Crore (U8$ 92 million)
contracts with them would require the exist-ence of an
equally large counterpart in India which would be able to Exports from India
supply exportable products in bulk quantities. Especially for STC exports a diverse range of items to a number of destina-
products which originate in the small-scale sector, a tions throughout the world. Exports by STC vary from
coordinating agency like the STC would be helpful in traditional agricultural commodities to sophisticated manufac-
promoting export of such products. tured products.
The following items have been canalized for export (subject to Besides, negotiating, contracting and shipping, STC seeks to
changes from time to time): introduce new products, explore new markets and undertake
Sugar, Semi-processed leather, Castor oil, Footwear leather, wide ranging ancillary functions such as product development,
Cement and clinker, Rice basmati, Shellac/lac, Opium crude, financing, quality control and import of machinery and raw
Salt, Lemongrass oil, Canvas/ Plastic footwear, Molasses, materials for export production.
Groundnut extractions, Barytes, Chrome ore, Silimanite and STC makes use of its world-wide connections, abundant
Processed mica. experience, up-to-day information about the market trends and
The State trading organisations have also a promotional role so long term perspective on various commodities to ensure
far as exports are concerned. As regards non-canalised items, the competitive prices, right quality and adherence to delivery
basic objectives of the State trading corporations are: schedules to the buyers abroad.
1. To function as catalytic agency for promoting new items of Principal Items of Exports
export. For example, in 1981-82 several new items were Agricultural Commodities Manufactured goods
introduced in international markets by the STC including
Wheat, Rice & 8ugar Chemicals, Drugs & Medical Disposables
rayon viscose fabrics to the USA, textile fabrics and threads
Spices & Cashew Engineering & Construction Materials
to Vietnam, green tea to Algeria and stereo music
Tea & Coffee Consumer Products
equipment to Hungary. Algeria and Libya have been
Tobacco and Rubber Textiles Garments
identified as potential markets for a number of agricultural
commodities. Opium Leatherware
Groundnuts Processed Foods
2. To form consortia. of manufacturers specialising in
Castor oil & Seeds
different’ lines , like railway wagons, readymade garments,
Jute Goods
plywood, etc.
3. To provide support to traditional items, viz., jute, coffee, Imports into India
coir, etc. STC imports a number of essential commodities to cover the
4. To identify new export markets. STC developed several new domestic shortfalls and hold the price line. STC serves the
markets during 1981-82 including Saudi Arabia and Malaysia national objective by arranging timely imports at most competi-
for mango pulp, Hungary and GDR for fashion garments, tive prices. In the process, the Corporation makes best use of
the UK for golf shoe uppers, Spain for footballs and its strength in handling bulk imports, vast infrastructure and
Uganda for bicycle and bicycle parts. STC has explored above all an experience of over four decades in fulfilling the
South Korea and Hong Kong for export of Indian goods needs of the industry.
to third countries. STC is negotiating with Hong Kong for Principal Items of Imports
export of building materials and textiles for export to the
USA and African countries. Agricultural Commodities Manufactured goods
5. To introduce products in international markets particular-ly Edible Oils Hydrocarbons
those manufactured by the small-scale and cottage sector
Sugar Gold & Silver
such as sandalwood, billets, silver jewellery, kuth oil, dried
Wheat Urea
mush- room, etc
Fatty Acids Scientific Instruments
6. To introduce product adaptation and development keeping
in line with the changes in the international markets. For Pulses Instruments for Police & Hospitals
example, Mica Trading Corporation is trying to export
fabricated mica as the demand for the traditional product, Export Development Measures
viz., processed mica, is declining over the years. The export development measures undertaking by STC during
1989-90 included the following;

168 11.675.1
• STC provided financial and raw material assistance for the
export of ibuprofen, thermoplastic wovens, phosphorour
compounds and mercury salts. Oxalic acid / diethyl oxalate.
• During the Year, STC participated in 23 fairs, exhibitions
and buyer/seller meet in India and abroad including IITF ‘
89, New Delhi in which STC’s stall was awarded Gold
Medal for best display.
• STC’s Design and Development Cells based in New Delhi
and Agra developed a number of new samples of footwear
and shoe uppers for display in various international fairs
and exhibitions and for negotiations of export orders on
behalf of the small scale industry. Testing facilities for
leather items were also provided in STC laboratories to help
the small scale industry in quality control.
• A number of machines were installed in design-cum-
Development Cell at Jalandhar for testing the quality of
goods and other material being used for manufacture of
sports items.
• For the first time, STC undertook the task of purchasing
soyabeans in the mandis, prcessing and selling the oil
domestically and exporting soyabean meal.
Offshore Trade
The Corporation’s offshore trade during 1989-90 increased to
Rs.14 cores from Rs 4 crores in 1988-89. The main items and
markets for which trading were undertaken were. That rice to
Dubai and Yemen, Iranian cement to Nepal, Indonesian
Condensed milk to Maldives and Chemicals and pharmaceuti-
cals to Poland from Germany.
Foreign Exchange Earnings/Outgo
The Total exchange earnings and outgo during the year are given
below.
• Foreign exchange earnings by way
of exports (FOB Value) 731.82
• Foreign exchange outgo;
• Imports (CIF Value) 610.51
• Interest 50.06
• Other expenses 7.25
STC set a target of Rs 580 crores for exports for the year 1990-
91 During the year emphasis was laid on direct buying and
selling.
Salient features of the export strategy adopted by STC for 1990-
91 are given below:
1. STC continued to make efforts to strengthen supply base
for selected commodities to be identified as thrust areas.
2. STC took action to underwrited part or whole of
production of identified units for export of manufactured
products.
3. STC financed export oriented projects and converted
financially weak companies into exporting. Items added
were tea and castor oil.
4. STC took up development of Brand Marketing in select
areas e.g sports goods.
5. An attractive package of services offered to the associates
such as:
11.675.1
I. Development of infrastructural services for the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
associates by way of import, bulk purchasing locally
and warehousing.
II. Financial assistance for expansion of capacity.
III. Setting up of testing laboratories to ensure consistent
quality export.
Weaknesses and Future Plans of STC
Some of the major weaknesses of the STC pointed out by a
study con-ducted by the Indian Institute of Management,
Ahemdabad, were:
i. Though the objectives with which STC was established are
known and clear, STC management has rarely taken any
major entrepreneurial decision on its own.
ii. There seem to be no guidelines or criteria for choice by STC
management of new product/markets.
iii. Not much expertise has been developed to locate and
develop sources of supply of exportable products.
iv. Also not much expertise is developed in procuring imports
from sources of supply abroad.
v. Much of the expertise is in operating as an agent, in
processing’ indents and tenders and in transportation and
distribution; not In-merchan-dising, procurement or
marketing.
The setback in the exports of non-canalised items can be
attributed to the STC’s failure to develop and appropriate
supply base and take adequate promotional steps among
importers.
In recent years, STC has taken some major steps to improve its
working. They are: -
a. Diversifying the product range-:it has continued to add new
items to its export basket like moccasins, orthopedic shoes,
sports shoe uppers, compressors, RD. pipes, cocoa beans,
peacock feathers and clutch and security bags. It would lay
emphasis on value added products like computer software,
Maruti vehicles, scooters and mopeds, consumer electronics
and packaged tea.
b. Trying to spearhead the national effort to identify new
markets for Indian commodities and manufactured goods
and establish itself in these markets on a long-term basis.
c. Developing a reliable supply base for production of quality
goods in association with the State undertakings, co-
operative organizations and others in selected and identified
sector. . If necessary, STC shah undertake investments for
development of such production base. The STC has also
decided to enter into joint ventures to develop captive
supply sources for exports.
d. Establishment of 100 per cent export-oriented production
units the product ranges identified so far are leather
products, sports goods and engineering goods. These will
be mainly set up with foreign technical and equity
participation and 100 per cent. buyback arrangements.
e. Improvement in quality, grading packaging, etc.
f. Participation in fairs/exhibitions in India and abroad.
169
 g. Evolution of a scheme to supply raw materials at in the import of industrial raw materials for supply to actual
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

international prices for export production.
Corporate Plan
The STC has drawn up a corporate plan with the main objective
of achieving a turnover of Rs 5,000 crores by the year 1999-
2000. The major strategies to be followed in this regard include:
• Increased emphasis on direct buying and selling.
• Strengthening overseas marketing network.
• Entering into joint ventures.
• Undertaking OGL imports.
• Expanding domestic trade.
• Undertaking infrastructure development.
users in the country mainly for export production.
With a view to developing captive sources of supply for
exports,. the STC has entered into a number of joint ventures.
It has also set up warehouses overseas for developing exports
on a sustained basis. The MMTC has also decided to set up
joint ventures in various fields of its activities.
Since the Government wants the STC and MMTC to function
as internation-al trading houses in competition with the private
sector, it is strongly felt by these organisations that the Govern-
ment should give them autonomy in their business operations,
including investment in joint ventures to improve the turnover.
Organisation Chart of STC

• Exploring new lines of business. Chairman & Managing

Director
Vigilance
Internal Audit
Mangement Services
• Organisational restructuring. Trade & Export
Development
• Strengthing of information base. Practice Management
Board Secretariat and
Parliament cell
With its long experience of exporting a wide range of prod-
ucts/com-modities to over a hundred developing and
developed countries and a sound infrastructure, STC should Exective
Director
Executive
Director
Executive
Director
Executive
Director
Executive
Director
~ot merely act as canalising agency but should organise itself as Finance Personal Markekting marketing

an effective trading house on the lines of Japanese trading

Finance & Personnel & Exp - Drugs & Agricultural Consumer
houses. It should provide new dimensions and leadership as Accounnt Codification Chemicals Sugar
orts Alcohol
Products products Fresh &
Insurance Industrial Soyabean Processed Foods
the biggest export house in the country. legal Relations Molasses Meal/ Meat 7 Marlne
General Leatherware Other Products Engg. &
Future of State Trading in India Administratio
n Protocol &
Shellac Extractions
Coffee Tea
Construction
Material Cement
Travel Public Castrol Oil Cashew Joint
With the Government’s new economic policy taking shape, it is Relations & Tobacco Ventures
Advtg. Counter Trade rmy
now evident that canalisation, except of very few sensitive Building Cell Software Textiles
Hindi Cell & Garments and
commodities, will not be there in the country’s export-import housing Jute Sports Goods
policy. This, to a large extent, has already eroded the base and Colony
Library
Grants By Govt of
India
profitability of the State Trading enterprises-a trend which will Securlty

get strengthened in the coming years. These organisations will, Forest Edible Oils Newsprint
therefore, have to redefine their role and create capacity to Imports Products
Rubber
Fatty Acids
Pulses
General Import

emerge as global traders without the support of any monopoly Chemicals

business on the Government account. Both MMTC and STC Imported Cars Bearn/Seed
have initiated measures in this direction but these have not Domestic Trade
Import of OGL
Items In
Processing
& Oil Sale
become very successful. For example, while canalised exports Chemical
Drugs & Plastics
Pulses

constituted per cent of MMTC’s total exports in 1991-92, this Timber

increased to 59 per cent in 1995-96. However, in the case of

STC, although is total turnover during 1995-96 amounted to
Rs. 1,685 crores as compared to Rs. 1,861 crores during the
previous year, the non-canalised turnover increased by 5 per cent
from Rs. 847 crores in 1994-95 to Rs. 892 crores in 1995-96.
STC has made rapid strides in offshore trading, a new area of
growth identified by it. It earned Rs:65 crores in 1994-95. The
trading covered items like wheat, sugar and rubber. One
offshore deal struck by it relates to supply of wheat, valued at
Rs. 60 crores, to Sri Lanka, the origin of wheat being the USA
The STC has supplied sugar to Commonwealth of Indepen-
dent States after getting the commodity from the European
Community and South America. Rubber, on the other hand,
has been obtained from Sri Lanka and sold to Iran.
Since the canalised business has virtually come to’ a standstill
due to decanalisation, the STC has been finding avenues to
generate profits from sources like offshore trading, apart from
direct exports of a number of items like leather products
including shoes, and other consumer goods. It is also engaged
Recent Policy Stance on State Trading
Government of India’s policy on State trading has undergone a
sea change “from 1985 onwards. Abid Hussain Committee
(whose recommendations were discussed earlier in the chapter
on India’s Trade Policy) recommended that State trading in
imports should be restricted to only very sensitive items, such
as crude petroleum or in those cases where economies of bulk
procurement are clearly evident. In other cases, imports should
not be canalised. Similarly in the case of exports, canalisation
should be used only when very specific social objectives are to be
achieved. As a result, the number of canalised items, both
export and import, has been progressively reduced. In the latest
Export-Import Policy (1997-2002), only 6 export products are
canalised. These include, among others, petroleum products,
onions and niger seeds. On the import side, 8 products are
canalised. Principal among these products are petroleum
products, edible oils, oilseeds and cereals.
The major State trading organizations in India are:
1. The State Trading Corporation of India Ltd. (STC).

170 11.675.1
2. The Projects and Equipment Corporation of India Ltd.

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

(PEC).
3. MMTC Ltd.
4. The Tea Trading Corporation ofIndia (TICI).
5. Spices Trading Corporation Ltd.
Thus over the years the turnover of the STC has increased
manifold. The increase in exports has been significant after
1971-72. They reached the maximum of Rs. 796 crores in 1983-
84 after which there has been a decline. As a result of efforts
made by STC to promote non-canalised trade, an all time high
export turnover of Rs 806 crores was achieved in 1994-95. On
the other hand, there was almost a continuous increase in
imports till 1984-85. Imports declined as canalisation policy
changed.
One important point to be noted is that in imports, the
percentage of canalised items is far higher than the percentage
of non-canalised items. The percentage of canalised items
varied between 74 and 94 in exports and between 72 and 97 in
imports during the period 1972-73 to 1976-77. This is because
the STC’s efforts are mostly guided by the policies of the
Government of India from time to time and it is left with
limited scope for showing its initiative in there areas. But in
recent years, the percentage of canalised items has gone down in
exports, but in imports, canalised items still predominate.
Products
Over a period, the products handled by STC have also shown
an increase. STC-The Merchant of India, an STC publication,
refers to 17 agricultural commodities, 8 consumer products, 15
items of army software, 3 items of con-struction material, 6
major and a number of miscellaneous engineering items, 10
items of fresh and processed foods, 7 items of leather, 3 items
of meat and marine products, 19 items of textiles and gar-
ments, alcohol, sugar, molasses and castor oil. The import
items include edible oil (6 items), cement, explosives, natural .
rubber, standard and glazed newsprint and white printing
paper.
The major items of export in 1994-95 were cereals, coffee,
cashew kernels, leather, drugs and chemicals, engineering and
construction material, sugar, textiles and garments. The major
items of imports were edible oils and sugar.
The STC has developed a sound infrastructure for development
of exports in the form of 17 branches in India and 17 overseas
offices and a large force of trained marketing personnel.
STC’s Indian branches playa vital role in port clearance, storage,
move-ment and distribution of imported items, in addition to
procurement and ship-ment operations for export items. The
foreign branches provide valuable support in identification of
new products and markets, assessment of market potential,
quality and packaging needs, preparation of new product
development strategy and assistance in carrying out negotiations
for import and export.

11.675.1 171
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

LESSON 23:
STATE TRADING ORGANISATION IN INDIA

Introduction recent years, the percentage of canalised items has gone down in
exports, but in imports, canalised items still predominate.
Short notes
Chairman-cum-Managing Director
• HHEC
• PEC
• MMTC
• CCI
Introduction
Government of India’s policy on State trading has undergone a
sea change “from 1985 onwards. Abid Hussain Committee
(whose recommendations were discussed earlier in the chapter
on India’s Trade Policy) recommended that State trading in
imports should be restricted to only very sensitive items, such
as crude petroleum or in those cases where economies of bulk
procurement are clearly evident. In other cases, imports should
not be canalised. Similarly in the case of exports, canalisation
should be used only when very specific social objectives are to be
achieved. As a result, the number of canalised items, both
export and import, has been progressively reduced. In the latest
Export-Import Policy (1997-2002), only 6 export products are
canalised. These include, among others, petroleum products,
onions and niger seeds. On the import side, 8 products are
canalised. Principal among these products are petroleum
products, edible oils, oilseeds and cereals.
The major State trading organizations in India are:
(1) Handicraft and handloom Exports Corporation of India
Ltd. (HHEC). Organization Chart
(2) The Projects and Equipment Corporation of India Ltd. Products
(PEC). Over a period, the products handled by STC have also shown
(3) MMTC Ltd. an increase. STC-The Merchant of India, an STC publication,
(4) Mica Trading Corporation Of India Ltd. (MITCO). refers to 17 agricultural commodities, 8 consumer products, 15
items of army software, 3 items of con-struction material, 6
(5) Spices Trading Corporation Ltd.
major and a number of miscellaneous engineering items, 10
Thus over the years the turnover of the STC has increased items of fresh and processed foods, 7 items of leather, 3 items
manifold. The increase in exports has been significant after of meat and marine products, 19 items of textiles and gar-
1971-72. They reached the maximum of Rs. 796 crores in 1983- ments, alcohol, sugar, molasses and castor oil. The import
84 after which there has been a decline. As a result of efforts items include edible oil (6 items), cement, explosives, and
made by STC to promote non-canalised trade, an all time high natural. Rubber, standard and glazed newsprint and white
export turnover of Rs 806 crores was achieved in 1994-95. On printing paper
the other hand, there was almost a continuous increase in
The major items of export in 1994-95 were cereals, coffee,
imports till 1984-85. Imports declined as canalisation policy
cashew kernels, leather, drugs and chemicals, engineering and
changed.
construction material, sugar, textiles and garments. The major
One important point to be noted is that in imports, the items of imports were edible oils and sugar.
percentage of canalised items is far higher than the percentage
The STC has developed a sound infrastructure for development
of non-canalised items. The percentage of canalised items
of exports in the form of 17 branches in India and 17 overseas
varied between 74 and 94 in exports and between 72 and 97 in
offices and a large force of trained marketing personnel.
imports during the period 1972-73 to 1976-77. This is because
the STC’s efforts are mostly guided by the policies of the STC’s Indian branches playa vital role in port clearance, storage,
Government of India from time to time and it is left with move-ment and distribution of imported items, in addition to
limited scope for showing its initiative in there areas. But in procurement and ship-ment operations for export items. The

172 11.675.1
foreign branches provide valuable support in identification of
new products and markets, assessment of market potential,
quality and packaging needs, preparation of new product
development strategy and assistance in carrying out negotiations
for import and export.
Handicraft & Handloom Exports Corporation of India
Ltd. (HHEC)
The Handicraft and Handloom Exports Corporation of India
Ltd. (HHEC) was set up in 1962. It undertakes the export of
handicrafts (including woolen carpets), handloom products
(inducting ready-to-wear garments) and gold jewellery. The
HHEC is a wholly owned subsidiary of the STC. It acts as a
supplementary agency to provide private sector agencies
participating in the exports of handicrafts and handloom
products. In 1976 the HHEC has started its wholly owned
subsidiary called the Central Cottage Industries Corporation of
India (CCIC). It has also established showrooms at New York,
Boston, Paris and Tokyo.
A Central Public Sector Undertaking under the administrative
control of the Ministry of Textiles, Government of India
established with the twin objectives of:
I. To undertake export of Handicrafts, Handlooms Products,
Khadi & Products of Village Industries from India.
II. Export Promotion and Trade development of Handicrafts
and Handlooms products (including hand-knotted woolen
carpets and ready made garments) and also to undertake
export of gold and silver jewellery/articles and import of
bullion, timber and other raw Material.
India has a rich history of handicrafts that has evolved over the
centuries. The entire wealth of timeless Indian handicrafts have
survived through ages. The legacy of Indian culture promises
everything- beauty, dignity, form and style. The magnetic appeal
of Indian culture resides in its exclusivity, its mystical tone that
leaves people amazed at their sight.
HHEC has been involved for the past 4 decades in develop-
ment and exports of handicrafts utilising the crafts skills from
all over India to create visually appealing and economically
suitable products for the world markets.
Main Functions of Handicraft & handlooms Exports
Corporation of India.:-
i. The HHEC studies consumer preferences abroad and
introduces new products with special attention to quality.
ii. It provides information and financial facilities in the form
of loans to those engaged in the manufacturing of
handicrafts and handloom products for exports.
iii. It participates in the trade fairs and exhibitions abroad and
also arranges visits of foreign trade delegations.
iv. Its “Sonar” retail outlets offer to public a variety of
handicrafts not usually available in the market.
v. It is doing good business in the USA and West European
markets as regards handicrafts and handloom goods.
About HEPC - A Gateway to Handloom Exporters
Handloom Export Promotion Council (HEPC) is a statutory
body constituted under The Ministry of Textiles, Government
of India to promote the exports of all handloom products like
11.675.1
fabrics, home furnishings, carpets and floor coverings, etc.
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
HEPC was constituted in the year of 1965 with 65 members
and its present membership is around 2000 spread all over the
country. The Handloom industry mainly exports fabrics, bed
linen, table linen, toilet and kitchen linen, towels, curtains,
cushions and pads, tapestries and upholstery’s, carpets and floor
coverings, etc. The basic objective of HEPC is to provide all
support and guidance to the Indian Handloom exporters and
International buyers for trade promotion and International
marketing. HEPC has its head office at Chennai and regional
offices at New Delhi and Mumbai.
Administration
HEPC is incorporated as a non profit making company under
section 25 of the Companies Act, 1956 and governed by the
Memorandum and Articles of Association framed by the
Council. It is administered by an Executive Committee
consisting of elected representatives from the export trade,
exofficio members and nominated Government officials. The
Committee is headed by Chairman. The Chairman and Vice
Chairman hold office for a period of two years. The secretary
(Executive Director) of the Council, an IAS cadre officer
appointed by the Government, assists the Council to run the
administration.
Our Objectives
1. Organizing participation in trade fairs, exhibitions and
buyer-seller meets in India and Abroad.
2. Providing guidance, consultancy and support to handloom
exporters to promote handloom exports.
3. Conducting propaganda regularly and popularise Indian
Handloom products abroad though various means of
publicity.
4. Collect, collate and disseminate trade data and commercial
intelligence to exporters.
5. Facilitate the upgrading, popularisation and adoption of
technology, quality and design improvement, standards and
specifications, product development, diversification and
innovations, etc.
6. Undertaking market studies in individual foreign countries.
7. Sending trade missions to the foreign countries.
8. Bringing out useful publications like colour catalogue,
colour trends catalogue, importers and exporters directories
etc.
9. Laying down standards of quality and packaging in respect
of Indian Handlooms for export.
10. Approving agents, representatives or correspondence in
foreign markets for continuously and regularly reporting the
price, market preferences and reception accorded to Indian
Handloom products.
11. Undertaking or assisting in research on schemes of
technological nature designed to improve the efficiency of
the handloom sector.
12. To advise the Government, local authorities and public
bodies on the policies adopted by them in relation to their
effect on industry or commerce and other measure including
direct and indirect taxations in so far as such policies or
173
 measure having a bearing directly or otherwise on export of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Indian Handloom products
Inquiring and investigating into complaints received from
foreign buyers or Indian exporters and act as arbitrators if asked
for it.
Our Strategies
a. Arrange for the participation of member exporters in the
important trade fairs, organising buyer-seller meet (BSM),
business missions.
b. Provide financial grants to the exporters with market
development assistance for under taking sale-cum- study
tours, participation in international fairs, publicity etc.
c. Popularise Indian Handloom products abroad through
website publicity, advertisements in commercial portals,
trade magazines, conducting exclusive hand woven shows,
and through Council publications.
d. Dissemination of trade information like market studies,
colour trends, design trends, export trends, standards and
specifications, Government policies, circulars etc. through
publications and news letters.
e. Conducting workshops, seminars on upgrading technology
in pre-loom, loom, post loom practices to improve quality
and productivity, popularising modern dyeing practices,
product innovations, diversifications and improvement,
quality compliance, better merchandising practices, packaging
methods and so on to improve the competitiveness of
Indian Handloom products.
f. Promote product innovation, diversification and
improvement in the selected handloom clusters under
Development of Exportable Products and Marketing
scheme (DEPM) for promoting the production of
exportable products.
g. Providing design support to develop new designs, fabric
simulation colour printouts, peg plan graph outputs, layout
information and computer aided colour matching etc. to the
exporters.
h. Generating and dissemination of trade enquiries for
facilitating International buyers to source the handloom
products from Indian Handloom exporters.
i. Liaison with Government for strengthening infrastructure
facilities in handloom export production centres, take
efforts to improve forward and backward linkages in
handloom sector.
j. Serve as a link between trade and Government to formulate
appropriate policies to promote handloom export growth.
k. Inquiries into the complaints made against exporters and
take up the exporter’s problems related to the buyers with
respective embassies.
About EPCH - A Gateway to Handicrafts Exporters
Export Promotion Council for Handicrafts (EPCH) has been
established under the Exim Policy of Govt. of India in 1986-87
and is a non-profit earning organization. EPCH is an apex
organization of trade, industry and government sponsored by
ministry of Textile, government of India for promotion of
handicraft from country and projected India’s image abroad as a
174
reliable supplier of high quality of handicraft goods & services
and ensured various measures keeping in view of observance
of international standards and specifications.
The Council has created necessary infrastructure as well as
marketing and information facilities, which are availed both by
the member exporters and importers.
EPCH Council
The Council is run and managed by team of professionals
headed by Executive Director. The Committee of Administra-
tion consist of eminent exporters
Export Promotion Council for Handicrafts has a rarest
distinction of being considered as MODEL COUNCIL which
is self sustaining and where all the promotional activities are
self financed.
Export of Handicraft:-A rising trend of the export of
handicrafts (other than hand knotted carpets) was merely Rs.
387.00 crores during the year of establishment of the Co
Management
The Council is run and managed by team of professionals
headed by Executive Director. The Committee of Administra-
tion consist of eminent exporters, professionals and senior
Govt. officials. The Export Promotion Council for Handicrafts
has a rarest distinction of being considered as MODEL
COUNCIL which is self sustaining and all the promotional
activities are self financed.uncil i.e. 1986-87 rose to level of Rs.
8343 crores in 2002-2003.
Project and Equipment Corporation of India Ltd. (PEC)
The Projects and Equipment Corporation of India (PEC) was
formed in April 1971 as a wholly owned subsidiary of the STC.
It took over the Railway Equipment and Engineering Division
of the STC.
Main Objectives of Project & Equipment of India Ltd
a. To boost the export of engineering and railway equipment
in established markets.
b. To boost the exports of turnkey projects in the field of
railway systems, public utilities and industrial plants.
c. To penetrate new markets
d. To promote the export of non-traditional and new
products
Minerals and Metals Trading Corporation of India
(MMTC)
MMTC is an independent corporation, set up in October 1963
in the public sector by transferring to it all activities of STC
relating to trade in minerals and metals. MMTC was set up by
the Government as a conalising agency for export and import
of minerals, metals and fertilizers, over the years the Corpora-
tion has been discharging the service responsibility efficiently by
imbibing confidence in the customer community. Simulta-
neously with this, responding to the customer community.
Simultaneously with this responding to the imperative need for
generating foreign exchange to this, responding to the impera-
tive need for generating foreign exchange to bridge the
lwidening trade gap, the corporation started channelising its
organizational and marketing acumen for development of
11.675.1
exports in noncanalised areas. The results have been highly Review of Operations

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

impressive. MMTC’s socialized exports which were a meager The year 1989 – 90 can truly be described as one of the most
Rs. 40 million in 1983-84 registered accelerated growth and eventful year for the MMTC. It has been a year of record
increased more than 125 folds to Rs. 5250million in 1989-90. achievements. The Corporation’s turnover crossed the magical
Corporation’s total exports have crossed the 10,000 million figure of Rs. 50,000 million recording an increase of 31% over
rupee mark. MMTC’s total turnover during the magical mark of the previous year. This is indeed an outstanding achievement
Rs. 50,000 million. With the bonus issue the original capital of for the corporation, considering that the turnover during 1988 –
Rs. 30 million contributed by the government have now grown 89 itself had registered an increase of 34% over the previous
to Rs. 500 million and net worth to Rs. 2,828 million. It is the year. During the last two years the turnover has gone up from
first international trading company of India to be given the Rs. 27,941 million to Rs. 50,973 million. The performance on
coveted status ‘Super Star Trading House’ and it is the first the export front has also been spectacular. From a level of Rs.
Public Sector Enterprise to be accorded the status of ‘Gold 7,284 million in 1987 – 88 the exports have jumped to Rs.
Super Star Trading House’ for long standing contribution to 11,483 in 1989 – 90.
export. 1987 - 88 1988 - 89 1989 - 90 Percentage increase
(+)/ decrease (-) for
Activity Profile of MMTC last 2 years
Going Place:- MMTC is a state owned enterprise discharging Exports
an important responsibility that of finding markets for India’s Canalised 3334 4778 6231 86.9
exports and meeting India’s requirements of essential Goods. Non – canalised 3950 3947 5252 33.0
Total Exports 7284 8725 11483 57.6
Towards this end MMTC has a wide spectrum of activities.
Imports
These cover international marketing, trade finance, distribution,
Canalised 20697 29303 38149 84.3
infrastructure development and new joint collaborations with
Non – canalised 490 410 997 103.5
other important manufacturing companies to set up projects in
Total Imports 21187 29714 344 (-) 26.7
India and abroad.
Domestic 470 361 344 (-) 26.7
Between these activities MMTC has been able to harness India’s Total Turnover 28941 38800 50973 76.1
rich potential in international trading.
Activities and Services Profitability
Another record achievement is significant improvement in the
i. Exports of primary and manufactured products. profitability of the Corporation during the year. Profit before
ii. Import of Industrial commodities. tax at Rs. 851million is the highest ever achieved by the
iii. Trade and counter trade. Corporation in its 30-year’s history – an increase of 23% over
iv. Agents and representatives for domestic produces. the previous highest level of Rs. 691 million reached in the year
1988 – 89.
v. Domestic trade services.
Foreign Exchange Earnings and Outgo
vi. Investments in joint ventures.
During the year the outgo of foreign exchange on trading
Trading Groups activities was Rs. 32,788 million compared to Rs. 23,371 million
i. Minerals Group: mineral based products. during the previous year. The inflow of foreign exchange was
ii. Metals Group: ferrous and non-ferrous metals and metal- Rs. 11,021 million as against Rs. 8,642 million in 1988 – 89.
based products. After over 30 years as India’s leading trading house MMTC is
iii. Fertilisers Group: fertiliser raw material, intermediates and creating a new, more powerful role for itself. It’s now joining
finished fertilisers. hands with others to set up joint ventures in India and abroad.
This fusion of powerful conglomerates will add another
iv. Export Trade Group: light engineering products, gems and chapter to India’s drive for achieving international recognition as
jewellery, handicrafts, agro products and counter trade. an important sourcing centre.
MMTC’s imports have been steadily rising. From a level of Rs.
Corporate Mission of the MMTC
210,000 million in 1985 – 86, imports have risen to Rs. 350,000
As a-major trading company in Asia, MMTC aims at achieving
million in 1989 – 90. The intensity of exports has also been
sustainable and viable growth rate by achieving excellence in its
steadily rising. There is however, a broad measure of agreement
activities, generating optimum profits through total satisfaction
that imports do not offer any substantial scope for pruning
of shareholders, customer suppliers, employees and society.
even in the face of severe balance of payments pressure. Most
of MMTC’s imports are essential imports required for agricul- Main Functions of the MMTC
ture or industrial growth. A fair proportion of imports are a. It organises and undertakes trade in metals and minerals
directly related to exports and another significant proportion and other allied commodities as may be entrusted to it
pertains to capital goods imports. In the circumstances, the only from time to time by the Government of India.
meaningful solution available to MMTC is to meet the
b. It explores new markets for metals, minerals and allied
challenge of balance of payments crisis and to plan for major
commodities in overseas markets with a view to diversifying
thrust in exports.
and expanding Indian exports.

11.675.1 175
 (c) It undertakes to procure and distribute, at the instance of micanite sheets for which there is good demand. Samples of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

the Union Government, minerals, ores and concentrated heater micanite sheets have been sent to the prospective buyers
metals with a. view to stabilising their prices. for evaluation. Second phase of the Insulating Material Project
(d) It purchases or takes on lease any mines or mining rights, is expected to be completed by the end of 1990.
f8.llow land in the country or elsewhere and any interest The proposed R & D Centre by MITCO has been registered as
therein. an approved centre by the Department of Science & Technology
Organization chart of MMTC and further steps are being taken for its implementation. The
BOARD
government have merged MITCO with its holding company
CMD BOARD SECTT
MMTC Ltd.
VIGILANCE GM
EXPORT PRODUCTS - 1 CGM Conclusions
CPPM – 1 GM
The STC’s efficiency has varied directly with the quality of the
DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR persons in actual charge of its operations. It handles a sizable
(MINERALS) (METALS) (FERTILISERS) (FINANCE)
(PERSONNEL) value of India’s total foreign trade. Though the STC has not
done any harm to foreign trade interests, it should show greater
IRON ORE NFM FINISHED F&A PERSONNEL
FERTILISER & ADMIN
determination and drive in pushing the nation’s exports.
RAW
MATERIALS From the beginning, the STC has met with severe hostility
AND
INTERMIDIATE from private traders and trading interest. All the traders have
(FERT)
been unanimous in objecting to what they consider as an
OTHER ORES IRM ALL OVERSEAS AUDIT PR & OL unwarranted intrusion of the state in the trade. Complaints
PROJECTS LINKED
WITH FERTILISERS regarding wagon allotments in movement of goods have been
SHIPPING & STEEL LAW AGRO MARINE & voiced.
TRANSPORTATION MINERALS
The traders obviously view export and import from their point
JOINT VENTURES
IN MINERAL
MSD &
COMPUTER
of view: they should, in fact, change their attitude. However,
RELATED
AREAS
care should be taken to ensure that existing channels do not
INSURANCE abruptly dry up and adversely affect the country’s foreign trade.
INFRASTRUCTURE
PROJECTS RELATING
TO IRON ORE MITCOMICA
The choice of the name STC seems a bit tactless. The name
& OTHER MINRALS
could have been India’s Commodity Exchange or India’s
CGM CGM CGM CGM CGM
(F&A) (LAW) (MICA)
CGM CGM
(PERS (ARGO
International Trade Centre, without explicitly thrusting forward
& MARINE the concept of the much argued and rather suspected State
ADMIN &
MINOR Trading. The STC should not be judged on profit – and – loss
MIN)
GM GM GM GM GM GM (A/CS) account alone, but rather on the basis of its ability and success
IRON (OTHER (NFM) (STEEL (FERT RAW
ORE MINERALS) & IRM) MAT.) GM (AUDIT)
in fulfilling the objectives of maximisation of exports and
PURCHASE diversification of trade. It has created an awareness among
GM (EXPORT GR.)
private traders that if they do not maintain a certain minimum
GM (STEEL)
code of conduct, the state would step in to set matters right.
GM (FERT) This awareness is perhaps the greatest contribution of the STC
Mica Trading Corporation of India Ltd. (MITCO) to the success of India’s foreign trade.
During 1989 – 90, MITCO achieved record turnover of Rs. There are certain inherent weaknesses in the STC because it is
322.85 million. Its total exports of mica was Rs. 312.90 million largely manned by bureaucrats who lack business experience and
– highest ever – registering an increase of about 28% over the initiative. Businessmen with practical knowledge must replace
previous year export of Rs. 245.10 million. Export to General government officials. The interlocking of the activities of the
Currency Area increased by 36% from Rs. 125.50 million during Government of India and the STC makes possible the
1988 – 89 to Rs. 170.13 million in 1989 – 90. For the RPA concealment of inefficiency under intricate official procedures.
countries the growth rate was about 19% with exports increas- There is an urgent need for coordinating the trade conducted by
ing from Rs. 118.92 million during 1988 – 89 to Rs. 141.82 private traders and the STC. Moreover, the STC offices abroad
million in 1989 – 90. have not been in a position to create an impact. There is,
The sales turnover of mica products during 1989 – 90, how- therefore, a need for creating a better image of India’s foreign
ever, stagnated around the previous year level of Rs. 15 million trade, not only in this country but in the markets of the world
due to continued teething problems in marketing of mica as well.
paper. Report of mica paper increased marginally from Rs. 7.3 STC has been arranging imports of edible oils, chemicals, fatty
million in 1988 – 89 to Rs. 7.8 million during 1989 – 90. Cost acid, rubber, newsprint, etc., on a wide scale. To achieve its
disadvantage vis – a – vis the long established competitors in stated objectives, it established as its subsidiaries Cashew
the developed countries was the major obstacle in boosting Corporation of India, Handicrafts and Handloom Export
export of this product. Efforts are being made to overcome Corporation, Project and Equipment Corporation, Tea Trading
these problems through change in marketing strategy. With the Corporation of India Ltd and Central Cottage Industries
commissioning of the first phase of the Insulating Materials Corporation of India Ltd.
Project it has become possible to convert mica paper into heater

176 11.675.1
With the new Exim policy liberalising the imports of certain made payments to MMTC and recovered it from Posco after 90

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

items for government departments, banks, and public sector days. Now, MMTC is having talks with a Japanese trading
units, the role and activities of STC have widened. It needs to major for a different sort of arrangement following a successful
take some more steps to diversify its operations. The new policy pact clinched by a private exporter. Trade sources said S.
has decanalised a number of items. The subsidiaries of the STC Salgoankar, a Goa-based exporter, has struck a deal with Itochu
have helped in importing some essential materials in time. of Japan for supplies to Posco. According to this arrangement,
Their role in the promotion of export of handicraft, handloom touch would pay the exporter once the shipments are cleared.
items, engineering goods and turnkey projects is praiseworthy. Payments from the South Korean company will be collected
In the new policy the role of STC has been reduced to a mere after 90 days or ltochu would buy steel against the credit.
export house. Now it has to seen that in years to come what It is understood that MMTC is having talks with another
contribution STC could make in the export drive of India. Japanese trading company and had even considered the option
Article of buying steel from Posco through this arrangement. How-
ever, the Steel Ministry has not cleared the proposal since
MMTC Keeps Exports To S. Korea Intact through
domestic producers like Steel Authority of India (SAIL) are
Novel Tieups
already facing poor off take. Therefore, the current arrangement
MMTC Ltd. has managed to salvage its iron ore exports to
would be to ensure that MMTC gets paid on delivery of iron
currency crisis-hit South Korea through a $ 6 million revolving
ore shipments while the Japanese trading company squares off
line of credit from Indian Overseas Bank (lOB) in favour of
the deal with Posco later through cash payment or steel
Pohang Iron & Steel Company (Posco), the second largest steel
supplies.
producer in the world. A similar facility from an international
bank has also been worked out while MMTC is negotiating a The Hindustan Times, April 17, 1998.
credit arrangement from a Japanese trading company in a bid to Questions Bank
assist Pasco. Q1.What are the functions of State Trading Corporation?
While helping Posco, which is all set to overtake global leader Q2.What services are rendered by the state trading Corporation
Nippon in a few years, the financing arrangements would also to different entities.
ensure that MMTC’s exports to South Korea, valued at more
Q3.Analyses the achievements of STC in the field of imports
than $30 million, is not hit. The first shipment under the
and export.
revolving line of credit extended by lOB was cleared on April 1,
1998. Another shipment is expected to leave on April 20. The Q4.Name the major STC organizations in India, Explain any
two shipments together account for 2.80 lakh tonnes, valued at one of them.
around $6 million. Since lOB has provided a revolving credit Q5.Write a note on MMTC and HHEM.
facility valid for 90 days, Posco could buy iron ore worth at least Q6.Write a note on canalization of trade. What are its
$18 million from MMTC if three cycles are completed within a objectives?
year.
Q7.What are the objectives of STC? To what extent it is
MMTC has a five-year agreement with South Korea to sell 2.3 successful in achieving them?
million tonnes of iron ore per annum. The public sector
trading company sold iron ore worth $32 million to South
Korea in 1997-98 despite the currency crisis which led to steep
devaluation of the Won, affecting Posco, which is the sole buyer
from that country. Since Posco is a strong company, MMTC was
advised to support it at the time of difficulty. Following the
Asian currency crisis, the. South Korean major had expressed its
inability to pay on time for iron ore and sought supplies from
MMTC without an L/C (Letter of Credit).
When MMTC approached Export Credit Guarantee Corpora-
tion (ECGC) for insurance cover, the plea was turned down.
After persuasion from the Government, ECGC agreed to
provide cover to shipments destined for South Korea whose
rating has gone down after devaluation of the Won. However,
ECGC is seeking a 3.86 per cent premium and the insurance
payable would be only 60 per cent of the value of shipment.
The payment would be made only after a period of nine
months. In other cases, the premium is lower while the
payment works out to 90 per cent of the shipment value and
ECGC pays the amount after three to four months.
Since the ECGC option was not considered viable, MMTC
worked out a credit arrangement with an international bank
based in the US. After the shipments w!>,re made, the bank

11.675.1 177
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 24:
IMPORT TRADE PROCEDURES
• Introduction of Import
• Liberalisation of Imports.
• Types of Importers.
• Special Schemes for Importers.
• Import Procedure :-
• Pre-import Procedure.
• Legal Dimensions of Import Procedure.
• Question Bank.
Introduction
In 1992 import of goods and services into India were valued at
Rs. 50,000 crores. Merchandise imports exceeded exports. This
flow of goods and services from abroad provides a wide verity
of critical materials, parts and products not otherwise available.
Additionally the flow provides a basis for foreigners to pay for
Indian exports and provides Indian consumers with a wide
selection of goods from which to purchase. The import
function however often receives little attention because of the
emphasis on the expansion of exports, except when imports
directly compete with domestically produced products. Despite
the quantitative importance of the function and the critical need
for imported goods, the import function remains little
understood by many in universities, government and busi-
nesses alike.
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 good
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.
Liberalisation of Imports
Consequent upon a comfortable balance of payments position
of the country, increasing necessity of imports for export
production and globalisation of Indian economy, the Govern-
ment of India has liberalised the import regime from time to
time. At present, practically, all controls ‘on imports have been
lifted. Under the new EXIM Policy 2002-07 announced on
March 31,2002, the Government has initiated a comprehensive’
package intended to make international trade a vital part of
development strategy. It has substantially eliminated licensing,
quantitative restrictions and other regulatory and discretionary
controls both on exports and imports. ‘
All goods may be imported freely in India without any
restriction except to the extent such imports are regulated by the
provisions of the EXIM Policy 2002-07 or any other law for the
178
time being in force. Moreover, the customs duties on imports
have been considerably reduced and rationalised during the last
few years. The procedure for imports has been considerably
simplified and the bureaucratic controls have been reduced to
the bare minimum.’ Besides, availability of foreign exchange for
imports has also been eased. Regulations regarding personal
imports such as consumer goods, baggage etc., have been
substantially liberalised.
The Import Process
Importing has been considered in several place in this text. The
present chapter serves:
i. to organize the various aspects of importing by
presentation of the import process,
ii. to describe major importing institutions,
iii. to portray probation confronting Indian importers.
iv. To elucidate major facts of the custom law and procedure
and
v. Because of its close relationship to customs arrangements.
The discussion should aid you in conceptualizing the import
process and should provide a somewhat different perspective
on Indian commercial policy.
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 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
11.675.1
 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
11.675.1
carry out documentation procedures can be costly and result
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
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.
Types of Importers
Four basic types of importing institutions are found in the
most countries: private industrialists end users, government
agencies and facilititating agencies. These are augmented by
many agents of foreign suppliers.
1. Private Industrialists:- Private industrialists who buy and
sell for their own account. There are numerous private
industrialists may carry on a significant portion of the
import business while in India, the activities of
industrialists are hampered by government attempts to
achieve economic development goals. Restrictions such as
the following are not unusual:
Private industrialists are precluded from importing any item
on the controlled list and they are often unable to get
government approval to import on deferred payment terms
. for industrial raw material importation licensing has been
liberalised by the government of India.
2. End Users:- End users are manufacturers public- utilities,
hospitals, colleges, university etc, who buy for their own
use. They purchase raw materials, supplies, machinery and
equipment to facilitate their own operations and gear level
of their importing to their expected level of operations.
Imports of this group often constitute the major source of
imports for our country.
Traditionally Indian industrial buyers purchased from
abroad only the domestic suppliers could not service their
requirements. Recently however the growth of
multinational companies improved transportation and
communication supply shortages and increased exposure to
foreign firms have led to increased use of foreign sources.
The importation of goods from abroad has enabled many
end users to gain the advantages of technological
developments abroad as the Europens, Japanese, and
others have expanded their research and development.
Often goods are available at lower prices than from
domestic sources, thereby permitting domestic
manufacturers to be more competitive when they
incorporate materials and parts in their final product.
3. Governmental agencies :- governmental agencies
constitute a separate class of importers because of their
operating characteristics, usually being subject to an
extensive budgeting process detailed procedures for bidding
and bidding and ordering and attempted close co-
179
 ordination with governmental development and social
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
plans. The exact role of governmental agencies varies
among countries.
In India purchases by government agencies and government
owned corporations account for a large percentage of all
imports. This is true of all developing countries where the
emphasis is on developmental plans and conservation of
foreign exchange.
4. Facilitating Agencies:-
a. clearing agents: For the routine associated with clearing
merchandise through customs as well as resolving
controversies that may ensue an importer may engage the
services of a customhouse broker. These intermediaries are
export in the complicated paperwork connected with
customs procedures. They often combine functions and
serve also as forwarding agents.
The clearing agent verifies the documents on shipments
into India, sees to the payment of duties and collects freight
charges and arranges for the shipment of goods from ports
to importers. Not only must brokers have knoeledge of
documents, classifications and duty rates but they must also
be familiar with countervailing duties. The value of their
services is indicated by the fact that over 90% of all imports
are processed customhouse brokers.
b. Customs Bonded Warehouses:- Importers may not always
want to take immediate possession of imported
merchandise. They can postpone the payment of duty by
storing dutiable import in customs bonded warehouses
where they may clean sort repack and make certain changes
in the condition of merchandise.
Customs bonded warehouses are in the charge of a
customs officer who jointly with the proprietor has custody
of all stored merchandise subject to detailed customs
regulations. Imported merchandise may be withdrawn from
the warehouse:
1. for consumption
2. for transportation and exportation or
3. for transportation and warehousing at the another
port.
Special Schemes for Importers
As per the latest EXIM Policy 2002-07, import of goods is
permissible under the following ‘special schemes, designed for
encouraging exports :-
a. Export Promotion Capital Goods Scheme (EPCG) ;-
EPCG scheme was introduced by the EXIM policy of 1992-
97 in order to enable manufacturer exporter to import
machinery and other capital goods for export production at
concessional or no customs duties at all. This facility is
subject to export obligation, i.e., the exporter is required to
guarantee exports of certain minimum value, which is in
multiple of the value of capital goods imported.
b. Duty Free Replenishment Certificate (DFRC) :”, DFRC
is issued to a merchant exporter or manufacturer exporter
for the duty free in:1port of inputs such as raw materials,
components, intermediates, consumables, Spare paJ1:S,
180
including packing materials to be used for. export
production. Such certificate is subject to the fulf1lment of
time bound export obligation, arid is issued in respect of
products covered under the Standard Input Output Norms
(SIONs).
c. Duty Entitlement Passbook Scheme (DEPB) ;- Under
the DEPB scheme, ‘an . exporter may apply for credit as a
specified percentage of FOB value of exports, . made in
freely convertible currency. The credit shall be available
against such export products and at such rates as may be
specified by the Director General of Foreign Trade..(DGFT)
by way of public notice issued in this behalf, for import’ “
of raw materials, intermediates, components, parts,
packaging materials, etc
d. Advance Licence :- An advance licence is issued for duty
free import of components which are physically
incorporated in the, products manufactured for export. In
addition, fuel, oil, energy, catalysts, etc., which; are
consumed in the course of production process may also -be
allowed.
Duty free import of mandatory spares up to 10% of the
C.I.F. value of the licence which are required to be exported
or ‘supplied with the resultant product may also be allowed.
Advance Licence can be issued for :--
• Physical Exports.
• Intermediate Supplies.
• Deemed exports.
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 Iraq. However, there
shall be no ban on the import of items form Iraq in case
where the prior approval of the concerned sanction
committee of the UN Security Council has been 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.
11.675.1
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.
e. 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:
3. Arrangement for Payment :- After the importer has
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 but leaves
them to the discretion of the buyer in the exporting
country. A 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.
Though one order goods directly generally importers prefer
to make use of the services of indent houses for this
purpose. The indent firms serves as middlemen between
the exporters and importers and charge a certain %age of
commission from the importer . in India many of the big
indent houses have their offices in port towns like Bombay,
Calcutta.
The indent houses maintain close touch with the well
known foreign firms who send the samples of their
products to them. Their salesmen take these samples to the
intending importers and book orders from them. The
details of the order taken down by the salesmen in their
note books are entered in the indent form. Two copies of
the indent form are sent to the importer for his acceptance.
The importer returns one of the copies duly accepted and
signed to the indent house which then sends a copy of the
indent to its agent in the foreign country concerned.
If an importer does not act through an indent house, he
may place an order directly with the exporter.
2. Obtaining Foreign Exchange:- The foreign exchange
reserves of any country are controlled by the Government
11.675.1
and are released through the central bank. In India, the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
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.
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.
181
 4. Clearing the Goods:- Assuming that the importer has
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
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.
Import Procedure Simplified
As per the new Import Policy 1992-1997 Import procedure has
been simplified:
182
• Against seven application forms required for import of
various items in the negative list only one form will now be
required.
• Most of the imports are now free from licensing. However,
where licensing is required-cases like duty-fee imports for
export production-considerable delegation of powers has
been made to the regional licensing authorities.
• Under the new procedure, import licences/customs clearance
permits will have validity of 12 months. However, capital
goods licences and customs clearance permits will be valid
for 24 months. Revalidation may be granted on merits.
• Other highlights of import procedure are: grant of licences
for certain items of raw materials. Components and
consumables in the negative list of imports decentralized
application for second hand capital good upto a CIF value
of Rs 50 lakh to be considered by the regional licensing
authorities.
• Imports through courier service up to a value of Rs. 5000 at
a time can be made in accordance with the policy.
• Licences for import of cloves, cinnamon and cassia to be
granted to the extent of 10 per cent of best year’s imports
in value in any of the preceding 5 licensing years, subject to
fulfillment of export obligation. Items qualifying for
exports include tea, coffee, tobacco and certain spices.
• Dealers of books may be granted licences on the basis of 20
per cent of the purchase turnover for import of fiction and
other books.
• Import of motor vehicles including tourist coaches and air-
conditioning units will be permitted within the entitlement
of the licences given to hotels travel agent and tour
operators.
• The import entitlement of any one licensing year can be
carried forward either in full or in part and added to the
entitlement of the two succeeding licensing years.
• A special licensing committee headed by the Chief controller
of Imports and Exports may consider applications for
advice on the grant of licence for import of restricted items.
• Import of spares for imported motor vehicles and tractors
upto a maximum value per year of Rs. 20000 (for motor
vehicles ) and Rs.10000 for tractors for each imported vehicle
can be made without a licence.
• Similarly, aircraft après can also be imported without a
licence on the basis of the manual of the aircraft or on the
recommendations of the department of civil aviation.
• Goods imported without restrictions may be transferred to
other. However, in the case of goods imported with actual
used conditions can be transferred only with the prior
permission of the licensing authority.
• Import licences issued under various provisions of the
policy will indicate the value both in rupees and in foreign
currency at the exchange rate prevailing on the date of the
issue of licence. No enhancement of rupee value will be
necessary if the imports are covered by the amount of
foreign currency indicated in the licence.
11.675.1
• Authorized dealers of foreign exchange will indicate the
value in foreign currency as well as in rupees determined on
the basis of the market and official exchange rate in the
letters of credit opened for import of freely importable
items or the items proposed to be imported against a
licence.
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.
c. 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 (lEe) 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
11.675.1
making overseas payments. The Exchange Control
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
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.
Import by Export Oriented Units/Export
Processing Zones Units
The Government of India decided to establish export process-
ing zones in 1965 in order to provide all facilities to the
exporters to promote exports from India. The entire scheme
was reviewed in 1980 when it was decided by the Government
to introduce the scheme of export oriented units and provide
them with all facilities in order to achieve faster rate of growth
in exports. The export oriented units could be established in
the export processing zones or outside the zones. The 100%
EOUs located in export processing zones were known as EPZ
units. Besides, the export processing zones the Government
also established specialised processing zones to promote the
export of elec-tronics hardware, and computer software. For
this purpose electronics hard. ware technology parks and
software technology parks were established. The basic require-
ment of the units to be established under these zones or for
the export oriented units outside the zones is that these units
shall undertake to export their entire production of goods and
services.
The units established as export oriented units or units in the
export processing zones may be engaged in the manufacture,
services, trading, development of software, agriculture, agro-
processing, aqua-culture, animal husbandry, bio-technology,
floriculture, horticulture, pisciculture, viticulture, poultry,
sericulture and granites. Such units are allowed to export all
prod-ucts except banned items.
183
 Duty Free Imports samples may be paid for or imported free of any charge. The ex-
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

The most significant feature of the units in these zones or emptions from import duty are different in both the cases.
export oriented units is that these units are allowed to make
Commercial Samples (Paid for)
duty free import of all types of goods including capital goods
A bonafide commercial traveller or businessman may import
required by the units for the manufacture of goods or trading
commer-cial samples without payment of import duty upto a
of goods or supply of services. The only condition is that the
value. limit of Rs. 60,000 or 15 units in number, within a
items of import should not be banned under the Export
period of twelve months subject to the fol-lowing conditions:
Import Policy 1997--2002.
The samples are imported as a part of personal baggage or by
Such units are also allowed to import goods including capital
post or by air.
goods required
1. The importer produces Importer-Exporter Code (1EC)
by them free of cost or on loan from their clients in foreign
countries. The units in the STP /EHTP /EPZ are also allowed 2. Number at the time of importation.
to import duty free all types of goods for creating a central 3. The goods are clearly marked as samples.
facility for use by software development units in STP /EHTP / 4. The importer, at the time of importation:
EPZ.
Commercial Samples and Prototypes (Free of
The EOU /EPZ/EHTP /STP units can procure the goods Charge)
from bonded warehouses in the domestic tariff area without A bonafide business firm may import, without payment of
payment of import duty .The units are allowed to import even import duty, bonafide commercial samples and prototypes by
second hand capital goods or import goods on lease basis. post or by air or by courier service upto a value limit of Rs.
The EOU /EPZ/EHTP /STP units are allowed to import 5,000 provided the said goods have been supplied free of
without payment of import duty all other goods besides capital charge. The postal charges or the air freight is not taken into
goods required by them for their activities. The list of items account for determining the value of commercial samples and
permitted for export is as follows: prototypes.
Capital goods, as defined in the Policy including the following Question Banks
and their spares.
Q1. Name the different categories of importers.
i. DG sees, captive power plants, transformers and accessories,
Q2. Explain the special schemes of import liberalisation in
ii. Pollution control equipment, India.
iii. Quality assurance equipment, Q3. Explain the main steps in pre-import procedure.
iv. Material handling equipment, like fork lifts and overhead Q4. What are the legal dimensions of import procedure?
cranes,
v. Un-interrupted Power Supply System (UPS), Special racks
for storage, storage systems, modular furniture, computer
furniture, anti-static carpet, teleconference equipment, servo
control system, air-con-ditioners, panel for electrical Security
Systems.
vii.Tools, jigs, fixtures, gauges, moulds, dyes, instruments and
acces-sories; Raw materials, components, consumables,
intermediates, spares and packing materials;
iii. Prototypes and technical samples for product diversification,
development or evaluation;
viii. Drawings, blue prints, charts, microfilms and technical data;
ix. Office equipment, including P ABX, fax machines, video
projection system;
Spares and consumables for the above items.
The facility of duty free import available to the EOO / EPZ/
STP /EHTP is subject to fulfilment of export obligation by
these units. The obligations of these units are at two different
levels as explained below:
Import of Commercial Samples
The import of commercial samples is exempt from the levy of
import duty as provided vide General Exemption No. 42
(Notification No. 154/94-Cus dated 13.07.1994 - with latest
amendment on 6.07.1999 vide notification no. 86/99-Cus). The

184 11.675.1

LESSON 25:
IMPOR T TRADE DOCUMENTATION
• Introduction
• Capital goods
• Custom Clearance Procedure for Imported goods
• Import Documents
• Retirement of Import Documents
• Classification of Goods for Import Policy & Assessment of
Duty.
• Bill of Entry.
• A Note on Forward Contract
Intoduction
The Export-Import policy offers facilities for the import of raw
materials, parts, components other inputs and the capital goods
to facilitate production of goods for the purpose of promotion
of exports.
Many a time, an export firm is required to make import of the
various inputs and machines for the purpose of export
production.
The facility of import is allowed under the ‘following categories:
1. Import of unrestricted items
2. Import of restricted items
3. Import of capital goods
The present chapter deals with these facilities and explains the
pro-cedure involved in customs clearance of the import
consignments.
1. Import of unrestricted Items
The business firms having Importer- Exporter Code
Number are allowed to import the goods which do not
attract any kind of restriction under the Export-/import
Policy: 2002-07, as amended from time to time. There is no
permission .or approval required to import such items. The
importer intending to import la certain item should first of
all, ascertain the ITC(HS) classification number ‘of the item
by referring to the ITC(HS) Classifications of Import and
Export Items. Thereafter, relevant chapter as given in
Schedule 1 ( Import Policy) should referred to find out the
policy regarding import against the item at the desired
TC(HS) number. If the item is unrestricted for import, the
only requirement make import in terms of procedure
would be to pay for the import duty leviable that item and
seek the customs clearance of the import consignment.
2. Import of restricted items
Any business firm intending to import restricted items shall
be required to apply for import licence under the Negative
List. ( Negative List refers to the list of restricted items.)
The details of these restricted items can be obtained by
making a reference to Schedule l(lmport Policy) as given in
the ITC(HS) Classification of Import and Export Items.
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
The importer has to give reasons as to why he needs to
import the restricted items. In other words, justification for
the import has to be provided because import licence
cannot be claimed as a matter of right. It is a privilege
extended by the Government to the importer. If the
licensing authority is not satisfied then it may not grant the
import licence
Capital Goods
Import of Capital Goods
The policy regarding the import of capital goods is very liberal.
There are no restrictions for the import of New Capital Goods.
The only require-ment is to arrange for the customs clearance of
the import consignment against the payment of the applicable
import tariff.
Import of Second Hand Capital Goods
As far as second hand capital goods are concerned, their import
is allowed freely provided the second hand capital good is not
more than 10 years old. However, such goods shall not be
transferred, sold or otherwise disposed off within a period of 2
years from the date of import without the prior permission of
the Director General Foreign Trade.
Warehousing of Imported Goods
An importer may not like to clear or may have certain problems
in clear-ing the goods imported immediately on payment of
duty for home consump-tion. In such an eventuality, he can,
subject to certain conditions being sat-isfied, deposit the goods
in a Public or Private Bonded Warehouse. The object of
warehousing is to allow the facility of deferring payment of
duty on im-ported goods pending actual clearance for Home
Consumption on payment of duty or their re-export without
payment of duty to any foreign port.
The importers are required to file a set of yellow coloured bill
of entry commonly known as warehousing or Into bond Bill
of Entry (B/E) if they want the facility of warehousing of the
imported goods. The warehousing BIE is almost the same as
Home Consumption Bill of Entry and the procedures for its
processing are also the same except that the payment of the
duty is de-ferred.
After the assessment of goods for the lievy of the import duty
is com. pelted, the scrutinizing appraiser debits the import
licence{s} where necessary, and the set of warehousing Bill of
Entry {WR B/E} undergoes usual counter checks by the
Assistant Collector of Customs. The formalities of calculation
of duty, licence, registration and its pre-audit are also gone
through as in the case of a Borne Consumption, B/E.
The W R Bill of Entry is thereafter audited by the Internal
Audit Depart-ment and then sent to Import Bond Department
where the importers file the requisite warehousing Bond u/s 59
of Customs Act, 1962. The Bond after scrutiny is accepted by
185
 A.C. {Bond} and registered in the Bond Department and WR
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
number is impressed on all copies of B.E. The original copy it
kept in the Bond Department, while the others are handed over
to importers I clearing agent. The goods are thereafter examined
by the Dock Appraising staff on the basis of orders of the
scrutinising Appraiser on Duplicate copy, and if found in order,
the same are allowed to be physically warehoused by the Dock
Appraiser under the escort of a Preventive Officer.
Clearance of Warehoused of Goods for Home
Consumption Under Ex-Bonds B/E
In order to clear the dutiable imported goods from warehouse,
the Bonder is required to present an ex-bond bill of entry,
printed on green paper in the Imported Bond Department. It is
not obligatory for the importer to take clearance of the entire
consignment which was warehoused under a particular Into
Bond BIE while filing an Ex-bond Bill of Entry. Even Ex-
bond Bills of Entry for part clearance can be submitted. The
importer after getting the Ex-Bond BIE registered in the
Import Bond Department submits it to Appraising Depart-
ment alongwith Triplicate copy of related Into Bond BIE and
invoice/ packing list, for verification of the particulars furnished
on the BIE (made on the basis of Into Bond B/E). The
concerned Group Appraiser classifies and reassesses, if neces-
sary. Concerned group A.C. and calculation of import duty
thereafter hand over the assessed BIE to the importers clearing
agents for payment of duty and taking delivery of the goods
after the usual counter check.
Custom Clearance Procedure for
Imported Goods
Under the Ministry of Finance (Department of Revenue), there
independent Boards of Revenue :-
a. Central Board of Direct Taxes (for Income Tax, Wealth Tax
etc.)
b. Central Board of Excise and Customs.
The Customs administration vests with the Central Board for
Excise and Customs, which shapes the policy and decides the
functions of the customs formalities in the country, in terms of
the provisions of the Customs Act 1962.
All goods imported in India have to pass through the customs
clearance after they cross the Indian border. The goods so
imported are examined, appraised, assessed, evaluated and then
allowed to be taken out of customs charge for use by the
importer.
The procedure for customs clearance in general for goods
imported ,in India is as follows :
a. Import Manifest :- As per the section 30 of the Customs
Act, 1962, the persons in charge of a conveyance carrying
imported goods should hand over, within 24 hours of the
arrival of the conveyance, an import manifest to the
customs. The import manifest is a complete list of all items
the conveyance carries on board, including those to be
transshipped and those to be carried to the subsequent
ports of call.
b. Entry in the Import Department of Customs House :.
On receipt of information regarding the arrival of the
goods, the importers or their agents have to make an entry
186
by filing a Bill of Entry, in a prescribed form in the’ Import
Department of Customs House. The, date of presentation
of Bill of Entry is an important date as the rate of duty
applicable to the imported goods will be the rate, which is
in force on t1}e date of presentation.
c. Presentation of Bill of Entry for Appraisal :- After the
Bill of Entry is noted in the import department, the same
should be presented to the Appraising Counters along with
the following necessary documents :-
• Import licence,jf necessary.
• Exporter invoice.
• A copy of Letter of Credit.
• Original Bill of Lading and its non-negotiable copy.
• Two copies of Packing List. ‘
• ‘Weight spe9ifications.,
• Manufacturers test certificate.
• Certificate of Origin.
• Delivery order issued by Shipping company or its,
agent.
• Freight and insurance amount certificate if the import
is on FOB terms
• A declaration from importer that he has not paid nay
commission to agents in India.
• Customs declaration
• Catalogue/drawing, etc for machinery imported.
In addition to the above, the following documents are also
required to be submitted wherever necessary:-
• If the spare part are imported-exporters invoice
showing unit price and extended total of leach item;
• If the second hand machinery is imported-chartered
Engineer’s Certificate;
• If the steel is imported-Manufacturer’s Analysis
Certificate;
• If Chemicals and allied products are imported-
Literature showing chemical consumption;
• If the textiles items are imported- Textile
Commissioners endorsement or certificate.
If the above documents furnished by the importer are
found to be adequate for acceptance of the declared value
and determination of classification and acceptance of ITC
Licence, the Bill of Entry is completed by the Assistant
Collector and sent to the Licence Section with an order to
the Dock Staff for examination of goods before clearance.
d. Clearance of Goods ;- After payment of duty (the original
copy of Bill of Entry is retained in the Customs House) the
importer should obtain the duplicate copy of Bill of Entry
on which order for examination of the goods is given by
Customs and get the goods examined. If the description of
goods. is found to be correct, on the basis of declared and
accepted particulars, clearance of goods is allowed by the
appraiser.
e. Warehousing the Goods;- The imported goods can be
warehoused at the port of shipment without the payment
11.675.1
 of duty by presenting a “Bill of Entry for Warehousing” to
the Bonds Department along with a bond for twice the
amount of duty payable. Initially the facility is granted for 3
months, which may be extended upto a period one year.
The warehoused goods can be cleared in one or more
installments. For clearance of goods from the warehouse,
the importer is required to present what is known as ‘Ex-
bond Bill of Entry’.
f. Import Follow-up ;- Once an importer is allowed to remit
foreign exchange out of the country he has an obligation to
import the permitted goods of equivalent value in the
country. If no goods or goods for lesser values are
imported, it would lead to leakage of foreign exchange.
Import Documents
You have learnt the export documents in detail. Let us now
discuss the import documents.
1. Importer Exporter Code (IEC) Number: No person can
import goods without obtaining an Importer-Exporter
Code (lEC) Number unless he has been specifically
exempted. The IEC Number is obtained from the Regional
Licensing Authority. You have already learnt the procedure
of obtaining IEC Number in Unit .
2. Bill of Entry: It is a document on which clearance of
imported goods is effected. All goods discharged from a
vessel, from foreign or coastal ports are cleared on Bill of
Entry in the prescribed form. The Bill of Entry form has
been standardised by the Central Board of Excise and
Customs.
Four copies of bill of entry are submitted. Original and
duplicate for customer departments, triplicate is owner’s copy
and the fourth copy is for the purpose of foreign exchange to
be submitted to bank. There are three types of Bill of Entry as
discussed below:
i. Bill ofentry for home consumption (white in colour):
where an importer wants to get his goods cleared in one lot,
he has to present the Bill of entry for home consumption.
ii. Bill of entry for warehousing (into bond, yellow in
colour): Where an importer wants to shift goods to a
warehouse and thereafter gets his goods cleared in small
lots, he has to present ‘into bond’ bill of entry. Reason may
be that he is unable to pay duty leviable on all goods at one
instance or may be because of storage problem.
iii. Ex.-Bond Bill of Entry (Green in Colour): When an
importer wants to remove goods from the warehouse, he
has to present an Ex-bond bill of entry which is green in
colour.
a. Bill of Entry is not required in the following cases:
b. passengers baggage favour parcels
c. mail box and post parcels
d. boxes, kennels of cargos containing live animals or
birds
e. unserviceable stores, e.g. dunnage wood, empty
bottles, drums etc. of reasonable value
f. ship’s stores in small quantities for personal use
11.675.1
g. cargo by sailing vessels from customs ports when
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
landed at open bundles only
For imports through the medium of post there is no bill of
entry. Instead a way bill is r prepared by the foreign post office
for assessment of duty.
Retirement of Import Documents
a. Loading of Goods and Receipt of Shipment Advice :-
On loading of goods the overseas supplier dispatches the
shipment advice to the importer informing him about the
shipment of goods. The shipment advice contains invoice
number, bill of lading, airways bill number and date, name
of the vessel with date, the port of export, description of
goods and quantity and the date of sailing of the vessel.’
b. Retirement of Import Documents :- After shipping the
goods, the overseas. 40' supplier prepares the necessary
documents as per the terms of contract’ and letter of credit
and hands them over to his bank for their onward
negotiation< to importer in the manner as specified in the
L/C. The set normally contains bill of exchange,.
commercial invoice, bill of lading, packing list, certificate of
origin, marine insurance policy, etc.
For the retirement of documents, the importer is required
to submit the following documents to his bank :-
a. A letter authorising his bank to debit the equivalent
Indian rupees to the value of documents including
bank charges.
b. Exchange control copy of the Import Licence, if
applicable.
c. Form Al duly completed for the remittance in foreign
excl1ange.
c. Acceptance of the Bill of Exchange :- Bill of Exchange
accompanied by the above documents is known as the
Documentary Bill of Exchange. It is of two types :-
• Documents against Payment (Sight Drafts) :- In
case of sight draft, the drawer instructs the bank to
hand over .the relevant documents to the importer
only against payment.
• Documents against Acceptance (Usance Draft) :- In
case of usance draft, the drawer instructs the bank to
hand over the relevant documents to the importer
against his ‘acceptance’ of the bill of exchange.
d. Scrutiny of Documents Received under L/c :- After
receipt of import documents from the exporter’s bank, the
importer’s bank will scrutinise the documents as to their
correctness as per the terms and conditions of L/C and
hands over them to the importer after payment. The
importer should also scrutinise the documents and ensure
that there are no discrepancies.
e. Appointment of C & F Agent :- In India, the procedure
for clearance of imported goods is very lengthy, time
consuming and involves lots of legal formalities. Therefore,
it is advisable to hire the services of C&F agents who are
well versed with such formalities. The C&F Agent prepares
the bill of entry containing details of goods to be cleared
from the customs. In case, the C&F agent does not have
187
 relevant information about the goods to be cleared, he
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
prepares a bill of sight in order to enable himself to
physically check the goods imported and prepare bill of
entry on that basis.
Classification of Goods for Import Policy
and Assessment of Duty
Most of the goods imported are assessed and valued for
calculation of import duty provided they are imported in terms
of the Import Policy and evaluated for calculation of customs
duty by virtue of the nature of goods or by virtue of its end
use. The imported goods, which do not fall in parameter of the
Import Policy, are’ normally confiscated or allowed to be cleared
only on payment of heavy penalty.
Types of Customs Duties
The following types of Customs Duties are levied on goods
imported into or exported out of India :-
a. Basic Duty ;- Basic duty is levied on all goods imported
into India as prescribed in Schedule-I of Customs Tariff
Act. This duty is levied as a percentage of value of goods
imported or at a specified rate.
b. Auxiliary Duty ;- This duty was levied in addition to the
basic duty prescribed under the Finance Act every year.
However, with effect from 28th February 1993, the
government has withdrawn auxiliary duty.
c. Additional or Countervailing Duty ;- This duty is levied
on the total cost of imported goods at the rate equal to
excise duty on like goods when manufactured in India. This
duty is levied to protect the domestic industry.
d. Specific Duty :- This duty is levied in order to counter
balance the excise duty leviable on the imports going into
the production of such goods in India.
Mode of Levy of Customs Duty
a. Specific Duties :- Specific duty is a duty imposed on each
unit of a commodity imported or exported. For example,
Rs.5 on each meter of cloth imported or Rs.500 on each
T.V. set imported. In this case, the value of commodity is
not taken into consideration.
b. Advalorem Duties :. Advalorem duty is a duty imposed
on the total value of a commodity imported or exported.
For example, 5% of F.O.B. value of cloth imported or 10%
of C.LF. value of T.V. sets imported. In this case, the
physical units of commodity are not taken into
consideration.
c. Compound Duties :- Compound duty is the combination
of specific and advalorem duties. In this case, the quantities
as well as the value of the commodity are taken into
consideration while computing tariff. For example, 5% of
F.O.B. value plus,50 paise per meter of cloth imported.
Valuation of Goods
Valuation of goods is done as per principles and down in
Customs Valuation Determination and Prices. of Imported
Goods) Rules, 1998.
Demurrage Charges
The goods imported and discharged in the Customs area are
stored in the warehouses of CWC or Port Trusts or other
188
designated authority. Initially, such goods are allowed to be
stored freely for few days and thereafter demurrage or storage
charges are levied. The “Free Period” for different cargo is
different as under :-
a. Commercial and Non-commercial Cargo :- 7 calendar
days from date of landing.
b. Unaccompanied Baggage :- 14 calendar days from date of
landing.
Direct Delivery Facility for Imports by Air
The facility of ‘Direct Delivery’ of goods imported by air-is
allowed in certain cases:
a. Goods like fresh fruits, frozen food, life saving drugs and
appliances, TV films;
b. Any cargo requiring special handling or storage; and
c. Any cargo in respect of which order of the Deputy Collector
of Customs, Air Cargo Unit, have been obtained in advance
permitting direct delivery.
Bill of Entry
The bill of entry is a document, prepared by the importer or his
clearing agent in the prescribed form under Bill of Entry
Regulations, 1971, on the strength of which clearance of
imported goods can be made.
When goods are imported in a particular country, the importer
has to pay the necessary import duty. For this purpose,
necessary information about the goods imported must be given
to the customs authorities in a prescribed form called bill of
entry form. Bill of entry is a document, which states that the
goods of the stated values and description in the specified
quantity have entered into the country from abroad. The bill of
entry is drawn in triplicate. The customs authorities may ask the
importer to supply other documents like invoice, -broker’s note
and insurance policy, etc., in’ order to verify the correctness of
the information supplied in the bill of entry form.
Types of Bill of Entry
For the purpose of giving information in the bill of entry
form, goods are classified into three categories namely :-
a. Bill of Entry for Goods Imported for Home
Consumption (White coloured) :- This kind of bill of
entry is used for clearing imported goods by paying
customs duty at the port.
b. Bill -of Entry for Bonded Goods’ (Yellow coloured) :- This
kind of bill of entry is used when no duty is paid on
imported goods and, therefore, they are transferred to
customs recognised bonded warehouses.
c. Bill of Entry for Ex-bond Clearance for Home
Consumption (Green coloured) :- This kind of bill of
entry is used where the importer intends to clear the
dutiable goods, either in part or full, from a bonded
warehouse by paying necessary duty.
Contents of Bill of Entry
The main contents of the Bill of Entry are :-
a. Name and address of the importer.
b. Name and address of the exporter. .
c. Import licence number of the importer.
11.675.1
d. Name of the port/dock where goods are to be cleared. A Note on Forward Contract

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

e. Description of goods. International contracts are either concluded in Indian rupees or
in foreign currency. If the contract is concluded in terms of
f. Value of goods.
Indian rupees, all relevant documents are prepared in Indian
g. Rate and amount of import duty payable. rupees and hence no conversion is involved. However, if the
h. Other relevant documents. contract is concluded in some internationally accepted currency
However, no bill of entry is required in the following cases :- then the importers have to pay Indian rupees equivalent. to the
amount of foreign currency.
a. Passengers’ baggage;
Where the international contract has been concluded in foreign
b. Favour parcels;
currency, an importer is always at risk due to adverse fluctuations
c. Mail bags and Post parcels; in the exchange rates in the international market. Such risks can
d. Boxes, kennels of cages containing live animals or bird~; be avoided by the following methods :-
e. Post parcels, ship stores in small quantities for persona, use. a. Invoicing the Goods in Indian Rupees :- The first remedy
f. Un-serviceable stores, such as, dunnage wood, empty bottles, to adverse movements in exchange rates is invoicing goods
drums, etc., of reasonable value (below Rs. 50); in Indian rupees. However, foreign seller may not agree to
invoicing goods in Indian rupees.
g. Cargo by sailing vessels from Customs Ports when landed at
open bunders only. b. Entering into a Forward Exchange Contract :- This is
the most commonly practised alternative for insuring the
Processing of the Bill of Entry risks arising out of adverse movements in exchange rates.
Once the Bill of Entry is completed by the Appraiser, and the
Under this adjustment, the importer enters into contract
same has been countersigned by the Assistant Collector, then it
with its bank to purchase from the bank, foreign exchange
is forwarded to the Licence Department for debit and audit, and
at a future date or period and the bank agrees to sell the
thereafter returned to the importers for payment of duty in the
firm the foreign exchange on that date or during the agreed
Accounts / Cash department. After recovery of duty, the
period at certain predetermined rate agreed upon at the time
original Bill of Entry is retained in the Accounts Department
of entering into contract. Thus, the importer knows in
and the duplicate and other copies are returned to the importers
advance the exchange rate that he is going to pay on delivery
for getting the goods examined in the docks. In the Docks,
of import documents.
Shed Appraiser / Examiner shall examine the goods, and if the
consignment is in order, he will give the out of charge for Question Bank
payment of the Port Trust Charges. This procedure under Q1. Describe the procedure for the retirement of import
which 80 to 90% of the consignments are being cleared is documents.
known as the Second Check Proce-dure. As against this, in the Q2. Explain the customs clearance procedure for imported
alternative procedure what is known as the First Check Proce- goods.
dure, the Scrubnising Appraiser in the Group gives the
Q3. Explain the different types and modes of levying import
exami-nation order. The goods are then examined in the docks
duties.
and the Bill of Entry returned to the Scrutinising Appraiser for
completion and licence debit. In this case, the Customs out of Q4. What is Bill of Entry? What is its significance?
charge is given by the Accounts Department soon after the Q5. Write a note on Forward Contracts.
recovery of duty. This procedure is resorted to only in cases
where the appraisers or the assessing Group finds it difficult to
complete the assessment on the basis of the documents made
available.
The import consignment can be opened only by the proper
officer of the customs for examination of the goods lying in a
Customs Area. Examination of cargo for assessment purpose
is chiefly the function of the Appraising Department having
special staff of examiners in the docks / Air Cargo shed.
‘The result of the examination or weighments is noted on the
reverse of the Bill of Entry. It is absolutely essential that records
of examination and weighment should be made, attested and
dated at the time of examination or weighment. If examina-
tion or weighment takes place on more than one day, the result
of examination or weighment made on each day is clearly
recorded. The Officer at the same time, obtains on the docu-
ments the importer’s or his accredited representative’s signature
on the entries made from day-to-day showing the result of
weighment.

11.675.1 189
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 26:
IMPORT FINANCE
• Objective
• Introduction
• Import Financing
• The Regulatory Framework
• Exchange Control Regulations Concerning Imports
• Methods of Import Finance
a. Financing Import under Letter of Credit
b. Fil1’lncing against Bills under Collection
c. Financing Imports against Deferred Payment
d. Financing under Foreign Credit
e. Import Loans by Export Import Bank of India
• Let Us Sum up
• Answers to Check Your Progress
• Terminal Questions
Objectives
After studying this unit, you should be able to:
• explain the nature and significance of import financing
decisions
• describe the institutional regulatory framework of import
financing
• discuss the exchange control regulations concerning
imports.
• explain various methods of import financing
Introduction
Imports play an important role in the economy of every
country, rich and poor alike. Rich countries need to import
capital goods, raw materials and technology to ensure an
optimum utilisation of their production capacity. They need to
import a wide variety of consumer goods to enable their people
to enjoy a high standard of living. Poor countries need to
import technology and capital equipment and some time
strategic raw materials to develop indus-tries for accelerating pace
of their development. In India, for example, the pace of
industrialization, level of exports and consequently the rate of
economic growth is heavily dependent upon imports. A low
level of imports usual1y indicates low purchasing power of its
people and also emergence of recessionary trends in economy.
At a firm’s level efficient management of import operations is
critical factors in determining the overall profitability of its
imports. Hence, a through understanding of import financing
techniques and practices is necessary for concerned managers. In
this unit, you will learn the regulatory framework and related
exchange control mechanism of import financing and various
methods of import financing.
Import Financing
India followed a restricted import policy till mid eighties.
Nothing could be imported without a licence involving
190
cumbersome procedures alongwith intricate documentation.
Although some liberalization measures were taken in second
half of eighties, real breakthrough came only in 1991. Steady
progress has been made in nineties in replacement of quantita-
tive restrictions, licensing and discretionary control over imports
by deregulation, simplification of procedures and protection
through tariff and exchange rates. Export Import policies of
1992-97 and 1997-2002 were the steps in this direction.
It is against the background of nature and significance of
India’s import trade, one has to understand import financing
methods and techniques. Import financing involves making
payment to foreign entities for the goods purchased from
them. From the management decision making viewpoint, it
means making decision regarding terms of payment (Le.
choosing one among several alternatives), arranging funds,
involving choice of financial institution and the instrument to
be used for making payment and involving choice of intermedi-
ary, through whom the payment is to be made.
The Regulatory Frame Work
The principal objectives of India’s Export Import Policy is to
accelerate the country’s transac-tion to an internationally oriented
economy with a view to derive maximum benefit from the
expanding global market. Various policy objectives are achieved
basically through three legislations.
These are:
1. Foreign Trade (Development & Regulation) Act, 1993
administered by Director General, Foreign Trade (DGFT)
replacing the earlier legislation Import & Export (Control)
Act, 1947, administered by the Chief Controller of Imports
& Exports (CCIE).
2. Foreign Exchange Management Act, 1999 administered
by the Department of Economic Affairs, Ministry of
Finance and the Exchange Control Development of the
Reserve bank of India. FEMA has been brought is place of
Foreign Exchange Regulation Act.
3. Indian Customs and Excise Act, 1962 administered by
Central Board of Excise and Customs.
The Foreign Exchange Dealers Association of India (FEDAI)
frames the rules and operational procedures and changes
relating to imports. In addition, Uniform Customs & Practice
for Documentary Credit (UPDC) formulated by International
Chamber of Commerce, Paris which has a global acceptance, is
indispensable to cover transactions under documen-tary credits.
India’s import policy is formulated within the framework of
obligations of the membership of World Trade Organisation
(WTO). Hence, the policy does not have a discriminatory and
restrictive dimension. Whatever restrictions on imports
continue are the ones which have -been allowed under the
WTO regime. In line with WTO provisions for according
11.675.1
preferential treatment of imports from developing countries,
India has signed several preferential treading arrangement with
some South Asian Countries and the products, which will
attract concessional rate of duty, are also specified.
Physical control over imports is exercised by DGFT and the
Customs Dept. RBI exercise financial controls through the
guidelines provided to authorised dealers. Of late, tariffs rather
than quantitative restrictions are being used to regulate import
trade.
Under the present policy, all goods, except those appearing on
Negative list can be freely imported in India. For goods
included in the restricted, or banned list, import licence may be
issued by the Director General of Foreign Trade. An import
licence is an authorisation which includes a customs clearance
permit (CCP) indicating inter alia, quantity description and value
of the goods, actual user conditions if any, the minimum
export value if any, export obligation, if any, and value addition
obligation, if any. Import licences which are issued on C.I.F.
basis, is given in duplicate viz. Customs Copy (for clearance
from customs) and Exchange Control copy for remittances.
For exporting units, certain special facilities have been provided
under the present policy. Under the Export Promotion Capital
goods (EPCG) Scheme, capital goods can be imported at a
concessional rate of custom duty, subject to an export obliga-
tion to be fulfilled within a specified period of 5-8 years. Under
the Duty Exemption Scheme, the government permits import
of raw materials. intermediates, components, consumables,
spare parts, accessories, packing materials and computer
software required for direct use in the product to be ex-ported
duty free under different categories of licences. Advance licence is
issued for inputs needed for export production. It can be issued
for physical exports, intermediate supply and deemed exports.
Exchange Control Regulations
Concerning Imports
Exchange control regulations refer to rules and regulations
framed and administered by the Reserve bank of India (RBI)
under the provisions of Foreign Exchange Management Act,
1999. These regulations aim at pooling resources for national
development in the best interest of the country. Under the
provisions of the Act, RBI regulates sale and purchase of
foreign currencies, Commercial banks with a licence to deal in
foreign currencies, called authorised dealers (ADs) buy and sell
foreign currencies in accordance with the guidance provided by
the RBI. Let us learn various regulations regarding payment of
imports.
Mode of Payment: Exchange control regulations govern sales
of foreign currencies to non -residents against import of goods
from any country except - Nepal and Bhutan. It may be pointed
out that residents of these two countries are residents for the
purposes of exchange control regulations, hence, ADs cannot
sell any foreign exchange for financing imports from these two
countries.
Under the existing regulations, ADs provide foreign currencies
to importers:
i. for remittance to foreign supplies as advance payments.
11.675.1
ii. Paying the foreign supplies in compliance of their
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
undertaking under the letter of credit.
iii. discounting on purchasing except documents.
iv. advances against shipping documents.
Authorised dealers can open a letter of credit (L/C) to facilitate
imports, subject to following regulations:
a. Letters of credit may be opened by banks only on behalf of
their customers who maintain account with them.
b. L/C should be opened in favour of overseas suppliers of
shipper of goods.
c. Application for L/C must be accompanied by sale contract
and other documentary evidence relating to the order and its
confirmation and import licence, if any.
Authorised dealers have been permitted to sell foreign curren-
cies for making payment towards imports into India. For this
purpose, importers have to submit an application in form A
giving the necessary details including classification of goods
based on Harmonized system. It is also obligatory on the part
of an importer to submit exchange control copy of customs
bill of entry to the authorised dealer through whom the relative
remittance was made as evidence that the relative goods for
which the payment was made have actually been imported into
India within three months from the date of remittance.
In respect of imports by post parcel, postal wrappers are
required to be submitted as docu-mentary evidence in support
of imports into India.
Currency of Payment: According to exchange control regula-
tions, payment for imports should be made in a currency
appropriate to the country or through an account appropriate to
the country of origin of goods irrespective of the country from
where they are shipped or supplied. RBI has given a list of
permitted currencies and approved methods of payment for
imports in Exchange Control Manual for guidance of import-
ers.
Time limit for settlement of imports bills: Time limit for
settlement of import bill is 6 months from the date of
shipment, but authorised dealers can settle without reference to
RBI even if the period of six months has expired, provided the
AD is satisfied about the bonafides of the circumstances.
Methods of Import Finance
The methods of import financing include: financing under L/
C, financing against bills under collection, financing against
deferred payment, financing under foreign credit and finance by
EXIM Bank of India. Let us discuss them in detail.
1. Financing Import Under Letter of Credit
Letter of credit can be defined as a commitment of bank to
pay the seller of goods or services a certain amount
provided he presents stipulated documents evidencing the
shipment of goods or the performance of services within a
prescribed period of time. As a credit instru-ment and as a
means of making and securing payment, the letter of credit
is an essential instrument for conducting world trade today.
It fulfils all the requirements provided the conditions
regarding its use are stated in clear and unambiguous terms.
191
 Import Letters of Credit Financing Involves three
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Principal Stages
i. Requesting bank to open a letter of credit
ii. Retiring documents under letter of credit
iii. Import Trust receipt facility.
Each time a L/C is opened, the importers has ~o file a formal
stamped “Letter of credit application and Agreement” in the
prescribed form. The application should set forth the precise,
terms and conditions under which the importer wishes his
bank to establish the credit, and describe the documents
covering the goods purchased which the bank is to receive in
exchange for payments.
As the correct opening of the credit is the first essential to the
ultimate success of the transaction and as the L/C will .be
issued on the basis of information supplied by the importer in
the L/C application, it is absolutely necessary that the informa-
tion supplied by him must be complete and precise, After due
scrutiny of the application form, the relevant letters are issued
by the bankers subject to the Uniform Customs And Practice
for Documentary Credits, in order to guard against confusion
and misunderstanding.
Letters of credit may be opened by mail or Fax depending upon
the urgency of the situation. It may be revocable or irrevocable.
Irrevocable L/C implies that the terms and conditions of the
credit can be amended only with the consent of all the con-
cerned parties. At times, the importer may ask the issuing bank
to get the credit confirmed by another bank. It means that in
addition to the issuing bank (the confirming bank) assumes the
commitment to pay provided the terms of the credit are
fulfilled.
L/C is sent by the issuing bank to a bank in the suppliers
country with a request to deliver the same to the supplier, called
the beneficiary. If the beneficiary is satisfied with terms and
conditions mentioned in L/C he ships the goods, obtains the
required documents and submits them to bank, usually his
own, unless a name has been specified in the credit. Bank
scrutinizes the documents and if he finds them in conformity
with the L/C and the reimburse-ment instructions, he pays the
suppliers. Thereafter he sends the documents to the issuing
banker who again scrutinises the documents with references to
the terms of the credit. If he is satisfied, he pays the negotiating
banker.
After paying the negotiating banker the issuing banker releases
documents of title to the importer on his executing a stamped
Letter of Trust (Trust Receipt). It means that the importer
undertakes to deposit with the bank the sale proceeds immedi-
ately on relisation but in no case later then period stipulated in
the trust letter. The import trust receipt facility is given by the
banks to first class customers only.
Bankers also grant import loans to their approved customers
and undertake the clearance of goods on their behalf. In such
cases, the bills received under letter of credit are retired to debit
of loan account of the customer by the bank and the relative
documents forwarded to an approved clearing agents for
clearance of goods. After the goods are cleared, dispatched and
Railway Receipts sent to the bank, the relative goods or Railway
192
Receipts are delivered to the importer after receiving the due
amount. Where arrangements exist, the goods may be stored in
the bank godown under bank’s lock and released against
proportionate payments as and when desired by the importer.
2. Financing against Bills under Collection
In the case of imports not covered by letters of credit, the
documents are forwarded by a bank in the supplier’s
country, known as the collecting bank, for collection of
proceeds from the importer and payment to the supplier
through the remitting bank. In such cases, the collecting
bank would examine the documents and the instructions
stated in the covering schedule to ensure that all the stated
documents have been received intact and the bill of lading
and the bill of exchange are endorsed in its favour or blank
endorsed to enable the bank to handle the documents. The
bank than presents the documents to the importer on
payment (in case of sight or D/P Bill) or against written
acceptance (in case of usance or d/p bill). Where the
importer is eligible to receive the documents only on
payment, he can avail an import loan or a trust receipt
facility, as discussed before. Obligations of various parties
involved are provided in Uniform Rules for Collection
(URC) Publication No. 322 issued by International
Chamber of Commerce, Paris
Sometimes, shipping documents may be sent by the
exporter directly to his importer. In such a case, the bank
may receive clean bills for collection of proceeds. I n such
cases, banks are required to call for documentary evidence of
imports such as custom noted invoice, exchange control
copy of bill of entry and import licence, if any.
Payment for bills in respect of imports through post can
also be arranged through a bank. In such cases, the relative
postal receipts must be produced as evidence of shipment
through post and an undertaking to submit postal
wrappers within three months from the date of wrappers.
3. Financing Imports against Deferred Payment
Imports under deferred payment implies that the supplier
has agreed to supply goods on credit terms extending
beyond six months. In such cases, authorised dealer has to
refer each deferred payment case to RBI for prior approval
of advance payment, bank guarantee and installments
(principal and interest) with documents viz. exchange
control copy of import licence, if any, contract copy and
statement of desired facilities.
Appraisal for issue of guarantees or loans is similar to term
finance. For importing under deferred payment, the
importer should have sufficient cash generated to pay the
due instalments. He should arrange for payment of advance
and down payments from his own resources which would
cover bank’s margin requirement. Imported machinery has
to be hypothecated to the bank and the importer should
counter guarantee the transaction.
4. Financing under Foreign Credit
Government of India gets assistance in the form of loans
and development credits from international financial
institutions as also foreign governments. These loans are of
11.675.1
 two types - tied loans and loans in free foreign currencies.
Terms and conditions of each loan along with detailed
instructions regarding the procedure to be followed for
opening letters of credit, submission of documents etc. are
set out in public notices issued by DGFT. RBI also issues
circulars for each foreign credit giving important instructions
relating to such imports.
Payment under foreign credit may be made under
a. letter of commitment method or
b. reimbursement method.
Under the letter of commitment procedure, remittances
from India for the relative imports are not permitted. The
importer in India obtains a letter of commitment from the
Government of India after furnishing a bank guarantee for
payment of rupee equiva-lent of the import value. The
importer furnishes the letter of commitment to the bank
opening L/C. Then the usual procedure follows. The
shipping documents are delivered to the importer on
payment I acceptance. Where no L/C is opened at all and on
receipt of document covering imports rupee deposits are
made to Government account by the importer through the
bank.
Under the reimbursement method, the aid giving the
country makes available to the Govern-ment of India on
production of evidence of payment of imports. Hence,
payment to the suppliers is made by the L/C opening bank
through the normal banking channels and reimbursement
is by the Government of India by submitting the required
documents.
5. Import Loans by Export-Import Bank of India
Bank finances imports from third countries required for
executing projects overseas for which Indian exporters have
won contracts.
Regarding imports into India, Exim Bank finances such
imports which are export. related, i.e. imports by Export
Oriented Units, import of computer systems for
development and export of software, import of plant,
machinery, technology for up gradation/expansion of
production capability for export markets.
Exim Bank also finances bulk imports of consumable
inputs and canalized items. Under this scheme, promissory
notes drawn in favour of commercial banks by their
importer borrowers are discounted, Exim bank will issue
letter of commitment for finance on request from commer-
cial bank indicating its requirement The quantum of finance
depends on the condition that import order should not be
less than Rupees one Crore.
Let Us Sum Up
Imports play an important role in economy of every country -
rich and poor a like. Their role in India is particularly crucial in
view of country’s continued dependence of foreign capital and
technology. Hence, it is necessary to ensure that import opera-
tions at firm’s level also are managed efficiently. Significant
changes in India’s import policy aiming at removing bottle-
necks on account of red tape and lengthy documentation have
taken place in recent years.
11.675.1
Import financing means making decisions regarding term of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
payment (choosing one among several alternatives) arranging
funds, involving choice of financial institution and the instru-
ment through which the payment is to be made. The choice is
conditioned by regula-tory framework concerning imports and
availability of foreign currencies.
In India, Foreign Trade (Development and Regulation) Act
1993, Foreign Exchange Manage-ment Act 1999 and Indian
Customs and Excise Act 1962 are the three legislations consti-
tuting the regulatory framework. While Foreign Trade
(Development & Regulation) Act and Indian Customs & Excise
Act regulate the physical importation, Foreign Exchange
Regulation Act regulates remittances on account of payment for
imports. As a result of liberalisation in foreign trade sector,
import licensing has been abolished and import licences are
needed only for terms included in the negative list on imports
at concessional rates of import duty. Exchange control regula-
tions have prescribed requirements regarding mode of
payment, currencies to be used and the period within the
payments for imports have to be paid.
Imports can be financed in several ways. Importer can request
his banker to open a letter of credit in favour of his supplier.
Under the system supplier gets paid immediately upon
submission of specified documents to the- bank. Importer
obtains release of these documents either upon payment or
debit to his loan account. He can ask the supplier to send the
documents to the banker. Whom he instructs to make payment
by debiting his account. Importer gets a loan either on Trust
Receipt or hypothecation of imported goods to pay for the
imports. Where an importer contracts to pay instalments,
permission of RBI needs to be taken. He can obtain a loan
from the bank to pay for the jnstalment. Imports under credit
extended International Financial Institutions and foreign
Governments can be financed either through commitment (i.e.
Government of India commits a part of loan to the importer
and gets paid in Indian rupees) or reimbursement method i.e.
after paying the supplier, the bank gets reimbursed by loan
giving agency. Export Import Bank of lndia lends to importers
to finance their export related imports.
Reference:- Case Studies on HSBC
Import Services
With over 130 years of experience supporting importers
globally, HSBC is well positioned to fulfill your trading needs.
A full range of import services is available, ensuring that your
import documents are processed without delay by our experi-
enced staff.
Simply apply to us for import facilities, and we can begin
handling your imports immediately.
Our range of services includes:
Letter of credit
Import Collections
Import Finance
Shipping Guarantees
Letter of credit:- For importers who are looking for new
suppliers, one of the primary considerations when deciding on
193
 the payment terms is to ensure that the goods supplied are the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
goods ordered. The two main instruments to ensure this are
documentary collections, whereby the importer only makes
payment in exchange for documents of title for the goods
shipped, and a Letter of Credit, where the importer requests his
bank to confirm payment for the goods, given certain condi-
tions being met.
Using HSBC to process your Letter of Credit and collections
offers a number of advantages both to you and your suppliers
• Financial Strength
A Letter of Credit issued by HSBC has the backing of one
of the world’s largest financial services organizations. This
means that any LCs issued by us in your name will be
universally acceptable both by your vendors and your
vendors’ banks.
• Global Network
Our global network of over 9,500 offices in more than 80
countries and territories means that wherever you trade, an
HSBC representative is available overseas to assist your
transactions. In addition, by routing your Letter of Credit
through our overseas branches, we can ensure that the credit
is advised to your supplier without delay. This is particularly
important if you need your goods in a hurry, or your
vendor needs some time to prepare the export documents.
• Expert Assistance
Our highly trained staff is available at any time to provide
you advice on any aspect of issuing a letter of credit and
processing collections. We can also arrange training sessions
for your staff at your offices
• Vendor support
Beneficiaries of an HSBC Letter of Credit are entitled to the
same high level of professional support and advice as our
customers. Our overseas trade services staff is available to
explain complex LC terms to your suppliers and to assist
them in preparing export documents and identifying
discrepancies. In addition, we are even prepared to provide
export finance to your supplier after completion of some
simple documentation*.
• Wide Range of Special LCs available
With our wide range of specialist knowledge in Letters of
Credit, we can advise on and deliver a range of specialized
instruments: Standby Letter of Credit, transferable Letter of
Credit, Back-to-Back Letter of Credit, Revolving Letter of
Credit and Red Clause Credits.
Import Collection:- Collections offer a cost-effective but secure
means of trading internationally. Using these instruments, the
importer only effects payment in exchange for the documents
of title for the goods shipped. If these are found to be
unacceptable, payment can be refused, giving the buyer piece of
mind.
Using HSBC to process your collections offers the following
additional benefits:
• Global network
With a network of over 9,500 offices in more than 80
countries and territories, chances are that your suppliers will
be able to easily dispatch their collections to us from one of
194
our branches. This ensures that your documents will arrive
faster, allowing settlement without delay.
• Financial strength
By banking with one of the world’s largest financial service
organizations you can rest assured that your suppliers will
get paid as soon as your account is debited. No hidden
interest or payment delays.
• Expert assistance
Our highly trained staff is available at any time to provide
you advice on any aspect of issuing processing collections.
We can also arrange training sessions for your staff at your
offices.
• Excellence in service
We have established strict service standards, which will
ensure that we will inform you within one working day of
any documentary collections drawn on you.
• Technology
To automate the collection generation process, we have
developed Electronic Direct Sends, a collection generating
system integrated with our EDI service, allowing collections
to be generated and dispatched to you without delay.
Import Finance:- Whether you import using documentary
credits or collections, we are prepared to consider providing
import finance for you. Financing your imports with HSBC
offers a number of advantages:
• Facilities structured around your Trade Cycle
Many banks treat import finance in the same manner as they
treat overdrafts. This means higher interest charges for you,
and a risk that your facilities are fully utilized when a
shipment comes in. With HSBC, your import finance
facilities are carefully constructed around your actual trading
cycle after a consultation session with your corporate
relationship manager. This means your facilities will be
structured around the actual business you do, allowing you
to enjoy lower interest rates, and finance will always be
available to cover your shipments.
• Stronger Capital Base
With HSBC, you have the backing of one of the world’s
largest financial service institutions with over 130 years of
experience financing trade. This means your facilities are
structured with the long term objectives of your business in
mind and we will stand by you in market downturns. In
addition, we can call upon the HSBC Group’s extensive
international resources to provide appropriate trade-finance
solutions.
• Partnership Philosophy
HSBC has always sought to work with our clients based on
our core philosophy of partnership and many of our largest
clients today started their relationship with us as a small
trader many years ago. The strengths of our partnerships
have been clearly demonstrated in the wake of the recent
financial turmoil in Asia. We have continued to stand by
our clients. As one of our customers recently commented,
we don’t take the umbrella away when it rains.
11.675.1
• Experienced dedicated corporate relationship ii) False vii) True

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

managers iii) True viii) True
A meeting with our corporate relationship managers is
iv) False ix) True
more like a meeting with a consultant than with your
banker. When you talk, we listen, and we put maximum v). True
effort in identifying your requirements and developing Terminal Questions
solutions.
I. What is importing financing? Describe the regulatory
Shipping Guarantee:- In certain situations your goods may framework related to import financing.
arrive in port before the shipping documents have been 2. Explain various exchange control regulations concerning
processed through the banking system. In these circumstances, imports.
HSBC can issue a shipping guarantee, allowing you to take
control of the goods from the shipping company without the 3. Enumerate the methods of import finance. Describe the
bill of lading. The advantages of using HSBC for this are as procedure of financing import under letter of credit.
follows: 4. Explain various methods of import finance alongwith the
• Rapid Issuance documentation procedure.
Shipping guarantees are only of value if they are issued 5. Write notes on:
immediately. HSBC can issue shipping guarantees as soon i) Financing against bill under collection
as the application is made*, meaning you can release your ii) Financing under foreign currency Import loan by Exim
goods from the carrier immediately. Bank of India
• Financial Strength iii) Financing under deferred payment arrangement
HSBC-issued shipping guarantees are universally accepted
by all shipping companies. This means you can always be
assured that you will get your goods on time.
Source: hsbc.com
Question Banks
Q1. What is Import Financing?
Q2. What do you mean by import Licence?
Q3. What do you mean by Trust receipt?
Q4. What do you mean by deferred payment?
Q5. State whether following statements are true or False.
I) Time limit for settlement of import bill is 6
months from the date of shipment.
II) Uniform Custom and practice for Documentary
Credit is not indispensable to cover transactions
under documentary credit
III) Import licences are issued on CIF basis.
IV) Authorised dealers can sell foreign exchange for
financing imports from Bhutan.
V) Payment of import should be made in a currency
appropriate to the country.
VI) Letter of credit can not be opened by mail.
VII) After paying the negotiating bankers, the issuing
bankers release documents of title to the importer
on executing a stamped letter of Trust.
VIII) When shipping documents are directly sent to
importer by exporter the bank receives clean bills for
collection of proceeds.
IX) Government of India gets assistance in the form of
loans and development credits from international
financial Institutions.
Answers to check your progress
i) True vi) False

11.675.1 195

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 27:
LOCATING AND SELECTING OVERSEAS AGENTS
Learning Objectives
• Introduction
• Finding an Agent
• Methods of paying Agents
• Appointing an Agent
• Relationship with the Agent
Introduction
If a supplier has some success in personal selling to visiting
buyers or during sales visits abroad, he may feel that the next
step is to have someone selling for him in a selected export
market. He may also feel that he needs on-the-spot help in
establishing the marketing channels, for example, in finding and
working with distributors or wholesalers.
The supplier cannot spend a great deal of time on export selling
him-self because of his responsibilities to the business at
home. The idea of a full time travelling sales person may seem
attractive at first. But it is probably not economic to make such
an appointment as a first step in exporting. Furthermore, if the
supplier appoints one of his sales executives to handle this, it
would take this executive time before he or she gets to know
the export market well enough to sell successfully.
In such situations, it is usual to appoint an agent. An agent is a
person’ of the firm that handles negotiations on the suppliers
behalf. An export agent is simply an agent who is active in the
export market. Agents work on the basis of commissions and
do not assume any risks. In contrast, a distributor being a direct
customer, pays for the goods that are supplied and takes over
the risk of further marketing. In this chapter, the word “agent”
and the word “distributor” are used to refer to separate
activities: one term should not be confused for the other.
The following box compares the advantages of using an agent
with those of employing the company’s export sales staff.
Advantages of an Agent Advantages of the Sales Executive
Cost is variable: no expenses 100% commitment of time.
unless sales are achieved.
Agent has local knowledge Can carry out research and and other
activities.
An agent’s sales of an already Will not fear that success will bring about
established product can help in his/her replacement.
the in the introduction of a new
and unknown product
Highly motivated, is paid only if Staff development Customers impressed
he/she sells. by commitment. Knows details of
production and origin.
Finding an Agent
There are good agents and bad ones, and even some good ones
may not be suitable for the products or for the prospective
customers. When selecting, check that:
• They are respectable business representatives.
• They are not representing a competing producer.
196
UNIT I
CHAPTER 1:
• They have the organisational structure and the facilities
necessary to do the job.
• They have serious long-term interest in the product and are
not handling too many other products.
• They are experienced in the type of product and market area
and have established connections.
Finding, appointing and using an agent needs careful planning.
First a list of the possible agents for this particular product is
needed. The suppliers own embassy abroad or local chambers
of commerce can probably supply that list. Then the supplier
can write to these possible agents, explain his requirements and
ask if they are available to handle the product.
From the replies received, a short list of the most suitable
agents can be prepared. If possible, each of them can be visited
personally. In any case, references should be obtained from
others, particularly from other firms that the agent represents
and if possible, from some customers.
It is very important that the relationship with the agents is clear.
A formal agreement should cover the following points in a way
that makes misunderstandings impossible.
a. A clear indication of who is the agent and who is the
exporter and the purpose of the agreement.
b. A clear “description of the products covered by the
agreement (bear-ing in mind that different products might
be added later on).
c. A clear definition of the territory to be covered (for
example, “the whole of Kenya” or “the seaboard states of
the United States”).
d. The duties of the agent in terms of publicity and the
publicity back- up which will be provided.
e. The duties of the agent. Will the agent be merely processing
or-ders? Or will he/she also handle import licenses and
exchange con-trol requirements? Will the agent work on a
del credere basis. e.g. guarantee that a payment will be got
from the customers in return for a higher commission?
f. Payment and payment methods. For example, what is the
com-mission? Will the commission and any other payment
be made on all orders received from the sales territory,
whether they are placed through the agent or directly with
the supplier?
g. The duties of the exporter (for example on prices and terms
of deliver).
h. The type of market information to be supplied to the
agent. i. Who will pay for operating expenses such as those
for cables, telephone calls and fax messages.
i. The duration of the agreement and the way of canceling it.
j. The law governing the agreement and the method of
arbitration between them in the event of any dispute.
11.675.1
Methods of Paying Agents
It is usual for an agent to be paid on a commission basis. The
commission is normally a percentage of the value of the goods
sold and for which, payments have been received from the
customer. Because of this, agents are sometime called “commis-
sion agents.”
It is difficult to generalise about rates of commission. They may
vary from less than 1% to more than 1% according to the
nature of the market and the sales problems. For contracts
covering a large volume of commodities to be delivered over a
fairly long period, the agent’s commission may be under 1%. At
the other extreme, an agent might get a commission of 15% for
small orders for handicrafts.
Sometimes there might be an agreement with the agents to pay
them a commission on all orders received from customers in.
their territory regardless of whether orders are actually placed
through them. Whatever type of agreement is there, agents’
should always be told about orders received direct from
customers so that they can follow up and possibly obtain repeat
orders. The supplier and the agent should also let each other
have copies of all correspondence with customers.
Del credere agents Agents receive higher than usual payments
when they act del credere. This means’ that they ‘take the credit
risk for the orders they obtain and are responsible for making
payment to the supplier if the customer fails to do so. Del
credere agents are normally paid a higher commission than
ordinary agents (the extra commission may be anything from
5% to 15%), to compensate them for the credit risk they
assume. Del credere agents are not very common, but where
they exist they enable exporters to sell with great confidence,
particularly in markets where it is difficult for them wJudge the
creditworthiness of prospective customers.
This exercise can be done to help the agent selection process:
Exercise 1
The letter below has been sent to potential agents, whose names have been
given to the managing director of a Garments Company Limited by his
country’s trade attaché in Turkey.
Dear Sirs,
Our trade attaché in Turkey informs us that your company may be in a
position to take up the Turkish agency for our range of leather jackets.
We enclose illustrations and price lists of our products and should be
grateful if you could let us have your comments.
Please let us have details of your organisation, the agencies you hold at the
moment, the area you ,cover and the commission rate you would expect on
products of this sort.
Yours faithfully,
Managing Director
Garments Company Ltd.
Here are the replies.
First reply: From the Universal Agency company
Dear sirs,
Thank. you for your letter of November 1st. We are certainly interested
in the agency for your most attractive range of leather garments, which we
are sure would sell in Turkey, provided they are introduced by a large well-
established, well. known firm of agents such as ourselves.
11.675.1
We have enclosed a full list of the 200 firms we represent, and you will
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
see that they include well-known names in the field of clothing, hardware,
engineering supplies and building equipment.
We employ 20 salespersons covering the whole of Turkey and 50 head
office staff. We expect to receive a minimum 10% commission.
Yours faithfully,
Second reply (handwritten): From Y Evirgen
Dear sirs,
Thank. you for your letter. I am very interested in becoming the agent for
your impressive range of leather garments. I have already shown the
illustrations to a garment shop in Izmir and I expect they will give me an
order in the next day or so.
I have been an agent for the last six months and I cover Turkey using my
home as my office. My wife helps with the correspondence and we currently
represent the ABC Glove Company of London in Turkey. We should be
happy to work for a 5% commission.
Yours faithfully,
Y. Evirgen Third reply: From the Turkish
Third reply: from the Turkish Garment Agency
Dear sirs,
Thank you for your letter of Ist November. Your agency is of great
interest to me as I specialise in leather products. I am sure I can provide
you with good business.
I employ one representative to cover eastern Turkey and I cover the west
myself. We employ a secretary at our office in Bursa and we are in close
and continuous contact with wholesale and retail leather-garment
distributions, departmental stores, mail-order houses and institutional
buyers such as the armed forces. We usually work on a 7.5% commission.
I represent the Jones Garment Company, the Ahamed Garment
Company, the Fungko Brush Company and six shoe manufacturers. I feel
sure that your excellent products would fit in very well with my
programme.
Yours faithfully,
Fourth reply: Fax from Quickwork
To: The Garment Company Limited
From: Quick Work Representatives, Istanbul
Letter received. Agency accepted with thanks ship 1000 pieces style 2A,
assorted sizes at once to our account 60 days credit at prices as your list
plus charges delivery our warehouse istanbul.
After studying the replies, it is necessary to reflect on the additional
information required on each agent and how to obtain it. Then the four
potential agents should be listed in the order of preference based on the
information given in the letters and the reasons for the ranking is to be
explained. These have to be written down.
Below is a discussion of additional information requirements. For all
potential agents the Garment Company should:
• Obtain the addresses of the manufacturers currently represented and
write to them for independent references.
• Obtain bank references for each agency.
• Ask each agency to suggest a marketing plan for Turkey, for the
Company’s products.
• Obtain the names of major wholesales of leather jackets from its
trade attaché and ask them for their opinions of the four agents.
197
 From the individual agents, the Garment Company should
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
request the following information:
• Universal Agency Company: What products are currently being sold
to the leather garment trade? How many different products are sold by
each of the 20 salespersons?
• Y. Evirgen: Ask for details of present and previous connections with
the leather products industry, and for call list and frequency of calls.
• Turkish Garment Agency: Obtain full details of the five ranges of
leather jackets currently sold and determine whether these will compete
with or complement the Garment Companies products.
• Quickwork: Send a cable requesting details of organisation and lines
carried as asked for in your letter. Ask for cash with order, or
payment on dispatch of goods ordered. Do not ship goods until
payment is received and it is established that the company is qualified
to be a long-term representative.
The above list of information requirements is not exhaustive. Other ideas
might be just as useful.
A suggested order of preference is given below.
1. Turkish Garment Agency: If it is not selling a directly competitive
line and if it is willing to guarantee a reasonable minimum volume of
sales in the first six months.
2 Y.Evirgen: If he is willing to report regularly, the Garment Company
can probably take advantage of Mr. Evirgen’s recent entry into the
trade and his weak position, to demand a full service.
3. Universal Agency Company: It is too large and is unlikely to give the
Garment Company much attention. It is apparently not in the leather
garment trade at all.
4. Quickwork: Appears to be seeking a “quick killing.” However, it
should not be rejected out of hand and should be reassessed when
further information is received.
Appointing an Agent
When an agent has been found, it is important to have clear
written agreements with him or her. This must cover all the
points that are potential sources of difficulty or disagreement in
the future. An agency agreement is given below.
The Agreement
This agreement is between the Garment Company (the manufacturer) and
Mr. Y. Evirgen of Ankara, Turkey (the agent).
• The manufacturer hereby appoints the agent as his representative in
Turkey (the territory) with effect from next January 1st.
• The products covered are all leather garments manufactured by the
manu-facturer any time during the term of the agreement. Any other
products that may subsequently be manufactured by the manufac-
turer are not cov-ered by this agreement and would have to be the
subject of a separate agreement
• The agreement is to run for a trial period of one year, and may be
termi-nated on December 31st or before. Thereafter the agreement
may be ter-minated by either partly, by written notice delivered to the
other at least one year before the proposed date of termination.
• The agent agrees to devote his best efforts to promoting the sales of
the manufacturer’s products, and not accept any agency or otherwise
to ,promote the product of a competitive or potentially competitive
product unless specifically permitted to do so by the manufacturer.
198
•
The manufacturer agrees to pay the agent a commission at the rate
of 5% of the ex works value of all orders, for leather garments
received and accepted during the period of his appointment, for
delivery into the territory, whether or not the orders were sent direct
by the agent. Such commission will be paid only when the goods have
been paid for by customers, and payments are to be made in arrears
quarterly. The manufacturer further agrees to inform the agent of
all inquiries received and other dealings it may have with the
territory.
• The manufacturer will supply the agent free of charge with
reasonable supplies of publicity material and samples. Any samples
or publicity material or samples not disposed of with the agreement
of the manufacturer, are to ,. remain the property of manufacturer
and are to be returned to the manufacturer at his own expense at the
termination of the appointment.
• The agent will pay for all travelling, office, stationery, postage and
administrative expenditure with the territory. Any advertising will
be paid for by the manufacturer at his discretion when it has been
authorised, by him.
• The manufacturer shall reimburse the agent for any expenses
involved in visiting the manufacturer’s country if the agent is
requested by the manufacturer to make such a visit. During any such
visit, the agent will devote himself wholly to the business of the
manufacturer unless specifically permitted to do otherwise.
• This agreement shall be interpreted according to the laws of the
manufacturer’s country. In the event of any dispute, an arbitrator
shall be appointed by the President of the manufacture’s country
Chamber of Commerce and the arbitrator’s decision shall be
accepted as binding on both parties.
Signed on behalf of Garment Company Witnessed:
Peter Smith, Managing Director Date:
Witnessed:
Date
Signed: Y. Evirgen, Agent
Relationship with the Agent
It is important to regard the agent as a part of the organisation.
Whichever export market he may be based in, it is important to
treat him as a part of the firm and to make him feel that he
really is a part of it. This is essential if he is expected to sell the
products enthusiastically.
The advantages of using an agent may be summarised as
follows:
• There is automatic cost control if the agent is payed
according to the results and orders he produces.
• He is the representative and also the local salesman in the
export market in which he is based.
• He can provide information about his export market (too
much of his time should not be used in this way because,
he is there primarily to sell).
He can help with publicity and is in the best place to keep an eye
on competitors’ prices and to deal with enquires and complaints
from customers (if he should do this effectively, he must be
kept well-informed about the products and the company).
11.675.1
There are also certain possible disadvantages in using an agent. • Instant success should not be expected, but of course he

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

They include the following. should not be forgotten about.
• An agent may represent too many companies; this might be • No one new in your organisation should contact him,
a temptation for him to concentrate on selling the products without explaining who the new person is.
he finds easiest to sell. he may neglect the other products Many producing companies in developing countries do not
(which may include the companies products too). need a marketing channel because; they work under subcontracts
• He may concentrate on short-term business and quick for companies in developed countries. The latter often supply
returns. This is less likely if he is made to feel involved in the design, the materials and sometimes the equipment for
the company and its long-term interests. production. Their partner companies in developing countries
• If the success in the export market is not a result of his provide labour.
efforts, the company may be paying him more than it can This final exercise is on distribution channels.
afford, if it has to pay him a commission on all business.
Exercise 2
Getting the Best from the Agent Choose the correct answers to the following questions.
After appointing an agent, it is in the companys’ interest to get 1. Which of the following products usually have shorter
the best possible results out of him. It should be remembered distribution channels?
that, once appointed, he becomes a part of the organisation.
() Consumer products () Industrial products
• He should be made to feel proud to represent the company
2. Which marketing channel would you consider using to sell
• He should be treated as well as the company’s staff. canned pineapples in Germany?
• What he can tell about his local market should be listened L] Large retail stores L] Retail shops
to.
L] Mail-order companies L] Import company
• As he will be working for other exporters as well, he cannot
L] Cooperative wholesale union L] Central buying
be expected to devote the whole of his time to this
organisations of food
company only.
supermarket chains.
It is also worth bearing in mind the following practical do’s and
3. Suppose you were a producer of handicraft dolls and you
don’ts in developing the relationship with the agent.
want to market them in Chile. You have a choice between an
Things to do independent agent and employing your own salesman. The
• It should be remembered, even in times of stress, that he is agent will charge a commission of $3 for each doll sold.
a part of the company. Contracting a salesman will cost you a fixed salary of $500 a
month and a commission of $1 per doll sold.
• All the available information about products should be
given especially about new ones coming along - his 4. Which of the two channels would you select for each of the
suggestions on their potential should be found. following situations?
• The company should help him to sell- especially with L] You expect to sell 200 dolls a month.
information about successful new ways of selling, L] You are likely to sell 10,000 pieces a year.
developed by agents in other countries.
• The company should put him in touch with any likely
customers that it hears about.
• The company should make sure that the same person
corresponds with the agent or at least signs the letters, so
that they get to know each other by correspondence.
• He should be visited as often as possible as give him
demonstrations of the product.
• The manufacturer should invite him to come and see the
company, and treat him like a guest.
• His help should be invite in preparing marketing plans.
• He should have copies of all the correspondence with
customers in his market.
Things not to do
• Circular letter should not be sent. He should be treated as
an individual.
• Too much information should not be asked for, unless he
is paid you pay extra for it; an agent is there primarily to sell.

11.675.1 199
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 28:
EXPOR T DOCUMENTATION - I
Learning Objectives
• Introduction
• Master Documents and Aligned documentation System
• Proforma Invoice.
• Commercial Invoice
• Packing List
• Mate’s Receipt
Introduction
At the outset it must be mentioned that improved system of
documentation for exports announced by the government of
India on 31 March , 1991 is fine and should be adopted by the
exporters as far as possible. However a word of caution would
be in order. To date we have arrangements with only 80
countries around the word where UN key Layout(Master
documents) are followed. With these countries Indian exporter
could jolly well use the improved version of documents
announced by the government of India as per the New Exim
policy 1992-97.
For the remaining countries (other than 80 countries where UN
key Layout (Master Documents) is not in use, the Indian
exporter has to ascertain from the importer of his requirements
and must comply to his dictates for documentation. The basic
dictum for the exporter’s comply 100% the Letter of Credit
requirements for Documentation, otherwise exporter could be
in problem and his payment may be stopped. Moreover
exporter prepares export documents not for his own conve-
nience but largely to meet the requirements of the overseas
importer who largely conveys it through the Letter of Credit.
Treatment in this chapter is therefore slightly exhaustive of
documents where the old requirements have also been kept in
view while introducing master documents.
Export documentation work constitutes a heavy charge on our
export activity. It is complex cumbersome and costly. This is
partly due to the nature of export trade itself involving as it
does a number of intermediary organizations and authorities at
different stages of export activity between the seller and the
buyer. All these, in turn, generate a lot of paperwork and
procedural formalities. The documents material to an export
sales contract are not many in number. However the problem is
complicated due to the heavy paper work and the procedural
formalities that are required to be complied with before the
essential documents can be procured.
The procedural and documentary formalities associated with
exports have been evolved and practiced over the years by
different authorities/organizations to suit their own conve-
nience without much regard to the repercussions they might
have on the total export activity. The resultant mass of paper-
work caused much inconvenience and inordinately long delay in
the movement of goods. There was a need for a total approach
200
to the problem. This meant evolving not only simple export
documents and procedures in each of the individual areas of
export activity but also ensure their compatibility and harmony
in the totality of export operation.
Notwithstanding the need for such an approach to the proce-
dure generated problems, it has been appreciated that the task
of procedural simplification is a containing an long-term one
requiring. In some cases prior amendment of the statutes,
policies and regulations they stem from One of the ways in
which this has been done is through the use of standardized
document in our export trade.
The documents use differed in size and layout, despite the fact
that most of the information requirements are common to a
number of them Because of the difference in their sizes and
designs, these documents has to be completed individually.
This method of preparation of documents was susceptible to
errors and discrepancies, which, even through minor, caused
delays at different stages in the processing of documents, costly,
hold up of consignments at checkpoints and terminals, and
ultimately in the realization of export proceeds.
Legal Provision
According to the Customs Act (Section 40), the person incharge
of a Convey-ance-vessel, vehicle, Aircraft, etc., cannot permit
loading of export Cargo at the Customs Station unless and
until the formal permission to export given by the proper
Customs Officer, is presented. Before granting the permission,
the Cus-toms Officer, however ensures that the goods being
exported are in accordance with the different regulations,
particularly in terms of the following:
a. The goods are of the same type, sort and value as have been
declared by the exporter,
b. The Duty or Cess leviable thereon has been properly
determined and paid,
c. Provisions of Export (Control) Order, Export (Quality
Control and Inspection) Act and Foreign Exchange
(Regulation) Act are complied with.
The Customs Act (Section 50) further states that the exporter,
in case of goods to be exported in a vessel or aircraft, has to
present the Shipment Bill and other connected documents to
the proper officer. Any export ship-ment therefore, involves the
preparation of several document declarations and certificates, on
the basis of which the Customs Authorities grant neces-sary
permission. There are also several documents required for
submission to the Port Authorities. In addition, a few more
documents are required if the export product(s) fall(s) within
the purview of the Export Assistance Schemes and Facilities.
Export Documentation
Once the goods are ready, an exporter has to prepare and execute
various documents at different tages of sending the shipment
11.675.1
of goods to the im-porter. These documents are important for
two reasons:
a. as an evidence of shipment and title of goods and
b. for obtaining payment
The various documents are therefore, of vital interest to the
exporter and the Bank which is the usual media of payment.
The documentary require-ments are both regulatory and
operational in nature and have to comply with the Rules and
Regulations of the Indian Government as well as the import-
ing country for different types of products. These requirements
are different for different types of products. When exporting
for the first time, exporters should, always find out from their
buyers the documents required for the product concerned.
Accuracy and completeness are a prime necessity in documents
covering export shipments. Whether two or twenty copies of
the Invoice are required by the buyer, the same should be
supplied as, the buyer probably has some reasons for it. Minor
discrepancies of any kind either in the date itself or in the typing
in the documents, which look harmless sometimes assume a
men. acing form. Erasures and strike over in typing or changes
or additions made in ink must never be indulged as these only
arouse the suspicion that the documents have been tampered
with. Any alteration or addition made by an Authority issuing
the documents must be endorsed properly, with the signa-tures
of the person issuing the documents only. If the documents
are not the correct ones or if they are not filled in correctly to the
last, the importer may not be able to get the goods when the
ship carrying them arrives. This may seem obvious but it bears
emphasis since both the requirements and penal-ties are greater
beyond comparison in export than in domestic trade.
The main purpose of the documents accompanying a shipment
is to pro-vide a specific and complete description of the goods
so that they can be assessed correctly for Duty purpose and meet
the Import Licensing require-ments or Import Quota Restric-
tions imposed on the goods for clearance pur-pose. If there are
any discrepancies in the documents and or if the required
documents are not produced, the shipment may not be allowed
for import or may even be confiscated by the Customs of the
importing country. There is a plethora of documents in export
trade - different forms, applications and documents are required
to be filled in for obtaining Export Licences, complet-ing Pre-
shipment Inspection, for Customs Clearance and shipping, for
ob-taining payment and export finance and for claiming export
benefits like Duty Drawback, etc.
The experienced exporter, because of the complexity of
documentation, will find it a good idea to have the various
documents prepared for him by a Shipping and Forwarding
Agent or should take advice from a fellow exporter. The
Exporter should also develop a habit of thoroughly scrutinis-
ing the docu-ments for any possible errors or discrepancies and
if any errors or discrepan-cies are found, must rectify them
immediately before dispatching them to the Bank of buyer.
Standarised Pre-shipment Export
Documents
The Government of India has made it mandatory for every
exporter to use standardised preshipment export documents
11.675.1
w.e.f September 1, 1991. This is popularly known as Aligned
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Documentation System (ADS), based on UN Layout Key. The
ADS Methodology involves the preparation of documents on a
uniform and standardA4 size of paper. The documents are
aligned to one another in such a way that, the common items
of information are given the same relative slots in each of the
documents included in the System. This makes it possible to
prepare one Master document embodying the informa-tion
common to all the documents included in the aligned series and
to run off all the aligned documents from the same Master
document with the help of suitable marking reproduction
techniques. The Pre-shipment documents on a Standard Layout
were first introduced by Sweden in 1956 followed by Denmark,
Finland and Norway. It was later that most of the European
coun-tries, USA, Australia, etc, have adopted this ADS system.
Advantages:- The ADS system offers the following advantages:
1. Dispenses with the conventional documentation practices.
2. Brings in uniformity in documentation.
3. Ensures economy, speed, accuracy and convenience.
4. Facilitates expeditious checking and processing of
documents at dif-ferent stages.
5. Generates as many copies as required of Commercial and
Regulatory Documents from their respective Master Copies
through Photo-copying Machines.
Documentation Practices in India
In India, on an average, about 25 documents are associated with
the Preshipment stage to export transaction. These documents
are classified into two categories namely, Commercial and
Regulatory. The Commercial documents are those which, by
Customs of Trade, are required for effecting physical transfer of
goods and their ‘title’ from the exporter to the importer.
Regulatory Preshipment documents are those which have been
prescribed by different Government Departments/Bodies in
compliance of the require-ments of various Rules and Regula-
tions under relevant laws like Exchange Control Regulations,
Export Trade Control, Customs, etc.
The Government of India, therefore identified some export
documents for standardization with the help of the concerned
official and commercial interests in the country. The documents
taken up for standardization include: Invoice, Certificate of
Origin, Packing List, Bill of Lading, mate’s receipts, Shipping
Bill. Different forms in respect of each of these documents
used in the country were examined from the point of view of
standardization and putting them in to an aligned system. The
common items of information appearing in each of these
documents were recorded to develop a common denominator a
master documents- from which the repetitive information
could be reproduced in one run on all the documents leaving
only the information specific to individual documents to be
filled in separately. Any information on the master which is not
required on a particular document can be omitted by different
masking techniques at the reproduction stage
Master Documents
All these problems of late have been avoided by following a
system which provides an alternative to the repetitive, unpro-
ductive and time consuming work necessitated by the exporter’
201
 compulsion to prepare separately a number of documents all
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
containing practically the same information. This system is
known as the’ Aligned Documentation System’. Already in use
in a number of countries, this system is reported to have made
for simplicity, convenience, speed, accuracy and economy in
documentation work.
United nations key Layout has mace it possible to many
countries to reproduce in one run the repetitive information on
all the export documents from just one document called the
‘Master Document’. As a result, exports in these countries have
been able to reduce the documentation costs by 50 to 70%.
The documentation of simplified export documents has
reduced the burden of the exporters and has given a push to
the country’s ongoing export drive. The exporters now can save
atleast 50% of the time and cost on documentation. It will thus
help in expediting decision-making process. Virtually eliminate
the chances of errors and facilitate electronic transmission of
export documentation and data. Therefore simplification of
export documentation and procedures are key measures to
promote exports.
Earlier Indian exporters were required to submit 25 documents
to various agencies and authorities merely to ship the goods.
Each document had to be individually prepared. The news
system standardized these document and aligned then to each
other on basis of united nations key layout which has already
been adopted by most of Indians trading partners. Thus now
instead of typing out 25 documents, exporters prepare only
two master documents.
The new system also includes simplification and relaxation of
related procedures, which will further reduce the delays and time
component currently involved in export effort. It is expected
that as fallout of the introduction of the new system, a self
propelling process towards further rationalization of documen-
tation and procedural requirements would get in motion in all
the conceived organizations. And at the end of it the exporter
should be able to spend his resource and energy more on
export production and marketing than on meeting the de-
mands of archaic export procedures.
In the new set up attempts have been made first to standardize
and simplify each document and secondly to align them to each
other using as far as possible the UN Key Layout. These aligned
documents are in time with the proforma used by countries
with whom more than 80% of India’s foreign trade is trans-
acted.
The two master documents- one for commercial use and the
other for regulatory documents meant for customs, RBI
and port trust-have maximum advantage of alignment and
minimum cost and time for preparing individual documents.
The two- master documents contain all the information that
was common to individual documents. Earlier, there were a
plethora, of commercial document which include among
others, invoice, packing, list intimation for inspection insurance
declaration form, shipment advice and the exchange control
declaration form.
Thus the one run method of preparation of Documents
involves the use of standardized and aligned documents.
202
Aligned Documentation System (ADS) is based on the UN
layout key. Under this system, different forms used in the
international trade transaction are printed on paper of the same
size and in such way that the. Common items of information
are given .the, same relative slots in each of the documents.
For the purpose of Aligned Documentation System docu-
ments, have been, classified as under
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 commerce
documents in the export documentation framework as
many as ‘14 have been standardised and aligned to one
another. These are performance 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
However, shipping order and bill of exchange could not be
brought within the fold of the Aligned Documentation
System.
The following are the 16 Commercial documents generally
involved at the pre- shipment stage:-
1. Proforma invoice
2. Commercial Invoice
3. packing List
4. Shipping Instruction
5. intimation of Inspection
6. certificate of Inspection
7. Insurance Declaration
8. Certificate of Insurance
9. Shipping Order
10. Mate’s Receipt
11. Bill of Lading/Combined Transport Document
12. Application for Certificate of Origin
13. Certificate of Origin
14. Bill of Exchange
15. Shipment Advice
16. Letter to the Bank for Collection/Negotiation of
Documents
b. Regulatory Documents: - 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, ex port 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.
11.675.1
It is proposed to conduct training and orientation programmes
at all export centers to familiarize the exporting community
with the new system.
The regulatory documents associated with the pre- shipment
stage of an Export Transaction are given below:-
1. Gate Pass-I/Gate Pass-II (now deleted)
2. AR-4 Form
3. Shipping Bill/Bill of Export
4. Export Application/Dock Challan/Port Trust Copy of
Shipping Bill
5. Receipt for Payment of Port charges
6. Vehicle Chit
7. Exchange Control Declaration (GRIPP) Forms
8. Freight Payment Certificate’
9. Insurance Premium Payment Certificate
Out of the above 9 Regulatory documents, four have been
standardised.In fact, these four documents have been reduced
to only three. The receipt for payment of Port Charges has been
incorporated in the Export Application/ Dock Challan/Port
Trust Copy of Shipping Bill, thus one document has been
completely eliminated.
Guidelines for Commercial Documents
and Master Document 1
Paper size and specifications The ADS, as discussed earlier,
involves the use of standardised trade documents aligned to
one another. All the docu-ments under the system are to be
prepared onA4 size of paper, measuring 297mm * 210mm
with standard margins - 10mm top, 20mm left, 6mm width
and 180mm in length. The size of the individual boxes should
be strictly as per specifications. Maximum tolerance is 1 mm.
The captions inside boxes should be printed in 6 points, sans-
serif face and should be located as near to the top left of the
boxes as possible. As the documents are to be generated
mechanically, it is important for the paper to be of a consistent
specification, with grammage of 70 to 85 gm, by all users. The
paper should be stable in conditions of 50 to 60% relative
humidity. Needless to emphasis that accu-racy in layout and
printing is an essential requirement.
Master document I :-The Master document will be. typed on a
sheet of paper in light blue ink. The mask for the photocopier
may be made of a transparent polyester film (of 0.004 in. or
0.005 in. thickness) with white opaque patches to blank out
unwanted information from the Master document or it may
also be cut from an opaque white plastic sheet. After the’
desired information is typed on Master document - I, the
relevant mask is laid over it. Both the Master document and the
mask over it are then fed to the photocopying machine. The
desired information is then automatically reproduced on the
relevant document through transparent or open portion of the
mask. Any additional information, which is specially required to
be given in any par-ticular documents, can be either pre-printed
or inserted in the relevant box as and when required.
11.675.1
Guidelines for Regulatory Documents
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
and Master Document II
Paper size and specification As against the Commercial
documents which are designed onA4 size of paper, Regulatory
documents are to be prepared on foolscap size of paper
measuring 34.5 cms * 21.5 cms, The margins are, top 1.5cms,
bottom 1.5 cms, left 1.8 cms and right 0.5 cms. The inside
measure-ment are 31.5 cms * 19.2 cms. The measurements of
individual boxes, as indicated in the Master document - II,
should be strictly adhered to. The paper to be used for these
documents should be of consistent specifications.
Reproduction technique The three Regulatory documents
under reference have been so aligned that their respective
common data requirements have been accommodated on the
front side of each of these documents. This makes it possible
to prepare a single Master document (as illustrated in Master
document - II) from which the front side of all the three
documents can be run off at one go without/using any mask.
The caption Master document – II would, however need to be
blanked out to prevent its reproduction on the blank forms of
the Regulatory documents with pre-printed titles. The blank
forms of shipping Bills/Bills of Export, GR Forms and the
Port Trust docu-ments will have a common pre-printed
Declaration, as to the correctness of the particulars furnished in
these documents. Besides, the exporters will also attach other
relevant Declaration(s) with the Shipping Bill/Bills of Ex-port,
as per the printed statement to this effect on these documents.
The Master document in respect of the Standardised Forms of
Shipping Bill/Bill of Export, Exchange Control Declaration
(GR) Form and the Port Trust documentis a sort of three- in-
one, as it seeks to present the common requirements on the
front side of each of these documents. The form of Shipping
Bill, however, does incorporate several pieces of information
which are not required by the Customs but are required by the
Reserve Bank of India under the Foreign Exchange Regulations
Act.
Conversely, these are some details which are required by the
Customs Authorities but not required by the RBI. Similarly, the
Port Trust document may also have on its face some informa-
tion with which Port Authorities are hardly concerned. In the
interest of alleviating the burden of the Exporter in the
preparation of these documents individually and to facilitate
preparation of these three documents from a single Master
document, this minor conces-sion on the part of each of these
authorisation is not only desirable but also necessary. While the
front side of these three Regulatory documents can be prepared
from Master Document - I, necessary provision has been made
on the reverse side of these documents. It will be useful if the
following points are kept in view while completing the Master
Document-II from which the Regulatory documents are to be
generated:
i. All the columns in Master document- II should be
completed and nec-essary information typed within the
relevant boxes or columns with-out any overlapping. The
Caption Master document-II should be suit-ably covered to
prevent its impression on the documents to be gener-ated
through the Master.
203
 ii. With a view to achieving total legibility, and having due
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
regard to the layout of the documents, it is necessary that
typewriter and not a fountain pen should be used by the
exporters.
ill. As the Master document II embodies all the information
which is common to the front side of the three Regulatory
Documents it would need to be prepared separately. The
three documents with the requi-site number of copies may
be photocopies from the Master Document- II on Bank
forms of the documents with pre-printed captions. No
masks need to be used.
iv. Each copy of the three documents should be signed in ink
by the exporter Forwarding Agent, as the case may be, so
that it becomes a legally valid document.
v. Six versions of Master document-II have been designed
and Forward-ingAgentsExporters should use the relevant
Master document-II, depending upon the type of Shipping
Bill of Export required to be filled.
Master Document-II (A): For shipping Bill for Export
of Duti-able goods and
Shipping Bills of Ex-port
goods under Claim for Duty
Drawback.
Master Document-II (B): For Shipping Bills for Export
of Duty Free Goods.
Master Document-II (E): For Shipping Bills for export
of Goods Ex-bond.
Master Document-II (E): For Bills of Export of Duty
Free Goods
Master Document-II (F): For Bills of Export of Goods
Ex-bond.
vi. As regards Shipping Bills different forms have been
designed for different types of Shipping Bills, namely,
Shipping Bills for Duty Free goods, Shipping Bill for Duty
Free goods Ex-bond, Shipping Bill for Dutiable goods and
Shipping Bill for goods under Claim for Duty Drawback. A
separate Form exists for Bill of Export. Appropriate Form
should be used depending upon the type of goods to be
ex-ported.
vii. As the Port Trust document incorporated the receipt for
payment of port charges (called Export Application at
Bombay Port), it may be necessary for the Exporters/
Forwarding Agents to prepare this docu-ment in triplicate.
While the original of the Port Trust document is meant for
keeping record of receipt and shipment of goods, the
dupli-cate copy is to be used as the receipt for payment of
Port charges. The triplicate copy of this document will serve
the purpose of the Shipper’s copy as record of shipment
and payment of Port charges in respect to the goods
handled by the Port Trust.
viii. On the reverse of the Port Trust document Export
Application/Dock Challan/Port Trust copy of Shipping
Bill- space has been provided for completion of carting
permission and Customs formalities. Par-ticulars have also
been made for acknowledgement of goods ‘on Board’ by
the Master of Vessel. This seeks to do away with the practice
204
for Kacha Notes of any interim document required to be
issued by the Master of Vessel prior to the issue of ‘Mate’s
Receipt’ in respect of consignments shipped on-board.
With the adoption of the Aligned Documentation System
involving the use of two Master documents, it will be possible
for the exporters and other concerned agencies bodies to avail
the advantages of ‘System approach’ to Export documentation.
Need for Preparing Export Documents
Export documents have to be prepared for various purposes,
viz.
1. Declaration of Exports as per Exchange Control
Regulations of the country.
2. Transportation of the goods.
3. Customs clearance of the goods.
4. Other purposes.
Some of the forms for preparing documents have been
standardised under the Aligned Documentation System
introduced w.e.f. 1.10.1991.
Declaration forms :-There are four main declaration forms
which are pre. scribed. These are called GR, PP, VP/COD and
Softex Forms. All exports to which the requirement of
declaration applies must be declared on appropriate forms as
indicated below:
GR Form Used for exports to all countries made
otherwise than by Post.
PP Form Used for exports to all countries by Parcel
Post, except when made On ‘’Value
Payble” or “Cash on Deliv-ery” basis
VP COD FORM Used for exports to all countries by Parcel
Post under arrangements to realise
proceeds through Postal channels on
“Value Payable” or Cash on Delivery”
basis. Used for export of Computer
Software in non-physical form.
SOFTEX While Export Declaration are to be made in
a set of to copies (original and duplicate)
of GR or PP form, VP/COD forms are
to be submitted in a single copy.
GRIPP forms are printed in distinctive colours and each set
bears a printed number which appears on both copies of the
Form. They are avail. able for sale with Reserve Bank of India.
However, exporters can get these forms through Authorised
Dealers also. VP/COD Forms are sold directly to exporters by
Reserve Bank of India.
Export Declaration Forms have utmost importance and are
binding on the exporter. It is therefore necessary, that enough
care is taken while de-claring exports on these forms with special
reference on the following points:
i. Name and address of Authorised Dealer through whom
proceeds of exports have been or will be realised should be
specified in the rel-evant column of the form.
ii. 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.
11.675.1
iii. It should be clearly indicated in the form whether the export
is on ‘Outright sale basis’ or ‘on Consignment basis’ and
irrelevant clauses must be struck out.
iv. Under the item ‘Analysis of Full Export value’, a break up
of the full export value of goods under FOB value, freight
and insurance should be furnished in all cases, irrespective
of the terms of the contract.
Disposal of Copies of Export
Documentation Form
i. 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 Ship-ping Bill.
The value declared by exporter will also be verified by
Customs and they will also record the assessed value.
Duplicate copy of GR Form will again be presented to
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 excep-
tion to submission of GR forms to the Customs
Authorities has been made in case of deep Sea fishing.
ii. a. PP Forms are to be first presented to an Authorised
Dealer for counter signature. The Form will be
countersigned by the Au-thorised Dealer only if the
Post Parcel is addressed to his Branch or
Correspondent Bank in the country of import. The
concerned Overseas Branch or Correspondent Bank is
to be instructed to deliver the Post Parcel against
payment or acceptance of relevant Bill, as the case may
be.
b. For Post Parcel addressed directly to the consignee, the
Author-ised Dealer will countersign the Form,
provided
1. 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
2. the full value of the shipment has been received in
advance by the exporter through an Authorised
Dealer, or
3. the Authorised Dealer is satisfied on the basis of
standing and track record of the exporter and
arrangements made for re-alisation of the export
proceeds that he could do so. If the Authorised
Dealer is not satisfied about the standing, etc., of
the exporter, the application is rejected. No
reference is en-tertained by the Reserve Bank in
such cases.
4. In the case of VP/COD Forms only one copy is
required to be com-pleted and submitted to Post
Office along with the relative parcel at the time of
dispatch.
11.675.1
The export of computer software may be undertaken in
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
physical form i.e. software prepared on magnetic tape and paper
media as well as in non-physi-cal form by direct data transmis-
sion through dedicated earth stations/satel-lite links. The
export of computer software in physical form is subject to
normal declaration on GRIPP Form and regulations applicable
thereto will also be applicable to such exports. However, export
of software in non-physi-cal form is fraught with many risks
and special guidelines have been framed for handling such
exports.
Export Invoice
Invoice is a document of content. It’s the exporter’s bill for
goods and sets forth the terms of sale. The invoice is a basic
document. As a document of contents it must fully identify
the overseas shipment and serve as a basis for the preparation
of all other documents, which in greater or lesser detail
reproduce information from it. The exporter should strictly
follow the requirements of the importer in regard to invoicing.
The standard document in respect of the invoice based on the
United Nations Key Layout, which has been accepted as the
basis of this document in many entries. The information
requirements of the document have been determined after
examining a number of forms of invoices used by leading
export organizations and after series of discussions with the
representatives of the Department of Customs and Central
Excise and the Federation of Custom House Agents’ Associa-
tions in India.
Invoices based on the suggested design will be acceptable not
only in many countries but will also help facilitate processing of
documents at various stages. The Declaration given at the
bottom (left hand) of the Invoice follows the UN recommen-
dation. The standard Invoice can be reproduced from the
master by masking only three columns, i.e. Notify Party,
Insured Value and No. of Original Bs/L No, and Date on the
invoices. But under the present procedure for customs clearance
and shipment of export cargo, this information, and particularly
in respect of the B/L No. and Date, will be available to
exporters only after shipment has been effected. Where required
under letter of credit, such information will need to the banks
for negotiation. But for this, the rest of the information can be
reproduced from the master
The information referred to in the preceding lines can be given
above the columns for Country of Origin and Final Destina-
tion in the order of name of shipping line, ETD (port of
shipment), ETA (destination port) and B/L No. and Date.
Unused space, in the Buyer’s column and below the Consignee’s
Column can be utilised for incorporation of any other informa-
tion which may be special to a transaction. Value and Origin
Clauses can be printed on the back side of the Standard Invoice.
There may be cases when exports are required to give detailed
descriptions or specifications of the various items forming part
of the consignment exported in one lot. In such cases,
exporters are advised to use Continuation sheets’ to the
Invoice.
Proforma Invoice
The starting point of the export contract is in the form of offer
made ‘by the exporter to the foreign customer. The offer made
205
 by the exporter is in the form of a proforma invoice. It is a
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
quotation given as a reply to an inquiry. It normally forms the
basis of all trade transactions.
It is proposed to conduct training and orientation programmes
at all export centers to familiarize the exporting community
with the new system.
Contents of Proforma Invoice
a. Name and address of the exporter.
b. Name and address of the importer.
c. Mode of transportation, such as Sea or Air or Multimodal
transport.
d. Name of the port of loading,
e. Name of the port of discharge and final destination.
f. Provisional invoice number and date.
g. Exporter’s reference number.
h. Buyer’s reference number and date.
i. Name of the country of origin of goods.
j. Name of the country of final destination.
k. Marks and container number.
l. Number of packing descriptions.
m. Description if goods given details terms of internationally
accepted price quotation,
n. Signature of the exporter with date.
Importance of Proforma Invoice
a. It forms the basis of all trade transactions.
b. It may be useful for the importer in obtaining import
licence or foreign exchange.
Commercial Invoice
Commercial invoice is an important and basic export docu-
ment. 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
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.
This is the first basic and the only complete document among
all commercial documents for the shipment. Besides fulfilling
the obligation under the export contract, the exporter needs this
document for a number of other purposes including: i)
obtaining export inspection certificate ii) getting excise clearance
iii) getting customs clearance and iv)securing incentives. Thus,
this document is prepared at both the pre- shipment and post
shipment stages.
In the first place, Commercial Invoice is a document of
contents that describes details of goods sent by exporter. It is
the statement of account, which must contain identification
marks and numbers, description of goods and quantity of
goods.
Every shipment has identification marks, which identify the
cargo with various documents. These are private marks. which
206
are made on the packages. These marks could be either in the
form of symbols (say, a star, triangle. rectangle, etc.) or numeri-
cal. Similarly. Every package under a shipment is numbered,
usually written serially. The commercial invoice must specify the
serial numbers given in a particular consignment.
Commercial invoice must describe the goods shipped by the
exporter. The description of goods must correspond exactly
with the description given in the contract or the letter of credit
It means that there should not be any difference (including
spelling) between these descriptions. Thus. if a contract
describes the goods as “Ten Thousand Pairs of Blouses and
Skirts”. the exporter should not describe them as ‘’Ten Thou-
sand Blouses and Ten Thou-sand Skirts”. though logically both
the descriptions mean the same.
Sometimes description of the goods includes the number of
packages and the type of packing material. Thus. if the contract
specifies shipment to be made in “ten new gunny bags’” the
exporter should send the contracted goods and describe them
as needed. If the commercial invoice wrongly describes the
shipment as “ten gunny bags” instead of “ten new gunny
bags’” the bank may refuse to honour shipping documents and
not pay for them.
The quantity described on the commercial invoice should
neither be less or more than the contracted quantity. In other
words. the exporter should not ship less than contracted
quantity, unless the contract permits part shipment. However, if
the goods are being shipped under a letter of credit. part
shipment is permitted, unless it is specifically prohibited. On
the other hand. quantity shipped should not be more than the
contracted quantity. This is so even if the exporter may not be
charging for the additional quantity.
Second function of the commercial invoice is that it is the
seller’s bill given to the buyer. As a bill, it must contain the
name and address of the buyer, unit price, amount and
authorised signatures with designation. Unless required by the
buyer, the total invoiced value should be net of any commis-
sion or discount; in other words, it should be the realisable
amount of goods as per the trade terms. Sometimes a contract
requires a detailed I breakup of the amount to be recorded on
the invoice for enabling the customs authority in the importing
country to calculate import duty.
The name and address given in the commercial invoice should
be the same as given in the export contract or the letter of credit.
as the case may be. Under a letter of credit, unless otherwise
specified the commercial invoice must be made out in the name
of the applicant I of the credit. As in the case of quantity to be
recorded on the invoice, the amount should neither be less nor
more than the stipulated amount in the contract or the letter of
credit. The only exception is that if the contract or the letter of
credit permits part-shipment, an individual invoice can be less
than the total amount.
The commercial invoice also sets forth the terms of sale ( i. e.
fob/cif /c&f),etc. mode and date of shipment and terms of
payment. It can also serve as a packing list and a certificate of
origin. A packing list shows details of goods contained in each
pack of shipment. When the law in an importing country does
not specifically require a separate certificate of origin issued by a
11.675.1
third party. it can be self- certified by the exporter on the
commercial invoice. Exporters themselves according to the
requirements of their business devise the format of Commer-
cial invoice. Look at Annexure I where the format of
Commercial invoice has been given.
Contents of Commercial Invoice
a. Name and address of the exporter.
h. Name and address of the consignee.
c. Name and the number of Vessel or Flight.
d. Name of the port of loading.
e. Name of the port of discharge and final destination. ‘
f. Invoice number and date.
g. Exporter’s reference number.
h. Buyer’s reference number and date.
i. Name of the country of origin of goods.
j. Name of the country of final destination.
k. Terms of delivery and payment.
l. Marks and container number.
m. Number and packing description.,
n. Description of goods giving details of quantity, rate and
total amount in terms of internationally accepted price
quotation.
o. Signature of the exporter with date.
Significance of Commercial Invoice
a. It is the basic document useful in preparation of various
other shipping documents.
b. It is used in various export formalities such as quality and
pre;:-8hipment inspection, excise and customs procedure
etc. -
e. It is also useful in negotiation of ~documents for
collection and claim of incentives.
d. It is useful for accounting .purposes to both exporters as
well as importers.
Packing List
This may be shown on invoice or separately, and should contain
item by item, the contents of cases or containers or of a
shipment with its weight and description set forth in such a
manner as to permit checks of the contents by the customs on
arrival at the port of destination as well as by the recipient.
The packing list is a relatively simpler document and the whole
of the information can be reproduced from the master by
masking information not desired on the packing list. Special
information, if any, can be given in the blank space in the lower
third portion of the document.
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
individual pack, while the packing list is a consolidated state-
ment of the contents of a number of cases or packs.
11.675.1
Contents of Commercial Invoice
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
a. Name and address of the exporter.
b. Name ‘and address of, the consignee.
e. Name and the number of Vessel or Flight.
d. Name of the port of loading.
e. Name of the port of discharge and final destination.
f. Invoice number and date.
g. Name of the country of origin of goods.
h. Name of the country of final destination.
i. Marks and container number.
j. Number and packing description.
k. Description of goods in terms of quantity and special
remarks, if any.
l. Signature of the exporter with date.
Normally, ten copies of the packing note/list should be
prepared. The first is to be sent with the shipping documents,
two copies in advance to the buyer, one to the shipping agent
and the remaining retained by the exporter.
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 fade evidence that I goods are loaded in the
vessel. The mate’s receipt is first handed over to the f 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.
Types of Mate’s Receipts
a. 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. .
b. Qualified Mate’s Receipt :- The Commanding Officer of
the ship issues a qualified mate’s receipt, when the goods are
not packed properly and the shipping company does not
take any responsibility of damage to the goods during
transit.
Contents of Mate’s Receipt
a. Name and logo of the shipping line.
b. Name and address of the shipper.
c. Name and the number of vessel.
d. Name of the port of loading.
e. Name of the port of discharge and place of delivery.
f. Marks and container number.
g. Packing and Container description.
h. Total number of containers and packages.
i. Description of goods in terms of quantity.
j. Container status and seal number.
207
 k. Gross weight in kg. and volume in terms of cubic meters.
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

l. Shipping bill number and date.

m. Signature and initials of the Chief Officer.
Significance of Mate’s Receipt
a. It is an acknowledgement of goods received for export on
board the ship.
b. It is a transferable document. It must be handed over to the
shipping company in order to get the bill of lading.
c. Bill of lading, which is the title of goods, is prepared on the
basis of the mate’s receipt.
d. It enables the exporter to clear port trust dues to the Port
Trust Authorities.
Questions, Bank
Q.l What is the significance of the Aligned Documentation
System?
Q.2 What are the contents of Commercial Invoice?
Q.3 Explain the components of Mate’s Receipt.

208 11.675.1

LESSON 29:
EXPOR T DOCUMENTATION - II
1. Bill of Lading
2. Certificate of Origin
3. Shipping Bill
4. Consular Invoice
5. Bill of Entry
6. Airway Bill
7. GR Form
8. Distinguish Between:-
• Commercial Invoice and Consular Invoice.
• Certificate of Origin and consular Invoice
• Mate’s receipts and Bill of Lading.
Bill of Lading
Bill of lading is issued by the shipping company or its agents
stating that goods are either being shipped or have been
shipped. Essentially a transport document. it serves many
purposes in international commerce.
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. A bill of lading serves three main purposes:-
i. This document evidences the contract of affieightment
(transport) between the shipping company and the shipper
(exporter or importer).
ii. It is a receipt given by the shipping company for cargo
received by it.
iii. It is a document of title (This is the most significant
function of the bill of lading).
Let us first understand the meaning of the term “evidence of
the contract of affreightment”. When goods are to be carried by
any carrier (say. a ship), the contract of affreightment will
contains terms and conditions of carriage. In particular, this
contract will mention the responsibility of the carrier (e.g..
shipowner) in providing space. receiving. loading carrying and
unloading of the cargo. Thus. if there is any loss or damage to
the cargo when it is in the custody of the carrier. the contract will
provide for the circumstances in which the carrier can be held
liable for the loss or damage. Further, in case the carrier is to be I
liable for loss or damage. the contract will provide for the
amount of claim which carrier will be required to pay to the
cargo owner. A bill of lading also contains printed terms and
conditions of the contract of affreightment on it However. it is
not considered as a Conrad by itself; instead it is the most
important evidence of the contract. Law courts all over the
world have held that in case of a dispute, the aggrieved party
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
may produce any other evidence, which may controvert a printed
clause in the bill of lading. Any other evidence could be a specific
agreement in which for example, the ship owner may have
agreed to a higher amount of liability than the standard
amount. Thus, in such cases, the ship owner does not have a
defence that his maximum liability is as printed in the bill of
lading.
Bill of lading is a receipt issued by the shipping company on its
agents. Law requires that as a receipt, it must contain leading
identification marks, number of packages or quantity or weight
or any other unit of account, and apparent order and condition
of the goods.
Bill of lading is the only evidence to file a claim against the
shipping company in the event of non-delivery, defective
delivery or short-delivery of the cargo at the destina-tion. As a
result, this document indicates that the contracted goods have
been either given into the charge of the shipping companies or
shipped by the exporter by the named ship on the date specified
on the bill of lading. If shipment is according to the contract
terms, the exporter gets the right to demand the sale amount
from the importer while the importer is entitled to get delivery
of the goods at the destination. Look at Annexure 2 where a
speci-men of bill of lading has been given.
For the bill of lading to be negotiable in fact three requirements
must be fulfilled:
1. it must be made out to the order to the shipper.
2. It must be signed by the steamship company.
3. It must be endorsed in blank by the shipper.
Types of Bill of Lading
a. 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.
b. Claused Bill of Lading :- A bill of lading qualified with
certain adverse remarks such as, “goods insufficiently packed
in accordance with the Carriage of Goods by Sea Act,” is
termed as a claused bill of lading.
c. Through Bill of Lading :- It covers goods being
transhipped enroute but where the first carrier has the
responsibility as the principal carrier for all stages of the
journey. For example, goods may be shipped from Bombay
to Dubai and transhipped from Dubai to a port in Latin
America.
d. Trans-shipment B/L: It has similar characteristic as the
Through B/L except that in this case the first carrier acts
only as an agent for effecting Trans-shipment of cargo.
e. 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.
209
 f. Freight Paid Bill of Lading :- When freight is paid at the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
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.
q. 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.
The Design of Bill of Lading
The design for the bill of lading is based on the Standard Bill
of Lading recommended by the International Chamber of
shipping. A number of shipping lines in India’s overseas trade
are already issuing bills of lading on the ISO A4 size paper.
However. In some case, these bills of lading are based on the
old pattern.
The Standard Bill of Lading included in the aligned series can be
reproduced from the master by using the relevant mask. The
Chief Officer of the ship through the port trust issues bank
forms of bills of lading are supplied by shipping companies to
shippers who prepare these documents and present them for
signature at the shipping to the shipper. While preparing “To
Order Bills of Lading care should be taken to mask the
Consignee box also. The words Unto Order May be typed in
the Consignee box and the name and address of the Consignee
given in the box for the Notify Party. The other details on the
bill of lading will be completed by the office of the shipping
company before the document is signed and handed over to the
shipper in exchange for the mate’s receipt.
Bill of lading is a document of title that will enable the lawful
holder of any of the original Bill to take delivery of the goods
at the stipulated port of destination. Thus, a claimant of title to
goods is required to surrender an original BIL (also popularly
known as negotiable copy of B/L) for claiming goods from the
shipping company or its agents. A bill of lading is not a
negotiable instrument, though it is transferable by endorsement
and delivery. What is the purpose of transferability of the bill
of lading? Transferability enables the banks to pay money to the
exporter against surrender of shipping documents, including
B/L, even before the goods reach the destination. Similarly, it
enables the goods to be resold by the importer before goods
reach the destination. For creating transferability, the bill of
lading has to be made in such a way that the’ goods are
consigned to the ‘order of a party. The party could be either the
exporter himself, or a negotiating or paying, bank or any other
party as provided in the contract or letter of credit. For example,
if B/L is prepared in the following way, it can be transferred
through endorsement in the same manner as in a cheque. There
are three main columns in B/L. These are Consignor (Shipper);
Consignee or Order of and Notifying party. Notifying party is
the party to whom the shipping company is to send “notice of
arrival”. Transferability can be created by filling- up these
columns in the following manner:
Consignor: ABC Company, New Delhi
Consignee: (Or Order of) Bank of XYZ, New Delhi
Notifying party: KNM, London
210
By not striking-off the words “Or Order Of “and. writing the
name of the negotiating bank, the bank becomes the first
endorsee. Title to goods will be transferred from the negotiat-
ing bank to the paying bank to importer on endorsements by
the negotiating and the paying banks in succession.
In contrast to the “Order BIL” is the consignee-named B/L.
The consignee-named B/L is made out in the name of a
specific party. Hence, title to goods cannot be transferred to a
third party. The exporter should not ship goods under this
kind of B/L as goods can be released by the shipping company
at the destination without the presentation of the ‘original ‘B/
L. Thus, if payment from the importer has not been secured,
the exporter may lose hold over goods and may not get paid.
However, if payment in advance has been received or if goods
are being shipped under irrevocable letter of credit, the con-
signee named B/L is a valid document.
According to international commercial practice, BIL along with
other shipping documents must be presented to the bank not
later than twenty- one days of the date of shipment as given in
BIL. Sometimes the buyers may also specify the last date or the
number of days after shipment by which the documents must
be submitted to the bank. Where the exporter does not follow
this stipula-tion, the documents are said to have become “stale”
and B/L in such case will be known as Stale B/L. A State B/L is
one which is tendered to the paying bank at so late a date that it
is impossible for it to be dispatched to the consignee in time to
reach him before the goods themselves arrive at the destination
port.
Example An exporter sent off his goods but forgot to send
the Bill of Lading to the customer. Without this document the
customer was unable to obtain the goods at the Port of
destination, so the goods had to be stored at the docks until
the Bill arrived. The customer sent the storage charges to the
exporter, maintaining that because the exporter’s fault, the
charges had been incurred. He sued the exporter for the costs of
the storage, and won.
Contents of Bill of Lading
a. Name and logo of the shipping line.
b. Name and address .of the shipper.
c. Name and the number of vessel.
d. Name of the port of loading.
e. Name of the port of discharge and place of delivery.
f. Marks and container number.
g. Packing and container description.
h. Total number of containers and packages.
i. Description of goods in terms of quantity.
m. Container status and seal number.
k. Gross weight in kg. and volume in terms of cubic metres.
l. Amount of freight paid or payable.
m. Shipping bill number and date.
n. Signature and initials of the Chief Officer.
Endorsement on Bill of Lading
By practice and custom he bill of lading has been transferable.
If however, the bill requires the goods to be delivered to a
11.675.1
particular named person and does not include a reference to his
assignees, the bill of lading is not transferable. It is only rarely
that a bill of lading would be drawn this way.
The consignee or consignor as the case may be, can transfer the
B/L either by a special endorsement, i.e. an endorsement which
names the transferee to whom delivery is to be made or by an
endorsement in blank to be bearer. The holder may, however,
convert the blank endorsement into a special endorsement by
inserting, the name of a person to whom delivery is to be
made. It is then called the “endorsement in full”
Sending of Bill of Lading to Importer
B/L are mad out in sets and any number of copies may
constitute the set according to the requirements of the particular
transaction and the importer. The number of copies to be
made out will be indicated by the importer before the shipment
takes place. In case there is no such indication, normally, two
copies. One set of documents is sent by the first class airmail
and the second by the following mail, so that if one is lost.
Delivery of the goods can be taken by the importer because of
the second set.
Significance of Bill of Lading for
Exporters
a. It is a contract between the shipper and the shipping
company for the carriage of the goods to the port of
destination.
b. It is ari acknowledgement indicating that the goods
mentioned in the document have been received on board
for the purpose of shipment..
c. A clean bill of lading certifies that the goods received on
board the ship are in order and good condition.
d. It is useful for claiming incentives offered by the
government to exporters.
e. 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
a. It acts as a document of title to goods, .which is
transferable by endorsement and delivery.
b. The exporter sends the bill of lading to use bank of the
importer so as to enable him to take the delivery of goods.
c. 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 of Bill of Lading for
Shipping Company
a. It is useful to the shipping company for collection of
transportchargesfromtheim porterifnotcollectedfrom
theexporter.
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 manufac-
11.675.1
tured in the country whose name is mentioned in the certificate.
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Certificate of origin is required when :-
a. The goods produced in a particular country are subject to
preferential tariff rates in the foreign market at the time
importation.
b. The goods produced in a particular country are banned for
import in the foreign market.
Types of the Certificate of Origin
a. Non preferential Certificate of Origin :- Non-
preferential certificate of origin is required in general by all
countries for clearance of goods by the importer, on which
no preferential tariff is given. It is issued by :-
• The authorised Chamber of Commerce of the
exporting country.
• Trade Association of the exporting country.
b. Certificate of Origin for availing Concessions under
GSP:- Certificate. of origin required for availing of
concessions under Generalised System of Preferences (GSP)
extended by certain countries such as France, Germany, Italy,
BENELUX countries, UK, Australia, Japan, USA, etc. This
certificate can be obtained from specialised agencies, namely;
• Export Inspection Agencies.
• It. Director General of Foreign Trade.
• Commodity Boards and their regional offices.
• Development Commissioner, Handicrafts.
• Textile Committees for textile products.
• Marine Products Export Development Authority for
marine products.
• Development Commissioners of EPZs.
e. Certificate for availing Concessions under
Commonwealth Preferences (CWP) :- Certificate of
origin for the purpose of Commonwealth Preference is also
known as ‘Combined Certificate of Origin and Value’. Two
member countries, Le, require it. Canada and New Zealand
of the Commonwealth. For concession under
Commonwealth preferences, the certificates or origin have
to be submitted in special forms obtainable from the High
Commission of the country concerned.
d. Certificate for availing Concessions under other
Systems of. Preference :- Certificate of origin is also
required for tariff concessions under the Global System of
Trade Preferences (GSTP), Bangkok Agreement (BA) and
SAARC Preferential Trading Arrangement (SAPTA) under
which India grants and receives tariff concessions on
imports and exports. Export Inspection Council (EIC) is
the sole authority to print blank Certificates of . Origin
under BA, SAARC and SAPTA which can be issued by such
agencies as EPCs, DCs of EPZs, EIC, APEDA, MPEDA,
FIEO, etc.
Contents of Certificate of Origin
a. Name and logo of chamber of commerce.
b. Name and address of the exporter.
c. Name and address of the consignee.
211
 d. Name and the number of Vessel of Flight.
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
e. Name of the port of loading.
f. Name of the port of discharge and place of delivery.
g. Marks and container number.
h. Packing and container description.
i. Total number of containers and packages.
j. Description of goods in terms of quantity.
k. Signature and initials of the concerned officer of the issuing
auth9rity.
l. Seal of the issuing authority.
Significance of the Certificate of Origin
a. Certificate of origin is required for availing of concessions
under Generalised System of Preferences (GSP) as well as
under Commonwealth Preferences (CWP).
b. It is to be submitted to the customs for the assessment of
duty and clearance of goods with concessional duty.
c. It is required when the goods produced in a. particular
country are banned for import in the foreign market.
e. It helps the buyer in adhering to the import regulations of
the country.
f. 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.
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 :-
a. Customs copy.
b. Drawback copy.
c. Export promotion copy.
d. Port trust copy.
e. Exporter’s copy.
Free Shipping Bill is used for export of goods which neither
attracts any Duty/Cess nor is entitled to Duty Drawback on
their exportation. Dutiable Shipping bill is used in case of
goods subject to Export Duty/Cess but mayor may not be
entitled to Duty Drawback. Drawback Shipping Bill or Bill of
Exports is used in the case of goods which are entitled to
Drawback. Ship. ping Bill for Shipment Ex-bond is for use in
case of imported goods for Re. exports and which are kept in
Bond.
Following documents are required for the processing of a
Shipping Bill:
a. GR Forms in duplicate for shipments to all countries.
b. Four copies of Packing list giving contents, quantity, gross
and net weight of each Package.
c. Four copies of Invoices indicating all relevant particulars
such as no. of packages, quantity, unit rate, total FOB/CIF
value, correct and full description of goods, etc. (One copy
212
of this Invoice is to be pasted on the duplicate copy of
Shipping Bill).
d. Contract, Letter of Credit, Purchase Order
e. Inspection/Examination Certificate.
The Formats presented for the Shipping Bill are as under:
1. White Shipping Bill for export of Duty Free goods
prepared in tripli-cate in the Standardised Format.
2. Green Shipping Bill for export of goods under claim for
Duty Draw- back prepared in quadruplicate in the prescribed
Form.
3. Yellow Shipping Bill for export of Dutiable goods prepared
in triplicate in the prescribed Form.
4. Pink Shipping Bill for export of Duty Free goods ex-Bond
prepared in triplicate in the prescribed Form.
Where the goods are to be cleared by the Land Customs, Bill of
export is prepared instead of Shipping Bill. Bill of Exports are
also of four types i.e. white, green, yellow and pink for the
purpose stated above. Standardised Formats of the Bill of
Export are also available with the booksellers who deal with
Exim publications.
Types of Shipping Bill
Based on the incentives offered by the government, customs
authorities have introduced three types of shipping bills:-
a. Drawback Shipping Bill :- Drawback shipping bill is
useful for claiming the customs drawback against goods
exported.
b. Dutiable Shipping Bill :- Dutiable shipping bill is
required for goods which are subject to export duty.
c. Duty-free Shipping Bill :- Duty-free shipping bill is useful
for exporting the goods on which there is no export duty.
Application for export is used for seeking customs permis-
sion of export goods to the neighboring countries like
Bangladesh by road, river or rail. This is of Three Types, namely,
for export of “Free”, “Dutiable” and “Drawback” cargos.
Customs declaration form for goods sent by post parcel is a
standard form for all types of cargo. However, for claim-ing
duty drawback, the exporter has also to file another document
known as “Form D”. Port authorities in India have specified
documents for bringing the cargo into the shed for shipment as
well as for payment of port charges. This document is called
port - trust copy of shipping bill in Bombay dock challan in
Calcutta and Export application in Madras and Cochin. Like the
shipping bill, the clearing and forwarding agent of the exporter
prepare this document.
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 By Air
Drawback Shipping Bill Green Green
Dutiable shipping Bill Yellow Pink
Duty free Shipping Bill White Pink
11.675.1
Contents of Shippining Bill
a. Name and address of the exporter.
b. Name and address of the importer.
c. Name of the vessel, master or agents and flag.
d. Name of the port at which goods are to be discharged.
e. Country of final destination.
f. Details about packages, description of goods, marks and
numbers, quantity and details of each case.
g. FOB price and real value of goods as defined in the Sea
Customs Act.
h. Whether Indian or foreign merchandise to be re-exported
i. Total number of packages with total weight and value.
Significance Of Shipping Bill
a. Shipping bill is the main customs. document, required by
the customs authorities for granting permission for the
shipment of goods.
b. The cargo is moved inside the dock area only after the
shipping bill is duly stamped, i.e., certified by the customs.
c. Duly endorsed shipping ,bill is also necessary for the
collection of export incentives offered by the government.
(d) It is useful to the Customs Appraiser while determining the
actual value of goods exported.
Consular Invoice
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 impor-
tant document, which needs to be submitted for certification to
the Embassy of the importing country concerned. The main
purpose of 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 im-
ported 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 alongwith other shipping
documents.
Significance of Consular Invoice for the
Exporter
a. It facilitates quick clearance of goods from the customs in
exporter’s as well as importer’ country.
b. Certification of goods by the Consulate of the importing
country indicates that the importer has fulfilled all
procedural and licensing formalities for import of goods.
c. It also assures the exporter of the payment from the
importing country.
11.675.1
Significance of Consular Invoice for the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Importer
a. It facilitates quick clearance of goods from the customs at
the port of destination and therefore, the importer gets
quick delivery of goods.
b. The importer is assured that the goods imported are not
banned for imports in his country.
Significance of Consular Invoice for the
Customs Office
a. It makes the task of the customs authorities easy.
b. It facilitates quick calculation of duties as the value of goods
as determined by the Consulate is considered for the
purpose.
Bill of Entry
The bill of entry is a document, prepared by the importer or his
clearing agent in the prescribed form under Bill of Entry
Regulations, 1971, on the strength of which clearance of
imported goods can be made.
When goods are imported is a particular country, the importer
has to pay the necessary import duty. For this purpose,
necessary information about the goods imported must be given
to the customs authorities “in a prescribed form called bill of
entry form. Bill of entry is. a document, which states that. the
goods of the stated values and description in the specified
quantity have entered into the country from abroad. The bill of
entry is drawn in triplicate. The customs authorities may ask the
importer to supply other documents like invoice, broker’s note
and insurance policy, etc. in order to verify the correctness of the
information supplied in the bill of entry form.
For the purpose of giving information in the bill of entry
form, goods are classified into three categories namely :-
1. Bill of entry for home consumption (whjte in colour):
where an importer wants to get his goods cleared in one lot,
he has to present the Bill of entry for home consumption.
2. Bill of entry for warehousing (into bond, yellow in
colour): Where an importer wants to shift goods to a
warehouse and thereafter gets his goods.
Cleared in small lots, he has to present ‘into bond’ bill of
entry. Reason may be that he is unable to pay duty leviable
on all goods at one instance or may be because of storage
problem.
3. Ex-Bond Bill of Entry (Green in Colour): When an
importer wants to remove goods from the warehouse, he
has to present an Ex-bond bill of entry which is green in
colour.
Bill of Entry is not required in the following cases:
a. passengers baggage
b. favour parcels
c. mail box and post parcels.
d. boxes, kennels of cargos containing live animals or birds.
e. unserviceable stores, e.g. dunnage wood, empty bottles,
drums etc. of reasonable value.
f. ship’s stores in small quantities for personal use.
213
 g. cargo by sailing vessels from customs ports when landed at
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
open bundles only
The importer has to fill up a separate bill- of entry form for
different classes of goods. In India, separate forms are not used
but all the entries are made in one form. The free goods are
marked as free in the entry form itself. The importer has to pay
the duty before securing the possession of the goods.
Contents of Bill of Entry
a. Name and address of the importer.
b. Name and address of the exporter.
c. Import licence number of the importer.
c. Name of the port/ dock where goods are to be cleared.
d. Description of goods.
f. Value of goods.
g. Rate and amount of import duty payable.
e. Other relevant documents.
Airway Bill
An airway bill, also called an air consignment note, is a receipt
issued by an airline for the carriage of goods. As each shipping
company has its own bill of lading, so each airline has its own
airway bill.
Airway Bill or Air Consignment Note is not treated as a
document of title and is not issued in negotiable form.
Contents of Airway Bill
a. Name of the airport of departure and destination.
a. The names and addresses of the consignor, consignee and
the first carrier.
b. Marks and container number.
d. Packing and container description.
e. Total number of containers and packages.
i. Description of goods in terms of quantity.
g. Container status and seal number.
h. Amount of freight paid or payable.
a. Signature and initials of the issuing carrier or his agent.
Importance of Airway Bill
a. It is a contract between the airlines or his agent to carry
goods to the destination.
b. It is the document” of instructions for the airline handling
staff.
c. It acts as a customs declaration form.
d. Since, it contains details about freight it also represents
freight bill.
GR Form
GR Form is an exchange control document required by the
Reserve Bank of India (RBI). As per the exchange control
regulations, an exporter has to realise the proceeds of the goods
he has exported within 180 days of their shipment from India.
In order to ensure this, the RBI has introduced the GR
procedure.
GR form is to be submitted in duplicate to the Customs at the
port of shipment along with the shipping bill. Customs will
214
give their running serial number on both the copies after
admitting the customs shipping bill. Customs authorities. will
certify the value declared by the exporter on both the copies of
the GR form at the space earmarked and will also record the
assessed value. They will then return the duplicate copy of the
form to the exporter and retain the original for transmission to
the RBI. Within 21 days from the shipment of goods, exporter
must lodge the duplicate copy of GR together with relative
shipping documents with the authorised dealer named in the
GR form for negotiation of export bills.
After the documents have been negotiated, the authorised
dealer will report the transaction to the RBI. The duplicate- copy
‘of GR form together with a copy of invoice will be retained by
the authorised dealer till full export proceeds have been realised
and thereafter submitted to the RBI.
On account of introduction of Electronic Data Interchange
(EDI) System at certain customs offices where shipping bills are
processed electronically, the existing declaration in GR form has
been replaced by a declaration in form SDF (Statutory Declara-
tion Form).
Other Documents
Customs Invoice Countries like U.S.A., Canada, etc., need
Customs’s In-voice. It is generally made out on a special form
prescribed by the Customs Authorities of the importing
country and helps for allowing entry of goods in the importing
country at preferential tariff rates. The Invoice Forms are
generally available at the Consular Officer of the importing
country and are required to be signed and witnessed after duly
filling out the same.
Legalised/visaed Invoice These are the Invoices sworn for
their genuine-ness by the seller as being correct, before the
appropriate Consulate/Cham-ber of Commerce Embassy as
the case may be, and they bear the stamp and authentication of
the Consulate/Chamber of Commerce Embassy as being in
order. A nominal charge is collected by them from the seller for
doing this. These Invoices are required by some of the Latin
American Countries. There is no prescribed form of this
Invoice.
Certified invoice At times the exporter is called upon to certify
on the Invoice, that the goods are of particular origin or
manufactured/packed at a particular place and in accordance with
specific contract. When Certificates as such appear on the
Invoice, it is called as a Certified Invoice.
Bill of exchange/draft A Bill of Exchange also known as
Draft contains an order from the credit to the debtor to pay a
specified amount to a person mentioned therein. The maker of
a Bill is called the “Drawer”, the person who is directed to pay is
called the “Drawee” and the person who is entitled to receive
payment is called the “Payee.”
When it is drawn on a foreign firm it is termed as a Foreign
Draft or Bill of Exchange. It is prepared either in an interna-
tional currency or Indian Rupees depending on the terms of the
contract. Accordingly, the Bill is known by the name of currency
in which it is drawn. For example, a Bill drawn in US dollars is
known as ‘Dollar Bill’ and when prepared in rupees, being
termed as ‘Rupees Bill’.
11.675.1
When the goods are shipped by Sea, the bills are drawn in sets
and two sets of documents, including drafts are mailed to the
foreign correspondent through an authorised dealer for
presentation to the Drawee (importer). Each one bears a
reference to the other.
A Bill of Exchange or Draft is of two types: (I) ‘Sight Draft’ or
‘Draft at Sight’ and (ii) “Usance Draft” or “Usance Bill”.
When the Drawer i.e. exporter expects the Drawee i.e. importer
to make ; payment immediately after the Draft is presented to
him, it is called a ‘Sight : Draft’. Unless and until the Draft is
received, the Negotiating/Collecting Bank does not hand over
the Shipping documents and the buyer cannot take delivery of
goods.
As there is no Aligned document for Draft the same can be
prepared by the Exporter in the usual format
Certificate of inspection Inspection Certificate, indicating
that goods have been inspected before shipment, is needed
under some contracts or by some countries. This Certificate is
generally required to be issued by one of the authorised
independent Inspection Agencies/Surveyors in the exporter’s
coun-try. The Certificate is issued in the Aligned document
Form.
Black list certificate This is to certify that the ship/aircraft
carrying the goods has not touched a particular country on its
journey or that the goods are not of a particular country. This
certificate is usually called for when countries have strained
political relations with another.
Weight note This document is used to confirm that the
Packets/Bales, etc., are of a particular weight and not more than
the stipulated weight as per contract. It may at times give gross
weight and net weight of the whole consignment.
Manufacturer’s/supplier’s quality/inspection certificate
This is a Certifi-cate to the effect that the goods which have been
manufactured/supplied are as per the requirement of the
Contract of Sale.
Languages certificate Importers in the European Economic
Community Countries require Languages Certificate along with
the GSP Certificate in respect of hand loom cotton fabrics
classifiable under NEMEX Code 55.09. Indian exporters
should apply for this certificate simultaneously or sepa-rately.
The Language Certificate is issued in quadruplicate, three copies
of which are given to the exporter. He should transit one copy
to his overseas importer, along with other documents, for
realisation of export proceeds.
The Languages Certificate is issued by the Textile Committee
against a small fee.
Manufacturer’s certificate In addition to the Certificate of
Origin, some countries require a Manufacturer’s Certificate to the
effect that goods shipped have actually been manufactured and
are available.
Certificate of chemical analysis To ensure that the quality
and grade of items like metallic ores, pigments, etc., is the same
as specified in the Sale Contract, importers may require the
exporter to send a Certificate of Chemical Analysis from a
recognised analyst.
11.675.1
Certificate of shipment This Certificate is issued by the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Shipping Agent and ensures that a certain lot of goods have
been shipped.
Health/veterinary/sanitary certificates When the goods
that are exported are foodstuffs, marine products, hides, live
stocks, etc., usually depending upon the goods which are being
imported, a certificate from the Health /veterinary/ Sanitary
Authorities is called for by the overseas buyers. This is because
the importer desires to know if the goods are fit for human
consumption.
Certificate of conditioning Certificate issued by a Competent
Office in which, on the basis of the ascertained humidity factor,
the dry weight of wool or silk is reckoned and certified. .
Antiquity certificate This Certificate is required in the case of
export of antiques. It is issued by the Archaeological Survey of
India.
Certificate of measurement Freight can be charged either on
the basis of weight or measurement. When it is charged on
weight basis, the weight declared by exporter is accepted.
However, Certificate of measurement from the Indian Cham-
ber of Commerce or any other approved organisation may be
obtained by the exporter and given to the shipping company
for calculation of necessary freight. This Certificate contains the
name of vessel, the Port of destination, description of goods,
quantity, length, breadth, depth, etc. of packages.
Car/Lorry ticket This Ticket is prepared for admittance of
cargo through the Port gate. This is also known as ‘Vehicle
Ticket or Gate Pass’. This includes the details of export cargo,
i.e. shipper’s name, car/lorry numbers, marks on packages,
quantity and description.
Shut out advice It is a statement o(packages shut out by a ship
and is prepared by the shed concerned and sent to the exporter
showing the particu-lars of packages, for disposal arrangement.
Short shipment form Short Shipment Form is an application
to the Cus-toms Authorities at Port advising the short
shipment of goods and for claim-ing the return of the Duty
and/or Cess paid on such short shipping goods.
Shipping advice A Shipping Advice is used to inform the
overseas customer about the shipment of goods. The Shipping
Advice is prepared in Aligned docu-ment. The Exporter only
advises );his importer about the Invoice number, Bill of
Lading/Airway Bill number and date, name of the vessel with
date, the port ,of export, description of goods and quantity
and the date of sailing of the vessel.
215
 Distinction Between - Mate’s Receipt and Bill of Distinction Between - Commercial Invoice and
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

Lading Consular Invoice

Mate’s Receipt Bill of lading Commercial Invoice Consular Invoice
1. Meaning:- Mate’s is a receipt by Bill of lading is the Official document 1. Meaning:- Commercial invoice is Consular invoice is a certificate issued
the Commanding Officer of the ship issued by the shipping company the statement of account of sale by the Consulate of the importers
when the cargo is loaded on the ship. acknowledging the receipt of goods on prepared by the exporter after the country situated in the exporters
board the vessel. execution of export order giving country certifying the volume, value,
details about the goods shipped. quality,grade,source, etc. of the goods
2. Purpose:-It is issued in order to It is issued in order to enable the imported.
enable the exporter or his agent to importer to take the delivery of goods
secure bill of lading from the shipping at the port of destination. 2. purpose:- It is required : It is required in order to provide
company. ~ In preparation of various shipping accurate information about the volume,
documents. value, quality, grade, source, etc., of the
3. Evidence:- It is an evidence of It is a contract between the shipper and goods imported to the authorities of
goods having been loaded on board the shipping company for the carriage ~ In pre-shipment inspection, excise
the importing country for the purpose
the ship of goods from the port of loading to and customs procedures. of assessing import duties.
the port of destination. ~ In negotiation of documents for
4. Types:- It is of two types : It is of several types : collection and claim of incentives.
~ Clean mate's receipt. ~ Clean and claused bill of lading, 3. Significance:- . It is a secondary document and as
~ Qualified mate's receipt ~ Transhipment bill of lading. It is a primary document and is such is required when desired by the
~ Stale bill of lading. required for the preparation of various importer
~ Freight Paid & Collect bill of lading other shipping documents
5.Details of Fright:-It does not It does specify whether bill of lading is 4. Contents: - It contains the terms It contains accurate information about
specify whether the fright is paid on freight paid or not. and conditions of sale as well as the volume, value, quality, grade,
goods on not. detailed description of the goods to be source, etc., of the goods exported
exported
6. Issuing Authority:- It is issued by It is issued by the shipping company or
the Commanding Officer of the ship its agent. 5. Cost:- since, it is prepared by the
exporter himself he needs not to pay
or his mate.
any charges for the same.
7. Title of Goods:- It is not a title of It is a document of title of goods
goods. Lets Sum Up
8. Negotiability:- It is not a It is a negotiable instrument Documentation in export business is complex but .not difficult
negotiable document.
to understand if one knows the reasons of making documents
9. Sequence:- It is prepared before I t is prepared on the basis of the mate's
the bill of lading. receipt. at different stages of export transactions. Some of these
documents are made or secured at the preshipment stage while
Distinction Between - Certificate of Origin and others are made or secured after the shipment has been made.
Consular Invoice The need for export documents arises due to commer-cial, legal
and incentive perspectives. Commercial perspective helps in
Certificate of Origin Consular Invoice
1. Meaning:- The certificate of origin states Consular invoice is a certificate issued
protecting the respective interests of the exporter and importer.
that. The goods exported are originally by the Consulate of the importer's Regulatory perspective emphasises to follow the regulatory
manufactured in the country whose country situated in the exporter's
name is mentioned in the certificate country certifying the volume, value, provisions of that particular country. Incentive perspective helps
quality, grade, source, etc., of the goods in getting various incentives according to the prevailing policy of
imported.
the government.
2. purpose:-Certificate of origin is required Consular invoice is required in order to
q For claiming the benefit preferential provide accurate information about the Main commercial documents in C.l.F. contract are: Commercial
tariff rates. volume, value, quality, etc." of the
q In case goods' produced in a goods imported to the authories of the invoice, Bill of lading! Airway bill, Post parcel receipt, Insurance
particular country are banned for importing country for the purpose of policy/Certificate and bill of exchange. The details required to
import in the foreig n market. assessing import duties.
be mentioned in these documents will depend upon the terms
3. Legislation :-It does not require any It does require legislation from the
legislation from the Consulate of the Consulate of the importing country
and conditions of the export contract/letter of credit.
importing country situated in the exporting situated in the exporting county.
country.
Commercial invoice performs many functions. It is a document
4.Issuing Authority : It is issued by the It is issued only by the Consulate of the.
of contents and a bill. It gives information about the shipment
Chambers of Commerce, Export importer's country situated in the and payment terms and also acts as a certificate of origin. Bill of
Promotion Councils or Authorised Trade exporter's country.
Associations. lading and airway bill are transport documents and act mainly as
receipt of cargo given by the carrier. Bill of lading, in particular,
is also a document oftitle and for this reason it acquires the
transferability. Insurance policy/certificate will enable the assured
(exporter/importer/bank, etc.) to claim compensation from the
insurance company for loss or damage to the goods caused by
the perils insured against. Bill of exchange protects the interests
of the exporter by linking the payment for goods with the
other documents. In other words, the banking channel will
ensure that the importer does not get the charge of goods
unless he has either paid for the goods or has obligated himself
to make the payment after the expiry of an agreed period. This
is to be done by accepting and honouring of the Bill of
Exchange by the importer.

216 11.675.1
The legal regulatory documents fulfil the legal requirements of ii. The application for getting the Export Inspection Certificate

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

the concerned countries. In India, law stipulates that for anyone is the... ............
to be in the export business, registration with the licensing iii. Shipping Bill is prescribed by... authority.
authorities (Importer- Exporter code No.) is essential. But if
iv. Customs Invoice is prescribed by the………country.
such exporter also wants to claim certain specified export
incentives, he will have to get the Registration-Cum-Member- v. The document prescribed for obtaining GSP facility is
ship Certificates from the concerned export promotion called... .............
organization. In addition, the exporter has to follow documen- vi. ………….. is the document prescribed by the Indian
tation and procedural formalities for any consignment that is Railways for getting a priority in the allotment of wagons
shipped. Main documents for these purposes are GR/PPVP/ for movement of export consignments.
COD/SOFTEX FORM (under Foreign Exchange Management vii. Main documents for claiming rebate in central excise duty
Act). Export Licence/Permit. Export Inspection Certificate, are ……… and………….
Shipping Bill (customs clearance) and port Trust Copy of Ans.11 (i) True (ii) false (iii) True (iv) True (v) False.
Shipping Bill Dock Challan/Export Application (Port Clear-
Ans:12 I) CNX From and GR form ii) Intimation for inspec-
ance). In addition to docu-ments needed in exporting country
tion iii) Customs iv) Importing v) GSP Certificate of Origin vi)
the importing country may also specify documents to be
Forwarding note. vi) Invoice and Ar4/AR5 Forms.
obtained by the exporter. These documents are generally in the
nature of certificates of . origin and quality. Documents are also
needed for claiming export incentives; some of the main
documents are Invoice and AR41 AR5 Forms (excise rebate).
Drawback Copy of Shipping Bill (Duty Drawback)
Faced with the problem of the non- standardized documenta-
tion’ Aligned Documentation System’ has been developed. In
line with system. Government of India has also developed
Standardized Pre- shipment Export Documents. With the help
of this system. Several documents can be prepared from a
Master document. Import documents include IEC No and Bill
of Entry.
Questions Bank
Q1.What are the different types of Bill of Lading?
Q2.What is the significance of Certificate of Origin?
Q3.What is the significance of Consular Invoice?
Q4.Distinguish between Mate’s Receipt and Bill of Lading.
Q5. Distinguish between certificate of Origin and Consular
Invoice.
Q6. Distinguish between Commercial Invoice and Consular
Invoice.
Q7. What do you mean by “Application for export .
Q8.State whether the following Statements are True or False.
i. GR Form is required to be filled in duplicate for all
exports in physical form other than by post.
ii. RBI Code Number is required for the purpose of
monitoring the flow of foreign exchange against
export of goods by a firm.
iii. Softex form is required to be prepared in duplicate for
export of computer software in non- physical form.
iv. When goods are exported by road or by rail, the
document used for this purpose is called shipping bill.
v. Drawback shipping bill is used for export of goods
entitled to duty drawback.
Fill in the Blanks
i. Under the Foreign Exchange Regulations, exporters from
India have to declare exports on... form for all exports in
physical form other than by post.

11.675.1 217
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 30:
EXPOR T ASSISTANCE IN INDIA
Learning Objectives
• Objectives
• Introduction
• Importance of Export Assistance
• Export Promotion Measure in India.
• Expansion of Production Base for Exports.
i. Relaxation in Industrial Licensing Policy/MRTP/
FERA/Foreign Collaborations
ii. Liberal Import of Capital Goods
iii. Export Processing Zones (EPZ), Export Oriented
Units ( EOU), Special
iv. Economic Zones (SEZs), Electronic Hardware
Technology Parks (EHlTP) and Software Technology
Park Units (STP)
v. Assured Supply of Raw-Material’ Imports
vi. Eligibility for Export/Trading/Star Trading/Super Star
Trading Houses
vii. Export Houses Status for Export of Services
• Rendering Exports Price-Competitive
i. Fiscal Incentives
ii. Financial Incentives
• Strengthening Export Marketing Effort
• Let Us Sum Up
• Answers to Check Your Progress
• Terminal Questions
Objectives
After studying this unit, you should be able to :
• explain the importance of export assistance in India
• describe various assistances provided for the expansion of
production base for export . explain the fiscal and financial
assistances provided to the exporters
• describe the measures taken by the Government of India to
strengthen the export marketing - effort.
Introduction
The Export-Import policy 1992-97 brought about many
fundamental changes -in India’s external trade policy. It
gradually laid the foundation of globalisation ‘of Indian
economy by initiating liberalization and making Indian
industries to face competition from foreign MNCs. Until 1992,
Indian markets were highly protected and the Indian govern-
ment used to give many incentives to the Indian exporters. But
many6f these incentives were’ withdrawn by the 1992-97 and
subsequent policies.
218
Importance of Export Assistance
Export promotion was accorded a very low priority during the
initial progmmme of economic development in India. During
the 1950s and almost up to mid 1960 export-promotion was
not at all considered as an essential element in India’s economic
development process. Easy and adequate availability of external
assistance from World Bank and other international agencies as
well as developed countries has provided India with more than
adequate amount of foreign exchange for financing develop-
ment as well as essential imports. Hence, the urgency of earning
foreign exchange through expanding exports was not there. In
addition, because of the large size of the domestic market in
India, ‘import substitution’ rather than the’ export promotion’
was considered as a more useful strategy for India’s economic
development process. Similarly during the period of the First
Three Five year plans over 1950-51 to 1965--66" Indian
economy was in a formative stage. Consequently India’s capacity
to export manufactures or industrial products was extremely
limited. Hence, on this account as well, India could not look at
international markets especially because of her extremely limited
capacity to offer supplies of- industrial products.
However after 1965-66, the aid flows to India were substantially
reduced. Consequently, for the first time India was made to
depend significantly on her exports for acquiring foreign
exchange to meet her needs of essential imports. Moreover, by
the second-half of 1960s, a number. of industries especially in
the engineering, chemicals, leather, marine and other sectors
have reached a stage from where they were looking for an
opening in international market.
Government of India had therefore, considered it as appropri-
ate to lay emphasis on the need for export promotion so as to
enable the country to meet the’ need of imports. Fortunately, it
received an encouraging response from the industrial sector
which was also looking for international markets. Over the last
couple of decades export promotion has assumed critical
importance in Indian economy. Export growth has become the
main determinant of economic growth in India. The process
of globalization and liberalization has further enhanced the
need of strengthening the support of export-import trade
business of the country. Moreover, with the increasing burden
of debt-servicing on the one hand and the situation of aid-
fatigue on the other, exports have now emerged as the only
viable source of meeting the foreign exchange needs of Indian
economy. Hence, the feasibility of financing almost entirely
depends upon the growth in Indian export. It may, therefore,
be ,stated that the future eco-nomic growth in India is insepara-
bly linked with growth in Indian exports. Hence, export,
promotion is being an overriding consideration in policy
formulation. Export promotion’ policy in India has three main
segments. They are as follows:
11.675.1
a. Policies for increasing Investment and production in export
sector.
b. Price-support measures for rendering exports more
competitive.
c. Measures for strengthening marketing effort by the export
sector.
Export Promotion Measure in India
The assistance extended to the Indian exporters are asunder :
Import Facilities For Exporters
a. Duty Free Replenishment Certificate (DFRC) :- DFRC
is issued to a merchant exporter or manufacturer exporter
for the duty free import of inputs such as raw materials,
components, intermediates, consumables, spare parts,
including packing materials to be used for export
production. Such licence is given subject of the Julfi1ment
of time bound export obligation.
b. Duty Entitlement Passbook Scheme (DEPB) :- Under
the DEPB scheme, an exporter may apply for credit as a
specified percentage of FOB value of exports, made in
freely convertible currency. The credit shall be available
against such export products and at such rates as may be
specified by the Director General of Foreign Trade (DGFT)
by way of public notice issued in this behalf, for import of
raw materials, intermediates, components, parts, packaging
materials, etc.
c. Export Promotion Capital Goods Scheme (EPCG) :-
EPCG scheme was introduced by the EXIM policy of 1992-
97 in order to enable manufacturer exporter to import
machinery and other capital goods for export production at
concessional or no customs duties at all. This facility is
subject to export obligation, i.e., the exporter is required to
guarantee exports of certain minimum value, which is in
multiple of tl;1e value of capital goods imported.
Dutv Exemption Schemes
a. Duty Drawback (DBK) :- The Duty Drawback Scheme is
administered by the Directorate of Drawback, Ministry of
Finance. Under this scheme, an exporter is entitled to claim:-
• Customs duty paid on the import of raw materials,
components and consumables.
• Central excise duty paid on indigenous raw materials,
components and consumables utilized in the
manufacture of goods meant for export.
b. Excise Duty Refund :- Excise duty is a tax imposed by the
central government on goods manufactured in India. This
duty is collected at source, i.e., before removal of goods
from the factory premises. Export goods are totally
exempted from central excise duty. However, necessary
clearance has to be obtained in one of the following ways.
• Export under rebate.
• Export under bond:
c. Octroi Exemption :- Octroi is a duty paid on
manufactured goods, when they enter the municipal limits
of a city or a town. However, export goods are exempted
from octroi.
11.675.1
Fiscal Incentives
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
a. Exemption from Income Tax :- In order to enable
exporters to plough back their earnings and promote
exports, the Government of India has given tax exemption
to exporters on export earnings under section 80 HHC
provision of the Income Tax Act. For example, for the A.Y.
2002-03, 60% of the export income is exempted from tax.
At the same time, a ten year tax holiday is provided to
100% EOUs and units in EPZs.
d. Sales Tax Exemption :- Sales tax is a tax imposed by the
State government on goods sold in or outside India.
However, exportable goods are exempted from sales tax,
provided the exporter or his firm is registered with the Sales
Tax Authorities. This exemption is given on the following
categories of goods :-
• Goods exported.
• Goods purchased from the local market from export
purpose.
Marketing Assistance
a. Market Development Assistance (MDA) :- The
government of India has set up a separate fund under the
head Marketing Development Assistance (MDA) for
developing marketing abilities of Indian exporters. It is
granted by the Ministry of Commerce for export market
development and research abroad. The amount granted
under MDA varies from 25% to 60% of the actual
expenditure incurred.
b. Market Access Initiative (MAI) :- Under this scheme,
financial assistance is available to the export promotion
councils, C industry and trade associations and other eligible
entities on the basis of the competitive merits of proposals
received in this regard for undertaking marketing studies,
setting up of common showrooms, warehousing facility,
participation in sales promotion campaigns, publicity
campaigns, international trade fairs, seminars, buyers-sellers
meet, etc.
Supply of Raw Materials
a. Industrial Raw Material Assistance Centres (IRMAC)
Scheme :.IRMAC is established by the government of
India as,,-{i subsidiary of STC. Such centres import raw
materials in bulk and supply them to the registered
exporters against a valid import licence. This enables
exporters to get timely supply of raw materials at reasonable
prices, I~MAC has’ been further simplified- by removing
the actual user clause.
b. Back to-Back Inland Letter of Credit :- The facility of
Back-to-Back Inland letter of credit was announced by the
EXIM policy 1992-97 and came into effect from 1st April
1995. 13ack.to-back L/C is one, which can be opened In
favour of local suppliers of raw materials or goods so as to
enable exporters to got raw materials or goods for export
on credit basis. It is a kind of pre-shipment finance
procured by the exporter for the processing of export order.
219
 Institutional Measures
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
a. Institutional Measures :- The Government of India
(GOI) has established a number of organisations to
promote and expand export trade. These organisations are:-
• Indian Institute of Foreign Trade (11FT) to provide
training facilities.
• Indian Institute of Packaging (lIP) to upgrade
,packaging standards.
• Export Promotion Councils (EPCs) to undertake
export promotion activities.
• Export Inspection Council (EIC) to upgrade quality
standards.
• Export Credit Guarantee .-Corporation (ECGC) to
protect exporters against payment rises.
• Indian Council of Arbitration (ICA) to settle and solve
disputes between importers and exporters. Apart from
the above institutions, there are a number of other
organisations such as Federation of Indian Export
Organisation (FlEa), EXIM Bank, etc.
Expansion of Production Base for
Exports
The first prerequisite of export promotion policy is to ensure
larger exportable surpluses. In. other words, if a country wants
to exports more, it must have more to export. It will have more
to export only if more and more is produced for export. Hence,
it calls for increasing flow of production and investment
resources into the export sector.
Relaxation in Industrial Licensing Policy/MRTP/
FERA/Foreign Collaborations
With a view to facilitate relatively easier creation/expansion of
production capacities for increasing export potential of Indian
economic, necessary relaxations have been provided for in the
policies for industrial licensing, MRTP (Monopolies and
Restrictive Trade practices Act) and Foreign Exchange Regula-
tions, etc. The Foreign Exchange Regulation Act has been
liberalised and Foreign Exchange Management (FEMA) Act,
1999 has been operationalised. The rupee has been made fully
convertible for all approved external transac-tions. As a result,
exporters of goods and services and those who are in receipt of
remit-tances are able to sell their foreign exchange at market
determined rates. The importers and foreign travellers are also
able to buy foreign exchange at market determined rates.
Exporters have also been allowed to maintain foreign currency
accounts. There is general liberalisation of remittance of foreign
exchange for visits abroad, agency commission; export claims,
reduction in export value, reimbursement of expenses incurred
on dishonoured export bills, consular fees, etc. Consequently,
creation of additions of production capacities for export is
liberally allowed, both in the large-scale as well as small-scale
sectors. Foreign collaboration and foreign capital investment is
also liberally permitted for the export sector. 100% foreign
equity has been permitted to the units in EPZ/EOU/EHTP/
STP. All these policy measures are envisaged to go long way in
facilitating easy expansion as Well as technological up gradation
of export base in India through attracting larger flows of
investment and other resources.
220
Liberal Import of Capital Goods
Import policy of India has made specially liberal provisions for
easy import of capital goods of all types. Accordingly, imports
of machinery and equipment are allowed without import
licence. In addition special provisions have been made for
import of capital-goods at a concessional rate of import duty.
Export Promotion Capital Goods (EPCG) Scheme has been
introduced for liberal import of capital goods.
Export Promotion Capital Goods Scheme: New Capital goods
including computer software systems may be imported under
the Export Promotion Capital Goods (EPCG) scheme. Under
this provision, capital goods including jigs, fixtures, dies,
moulds and spares upto 20% of the CIF value of the capital
goods may be imported at 5% customs duty: This import is
subject to an export obligation equivalent to 5 times CIF value
of capital goods on FOB basis or 4 times the CIF value of
capital goods on NFE basis to be filled over a period of 8 years.
This period is reckoned from the date of issuance of licence.
Import of capital goods shall be, subject to Actual User
condition till the export obligation is completed.
Export Processing Zones (EPZ), Export-Oriented Units
(EOU), Special Economic Zones (SEZs), Electronic
Hardware Technology Parks (EHTP) and Software
Technology Park Units (STP)
Units undertaking to export their production ‘of goods may be
set up under Export Processing Zones (EPZ) scheme, Export
Oriented Units (EOU) scheme, Special Economic Zones
(SEZs) scheme, Electronic Hardware Technology park (EHTP)
scheme or Software Technology Park (STP) scheme. Such units
may be engaged in manufacture, services, trading, development
of software, agriculture including agro-processing, aquaculture,
animal husbandry, bio-technol-ogy, floriculture, horticulture,
pisciculture, viticulture, poultry, sericulture, and granites may I
export all products except prohibited items of exports.
These units import all types of goods without payment of
duty including capital goods for manufacture, production or
processing provided they .are not prohibited items, Second
hand. capital goods may also be imported in accordance with
the provisions of the policy: Supplies from DT A to these units
will be regarded as deemed exports. Foreign equity upto 100%
is permissible to these units. These units shall be exempted
from payment of corporate income tax for 10 years.
Assured Supply of Raw Material Imports
As regards making available the supplies of imported raw
materials to the export sector, the import policy provides the
scheme of Duty exemption and Duty Remission. The duty
exemp-tion scheme enables import of inputs required for
export production. The duty remmission scheme enables post
export replenishment/remission of duty on inputs used in the
export product.
Under duty exemption scheme, an advance licence is issued to
allow import of inputs which are physically incorporated in the
export product. Advance licence is issued for duty free import
of inputs as defined in the policy subject to actual user condi-
tion. Such licences are exempted from’ payment of basic
customs duty, surcharge, additional customs duty, antidumping
11.675.1
duty and safeguard duty, if any. Advance licence can be issued iv. Foreign Exchange Facilities

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

for (i) physical exports (ii) ,intermediate supplies and (iii) v. Golden Status Certificate
deemed exports. Duty Remission Scheme consists of Duty Free
vi. Other facilities as specified in the policy
Entitlement Certificate and Duty Entitlement Passbook
Scheme. Export Houses Status for Export of
Services
Eligibility for Export/Trading/Star Trading/ Service providers sha1l be eligible for recognition as service
Super Star Trading Houses Export House, International
Export/Trading/Star Trading/Super Star Trading Houses have
been accorded special status. When exporters achieve the Service Export House, International Star Service Export House,
specified level of exports over a period, they may be recognized International Super Star Service Export House on achieving the
as EH/TH/STH/SSTH. Exports made both in free foreign performance level as below:
exchange and in Indian rupees shall be taken into account for Export of Services for Recognition of Export Houses
recognition. The objective of this scheme is to recognise them
Category Average free Free Foreign Average NFE NFE earned
as the respective houses”with a view to building marketing foreign exchange earned made during the
infrastructure and expertise required for export promotion. The exchange earning during during the preceeding
earning during the preceding preceding licensing year
exporters, registered with FlEO or EPC are, eligible for this the preceding licensing year licensing year in rupees
purpose. The export performance criteria may be based on three licensing in rupees in rupees
year in rupees.
either f.o.b. value of exports or net foreign exchange earnings. Service Export 4 crore 6 crore 3 crore 5 crore
Let us discuss them in detail. House
International 20 crore 30 crore 15 crore 25 crore
i. F.O.B. Criteria: The manufacturing or merchandising Service export
units, who have achieved the following targets can be House
International 100 crore 150 crore 75 crore 125 crore
accorded the status of above mentioned Export Houses. star service
Deemed exports are not counted for this purpose. Look at export house
International 300 crore 450 crore 225 crore 375 crore
Table for this criteria. super star
service export
FOB Criteria house

Category of Houses Average FOB value FOB value of The service status holders sha1l be entitled to all the facilities
of exports during eligible export
the preceding three during preceding
provided in the policy.
Licensing year, in
Rupees
Licensing year in
Rupees
Rendering Export Price Competitive
Export House Rs. 15 crores Rs. 22 crores The second pre- requisite of export promotion policy is to
Trading house Rs. 75 crore Rs. 112 crore render the exports increasingly price competitive in international
Star trading House Rs. 375 crores Rs. 560 crore market. A number of Price support measures in the form of
Super star trading houses Rs. 1125 crores Rs. 1680 crores
fiscal as well as financial incentives have therefore been provided
for the export sector in India.
ii. Net Foreign Exchange Earnings: Exporters have an
The need for price- support measures in the form of export
option for obtaining the status of Export and other
incentives, arises on two accounts. First, price levels in interna-
Houses based on the following Net Foreign Exchange
tional markets are invariably the lowest, because of the high
Earnings. Look at Table for this criteria.
degree of competition therein. On the other hand, Indian
Net Foreign Exchange Criteria economy, has over the years emerged as a high economy with
Category of Average Net Foreign Net Foreign
low productivity. Hence, for success full and viable export effort
Houses Exchange Value of Exchange Value of there is the need for incentives to provide the price support for
eligible exports exports made during rendering India’s exports competitive and viable.
during the preceding the preceding
three licensing years licensing years Secondly, incentives exports also become necessary to neturalise
Export house Rs. 12 crores Rs. 18 crores
the domestic market -pull on Indian exporters. Hence, export
incentives also aim at encouraging trade and industry in India to
Trading House Rs. 62 crores Rs. 90 crores
increasingly undertake export effort on a sustained basis.
Star trading house Rs. 312 crores Rs. 450 crores
Super star trading Rs. 937 crores Rs. 1350 crores Under the export promotion policy of India, various types of
house incentives have been provided for a price-support measures.
These include (a) Fiscal Incentives and (b) Financial Incen-tives.
Exporters have also an option to get recognition for one year.
In this case relaxation in above earnings has been permitted. Fiscal Incentives
Fiscal incentives for export promotion include (i) duty draw-
EH/TH/STH/SSTH are entitled to the following special back, (ii) central excise rebate and (iii) income tax exemption, on
benefits: export profits.
i. Import Facilities i. Duty Drawback: In the manufacturing of many export
ii. Marketing Development Assistance. products imported or indigenous raw materials and
iii. Foreign Currency, Accounts components are used on which customs or central excise

11.675.1 221
 duty has been paid. When the finished products are
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
exported in which duty paid inputs are used, a part or
whole of the amount of such duty is allowed -to be drawn
back by the exporter or if is refunded to him. This results in
substantial reduction in the cost of material inputs for
export-production. In other words, import duties and
central excise duties, on material inputs for export activity
are allowed to be drawback by the exporters under the
incentives policy for duty drawback. The scheme of Duty
Drawback has been formulated by the Drawback Director
under the Central Board of Revenue and Customs from the
Ministry of Finance. Details regarding Drawback Scheme can
be had from ‘Drawback Rules’ as notified by the office of
Drawback Director. Refund of Duty Drawback is granted
on post-export . basis. The benefit Of duty drawback has
been provided on the basis of (a) all industry rates or (b)
brand rates separately fixed for individual manufacturers of
the export products. The incentive of duty drawback helps
reduce significantly the material cost of export products. It
is very important for countries like India, which have
simple manufactures to offer for exports which are very
much influenced by the material cost. You will learn detail
procedure of Duty Drawback in next lesson.
ii. Central Excise Rebate: Under this scheme, the Central
Excise Duties on the inputs . and final product or on the
output proposed for export, are refunded to the exporter.
It helps in further reduction in the overall cost of
production for exports. The scheme also provides for a
Bond System under which outright exemption from
Central Excise Duties can be claimed by the exporter. The
scheme is operated as per Central Excise Rules notified by
the Central Excise department. You will learn in detail
about the Central Excise Rebate in next lesson
iii. Income-Tax Exemption: . In order to promote exports,
income tax exemption has been granted under Income Tax
Act. This exemption scheme is to be phased out over a five
year period i.e. by 2004-2005 for all exporters other than
EPZ/EOU/EHTP/STP units. The major exemptions are
as follows:
1. Part of the profits derived from export of specified
goods or merchandise is deducted for the computation
of income tax.
2. Specified amount of profits of companies engage in
the business of hotel or of . a tour operator or a travel
agent is deducted.
3. There is a partial tax relief on export of computer
software and for import of system. The benefit can
also be claimed by a supporting software developer
from 1-4-1999..
4. The profits from export or transfer of film VT
software, TV news software, telecast rights are partially
deducted.
5. 50% of the profits from project exports is deducted in
computing taxable income of the Indian company or
resident tax payer.
6. 10 years tax holidays is granted to units in FTZIEPZ
and 100% EOU ending with 2010-2011.
222
7. There is a tax rebate on remuneration received on
services rendered outside India and other rebate as
specified in the policy.
iv. Sales tax Exemption: There is no tax on sales made for
export purpose. The exporter need not pay sales tax either
on the goods purchased from manufacturers or traders.
Financial Incentives
The major scheme of financial incentives include interest
subsidy, financial assistance scheme for agricultural, horticultural
and meat exports.
i. Interest Subsidy: Export sector in India has also been
given interest subsidy under which the working capital is
made available by the banks to the export sector at a
concessional or subsidised rates of interest. Under this
scheme working capital required for pre- shipment credit as
well as post- shipment credit is provided to the export
sector at concessional rates of interest. This measure helps
Indian exporters. to reduce the working capital cost of
export operation.
ii. Financial Assistance Scheme for Agricultural,
Horticultural and Meat Exports:
In order to promote the exports. of agricultural,
horticultural and meat products, agricultural and processed
food products Export Development Authority (APEDA)
Provides financial assistance for the following purposes:
a. Feasibility studies, surveys, consultancy and data base up
gradation
b. Development of infrastructure
c. Export promotion and market development
d. Packaging development
e. Quality control
f. Upgradation of meat plants
g. Organisation building and Human Resource Development
h. Air freight assistance for export of horticultural products
export by air
i. Generation of relevant research and development through
research institutions.
Thus, export incentives in the form of tax- concessions or fiscal
incentives, as well as financial incentives, playa major role in
rendering Indian exports, competitive in the international
market. However, in view of the highly competitive nature of
international market, every country in the world makes an all-
out effort to increase her exports, for which various types of
different fiscal and financial incentives are provided. Thus, the
practice of incentives has almost become universal, covering
both developed as well as developing countries.
Strengthening Export Marketing Effort
The third pre- requisite of export promotion is the marketing
effort. It may be noted that ‘export’ is primarily a ‘sale’ transac-
tion. Production can be converted into ‘sale’ only through the
marketing effort. In other words ‘marketing effort’ provides the
necessary link or channel’ between production and sales. Hence,
success on the export front is dependent upon the marketing
effort. Export promotion policy in India therefore, pays special
11.675.1
attention to the need for improving and strengthening export
marketing effort. With this objective, the Government of India
have established a very comprehensive network of institutions
for servicing the export sector.
In other words; an effort has been made to provide the
necessary infra structure for servicing the export sector, particu-
larly to improve the export marketing effort. With this object in
view, Government of India have established a number of
specialized institutions for providing necessary services and
assistance to individual corporate units from the export sector.
Institutions established for strengthening export marketing
effort include Export Promotion Council, Commodity Boards,
Special Authorities and Industry Associations. These are the.
key institutions servicing export effort ~t individual corporate
level product-wise. The primary ‘function of these institutions
is to provide the exporter with export marketing guid-ance and
advice as well as complete information and details covering
almost all the critical elements involved in export marketing
effort at the individual corporate unit level on a continuous
basis.
In addition, separate institutions have also been established for
providing technical and specialized services to the export-sector
in India. These institutions provide necessary guidance, help
and assistance to individual corporate units, especially in the
field of packag-ing, quality control, risk coverage, long- term
credit, trade fairs and exhibitions, settlement of disputes,
package service and market information.
For supplementing the export-effort by the private sector,
Govt, of India have also estab-lished a number of Corpora-
tions in the Government sector for directly undertaking export
-import activity. Various state Governments have also estab-
lished Export Corporations for promoting exports from
different states respectively.
Market Development Assistance: This assistance is provided
for overall development of I overseas markets. It is provided
for sponsoring, inviting trade delegations within and outside
the country, market studies, publicity, setting up of ware-
houses/showrooms, research and development, quality control,
etc. MDA is largely available to Approved Organisations,
Export Houses/Consortia of Small Scale Industries, Individual
exporters or other sponsored persons. The assistance is given
for air fare, daily allowance, participation in fairs and’ exhibi-
tions, etc. The assistance is disbursed by the FIEO and Ministry
of Commerce.
External Marketing Assistance Scheme for Jute: The
External Marketing Assistance Scheme provides grant of market
assistance at the rate of 5% and 10% of FOB value realisation
on export of specified diversified products. The benefit is
available to both manufacturer- exporters and merchant
exporters.
Lets Us Sum Up
Of late export promotion has assumed critical importance in
Indian economy. Export growth has become main determinant
of economic growth. With the increasing requirements of
imports, exports have now emerged as the only viable source of
meeting the foreign ex-change needs. Government of India
11.675.1
have provided various incentives for export promotion. Export
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
promotion policy include (i) policies for increasing investment
and production in export sector (ii) price support measures for
rendering exports more competitive, and (iii) measures for
strengthening marketing effort by the export sector.
There has been relaxations in industrial licensing policy MRTP,
foreign exchange regulation, foreign collaboration to increase the
flow of production and investment resources into the export
sector. Apart from the provisions made for liberal import of
capital goods, Export Processing Zones, Export-Oriented
Units have been given completely licence-Fee and duty- free
import facilities for all production inputs. Duty Tee licence
schemes have been granted’ to the registered exporters for
supplies of adequate quantities of material inputs required for
export. Export House, Trading House, Star Trading House and
Super Star Trading House have been given special facilities to
promote the export business. In order to make India’s export
competitive, price viable support incentives have been given to
the exporters. Fiscal incentives include (i) duty drawback (ii)
central excise rebate and (iii) income-tax exemption on export
profits.
The scheme of financial incentives include interest subsidy on
working capital and financial assistance scheme for Agricultural,
Horticultural and Meat Exports.
The success on the export front is crucially dependent upon the
marketing of the products. Hence, special efforts have been
made for improving and strengthening export marketing effort.
Government of India have established a number of specialised
institutions for provid-ing necessary services and assistance to
the exporters, Marketing Development fund provides necessary
financial assistance for market promotion.
Questions Bank
State whether the following statements are true or False:
Q1. i. In the beginning India followed a policy of import
substitution.
ii. Import policy has made provision for easy import of
capital goods of all types.
iii. there is completely licence free and duty free import
facility for all production inputs for Export processing
Zone and Export Oriented Units.
iv. An advance licence is granted only to the manufacturer
exporter.
v. Foreign equity upto 75% is permissible to EPZ and
EOUs.
Answers to Check Your Progress
i. True ii. True iii. False iv. False v. False
Terminal Questions
1. Explain the facilities/concessions for increasing the
production-base for exports from India.
2. Analyse the different price support measures introduced in
India for rendering India’s exports more competitive.
3. Why the role of marketing effort is crucial in export
promotion? Describe the measures undertaken in India for
strengthening export marketing effort.
223
 4. Explain the rationale for price-support measures for export
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

promotion in India.
5. “Export Incentives have become a universal practice”.
Discuss.
6. Explain the framework of export incentives in India and
analyse as to how far it provides a total approach to export
promotion.

224 11.675.1

LESSON 31:
EXPORT FINANCE
Learning Objectives
• Objectives
• Introduction
• Institutional Framework
• Pre-shipment Financ
• Packing Credit
• Advance against Incentives
• Pre-shipment Credit in Foreign Currency
• Post Shipment Finance
• Negotiation of Export Documents Under Letters of
Credit
• Purchase/ Discount of Foreign Bills
• Advance against Bills Sent on Collection
• Advance against Goods Sent on Consignment
• Advance against Export Incentives
• Advance against Undrawn Balances
• Advance against Retention Money
• Post-shipment Export Credit Guarantee and Export
Finance Guarantee
• Post-shipment Credit in Foreign Currency
• Export Under Deffered Payment
• Deferred Credit Facilities
• Role of Export Import Bank of India.
• Recent Development in Export Financing
• Lets Sum Up
• Answers to Check Your Progress
• Terminal Questions
Objectives
After studying this unit, you should be able to:
1. describe the procedure of pre-shipment credit
2. explain various types and procedure of post-shipment
credit .
3. explain the role of Export Import Bank of India.
4. describe the recent development in export finance.
Introduction
You have learnt various provisions of Exchange Regulations in
Unit 6. Export financing is another important area of export
business. Export finance refers to the credit facilities ex-tended
to the exporters at pre-shipment and post-shipment stages. It
includes any loan to an exporter for financing the purchase,
processing, manufacturing or packing of goods meant for
overseas markets. Credit is also extended after the shipment of
goods to the date of realisation of export proceeds. In this
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
unit, you will learn various schemes of finance avail-able to
exporters at pre-shipment and post-shipment stages. You will
also be acquainted with the role of EXIM Bank in export
finance.
Institutional Framework
Institutional framework for providing finance comprises
Reserve Bank of lndia, Commercia1 Banks, Export Import
Bank of India and Export Credit and Guarantee Corporation.
Reserve Bank of India, being the central bank of country, lays
down the policy frame work and pro-vides guidelines for
implementation.
Finance short or medium term, is provided exclusively by the
Indian and foreign commercial banks which are members of
the Foreign Exchange Dealer’s Association. The Reserve Bank
of India function as refinancing institutions for short and
medium term loans respectively, Provided by commercial banks.
Export Import Bank of India, in certain cases, participates with
commercial bank in extending medium term loans to exporters.
Commercial banks provide finance at a concessional rate of
interest and in turn are refinanced by the Reserve Bank! Export
Import Bank of India at concessional rate. In case they do not
wish to avail refinance, they are entitled for an interest rate
subsidy. Export Credit & Guarantee Corporation (ECGC) also
plays an important role through its various policies and
guarantees providing cover for commercial and political risks
involved in export trade.
Pre-shipment Finance
Pre-shipment finance is provided to the exporters for the
purchase of raw materials, process-ing them and converting
them into finished goods for the purpose of export. Let us
discuss various pre-shipment advances available to the export-
ers.
Packing Credit
The basic purpose of packing credit is to enable the eligible
exporters to procure, process, manufacture or store the goods
meant for export. Packing credit refers to any loan to an exporter
for financing the purchase, processing, manufacturing or
packing of goods as defamed by the Reserve Bank of India. It
is a short-term credit against exportable goods.
Packing credit is normally granted on secured basis. Sometimes
clear advance may also be granted. Many advances are clean at
their initial stage when goods are not yet acquired. Once the
goods are acquired and are in the custody of the exporter banks
usually convert the clean advance into hypothecation! pledge. Let
us first discuss the detail procedure of packing credit.
Eligibility: Packing credit is available to all exporters whether
merchant exporter, Export/ Trading/ Star Trading/ Super Star
Trading Houses and manufacturer exporter. Manufacturers of
goods supplying to Export/ Trading/ ST/ SST Houses and
Merchant exporters are eligible for packing credit. The-foreign
225
 buyer through the medium of a reputed bank gives the credit
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
to eligible exporters, for specified purposes against irrevocable
letter of credit. It is also available against a confirmed or firm
export order/contract placed by the buyer for export of goods
from India.
Running Account Facility: The RBI has permitted banks to
grant packing credit advances even without lodgement of-L/ C
or firm-order/ contract under the scheme of Running Ac-count
Facility subject to, the fol1owing.conditions .
i. The facility may be extended, J1rcwid.ed the need for
Running Account facility has been established by the
exporters to the’ satisfaction of the bank.
ii. The bank may extend this facility only to those exporters
whose track record has been good.
iii. L/C or firm order is produced within a reasonable period
of time. For Commodities under selective credit control,
banks should insist on production of LlCs or firm orders
within one month from the date of sanction.
iv. The concessive credit available ~in respect of individual pre-
shipment credit should not go beyond 180 days.
Packing credit may also be given under the Red Clause letter of
credit. In this method, credit’ is given at the instance and
responsibility of the foreign bank establishing the LlC. Here,
the packing credit advance is made against a simple receipt and is
unsecured.
Amount:- The loan amount is decided on the basis of export
order and the credit rating of the exporter by the bank. Gener-
ally the amount of packing credit will not exceed FOB value of
the export goods or their domestic value whichever is less. It
can be to the extent of domestic value of the goods even
though such value is higher than their FOB value provided the
goods are entitled to duty draw back and also covered by the
Export Production Finance Guarantee of the ECGC.
Period:- The packing credit can be granted for a maximum
period of 180 days from the date of disbursement. The banks
are authorised by RBI to extend this period. This period can be
extended for a further period of 90 days, in case of non-
shipment of goods within 180 days. The extension can be done
provided the banks are satisfied that the reasons for extension
are due to circumstances beyond the control of the exporters.
Pre-shipment credit may be given for a longer period upto a
maximum of270 days, if the banks are satisfied about the need
for longer duration of credit.
Rate of Interest:-The interest payable on pre-shipment finance
is usually lower than the normal rate, provided the credit is
extinguished by lodging the export bills on remittances from
abroad. If the exporter fails to do so they would not be able to
avail concessional rate of interest.
In order to avail the packing credit; exporters are expected to
make a formal application to the bank giving details of credit
requirements along with the required documents.
Advance Against Incentives
When the value of the materials to be procured for export is
more than FOB value of the contract, the exporters may get
packing credit advance more than the FOB value of the goods.
226
The excess of cost of production over the FOB value of the
contract represents incentives receivables. For example, when the
domestic price of goods exceeds the value of export orders, the
difference represents duty drawback entitlement. Banks can
grant ad-vances against duty drawback at pre-shipment stage
subject to the condition that the loan is covered by Export
Production Finance Guarantee of Export Credit Guarantee
Corporation (ECGC). This guarantee enables banks to sanction
advances at the pre-shipment stage to the full extent of cost of
production. The extent of cover and the premium are the, same
as for packing credit guarantee.
Pre-shipment Credit In Foreign Currency
This is an additional window to rupee packing credit scheme.
This credit is available to cover both the domestic and imported
inputs of the goods exported from India. The facility is
available in any of the convertible currencies. The credit will be
self-liquidating in nature and accordingly after the shipment of
goods the bills will be eligible for discounting/ rediscount-ing
or for post-shipment credit in foreign currency. The exporters
can avail this finance under the following two options.
i. the exporters may avail pre-shipment credit in rupees and,
then, the post-shipment credit either in rupees or in foreign
currency denominated credit or discounting/ rediscounting
of export bills.
ii. The exporters may avail pre-shipment credit in foreign
currency and discounting/ rediscounting of the export bills
in foreign currency.
PCFC credit will also be available both to the supplier units of
EPZ/ EOU and the receiver units of EPZ/ EOU. The credit in
foreign currency shall also be available on exports to Asian
Clearing Union (ACU) Countries. This will be extended only °!l
the basis of confirmed! firm export orders or confirmed L/Cs.
The Running Account facility will not be available under the
scheme.
Post-shipment Finance
It may be defined as “any loan or advance granted or any other
credit provided by a bank to an exporter of goods from India
from the date of extending the credit after shipment of goods
to the date of realisation ion of export proceeds. It includes any
loan or advance granted to an exporter on consideration of or
on the security of, any duty drawback or any cash receiv-ables by
way of incentive from the government.
While granting post-shipment finance, banks are governed by
the guidelines issued by the RBI, the rules of the Foreign
Exchange Dealers Association of India (FEDAI), the Trade
Control and Exchange Control Regulations and the Interna-
tional Conventions and Codes of the International Chambers
of Commerce. The exporters are required to obtain credit limits
suitable to their needs. The quantum of credit depends on
export sales and receivables.
Post shipment finance is granted under various methods. The
exporter may choose the type of facility as per his requirement.
The Banks scrutinise the documents submitted for compliance
of exchange control provisions like:
i. the documents are drawn in permitted currencies and
payment receivable as permitted method of payment;
11.675.1
ii. the relevant GR/PP form duly certified by the customs is
submitted and particulars as stated in the GR/PP form are
consistent with the documents tendered as well as the sale
contract! firm order etc./ letter of credit;
iii. the documents are submitted within the time limit
stipulated and in case of delay suitable explanation is made;
iv. the period of usance is in consonance with the time limit
prescribed for realisation of export proceeds.
Let Us Now Discuss Various Types of Post-shipment Finance.
1. Negotiation of Export Documents Under Letters
of Credit
Where the exports are under letter of credit arrangements, the
banks will negotiate the export bills provided it is drawn in
conformity with the letter of credit. When documents are pre-
sented to the bank for negotiation under L/C, they should be
scrutinized carefully taking into account all the terms and
conditions of the credit. All the documents tendered should be
strictly in accordance with the L/C terms. It is to be noted that
the L/C issuing bank under-takes to honour its commitment
only if the beneficiary submits the stipulated documents. Even
the slightest deviation from those specified in the L/C can give
an excuse to the issuing bank of refusing the reimbursement of
the payment that might have been already made by the negotiat-
ing bank.
2. Purchase/Discount of Foreign Bills
Purchase or discount facilities in respect of export bills drawn
under confirmed export contracts are generally granted to
exporters who enjoy bill purchase/discounting limits sanc-
tioned by the bank. As the security offered by the issuing bank
under letter of credit arrangement is not available, the financing
bank is totally dependent upon the credit worthi-ness of the
foreign buyer. The documents, under the Documents against
Payment (DIP) arrangements, are released through foreign
correspondent only when payment is received. Whereas in the
case of Documents against Acceptance (D/A) bills, documents
are delivered to the overseas importers against acceptance of the
draft to make payment on maturity. Since the financing banks
are open to the risk of non-payment, ECGC policies issued in
favour of exporters and assigned to banks are insisted upon.
Under the policy, ECGC fixes limits and payment terms for
individual buyers and the financ-ing bank has to ensure that the
limit is not exceeded so that the benefits of policy are avail-able.
Banks also secure a guarantee from ECGC on the post-
shipment finance extended by them either on a selective or
whole turnover basis. Banks sometimes do obtain credit
reports on foreign buyers before they purchase the export bills
drawn on the foreign buyer.
3. Advance against Bills Sent on Collection
Post-shipment finance is granted against bills sent on collection
basis in the following situations:
i. when the accommodation available under the foreign bills
purchase limit is exhausted ii)when some export bills drawn
under L/ C have discrepancies.
iii. where it is customary practice in the particular line of trade
and in the case of exports to countries where there are
problems of externalisation.
11.675.1
Under the above situation, the bank may send the bill on
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
collection basis and finance the exporter to some extent out of
the total bill amount. The amount advanced will be liquidated
out of the export proceeds of the export bill and the balance
paid to the exporter.
Exporters may avail themselves on the forward exchange facility
where they do not wish to be subjected to exchange risk on
account of the new procedures for overdue export bills.
4. Advance against Goods Sent on Consignment
Sometimes exports are effected on consignment basis. In such
condition payment is receiv-able to sale of goods. Goods are
exported at the risk of exporter for sale. The banks may finance
against such transaction subject to the exporter enjoying specific
limit for such purpose. The overseas branch/ correspondent of
the bank is instructed to deliver documents against Trust
Receipt.
5. Advance against Export Incentives
Advances against the export incentives are given at the pre-
shipment stage as well as the post-shipment stage. However,
the major part of the advance is given at the post-shipment
stage. The advance is granted to an exporter in consideration of
or on the security of any duty drawback incentives receivable
from the Government. The banks follow their own procedure
in granting the advance. The most common practice is to obtain
a power of attorney from the exporter executed in their favour
by the banks. It is sent to the concerned government depart-
ment like the Director General of Foreign Trade, Commissioner
of Customs, etc. These advances are not granted in isolation. It
is granted only if all other types of export finance are extended
to the exporter by the same bank.
6. Advance against Undrawn Balances
In some of the export business, it is the trade practice that the
bills are not drawn for the full invoice value of the goods. A
small part of the bills is left undrawn for payment after adjust-
ments due to difference in weight quality, etc. Advances are
granted against such undrawn balances. In this case the export
proceeds must be realised within 90 days.
The advances are granted provided the undrawn balance is in
conformity with the normal level of balances left undrawn
subject to a maximum of 5% of the full export value. The
exporters are supposed to give an undertaking that they will
surrender the balance proceeds within 6 months from the date
of shipment.
7. Advance against Retention Money
Banks grant advances against retention money, which is payable
within one year from the date of shipment. The advances are
granted upto 90 days. If such advances extend beyond one year,
they are treated as deferred payment advance which are also
eligible for concessional rate of interest .
8. Post-shipment Export Credit Guarantee and
Export Finance Guarantee
Post-shipment finance given to exporters by banks through
purchase, negotiation or dis-count of export bills or advances
against such bills qualifies for this guarantee. Exporters are
expected to hold appropriate shipments or contracts policy of
ECGC to cover the overseas credit risks.
227
 Export Finance Guarantee cover post-shipment advances
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
granted by banks to exporters against export incentives
receivable in the form of duty drawback, etc.
9. Post-shipment Credit in Foreign Currency
The exporters have the option of availing of exports credit at
the post-shipment stage either in rupee or in foreign currency.
The credit is granted under the Rediscounting of Export Bills
Abroad Scheme ( EBR) at LIBOR linked interest rates. The
scheme covers export bills with usance period upto 180 days
from the date of shipment. Discounting of bills beyond 180
days requires prior approval from RBI. The exporters have the
option to avail of pre-shipment credit and post-shipment credit
either in rupee or in foreign currency. If pre-shipment credit has
been availed of in foreign currency, the post-shipment credit
necessarily to be under the EBR scheme. This is done because
the foreign currency pre-shipment credit has to be liquidated in
foreign currency.
Exports Under Deferred Payments
You have learnt that all export proceeds must be surrendered to
an authorised dealer within 180 days from the date of ship-
ment. Exporters are required to obtain permission from the
Reserve Bank through authorised dealers in the event of non-
realisation of export proceeds within the prescribed period.
However, realising the special needs of exports of engineering
goods and projects, Reserve Bank has formulated special
schemes permitting deferred credit arrangements. This will
enable realisation of export proceeds over a period exceeding six
months. Hence, contracts for export of goods and services
against payment to be secured partly or fully beyond 180 days
are treated as deferred payment exports. The credit extended is
termed as deferred payment term credit.
For financing under deferred credit system a single point
approval mechanism within a three tier system operates.
This system includes:
i. Commercial banks who are authorised dealers in foreign
exchange in India, can provide in principle clearance for
contracts valued upto Rs. 25 crores. They can avail refinance
from EXIM bank.
ii. EXIM bank is empowered to give clearances for contracts of
value of above Rs. 25 crores and upto Rs. ) 100 crores.
iii. A working group considers proposals of contracts of value
beyond Rs. 100 crores. The working group consists of
representatives of all the above institutions to provide
single window clearance.
Deferred credit facility is normally allowed only for export of
engineering goods, turnkey projects involving rendering of
services like designing, civil construction and erection and
commissioning of plant or factory alongwith supply of
machinery, equipment and materials. Project exports eligible for
export finance are as follows:
i. Turnkey projects: These projects involve supply of
equipment alongwith related services like design, detailed
engineering, civil construction, erection and commissioning
of plants, etc.
228
ii. Construction projects: involve civil works, steel structural
works as well as associated supply of construction materials
and equipment.
iii. Technical and consultancy service contracts involve
provision of personnel, furnishing of knowhow, skills,
operation and maintenance services and management
contracts.
These services include:
a. Engineering services contracts involve supply of services
such as design, erection, commissioning or supervision of
erection and commissioning.
b. Consultancy services contracts involve preparation of
feasibility studies, project reports, preparation of designs
and advice to the project authority on specifications for
plant and equipments.
Deferred Credit Facilities
Export of goods on deferred payment terms can be financed
under suppliers credit or buyer’s credit. Let us first understand
what they are,
Supplier’s Credit: The exporter extends credit directly to the
overseas buyer and seeks refinance from commercial banks/
EXIM bank.
Buyer’s Credit: It is a loan extended by a financial institutions
or a consortium of financial institutions to the overseas buyer
for financing a particular contract. Let us discuss buyer’s Credit
in detail.
Under this scheme, credit is granted by EXIM Bank jointly with
an authorised dealer to foreign buyers in connection’ with
export of capital goods and turnkey projects from India. The
exporters are paid out of the buyer’s credit on a non-recourse
basis on their complying with the terms of the export contracts
to be financed under the scheme. Before the exporter enters into
any contract providing for credit terms to be financed under
buyer’s credit scheme, they should have detailed discussion with
the bankers. While considering proposals under the scheme, the
following factors are taken into account by EXIM Bank:
i. competence and capability of Indian exporters in complying
with the proposed commercial terms of the contract;
ii. justifiability of the contract on commercial considerations;
iii. economic viability of the overseas projects concerned of the
importer and general economic conditions of his country~
iv. credit worthiness of foreign borrower.
Reserve bank’s permission is also required for the purpose of
granting credit under the scheme since payment will have to be
made to the exporter on behalf of non-resident buyer. The
authorised dealer in Form DPX 6 should make application to
the Reserve Bank for the purpose.
Export Import Bank of India: Pre-
Shipment
Export Credit In Foreign Currency
In addition to the pre- shipment credit in foreign currency
granted by the commercial banks, the Export- Import Bank of
India ( EXIM Bank) also offers the facility of pre- shipment
export credit in foreign currency to only specified categories of
11.675.1
the exporters unlike the PCFC offered by commercial banks to Research & Analysis: Research & Analysis carried out on

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

all categories of the exporters. The specified categories of specific industry sub sectors with export potential, and interna-
exporters are as follows: tional trade related subjects are provided to exporters. Look at
a. Export House/Trading House with annual export turnover Table 7.1 where details of various programmes offered by the
exceeding Rs 10.00 crores. EXIM Bank have been shown.
b. Manufacturing units with minimum export orientation of Table 7.1 lending and service programmes of EXIM Bank
25% of pro-duction or export turnover exceeding Rs. 5 Programme Use
crores, whichever is lower. For this purpose only physical For Indian Entities Enables Indian exporters to extend term credit to
Export ( Supplier's) Credit Overseas importers, of eligible Indian goods
exports of commodities are taken into ac-count. Such
Financing of Rupee Enables companies to meet cash flow deficits of
exports could be made either directly or through Trading Expenditure for projects projects being executed overseas on cash payment
Houses. Export Contracts terms

c. The exporter should have satisfactory. Finance for Consultancy And Enables Indian exporters of consultancy and
Technology Services technology services to extend term credit to
The Export Import Bank of India provides this facilities to the overseas Importers
exporters through commercial banks. Such credit is granted to Pre-shipment Credit Enables Indian exporters to buy raw material and
other Inputs for export contracts involving cycle
pay for the import of inputs required for export production. time exceeding six months.
This credit is granted on the basis of the firm export order or Finance for Deemed Exports Enables Indian Companies to meet cash flow
the letter of credit. deficits of contracts secured in India and financed
by multilateral funding agencies.
Salient Features Foreign Currency Pre- Enables eligible exporters to access finance for
The salient features of this scheme are as follows: shipment credit import of raw materials and other inputs needed
for export Production
1. EXIM Bank raises short-term foreign currency funds on a Finance for EOU's & Units in Enables Indian companies to acquire indigenous
revolving basis from one or more Syndicates of overseas EPZs and imported machinery and other assets for
export Production
lenders. Such funds are then made available by the EXIM
Foreign Currency Lines of Enables eligible export-oriented units to acquire
Bank to the commercial banks in India who opt to avail of Credit for imports imported machinery for export production.
PCFC for on-lending to eligible exporter customers for Export Vendor Development Enables vendors of export-oriented units to
import of eligible items. The commercial banks will, in Finance acquire plant & machinery and other assets for
increasing export capability
turn, allocate PCFC limits to their customers on the basis
Export Product Development Enables Indian firms undertake product
of their assessment of import requi.rement for export Finance development, R & D for exports.
production. The advances granted under PCFC to the Overseas Investment Finance Enables Indian promoters to finance equity
exporters is fully liquidated from the export proceeds of the contribution in joint ventures/ WOS set up
abroad.
relative export bill. Software Training Institutes Enables setting up of institutes for software
2. The maximum period of an advance under PCFC will not training.
Marketing Finance Enables exporters to implement market
generally exceed 180 days. development Programmes and finances
3. The applicable rate of interest on credit available to the productive capabilities through loan financing.
exporter will be two per cent over and above the interest rate Production Equipment Enables eligible export-oriented units to acquire
Finance equipment.
at which the funds are raised by the EXIM Bank. Exporters Services Enables Indian exporters to raise finance from
may also have to pay management fee, commitment, fee, Underwriting capital markets through public/ rights issues of
etc, if applicable. equity shares/ debentures with the backing of
EXIM Bank's underwriting commitment.
4. The repayment of the pre-shipment credit will be made out Forfaiting Enables Indian exporter to convert credit sale to
of sale pro-ceeds of export shipment in respect of which cash sale on without recourse basis.
Enables Indian companies to provide requisite
the exporter availed of the facility. guarantees to facilitate execution of export
contracts and import transactions
Role of Export Import Bank of India
Guarantee Facility Enables Indian companies to provide requisite
Export-Import Bank of India was set up in 1982, for the guarantees to facilitates execution of export
purpose of financing, facilitating and promoting foreign trade contracts and import transactions.
of India. It is the principal financial institution in the country L/C Confirmation Confirmation of L/Cs covering import of capital
goods
for coordinating working of institutions engaged in financing Project preparatory services Enables Indian Consultancy firms undertake
exports and imports. The major functions of EXIM bank are Overseas project preparatory studies in developing
as follows; countries by grant/loan financing.
Business advisory & Technical Enables Indian consultancy firms undertake
Finance: The present focus of EXIM Bank is on export Assistance Services overseas specific assignments in select countries through
finance. The Bank finances export of Indian machinery, grant financing
Cooperation Arrangement Enables Indian consultants secure assignments in
manufactured goods, consultancy and technology services on with African Management various projects that are managed by AMSCO in
deferred payment terms. Exim Bank finance is also available at services Co.(AMSCO) different parts of sub-saharan Africa through
export production stages. Amsterdam grant financing.
Africa Enterprise fund Enables Indian Consultancy firms to undertake
Services: EXIM Bank provides information, advisory services specific assignments to assist small and medium
to enable exporters to evaluate the international risks, export entrepreneurs in Sub-Saharan Africa.
opportunities and competitiveness.

11.675.1 229

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Africa project development Enables Indian Consultancy firms undertake
Facility. specific assignments in Sub-Saharan Africa
through grant financing.
EC Investment partners Enables setting up of joint ventures in India
Facility between Indian companies and enterprises in the
European Community
For Commercial banks Enables bank to offer credit to Indian exporters
of eligible goods, who extend term credit over
Refinance of Export credit
180 days to importers overseas.
Small scale industry Export Enables bank to rediscount exports bills of their
Bills Rediscounting SSI customers with usance not exceeding 90 days.
Relending facility Enables banks overseas to make available term
finance to their clients for import of eligible
Indian goods.
Refinance of Term Loans to Enables banks to offer credit to eligible export
EOUs oriented units to acquire indigenous and imported
machinery and other assets for export production.
Bulk Import Finance Enables banks to offer finance to importers for
bulk import of consumable inputs.
Guarantee cum Refinance Enables banks to protect their own cash flow as
Supplier’s Credit also its Exporter client’s cash flow on account of
default by overseas buyer. Protects the bank by
not treating the advance as a non-performing
asset for provisioning purpose.
For Overseas Entities Enables overseas financial institutions, foreign
governments, their agencies to onlend term loans
Lines of Credit
to finance import of eligible goods from India.
Buyer’s Credit Enables overseas buyer to import eligible goods
from India on deferred credit terms.
Recent Developments in Export
Financing
As stated earlier, offer of attractive credit terms is a crucial factor
in winning export contracts. Hence, financial institutions are
offering several innovative financial services to exporters. Some
of these services are discussed below:
Factoring: It is an attractive way of providing export finance to
exporters. In this system, factor bears the complete credit risk.
Who is a factor? A factor is a special type of agent who,
depending upon the type of agreement, offers a variety of
services. These services include coverage of credit risk, collection
of export proceeds, maintenance of accounts receivables and
advance of funds. Purchase of receivables of its clients without
recourse is the most important service of the factor. A big
advantage to the exporter is that it is without recourse financing.
This means that the risk of non-payment by the importer is to
be borne entirely by the factor.
In India, International Export Factoring services on with
recourse basis have been approved by the RBI. It provides a
new dimension to management of export receivables. SBI
Factors and Commercial Services Pvt. Ltd., Bombay have been
permitted to provide International Export Factoring. In this
system, the exporter enters into an export factoring agreement
with exporter’s factor. The exporters ship goods to approved
foreign buyers. Each invoice is made payable to a specific factor
in the importer’s country. Copies of invoices and shipping
documents are sent to the Importer’s factor. Exporter’s factor
will make prepayment to the export against approved export
receivables. On receipt of payments from the importer on due
date of invoice, importer’s factor remits the fund to the
exporter’s factor. The exporter’s factor pays to the exporter after
deducting the amount of prepayments.
Forfaiting: Forfaiting refers to the non-recourse discounting of
export receivables. It is a mechanism of financing exports that
involves less risk and enhances international competi-tiveness.
230
It converts a credit sale into cash sale for an exporter. In this
system forfaiting agency discounts international trade receivables
of the exporter. The forfaiter pays the exporter in cash and
undertakes the risk associated with the export deal. The exporter
surren-ders, without recourse to him, his rights to claim for
payment on goods delivered to an importer.
All exports of capital goods and other goods made on medium
to long term credit are eligible to be financed through forfaiting.
In India, EXIM bank plays an intermediary role between the
Indian exporter mid the overseas forfaiting agency. The exporter
approaches EXIM bank for forfaiting transaction. The bank
receives bills of exchange or promissory notes from the
exporter and sends them to the forfaiter for discounting.
Subsequently, the bank arranges for the discounted proceeds to
be remitted to the Indian exporter. The bank issues appropriate
certificates to enable Indian exporters to remit commitment fees
and other charges. RBI has allowed Authorised dealers to
undertake forfaiting of medium term export receivables.
Let Us Sum Up
Export finance is provided at the pre-shipment and post-
shipment stages. In India, the export credit facilities are
provided largely by commercial banks, RBI and EXIM banks
offer refi-nance. EXIM bank, in certain cases, participates with
commercial banks in extending medium and long-term credit to
exporters. In India, pre-shipment finance is offered in the form
of(i) Packing credit (ii) Advance against incentives and (iii) Pre-
Shipment Credit in Foreign Currency (PCFC). Packing credit
facilities are provided to the exporters for making necessary
arrangements for executing export contracts. The basic purpose
of packing credit is to enable the eligible exporters to procure,
process, manufacture or store the goods meant for export. It is
extended on the strength of either the letter of credit or
confirmed export contracts. Gener-ally the amount of packing
credit does not exceed FOB value of the export goods or their
domestic value whichever is less. When the value of the
materials to be procured for export is more than FOB value of
the contract, the exporters may get the credit against the
receivables export incentives. The pre-shipment finance is also
made available in foreign currency.
The credit provided by a exporter after the shipment of goods
is referred to the post-ship-ment credit. The quantum of credit
depends on export sales and receivables. Various types of post-
shipment credits are: (i) Negotiation of Export Documents
under letter of credit (ii) Purchase/ discount of foreign bills (iii)
Advance against bills sent on collection basis (iv) Advance
against goods sent on consignment basis (v) Advance against
export incen-tives (vi) Advance against undrawn balances (vii)
Advance against retention money (viii) Post-shipment export
credit guarantee and export finance guarantee and (ix) Post
shipment credit in foreign clemency. Deferred credit facilities are
offered for export of engineering goods, turnkey projects and
consultancy projects.
Export Import Bank plays an important role in promoting
exports from India through its various financing schemes. It
refinances to commercial banks in respect of credit extended by
them to exporter, gives loans to Indian companies for financing
exports under deferred payment, provides lines of credit and
11.675.1
buyer’s credit to overseas entities. The bank also advises Indian

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

exporters on matters pertaining to terms of payment, export
financing, etc. Factoring and Forfaiting are the recent develop-
ments in export financing.
Terminal Questions
1. What is the purpose of extending packing credit to
exporters? Explain the procedures of packing credit.
2. What do you mean by pre-shipment finance? Enumerate
the methods of pre--shipment finance. Describe the
procedure of pre-shipment credit in foreign currency.
3. What is post - shipment finance? Explain various methods
of post-shipment finance.
4. Explain the procedures of export under Deferred payments.
5. Describe the role of Export Import Bank of India.
6. Write short notes on:
i. Pre-shipment Credit in Foreign Currency
ii. Post-Shipment Credit in Foreign Currency
iii. Buyer’s Credit
iv. Factoring
v. Forfaiting
7. State whether following statements are True or False.
i. Generally the amount of packing credit will not exceed
FOB value of the export goods or domestic value
whichever is less.
ii. Banks are authorized to extend packing credit for a
further period of 180 days.
iii. Pre-shipment credit in foreign currency can not be
granted on exports Asian Clearing union countries.
iv. Whenever exporter wants he can avail the post
shipment advance against bills sent on collection basis.
v. Advances against the export incentives are given at the
pre-shipment stage as well as the post shipment stage.
Answers
i. true ii. false iii. false iv. false v. true.

11.675.1 231
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 32:
EXPOR T PROMOTION ORGANISATIONS
Learning Objectives
• Objectives
• Introduction
• Importance of Institutional Infrastructure
• Govt. Policy Making and Consultations
• Indian Trade Promotion Organisation (ITPO).
• Indian Institute of Foreign Trade (11FT).
• Indian Institute of Packaging (lIP).
• Indian Counsel of Arbitration (ICA).
• Federation of Indian Export Organisation (FIEO).
• Marine Products Exports Development Authority
(MPEDA).
• Export Processing Zones (EPZ).
• 100% Export Oriented Units (EOUs).
• Facilities for Units in EOUs, EPZs,EHTPs & STPs.
• M. Visvesvaraya Industrial Research & Development Center
(MVIRDC).
• Chamber of Commerce (COC).
• Question Bank.
Objectives
After studying this unit, you should be able to:
• explain the importance of the institutional infrastructure for
export promotion in India
• describe the role of government policy making and
consultative body in the export
• promotion
• explain the functions of export promotion councils and
commodity boards
• describe the role of various service institutions engaged in
export promotion
• explain the importance of government trading
organisations engaged in the export of specified
commodities.
Introduction
Export business requires special knowledge and business
acumen. Exporters need guidance and assistance at different
stages of the export effort. For this purpose, the Government
of India have set up several institutions whose main functions
are to help the exporter in his work. In this unit, you will learn
the role of these institutions in export promotion.
Importance of Institutional
Infrastructure
Export marketing effort is of vital importance for the success
of apart-promotion programme in any country. For undertak-
ing international marketing operations” an exporter needs
232
special guidance and assistance in critical areas like packaging,
market promotion and publicity, quality certification, risk
coverage, market intelligence, finance and credit support etc. It is
only with the support and services rendered by specialised
institutions, exporter is able to successfully convert his ‘produc-
tion’ into ‘sales in international market. Consequently, any
country, including India, engaged in the task of export promo-
tion, has to establish specialised institutions for strengthening
export-marketing effort for the country as a whole. This along
will have the way for creating an export environment and
export- culture, on the foundation of which the export
marketing effort at the corporate level can be effectively launched
on an intensive and sustained basis.
With this object in view, Government of India have established
a number of specialised institutions in the country for provid-
ing the necessary services and assistance to individual corporate
unit for a successful export effort. In view of the widely
diversifying nature of the export markets in different parts of
the world and an equally diverse and varied nature of products
and services traded in international market, Government of
India have established specialised institutions at production/
industry level for assisting exporters from different. sectors.
Institutions engaged in export efforts fall in six distinct tiers. At
the top is the Department of Commerce of the Ministry of
Commerce. This is the main organisation to formulate and
guide India’s trade policy. At the second tier, there are deliberate
and consultative organisations to ensure that export problems
are comprehensively dealt with after mutual discussions be-
tween the Government and the Industry. At the third tier are
the commodity specific organisations which deal with problems
relating to individual commodities and/or groups of com-
modities. The fourth tier consists of service institutions which
facilitate and assist the exporters to expand their operations and
reach out more effectively to the world markets. The fifth tier
consists of Government trading organisations specifically set up
to handle export/ import of specified commodities and to
supplement the efforts of the private enterprise in the field of
export promotion and import management. Agencies for
export promotion at the State level constitute the sixth tier. Let
us now discuss each of them in detail.
Government Policy Making and
Consultations
Appropriate government policies are important for successful
export effort. In view of the increasingly important and critical
role of foreign trade in economic development, a separate
Ministry of Commerce has been entrusted with the responsibil-
ity of promoting India’s interest in international market. The
Department of Commerce, in the Ministry of Commerce has
been made responsible for the external trade of India and all
matters connected with the same. The main functions of the
Ministry are the formulation of international commercial policy,
11.675.1
negotiation of trade agreements, formulation of country’s
export-import policy and their implementation. It has created a
network of commercial sections in Indian embassies and high
commissions in various countries for export- import trade
flows. It has set up an “Ex-porters Grievances Redressal Cell”
to assist exporters in quick redressal of grievances.
Board of Trade: For ensuring a regular consultation, monitor-
ing and review of India’s foreign trade policies and operations,
Government of India have set up a Board of Trade with
representatives from Commerce and other important Minis-
tries, Trade and Industry Associa-tions, and Export Service
Organisations. It is an important national platform for a regular
dialogue between the Government and the trade and industry.
The deliberations in the Board of Trade provide guidelines to
the Government for :appropriate policy measures for corrective
action.
Cabinet Committee on Exports: With a view to ensure
regular and effective monitoring of India’s foreign trade
performance and related policies, Cabinet Committee on
Export has also been set up.
Empowered Committee of Secretaries: For speedier and
quicker decision-making, an Empowered Committee of
Secretaries has also been established to assist the Cabinet
Commit-tee on Exports.
Grievances Cell: Grievances Cell has been set up to entertain
and monitor disposal of grievances and suggestions received. It
is a cell meant for speedy redressal of genuine grievances.
Grievances Committees headed by Director General of Foreign
Trade and head of concerned Regional Licensing Authority have
been constituted in the respective licensing offices. The Com-
mittee also include representatives of FIEO, concerned Export
Promotion Council/Commodity Board and other departments
and organisations. The grievances may be addressed to the
Grievance Cell of the concerned Licensing Authority in the
prescribed Performa.
Director General of Foreign Trade (DGFT): DGFT is an
important office of the Ministry of Commerce, to help the
formulation of India’s Export-Import policy and implementa-
tion thereof. It has set up regional offices in almost all States
and Union Territories of India. These offices are known as
Regional Licensing Authorities. There is an Export Commis-
sioner in the DGFT office who functions as a nodal point for
all export promotion schemes. The Regional Licensing offices
also act as Export facilitation centres.
Director General, Commercial Intelligence & Statistics
(DGCI& S): DGCI& S has been entrusted with the task of
compilation and publication of data on India’s Foreign Trade.
It brings out various publications relating to Foreign Trade of
India. The major publications are as under:
i. Monthly Statistics of Foreign Trade of India
ii. Monthly Press Notes on Foreign Trade’.
iii. Monthly Brochure of Foreign Trade Statistics of India
(Principal Commodities and Countries)
iv. Indian Trade Classification based on Harmonised
Commodity Description and Coding System
v. Indian Trade Journal
11.675.1
Ministry of Textiles: Ministry of Textiles is another Ministry
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
of Government of India which is responsible for policy
formulation, development, regulation and export promotion
of textile sector including sericulture, jute and handicrafts, etc. It
has a separate Export Promotion, . Division, offices, advisory
boards, development corporations, Export Promotion
Councils, and Commodity Boards. The advisory boards have
been constituted to advise the govern-ment in the formulation
of the overall development programmes in the concerned
sector. It also devises strategy for expanding markets in India
and abroad. The four advisory boards are as under:
i. All India Handloom Board
ii. All India Handicrafts Board
iii. All India Powerloom Board
iv. Wool Development Board
There are Development Commissioners, Handicrafts and
Handlooms, who advises on matters relating to the develop-
ment and exports of these sectors. There are Textile
Commissioner and Jute Commissioner who advise on the
matters relating to the growth of exports of these sectors.
Textile Committee has also been set up for ensuring of textile
machine manufac-tured indigenously, especially for exports. It
also issues certificates of origin and other special certificates.
States Cell: The cell has been created under Ministry of
Commerce. Its functions are to act as a nodal agency for
interacting with state Government or Union Territories on
matters concerning exp0l1 or import from the State or Union
Territories. It provides guideline to State level export
organisations. It assists them in the formation of export plans
for each cases.
Development Commissioner, Small Scale Industries
Organisation: The Directorate has the headquarter if! New
Delhi and extension centres located in almost an States and
Union Territories. They provide export, promotion services
almost at the doorsteps of the small scale industries and cottage
unit. The important functions are:
i. to help the small scale industries to develop their export
capacities
ii. to organise export training programmes
iii. to collect and disseminate information
iv. to help such units in developing their export markets
v. to take up the problems and other issues. related to small
scale industries
Besides, there are Directorates of Industries, National Small
Industries Corporation and State Corporations for the promo-
tion or exports from small scale industries.
Technical and Specialised Services
Assistance
Export marketing effort at the individual corporate level also
needs to be reinforced through a number of technical and
specialised service inputs. These cover important and crucial
areas like packaging, quality control, risk coverage, promotion
and finance. Let us now discuss them in detail.
233
 Indian Trade Promotion Organisation
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
(ITPO)
Indian Trade Promotion Organisation was set up by the
Ministry of Commerce, Government of India, on 1 st January
1992 with its headquarters at New Delhi after the merger of
Trade Development, Authority (TDA) and Trade Fair Authority
of India ,(TFAI). It has five regional offices at Mambai,
Bangalore, Kolkata, Kanpur and Chennai and four in Germany,
Japan, UAE and USA.
As a premier trade promotion agency of the Government of
India, the ITPO provides a road spectrum of services to trade
and industry so as to catalyse the growth of bilateral trade,
particularly India’s exports and technological upgradation and
modernization of different industry segments.
Functions of Indian Trade Promotion
Organisation
a. Organises Trade Fairs and Exhibitions :- It organises
various trade fairs and exhibitions at its exhibition complex
in Pragati Maidan and other centres in India. It also extends
the use of Pragati Maidan for holding pf trade fairs and
exhibitions by other fair organisers both from India and
abroad.
b. Involves the State Governments :- It enlists the
involvement and support of the State Governments for the
promotion of India’s foreign trade. It promotes
establishment of facilities and ,infrastructure for holding
trade’ fairs in state capitals or other suitable locations in
India, in consultation with the State Governments
concerned.
c. Assists in Technological Upgradation and Product
Development :- It provides assistance to Indian
companies’ in locating suitable foreign collaborators for
transfer of technology, joint ventures, marketing tie-ups
and investment promotion. It also assists Indian
companies in product development and helps them to
adapt to meet buyer’s requirements.
d. Helps in establishing Overseas Contacts :- It helps in
establishing a durable contacts between Indian suppliers
and overseas buyers. It organises ‘buyer-seller meets with a
view to bring buyers and sellers together. It also invites
overseas buyers and organises their meetings with Indian
suppliers..
e. Other Services:-
• To identify and nurture specific export products with
long-range growth prospects.
• To conduct in-house and need-based research on trade
and export promotion.
• To participate in overseas trade fairs and exhibitions.
• To organize seminars, conferences and workshops.
• To encourage and involve small and medium scale
units in export promotion efforts.
Indian Institute of Foreign Trade (11FT)
Indian I Institute of Foreign Trade was set-up in 1963 by the
Government of India a’s an autonomous body registered
under the Societies Registration Act. It was set up with the
234
prime objective of professionalising the country’s foreign trade
management and increase exports by developing human
resource, generating, analysing and disseminating data and
conducting research.
Functions of Indian Institute of Foreign
Trade
a. Training :- The IIFT has been recognised as a centre of
excellence for imparting training and education in
international business. Its specialisation in intentional
business and a global outlook makes it unique among
management schools in the country. It offers an inspiring
learning environment, which transforms the’ bright young
students into talented creative professionals.
b. Collects and Supplies Information :- 11FT conducts,
market studies and surveys in the overseas markets. It tries
to find out demand for Indian products in overseas market.
It supplies this information to the exporters. The exporters
can use such information while making their export
marketing decisions.
c. Organises Seminars and Workshops :- 11FT organises
seminars and workshops in a number of export marketing
areas, such as export pricing, export promotion, etc.
Exporters can take advantage of such workshops and
seminars by taking active part them.
d. Trade Delegations :- 11FT sends delegates abroad to study
overseas markets and also to interact with overseas
importers. At the same time, it invites delegates from
abroad, who can study Indian market conditions and can
also interact with Indian exporters.
e. Publications:. A large part of the lIFT’s research work is
published in the form of study reports, monographs,
status papers, etc. for wider dissemination among the
business community, government departments and
academic fields. The institute publishes :-
• Foreign Trade Review (FTR), a quarterly journal.
• Focus WTO, a bimonthly magazine.
• Technology Exports, quarterly newsletter.
f. Research and Consultancy :- IIFT has so far brought out
over 570 research studies and surveys. It also acts as a
consulting house for solving the problems of the exporters
and importers. It analyses the international business
environment and develops appropriate corporate strategies
for the overseas markets.
g. Management Development Programmes :- Combining a
unique ‘blend of research and consultancy, lIFT has been a
pacesetter in addressing to the needs of business executives
by continuously aligning the focus of its Management
Development Programmes with the changing realities. As a
result, its intensive short duration programmes have
received the most enthusiastic response.
Indian Institute Packaging (LIP)
The Indian Institute of Packaging was set up as a national
institute jointly by the Ministry of Commerce, Government of
India, and the Indian Packaging industry and allied interests in
1966, with its head quarters and principal laboratories at
11.675.1
Mumbai and regional laboratories at Kolkata, Delhi and
Chennai.
It is a training cum research institute pertaining to packaging
and testing. Over the years, it has built up a very strong and
capable expertise in various fields of packaging sciences and
technologies. It has excellent infrastructural facilities, which cater
to the various needs of the package manufacturing and package
user industries, both with regard to the domestic distribution
and export market requirements.
Functions of Indian Institute of
Packaging
a. Training Programmes :. It organises a number of training
programmes pertaining to packaging and also provides
suggestions in regard to packaging.
b. Testing Facilities :. It also undertakes testing o f packaging
materials and packages to ensure export quality.
c. UN Certification :- All dangerous goods packages need a
UN certification mark before they can be dispatched. IIP is
the only authorised body in India to give this certification.
d. Environmental Cell :- The institute has an environment
cell, which guides exporters as to what type of material can
be used or incorporated in the packaging of their products
so as to reduce environmental threats.
e. Research and Development:- It undertakes research and
development programmes for creating and ,improving
overall infrastructural facilities for achieving packaging
improvement so as to prevent losses during transportation
f. Collection and Dissemination of Information :. It
collects information on various packing and packaging
strategies and disseminate them to the exporter for their
benefits. An up-to-date information 01:1 packaging
developments can be availed on its website, “http:/ /
www.iip-in.com...
g. International Recognition :- The institute is international
organisations. It is recognised by Industrial Development
Organisation (UNIDO) and Centre (ITC) for consultancy
and training.
h. International Membership :- It is a member of the Asian
Packaging Federation (APF); the Institute of Packaging
Professionals (IOPPA), USA; the , Institute of Packaging
(lOP) UK; Technical Association for Pulp and Paper
Industry (TAPPI) and the World Packaging Organisation
(WPO).
i. Other Functions :-
• It also carries out graphic designing for international
products.
• It advises the government of India for all export
related packages.
It is not binding or compulsory for an organisation or company
to be a member of lIP. However, on being a member one can
avail the benefits of services provided by lIP, specially testing
facilities for packages to ensure high quality.
Indian Council of Arbitration (ICA)
Indian Council of Arbitration (ICA) was set up in accordance to
the recommendations of the Committee on Commercial
11.675.1
Arbitration constituted by the Ministry of Commerce, Govern-
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
ment of India. It was set up on 15th April 1965 as an
autonomous non-profit organisation registered under the
Societies Registration Act, 1860. The main objective of the
Council is to promote the use of commercial arbitration,
particularly in the course of India’s export trade.
ICA is a member of the Federation of International Commer-
cial Arbitral Institution and has’ mutual co-operation
agreements with the International Court of Arbitration, the
London Court of Arbitration and apex arbitration bodies in
Thailand, Republic of Korea, Yugoslavia, Bulgaria, Romania,
Malaysia, Australia, USA, Denmark, Mauritius, Russia, Ger-
many, Egypt, Switzerland, Japan, Philippines, Sri Lanka, South
Africa and more.
Functions of Indian Council of
Arbitration
a. The council provides arbitration facilities for all types of
domestic and international commercial disputes.
b. It. uses its network of offices for conciliation of
international trade complaints received from Indian and
foreign parties, for non-performance of contracts or non-
compliance with arbitration awards.
c. It organises arbitration meetings, conferences, training
programmes, etc., for company executives, businessmen,
lawyers, arbitrators, etc., from time to time in different parts
of the country.
d. It conducts research and publishes informative literature on
different aspects of commercial arbitration, including a
quarterly Arbitration Journal.
e. It provides information arid advice to interested parties
regarding the drafting of trade contracts, arbitration laws
and facilities and dispute settlement procedures in India and
in other parts of the world.
f. It keeps abreast of the latest developments, in the field of
international commercial arbitration and maintains co-
operative links with national and international arbitration
bodies throughout the world.
Federation of Indian Export Organisation
(FIEO)
Federation of Indian Export Organisations (FIEO) is an apex
body of various export promotion organisations. It was set up
in October 1965. It represents the Indian entrepreneurs’ spirit
of enterprise in the global market. It has kept pace with the
country’s evolving economic and trade policies and has provided
the content, directing and thrust to India’s expanding interna-
tional trade. As the apex body of all Indian export promotion
organisations, FIEO works as a partner of the Government of
India to promote Indian exports.
Functions of Federation of Indian Export
Organisation
a. International Linkage:-
• It has forged strong links with counterpart
organizations in several countries as well as
international agencies to enable direct communications
and interaction between India and world businessmen.
235
 • It is registered with UNCTAD as a national non-
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
government organisation, and has direct access to
information and data originating from UN bodies and
world agencies like the IMF, ADB, ESCAP, World
Bank, FAO, UNIDO and others,
b. Dissemination of Information :-
• It has bilateral arrangements for exchange of
information as well as for liaisoning with several
overseas chambers of commerce and trade and
industry associations.
c. Liaisoning with the Government :-
• It sends representations on policy matters to Central
and State (Regional) Governments.
• It helps in. establishing contacts between the
government and commercial bodies both in India and
overseas’.
d. Market Development Assistance (MDAJ) :- The Ministry
of Commerce, Government of India, through FIEO,
reimburses certain percentage of the expenditure incurred by
the recognised exporters, such as all types of export houses,
on sales-cum-study tours, participation in exhibitions and
fairs abroad, advertisements in foreign media, etc.
e. Market Research and Development Department :- The
Market Research and Development department offers the
following services to the exporters community :-
• Arranging meetings with diplomats, incoming
delegations and buying missions.
• Inviting delegations.
• Organising trade fairs and exhibitions in India as well
as abroad.
• Opening foreign offices and warehouses.
• Organising seminars for promotion of international
trade.
• Opening new FIEO offices abroad.
f. Publicity Department :- The Publicity department of FIEO
performs the following functions :-
• Bringing out various special supplements in Indian
and overseas dailies in order to project the selected
finished products in India and abroad.
• Creating and telecasting episodes in NEPC channel to
promote India’s prominent brands in various
countries covered by the channel.
• It has published Directory of Foreign Buyers and
Dictionary of Indian Exporters.
• It publishes a fortnightly magazine, “FIEO News”, to
cover developments in the field. of international trade
concerning India.
Marine Products Exports Development
Authority (MPEDA)
Marine Products Export Development Authority (MPEDA)
was constituted in 1972 under the Marine Products Export
Development Authority Act 1972. The headquarter of MPEDA
is located at Kochi in Kerala. The Authority operates two
overseas trade promotion offices, one at Tokyo (Japan) and the
236
other at New York (USA). The role envisaged for the MPEDA
under the statue is comprehensive, which covers organisation,
coordination, regulation and growth of the export of marine
products with special reference to the quality, processing,
packaging, storage, transport, shipment, marketing extension
and training in various aspects of the industry.
Functions of Marine Products Exports Development
Authority
a. To promote seafood exports by liaisoning. with Indian
exporters and overseas importers.
b. To develop contacts with government agencies and officials
to remove identified constraints.
c. To promote the image of Indian sea products in overseas
markets through publicity campaigns.
d. To create awareness on the capabilities of Indian processing,
packaging, quality and inspection procedures.
e. To find suitable joint venture. partners for deep sea fishing,
aquaculture projects, processing and marketing value added
products, etc.
f. To implement development measures vital to the industry
like distribution of insulated fish boxes, putting up fish
landing platforms, improvement of peeling sheds,
modernisation. of industry such as upgrading of plate
freezers, installation of machinery, generator sets, ice making
machineries, quality control laboratory, etc.
h. To promote brackish water aquaculture for production of
prawn for export.
i. Promotion of deep-sea fishing projects through test
fishing, joint venture and equity participation.
j. To undertake various market promotion programmes, such
as :-
• Conducting overseas market survey.
• Collecting data and maintenance of data bank. -’
• Providing assistance for market development.
• Undertaking publicity through media and producing
literature and films on trade promotion.
• Sponsoring of sales team and delegations abroad.
• Inviting overseas importers and experts for export
promotion visits to India.
• Organising buyer-seller meets in overseas markets.
• Participating in overseas trade fairs and exhibitions.
• Organising trade fairs and exhibitions in India. For
example, MPEDA organises seafood trade fair and
exhibition every alternate year in India.
Export Processing Zones (EPZS)
Export Processing Zones (EPZs) are industrial estates, which
form enclaves from the Domestic Tariff Areas (DTA) and are
usually situated near seaports or airports. They are intended to
provide an internationally competitive duty free environment
for export production at low cost. This enables the products of
EPZs to be competitive, both quality-wise and price-wise, in the
international market. There are seven EPZs in India at :-
a. Kandla (Gujarat).
11.675.1
b. Santacruz (Mumbai).
c. Falta (West Bengal).
d. Noida (UP).
e. Cochin (Kerala).
f. Chennai (Tamilnadu).
g. Visakhapatnam (Andhra Pradesh).
Government has also permitted’ development of EPZs by
private, state or joint sector. The Inter-Ministerial Committee
on private EPZs has already cleared three proposals for setting
up of private EPZs in Mumbai, Surat and Kancheepuram.
Difference Between EPZS and SEZS
The main difference between the SEZ and the EPZ is that the
SEZ is an integrated township with fully. developed infrastruc-
ture on international standards whereas EPZ is just an
industrial part. In fact,-all existing EPZs have been asked to
convert themselves into SEZs. However, some units are not
interested in the conversion on account of the sale into DTA at
concessional rate of duty is not available inSEZs. The Govern-
ment has asked such units to move out to the Domestic Tariff
Area (DTA).
Facilities Available to Units in EPZS
a. Each zone provides basic infrastructure such as developed
land for construction of factory sheds, standard design
factory buildings providing ready-built sheds, roads, power,
water supply and drainage.
b. Customs clearance is arranged within the zones at no extra
charge.
c. Provision has also been made for locating banking, post
office facilities and offices of clearing agents in the Service
Centre located in each Zone.
(For more details refer EOU/SEZ/EHTP/STP units)
100% Export Oriented Units (100% EOUS)
The Export Oriented Units (EOUs) Scheme, introduced in early
1981, is complementary to the EPZ scheme. It adopts the same
production regime but offers a wider option in location with
reference to factors like source of raw materials, port, hinterland
facilities, availability of technological skills, existence of an
industrial base and the need for a larger area of land for the
project.
EOUs have been established with a view to generating addi-
tional production capacity for exports by providing an
appropriate policy framework, flexibility of operations and
incentives.
(For more details refer to EOU/SEZ/EHTP/STP units)
EOUs, EPZs, Electronic Hardware Technology Park
Units (EHTPs) and Software ‘Technology Park Units
(STPs)
Units undertaking to export their entire production of goods
and services may be set up under :-
a. The Export Oriented Unit Scheme;
b. The Export Processing Zone Scheme.
c. The Electronic Hardware Technology Park Scheme
d. The Software Technology-Park Scheme.
11.675.1
Activities Undertaken BV Such Units
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
a. Manufacturing, servicing, repairing; remaking,
reconditioning, re-engineering including making ,of gold/
silver/platinum/jewellery and articles thereof;-
b. Agriculture including agro-processing, -aquaculture, animal
husbandry, bio-technology, floriculture, horticulture,
pisiculture,viticulture, poultry, sericulture and granites;
b. Export of all products except goods mentioned as
restricted and prohibited items of exports in ITC (HS)
Classification of Export and Import items.
c. Software units may undertake export using data
communication links or in the form of physical exports
including export of professional services.
d. Units for generation distribution of power can also be
setup in EPZs.
e. No trading unit is permitted
Facilities for Units Located under EOU/EPZ/STP/EHTP
Schemes
a. Importability or Procurement of Goods from Domestic
Tariff Areas :- An EOU/EPZ/EHTP/STP unit can
import or procure from the domestic sources, free of duty,
all its requirements of capital goods, raw materials,
consumables, spares, packaging material, office equipments,
etc.
• No licences are required for such import or domestic
procurement.
• Such units can utilise goods imported or domestically
procured ,over a period of 2 years.
b. Exemption from Duties ;. They are exempted from most
of the duties and levies such as state levies including sales
tax, anti-dumping duties, etc.
c. Income Tax Concession :- They are also entitled for
concessions in respect of payment of income tax under
various sections of the Income Tax Act, 1961.
d. Exemption from Industrial Licensing :- They are
exempted from industrial licensing for manufacture of
items reserved for Small Scale Industry sector.
e. Sub-contracting:- They can, with the permission of the
Customs Authorities, sub-contract part of the production
and production process in DTA.
f. Inter-Unit Transfer :-They can supply to other EOU/
SEZ/EHTP/STP units without payment of duty and such
supplies are counted towards fulfilment of export
obligation.
g. Supplies from DTA :- Supplies form DTA to EOU/SEZ/
EHTP/STP units are regarded as ‘Deemed Exports’ and
the DTA supplier is eligible for the deemed export benefits.
h. DTA Sale :- Units, other than gems and jewellery units,
may sell goods and services upto 50% of. FOB value of
exports, subject to fulfilment of minimum NFEP on
payment of applicable duties. No DTA sale is permitted in
case of motor cars, alcoholic liquors, tea (except intent tea)
and books.
237
 i. Export Obligation :- They can achieve export performance
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
and Net,Foreign Exchange Earning as a Percentage of
exports (NFEP) cumulatively over a period of 5 years.
Virtually no penal action is taken for shortfalls during the
first three years of operation.
j. 100% Foreign Equity :- 100% Foreign Direct Investment
(FDI) in the manufacturing sector is permissible to the
EOU/SEZ/EHTP/STP units. For FDI in services and
trading sector, the sectoral norms as notified by the
Department of Industrial Policy and Promotion are
applicable.
k. Other Entitlements:-
• Can procure duty-free inputs for supply of
manufactured goods to advance licence holders.
• Are exempted from State Trading regime except in
limited cases.
• Can club their exports with exports of their parent
company for purposes of Obtaining Trading or
Export House status.
• Manufacturers processors who have acquired quality
status with specified certification from identified
agencies are eligible for double weightage for
recognition as status holder.
• Can repatriate their profits freely without any dividend-
balancing requirement.
l. Visvesvaraya Industrial Research & Development Centre
The World Trade Centre, Mumbai has been named as the M.
Visvesvaraya Industrial Research and Development Centre after
the name of Dr. M. Visvesvaraya, an engineer and a scientist. It
was established in 1970 as a non-profit company licensed under
Sec. 25 of the Companies Act. The Council of Management
comprising of industrialists, representatives from Central and
State governments and apex Trade Promotion Organisations,
governs it.
MVIRDC became of a member of WTCA in 1971 after which
it was known as WTC, Mumbai. It consists of three centrally
air-conditioned building. The arcade comprises of various state
Emporia, banks, offices, shops and showrooms. It also houses
the prestigious Expo-Centre (exhibition hall). Centre- I
comprises of areas leased to various organisations connected
with world trade, business and industry such as EXIM bank,
RBI, EPCs, etc. It also houses WTC offices as well as meeting
rooms. Centre-II has been entirely leased out to the Industrial
Development Bank of India. (IDBI)
Functions of World Trade Centre
a. Trade Information Services :- WTC offers the IMPEX
Data Bank facility. It is India’s first ever computerised
database on imports and exports. It comprises of details
on export and import transactions. It helps in identifying
products in demand for export or import, locate markets,
evaluate competitive prices, understand the market players,
etc.
b. WTCA Online :- WTCA online is a unique internet based
website, providing a one-stop source for global business
information through strategic alliances with leading
238
information and service providers. WTCA online offers
quality products representing the best international trade
information and services at discounted prices.
c. Trade Education Services’:- World Trade Institution
(WTI), the educational wing of WTC Mumbai, was. set up
in 1991. It was the pioneer in introducing a six months
Post Graduate Diploma in Foreign Trade (PGDFT) and
Post Graduate Diploma in Foreign Exchange and Risk
Management (PGDFERM). It has been certified as ‘Best
Practice Institute’ by WTCA, New York.
d. Foreign Trade Facilitation Cell :- A Foreign Trade
Facilitation Cell has been set up in order to :-
• To give advice on starting of import/ export business
and authorities to be approached for solving import/
export problems.
• To make recommendations to the government in
regard to the EXIM Policy and procedure.
e. International Trade Library :- It is an exclusive source of
business information. Businessmen and students can easily
access various sources of trade information through the
large collection of trade directories, journals and related
publications. Market reports on different products by ITC
and cm are the main strengths of this library.
f. Business Services :- Specific business meetings can be
“Organized for the visiting overseas businessmen for their
products of interest. A minimum two weeks advance notice
is required. WTC also offers state of the art support
facilities, video conferencing, Temporary office space,
meeting rooms, translation capabilities, etc.
g. Research and Development :- The Centre has conducted
research work on diverse topics like Multimodal Transport,
Agro-based Industries, European Union Market, etc. As a
follow up to such studies the Centre has brought out
research publications. Current thrust of Centre’s research
activity is on the implications of the WTO agreements on
India’s foreign trade.
h. Other Services :- Apart from the above services, the WTC
also provides exhibition facilities, facility of WTC clubs
(lounge and dining services for members and guests)
different publications’ such as Trade Promotion Bulletin
(monthly), Current Research and Development Briefs
(Monthly), WTC Intercom (Quarterly), etc.
Chamber of Commerce (COC)
Manufacturers, industrialists and traders in different regions as
per their needs and requirements establish the Chamber of
Commerce and Industry. The membership of Chamber of
Commerce is open to all. They playa prominent role in the
export promotion activities of trade and industry. They arrange
periodic meetings which help in :-
a. An exchange of information and compilation of data,
indicating the present state of the export activities in a
particular trade or industry.
b. An exchange of views and formulation of specific remedial
policies, which will be taken up with the Government.
11.675.1
Membership of the Chambers and Associations is open to all

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

members of trade and industry. The discussions therein are
amongst professional people who have a thorough knowledge
of a trade or an industry. This can be an excellent forum to
project practical, viable and sound suggestions for removing
impediments or changing policies in the national interest.
Many of these Chambers or Associations have separate sections
or cells dealing with the export trade, which are helpful in
interpreting government policies to members, disseminating
data on export markets and also making representations to the
government.
Question Bank
Ql. What are the common functions of Export Promotion
Council?
Q2. What is the difference between EPCs and Commodity
Boards?
Q3. What are the functions of Commodity Boards?
Q4. Why were Export Inspection Agencies constituted?
Q5. What role does Indian Trade Promotion’ Organisation
play in export promotion?
Q6. Write note on Indian Institute of Foreign Trade.
Q7. Explain the role of Indian Institute of Foreign Trade in
promotion of exports.
Q8. What role does Indian Council of Arbitration play in
export promotion?
Q9. Explain the role of Federation of Indian Export
Organisation in export promotion? Q.10 What are
Export Processing Zones? How do they help in
promoting exports?
Qll. What is 100% EOU? What are its benefits?
Q12. Write a brief not on All India Handicrafts Board.
Q13. Write a not on MPEDA.

11.675.1 239
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 33:
STATE TRADING IN INDIA
Learning Objectives
• Introduction
• Objectives Of State Trading
• Functions
• Advantages
• State Trading In India
• Export Development Measures
• Weakness & Future Plans Of Stc
• Future Of Stc
• Chart On Stc
• Question Bank
Introduction
There is no precise definition of State trading. There are various
types of’ government participation in foreign trade, all of which
can be defined as State trading. For example, in the centrally-
planned economies the entire foreign trade is nationalised and
is, therefore, conducted directly by government departments or
government-owned corporations. On the other hand, there are
countries, which are essentially free enterprise economies, but
export and import of specific commodities are entrusted to
government trading organisations or departments. For
example, import of raw and unmanufactured tobacco is a State
monopoly in France. The Government Food Agency of Japan
regulates the import, export and internal distribution of rice;
wheat and barley. Similarly, Japan Monopoly Corporation which
is a State body has the exclusive rights of tobacco importation.
The Australian Wheat Board has the exclusive rights for exports
of wheat. There are many such instances all over the world. ,
The third variety of State trading is found in mixed economics
like India. In I India, State participation in foreign trade is
mostly done through government-owned trading organisations
or through government departments. The government-owned
trading corporations are, h9wever, commercial entities registered
under the Companies Act and have, the same rights and
obligations as any private sector firm.
Rationale of State Trading
State hading is resorted to for a number of reasons. In the
centrally. planned economies, foreign trade as a matter of State
policy is nationalised. Foreign trade in those countries is to be
conducted by State trading organisations because otherwise the
central planning mechanism will not function properly. In the
developed free enterprise economies, State trading sometimes is
practised as a source of revenue. That is why it is found that
trade in products like alcohol and tobacco is subject to State
monopoly. Similarly, trade in drugs and arms and ammunition
is managed through State bodies in the interest of health and
national security of the country. State trading in a number of
agricultural products is quite common because State interven-
tion is necessary to avoid large fluctuations in the prices and
240
preventing deterioration in the income of the agricultural
producers.
State trading, however, is more commonly practised in the
developing economies. The reasons behind this are varied. First;
such countries may not have adequately developed private sector
trading bodies which can effectively participate in international
commerce and also protect the national interest. Secondly, the
private sector bodies, though possessing adequate trading ex-
pertise, will be solely motivated by profit consideration.
However, it may be necessary from the national standpoint to
promote new export items and cultivate new export markets
ever. by sustaining short-terms losses. This can be done only by
government bodies having act developmental role and which
are backed by the government so that the financial losses do not
hamper the pursuit of long-term objectives. Thirdly, the
centrally-planned economies have emerged as important export
markets for a large number of developing countries including
India. Since the foreign trade of these countries is in-variably
conducted through State trading organisations, it is found that
government trading bodies are in a better position to negotiate
with their counterparts in the centrally-planned economies.
Canalisation of Imports
State participation in imports in generally motivated by some
other considerations. These are:
a. to reap the advantage of bulk buying,
b. to mop up any excess profit which the private sector firms
might enjoy in import business, and
c. to ensure proper internal distribution of the imported
items and to maintain stable domestic price level.
Advantage of Bulk Buying
There are essentially three elements which can be associated with
the advantage of bulk purchase. First, a bulk purchaser may get
better discount and trading terms. Secondly, since the bulk
purchaser will be a monopolist, the possibility that prices of
commodities, in short supply can be pushed up by competitive
bidding by the Indian importers, is eliminated. Thirdly, since
the international markets of many importable items are
monopolistic, State trading will give rise to countervailing
power which may mitigate to some extent the ill effects of the
monopolistic market structure.
Mopping up of Excess Profits
In a situation where demand for imports exceeds the supply of
imports, there is bound to be a premium on imported
materials. If the import licence is issued to an importer, the
premium will accrue to him. Further, ‘the extent of the
premium will be determined by the market forces. The higher is
the excess demand for imports, the higher will be the premium.
If the premium is high it means not only a correspondingly
larger windfall profit to the importer but also a rise in the cost
11.675.1
of production of those items which use the imported material
as input. Both these problems can be solyed through State.
trading for two reasons: First, because the State trading
organisations having the monopoly right to import are
government organisations, the premium will accrue to the
government. Secondly, the magnitude of the premium will also
not be a problem because the government can decide on the
prices at which the State trading organisations will release the
imported materials in the domestic market.
Maintenance of Internal Distribution
If foreign exchange availability poses no problem and the
import trade is completely free, internal distribution of
imported items at fair and equitable prices will not create any
problem. But since such conditions generally do not prevail in a
developing country, sporadic scarcity of imported items will
occur. ‘To avoid these problems, it may be necessary to hand
over the import of essential items to government trading
organisations which can plan the import operation in such a
way that a steady in flow will be. maintained. This will avoid
sudden scarcities and consequent spurt in domestic prices.
Objectives of State Trading
A country may undertake state trading to achieve one or more
of the following objectives:
i. To achieve its political objectives,
ii. To boost its export trade,
iii. To enlarge domestic planning programmes by purchasing
products required to fill a gap in the plans and by
controlling outside economic forces that may affect these
plans,
iv. To improve the country’s balance of international
payments;
v. To control foreign exchange,
vi. To maintain national security and defence by furthering
military preparedness and by preventing potential enemies
from receiving strategic materials,
vii. To acquire specific products either because they can be
obtained at lower cost or because they are scarce at home or
abroad,
viii. To advance domestic interests by improving bargaining
power in trade or by protecting trade against foreign
competition.
Function of the State Trading
Corporation
At the outset, the main function of STC was to deal with
bilateral trading practices, especially in the socialist countries. But
today it has become a premier trading house having branches in
almost all the trading countries of the world. It deals in nearly
300 commodities spread over 84 countries of the world.
Trading Activities of the STC
a. Direct Trading :- Direct trading includes those goods
where STC has monopoly to deal with. Such goods are
procured, packed and shipped by STC while import items
are purchased from the foreign countries by STC offices
located there.
11.675.1
b. Indirect Trading :- In the case of indirect trading, the
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
contracts for the sale or the purchase of commodities are
negotiated by STC while the actual fulfilment of the
contracts is entrusted to the private businessmen enrolled
by the STC.
c. Canalised Trade :- Canalised trade includes the import or
export of certain items through the concerned agencies of
STC. The canalised items of export include sugar, castor oil,
molasses, groundnut extractions, etc. Canalised items of
imports include edible’ oils, writing and printing paper,
non-edible oils, etc.
d. Export Promotion Measures:-
• It provides financial and raw material assistance.
• It participates in trade fairs and exhibitions.
• It undertakes product research.
• It undertakes market research.
e. Other Activities :- STC also performs servicing functions,
thereby bringing buyers and sellers together and assisting
them in fulfilling contracts.
• It helps the government departments and, industrial
concerns in processing supplies of plant and machinery
from abroad.
• In some cases, it settles trade disputes between the
Indian and foreign parties.
The corporation is successful in introducing several new
commodities for exports and in developing new markets for
Indian goods. In recent years, the STC is also taking active
interest in marketing research, advertising and sales promotion.
,However, it is a public sector organisation with usual difficul-
ties and limitations of its own.
Services Rendered by the State Trading
Corporation
a. To the Indian Industry :- STC helps thousands of Indian
manufacturers to find markets abroad for their products’. It
assists them in making the best use of raw materials and
production infrastructure, guides and helps them in their
marketing efforts. Some of the services offered by STC to
the Indian manufacturers include :-
• Provides financial assistance to the Indian exporters on
easy terms.
• Imports machinery and raw materials for export
production.
• Assists in the areas of marketing, technical know-how,
quality control, packaging, documentation, etc.
• Supply of imported goods in small quantities as per
the requirements of buyers.
• Helps in exhibiting the products .of small scale
manufacturers in the international trade fairs and
exhibitions.
• Market intervention on behalf of the Government:
b. To the Overseas Buyers :- STC acts as an expert guide for
the overseas buyers interested in Indian goods. It helps
them in finding the best Indian manufacturers, undertakes
negotiations, fixes delivery schedules, overseas quality
241
 control, etc., and tries to provide a complete satisfaction to
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
the overseas buyers.
c. To the Indian Consumers :- Indian consumers are also
benefited from STC’s expertise and infrastructure. STC
imports essential commodities in order to cover shortfalls
arising in the domestic market during the periods of
scarcity. Generally, it imports the items of daily requirements
such as sugar, wheat, pulses, etc., so as to stabilise their
prices.
Advantages of State Trading
One of the important features in most countries in the post-
war years has been the rapid extension of the function of the
state in commercial fields. In most countries trade is closely
regulted by the state, while in others it is partly or wholly
conducted by state organs. In India, too, the trend towards
state participation is becoming increasingly significant.
The controls over international trade are, in some respect, the
most dangerous of all, and they stem from state trading. Private
enterprise economies have a considerable admixture of
governmental trade. State trading may be assumed for pur-
poses of governmental responsibilities for defence, the desire to
protect important sources of taxation and control public
morals. The limitation of foreign exchange and shipping, plus
the need for saving manpower were responsible for state
trading and bulk purchases during the war and in the war
period of reconstruction. There was an element of monopoly
selling and monopoly buying. The argument for the perpetua-
tion of the system rested on economies of scale. If foreign
producers, for example have assured markets in governmental
bulk purchase contracts, they would cease to worry about
marketing problems and would concentrate on efficient
productions, passing on a part of the gains of efficiency to the
consumer in the form of lower prices of goods.
Few countries are willing however, to allow a foreign govern-
ment to deal directly with private producers in important
markets without intervention. Such foreign government may
yield to the big buyers to squeeze down prices, and improve
their terms of trade. This calls for an organisation on the
selling side. With both the buyer and seller orgainsed, there
should solution and which frequently results in a stalemate, and
always leads to complaints
State Trading in India
State trading in India has a fairly long history. State trading in
imports is first discussed followed by a discussion on State
trading in exports.-
State Participation in Imports
The advisability of taking over imports’ of certain specified
item was first considered by the Government of India in 1948.
The context was the abnormal increase in the price of East
African cotton of which India was a bulk importer. The margin
between the prices at which the import was negotiated by the
Government and the domestic price thereof was so high that
suggestion was made that the Government of India should
directly import the East African cotton so that the margin
between the domestic price and the c.i.f. price could accrue to the
Government. The Government, however, took a decision not
242
to take over import trade in East African cotton.1 Since then
State trading in imports was discussed by various committees
and by 1956 the Government had come to the conclusion that
there should be government corporations which were to be
entrusted with the function of import of specific items. Two
factors persuaded the Government that canalisation of imports
for some items . was necessary. The first factor was the gradually
increasing trade with the’ socialist countries. Private traders in
India had not the expertise in dealing with the Government
trading organisations in these countries, and therefore,
faced problems while negotiating export import contracts. Since
under the rupee-payment arrangement exports and imports
have to balance; the Government of India have the responsibil-
ity to see that the import plan is fulfilled. A State trading
organisation, through which imports could be canalised, would
be an effective instrument to achieve this result. The second
factor was the artificial scarcity created by small importers who
had been given import licences to make abnormal profits.
The State Trading Corporation of India (STC) was set up by
the Govern-ment of India in 1956 which was designated as the
sole import agency of such items as the, Government may
decide from time to time. STC, however, would import other
items as well apart from the canalised items. The functions of
the STC as given in the Memorandum of Association are as
follows:
i. To organise and undertake trade with the State trading
countries as well as other countries in commodities
entrusted to the company for such purpose by the Union
Government from time to time and to undertake the
purchase, sale and transport of such commodities in India
or anywhere else in the world.
ii. To undertake at the instance of the Union Government
import and/or internal distribution of any commodities in
short supply with a view to stabilising prices and
rationalising distribution, and
iii. To generally implement such special arrangement for
imports, ex-ports; internal trade and/or distribution of
particular commodities as the Union Government may
specify in the public interest.
Very high margin of profit earned by the importers of certain
consumer commodities like cassia, betel nuts, cloves, etc., for
which adequate foreign ex-change could not be allocated due to
tight foreign exchange position, prompted the Government to
take the decision of complete import canalisation of items
where either the speculative profit or profit due to a wide
disparity between the domestic demand-supply position was
likely to be high. The success of the State canalising agency in
arranging bulk import by items, initially canalised, such as raw
silk, caustic soda, soda ash, etc. at favourable prices also gave the
Government more confidence in enlarging the sphere of
import canalisation.
By canalising the import of speculative items, the Government
managed to appropriate the. profit which otherwise would have
gone to the quota holders. The profit made in these operations
helped the Government to pursue another policy objective, viz.,
export promotion. The State Trading Corporation was directed
11.675.1
by the Government to push up export of items which are
difficult to sell, and therefore may involve financial losses.
“In order to offset the losses on export of difficult-to-sell
items. import of certain scarce commodities, such as betelnuts,
cloves, copra, etc., are canalized through the State Trading
Corporation. When imports of these items……. Are canalised
through the STC, the corporation mops up a portion of the
large profit which is available on these commodities…….”!
The maintenance of an equitable distribution of imported
materials as well as to keep the interests of the unorganised
sector of the industry in fact are also considerations which force
the Government to use the instrument of import canalisation.
Stabilisation of raw material prices is another objective which
was sought to be achieved through the instrument of import
canalisation. Import of mercury was canalised in 1961. The
domestic sale price of mercury had shot up in 1960 to Rs. 3,500
per flask against a of. price of only Rs. 1,000 per flask. The
reason of such an abnormal rise in price was speculation. The
canalisation of import through the State Trading Corporation
immediately produced the desired result. The State Trading
Corporation fixed its sale price at Rs. 1,800 per flask and the
domestic sale price stabilised at Rs. 2,200 per flask. However, for
the manufacturers of caustic soda, who needed mercury as a
basic raw material, the STC charged significantly lower price, viz.,
a 15 per cent markup on the of. price of Rs. 800-900 per flask.
For others, the price was Rs. 1,800 as indicated above. Thus,
canalisation in effect achieved two objectives: first, to ensure
supply of imported raw material at reasonable prices to the
domestic I manufacturers, and secondly, to mop up the excess
profit which inevitably I would be there, when adequate foreign
exchange could not be allocated for ‘ the importation of an
item.
The following items have been canalised for import (subject to
changes from time to time):
Newsprint, Wool, Palm oil (edible), Rayon grade woodpulp,
Synthetic ~ rubber, Caprolactum, Alkaloid benzene, Endrine
technical, Chlorine diphosphate, Palm oil (soap), Sunflower
seed oil, Sisal/manila hemp, Paraxylene, Tallow, Carbaryl
technical, Tetracycline HCL, Poly filament yarn, Ampicil trihyd,
Art silk yarn, Chloram powder, Pot. Chloride, Soyabean oil,
DMT, ME glycol, Cement, Sugar, White printing paper, Non-
ferrous metals, Asbestos fibre, Antimony metals, Mercury and
AG fluorspar.
Impact of Canalisation
Analysing the impact of canalisation, the Ministry of Com-
merce submitted before the Estimates Committee:
“The effect of canalisation of import through State agencies has
resulted in savings in foreign exchange on imports on account
of bulk purchases and also on account of bulk shipments and
in supply of raw materials to consumers in the country at
reasonable rates”
Other Advantages are Stated to be
a. import and distribution in a planned and phased manner,
b. long-term supply arrangements,
11.675.1
c. self-generation of foreign exchange through special link
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
arrangements,
d. equitable distribution in India through’associations/
consortia”.2
However, views of the trade and industry in respect of import
canalization were not always favourable.
A major complaint of industry and trade has been regarding the
pricing policy and the high service charges. It has been pointed
out that in the case of some items, specially raw materials, t9i
prices charged by the STC have been excessive. Another
complaint has been the absence of close liaison between
industry and trade and the State trading agencies. At present,
trade and industry have no means of knowing how exactly are
the State trading agencies- fixing their prices.
Anlaysing the Indian situation, Mr. Boothaligam, Director
General, NCAER, and a former Secretary to the Government of
India, submitted before the Estimates Committee:
“Canalisation could be justified and be beneficial only in areas
where two tests can be met. The first is that the organisation
must be equipped to work and actually work in such a manner
that bulk purchases are made economically taking advantage of
favourable changes in the world market. The second is that the
final user must get his material at least as cheaply and as quickly
as he might have if allowed to import himself.”
To conclude, the observations made by the Estimates Commit-
tee may be noted:
“The Committee agrees that canalisation is no doubt a question
of policy which only the Government is competent to decide.
They would, however, suggest that the canalisation of import
of a commodity may be done if it serves public interest. They
would also stress that before canalisation of import of
commodities was decided upon, all the important factors,
including the capacity of the Corporation, should be taken into
consideration. They recommended that after canalisation is
decided upon, the Government must exercise vigilance to see
that it served the purpose for which it was undertaken”.
Canalisation of Exports
The basic objectives of State trading in exports are as fo11ows:
a. It was observed in the case of certain products that there
was secular decline in the total value of exports. It was
thought that a govern-ment trading organisation would be
able to reverse this trend by concerted action.
b. In some cases the inter se competition among the Indian
exporters was resulting in lower unit value realisation. Entry
of State trading organisation in the international market
through which exports were to be canalised could result in
the improvement of unit value realisation. .
c. There are certain products for which. there maybe a
premium in Lie international market. By canalising export
of such products, excess profits from export operation can
be mopped up by the Govern-ment.
d. Another objective of canalisation was to eliminate under
invoicing. It was found that sometimes the Indian
exporters were quoting lower prices in their invoices while
the world prices for such products were considerably higher.
243
 This led to the suspicion that the country had been losing Performance of the State Trading
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

foreign exchange because of the malprac-tices adopted by Corporation

certain exporters.
Performance Indicators
e. Canalisation was also thought of as an instrument to
improve the bargaining power of Indian exporters. It was Annual Turnover (2000-2001) Rs. 1040 Crore (US$ 228 million)
found that the principal buyers in Western Europe and the Equity Rs. 30 Crore (U8$ 6.6 million)
Profit after tax (2000-2001) Rs. 3 Crore (U8$ 0.7 million)
United States were large corpora-tions and to negotiate Net Worth (as on 31.3.2001) Rs. 421 Crore (U8$ 92 million)
contracts with them would require the exist-ence of an
equally large counterpart in India which would be able to Exports from India
supply exportable products in bulk quantities. Especially for STC exports a diverse range of items to a number of destina-
products which originate in the small-scale sector, a tions throughout the world. Exports by STC vary from
coordinating agency like the STC would be helpful in traditional agricultural commodities to sophisticated manufac-
promoting export of such products. tured products.
The following items have been canalized for export (subject to Besides, negotiating, contracting and shipping, STC seeks to
changes from time to time): introduce new products, explore new markets and undertake
wide ranging ancillary functions such as product development,
Sugar, Semi-processed leather, Castor oil, Footwear leather,
financing, quality control and import of machinery and raw
Cement and clinker, Rice basmati, Shellac/lac, Opium crude,
materials for export production.
Salt, Lemongrass oil, Canvas/ Plastic footwear, Molasses,
Groundnut extractions, Barytes, Chrome ore, Silimanite and STC makes use of its world-wide connections, abundant
Processed mica. experience, up-to-day information about the market trends and
long term perspective on various commodities to ensure
The State trading organisations have also a promotional role so
competitive prices, right quality and adherence to delivery
far as exports are concerned. As regards non-canalised items, the
schedules to the buyers abroad.
basic objectives of the State trading corporations are:
1. To function as catalytic agency for promoting new items of Principal Items of Exports
export. For example, in 1981-82 several new items were Agricultural Commodities Manufactured goods
introduced in international markets by the STC including Wheat, Rice & 8ugar Chemicals, Drugs & Medical Disposables
rayon viscose fabrics to the USA, textile fabrics and threads Spices & Cashew Engineering & Construction Materials
Tea & Coffee Consumer Products
to Vietnam, green tea to Algeria and stereo music
Tobacco and Rubber Textiles Garments
equipment to Hungary. Algeria and Libya have been Opium Leatherware
identified as potential markets for a number of agricultural Groundnuts Processed Foods
commodities. Castor oil & Seeds
2. To form consortia. of manufacturers specialising in Jute Goods
different’ lines, like railway wagons, readymade garments,
Imports into India
plywood, etc.
STC imports a number of essential commodities to cover the
3. To provide support to traditional items, viz., jute, coffee, domestic shortfalls and hold the price line. STC serves the
coir, etc. national objective by arranging timely imports at most competi-
4. To identify new export markets. STC developed several new tive prices. In the process, the Corporation makes best use of
markets during 1981-82 including Saudi Arabia and Malaysia its strength in handling bulk imports, vast infrastructure and
for mango pulp, Hungary and GDR for fashion garments, above all an experience of over four decades in fulfilling the
the UK for golf shoe uppers, Spain for footballs and needs of the industry.
Uganda for bicycle and bicycle parts. STC has explored Principal Items of Imports
South Korea and Hong Kong for export of Indian goods
to third countries. STC is negotiating with Hong Kong for Agricultural Commodities Manufactured goods
export of building materials and textiles for export to the Edible Oils Hydrocarbons
USA and African countries. Sugar Gold & Silver
Wheat Urea
5. To introduce products in international markets particular-ly
Fatty Acids Scientific Instruments
those manufactured by the small-scale and cottage sector
Pulses Instruments for Police & Hospitals
such as sandalwood, billets, silver jewellery, kuth oil, dried
mush- room, etc
Export Development Measures
6. To introduce product adaptation and development keeping The export development measures undertaking by STC during
in line with the changes in the international markets. For 1989-90 included the following;
example, Mica Trading Corporation is trying to export
fabricated mica as the demand for the traditional product, • STC provided financial and raw material assistance for the
viz., processed mica, is declining over the years. export of ibuprofen, thermoplastic wovens, phosphorour
compounds and mercury salts. Oxalic acid / diethyl oxalate.

244 11.675.1
• During the Year, STC participated in 23 fairs, exhibitions
and buyer/seller meet in India and abroad including IITF ‘
89, New Delhi in which STC’s stall was awarded Gold
Medal for best display.
• STC’s Design and Development Cells based in New Delhi
and Agra developed a number of new samples of footwear
and shoe uppers for display in various international fairs
and exhibitions and for negotiations of export orders on
behalf of the small scale industry. Testing facilities for
leather items were also provided in STC laboratories to help
the small scale industry in quality control.
• A number of machines were installed in design-cum-
Development Cell at Jalandhar for testing the quality of
goods and other material being used for manufacture of
sports items.
• For the first time, STC undertook the task of purchasing
soyabeans in the mandis, prcessing and selling the oil
domestically and exporting soyabean meal.
Offshore Trade
The Corporation’s offshore trade during 1989-90 increased to
Rs.14 cores from Rs 4 crores in 1988-89. The main items and
markets for which trading were undertaken were. That rice to
Dubai and Yemen, Iranian cement to Nepal, Indonesian
Condensed milk to Maldives and Chemicals and pharmaceuti-
cals to Poland from Germany.
Foreign Exchange Earnings/Outgo
The Total exchange earnings and outgo during the year are given
below.
• Foreign exchange earnings by way
Of exports (FOB Value) 731.82
• Foreign exchange outgo;
• Imports (CIF Value) 610.51
• Interest 50.06
• Other expenses 7.25
STC set a target of Rs 580 crores for exports for the year 1990-
91 During the year emphasis was laid on direct buying and
selling.
Salient features of the export strategy adopted by STC for 1990-
91 are given below:
1. STC continued to make efforts to strengthen supply base
for selected commodities to be identified as thrust areas.
2. STC took action to underwrited part or whole of
production of identified units for export of manufactured
products.
3. STC financed export oriented projects and converted
financially weak companies into exporting. Items added
were tea and castor oil.
4. STC took up development of Brand Marketing in select
areas e.g sports goods.
5. An attractive package of services offered to the associates
such as:
I. Development of infrastructural services for the
associates by way of import, bulk purchasing locally
and warehousing.
11.675.1
II. Financial assistance for expansion of capacity.
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
III. Setting up of testing laboratories to ensure consistent
quality export.
Weaknesses and Future Plans Of STC
Some of the major weaknesses of the STC pointed out by a
study con-ducted by the Indian Institute of Management,
Ahemdabad, were:
i. Though the objectives with which STC was established are
known and clear, STC management has rarely taken any
major entrepreneurial decision on its own.
ii. There seem to be no guidelines or criteria for choice by STC
management of new product/markets.
iii. Not much expertise has been developed to locate and
develop sources of supply of exportable products.
iv. Also not much expertise is developed in procuring imports
from sources of supply abroad.
v. Much of the expertise is in operating as an agent, in
processing’ indents and tenders and in transportation and
distribution; not In-merchan-dising, procurement or
marketing.
The setback in the exports of non-canalised items can be
attributed to the STC’s failure to develop and appropriate
supply base and take adequate promotional steps among
importers.
In recent years, STC has taken some major steps to improve its
working. They are: -
a. Diversifying the product range-:it has continued to add new
items to its export basket like moccasins, orthopedic shoes,
sports shoe uppers, compressors, RD. pipes, cocoa beans,
peacock feathers and clutch and security bags. It would lay
emphasis on value added products like computer software,
Maruti vehicles, scooters and mopeds, consumer electronics
and packaged tea.
b. Trying to spearhead the national effort to identify new
markets for Indian commodities and manufactured goods
and establish itself in these markets on a long-term basis.
c. Developing a reliable supply base for production of quality
goods in association with the State undertakings, co-
operative organizations and others in selected and identified
sector. . If necessary, STC shah undertake investments for
development of such production base. The STC has also
decided to enter into joint ventures to develop captive
supply sources for exports.
d. Establishment of 100 per cent export-oriented production
units the product ranges identified so far are leather
products, sports goods and engineering goods. These will
be mainly set up with foreign technical and equity
participation and 100 per cent. buyback arrangements.
e. Improvement in quality, grading packaging, etc.
f. Participation in fairs/exhibitions in India and abroad.
g. Evolution of a scheme to supply raw materials at
international prices for export production.
245
 Corporate Plan With a view to developing captive sources of supply for
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

The STC has drawn up a corporate plan with the main objective exports,. the STC has entered into a number of joint ventures.
of achieving a turnover of Rs 5,000 crores by the year 1999- It has also set up warehouses overseas for developing exports
2000. The major strategies to be followed in this regard include: on a sustained basis. The MMTC has also decided to set up
• Increased emphasis on direct buying and selling. joint ventures in various fields of its activities.
• Strengthening overseas marketing network. Since the Government wants the STC and MMTC to function
as internation-al trading houses in competition with the private
• Entering into joint ventures.
sector, it is strongly felt by these organisations that the Govern-
• Undertaking OGL imports. ment should give them autonomy in their business operations,
• Expanding domestic trade. including investment in joint ventures to improve the turnover.
• Undertaking infrastructure development. Organisation Chart of STC
• Exploring new lines of business.
Chairman & Vigilance
• Organisational restructuring. Managing Director Internal Audit Mangement
Services
• Strengthing of information base. Trade & Export Development
Practice Management
With its long experience of exporting a wide range of prod- Board Secretariat and
Parliament cell
ucts/com-modities to over a hundred developing and
developed countries and a sound infrastructure, STC should
Exective Executive Executive Executive Executive
~ot merely act as canalising agency but should organise itself as Director Director Director Director Director
Finance Personal Marketing marketing
an effective trading house on the lines of Japanese trading
houses. It should provide new dimensions and leadership as Finance Personnel & Exp- Drugs & Agricultur Consumer
the biggest export house in the country. & Codification
Industrial
orts Chemicals al products Fresh
& Processed
Accounnt Sugar Products
Future of State Trading in India Insurance
legal
Relations
General
Alcohol
Molasses
Soyabean
Meal/
Foods Meat 7
Marlne Products
Administration Engg. &
With the Government’s new economic policy taking shape, it is Protocol & Leatherware Other Construction
Shellac Extractio
now evident that canalisation, except of very few sensitive Travel Public
Relations & ns Coffee
Material Cement
Cashew Joint
commodities, will not be there in the country’s export-import Advtg. Building Tea Ventures
Cell Hindi Cell Castrol Counter Trade
policy. This, to a large extent, has already eroded the base and housing Colony Oil rmy Software
Library Securlty Tobacco Textiles &
profitability of the State Trading enterprises-a trend which will Garments and
get strengthened in the coming years. These organisations will, Jute Sports
Goods Grants
therefore, have to redefine their role and create capacity to By Govt of India

emerge as global traders without the support of any monopoly Forest Edible Oils Newsprint
Imports Products Fatty Acids General Import
business on the Government account. Both MMTC and STC Rubber Pulses
have initiated measures in this direction but these have not Chemicals
become very successful. For example, while canalised exports Imported Cars Bearn/Seed
constituted per cent of MMTC’s total exports in 1991-92, this Import of Processing
Domestic Trade OGL Items In & Oil Sale
increased to 59 per cent in 1995-96. However, in the case of Chemical Pulses
Drugs &
STC, although is total turnover during 1995-96 amounted to Plastics
Timber
Rs. 1,685 crores as compared to Rs. 1,861 crores during the
previous year, the non-canalised turnover increased by 5 per cent Recent Policy Stance on State Trading
from Rs. 847 crores in 1994-95 to Rs. 892 crores in 1995-96. Government of India’s policy on State trading has undergone a
STC has made rapid strides in offshore trading, a new area of sea change “from 1985 onwards. Abid Hussain Committee
growth identified by it. It earned Rs:65 crores in 1994-95. The (whose recommendations were discussed earlier in the chapter
trading covered items like wheat, sugar and rubber. One on India’s Trade Policy) recommended that State trading in
offshore deal struck by it relates to supply of wheat, valued at imports should be restricted to only very sensitive items, such
Rs. 60 crores, to Sri Lanka, the origin of wheat being the USA as crude petroleum or in those cases where economies of bulk
The STC has supplied sugar to Commonwealth of Indepen- procurement are clearly evident. In other cases, imports should
dent States after getting the commodity from the European not be canalised. Similarly in the case of exports, canalisation
Community and South America. Rubber, on the other hand, should be used only when very specific social objectives are to be
has been obtained from Sri Lanka and sold to Iran. achieved. As a result, the number of canalised items, both
Since the canalised business has virtually come to’ a standstill export and import, has been progressively reduced. In the latest
due to decanalisation, the STC has been finding avenues to Export-Import Policy (1997-2002), only 6 export products are
generate profits from sources like offshore trading, apart from canalised. These include, among others, petroleum products,
direct exports of a number of items like leather products onions and niger seeds. On the import side, 8 products are
including shoes, and other consumer goods. It is also engaged canalised. Principal among these products are petroleum
in the import of industrial raw materials for supply to actual products, edible oils, oilseeds and cereals.
users in the country mainly for export production. The major State trading organizations in India are:
1. The State Trading Corporation of India Ltd. (STC).

246 11.675.1
2. The Projects and Equipment Corporation of India Ltd.

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

(PEC).
3. MMTC Ltd.
4. The Tea Trading Corporation ofIndia (TICI).
5. Spices Trading Corporation Ltd.
Thus over the years the turnover of the STC has increased
manifold. The increase in exports has been significant after
1971-72. They reached the maximum of Rs. 796 crores in 1983-
84 after which there has been a decline. As a result of efforts
made by STC to promote non-canalised trade, an all time high
export turnover of Rs 806 crores was achieved in 1994-95. On
the other hand, there was almost a continuous increase in
imports till 1984-85. Imports declined as canalisation policy
changed.
One important point to be noted is that in imports, the
percentage of canalised items is far higher than the percentage
of non-canalised items. The percentage of canalised items
varied between 74 and 94 in exports and between 72 and 97 in
imports during the period 1972-73 to 1976-77. This is because
the STC’s efforts are mostly guided by the policies of the
Government of India from time to time and it is left with
limited scope for showing its initiative in there areas. But in
recent years, the percentage of canalised items has gone down in
exports, but in imports, canalised items still predominate.
Products
Over a period, the products handled by STC have also shown
an increase. STC-The Merchant of India, an STC publication,
refers to 17 agricultural commodities, 8 consumer products, 15
items of army software, 3 items of con-struction material, 6
major and a number of miscellaneous engineering items, 10
items of fresh and processed foods, 7 items of leather, 3 items
of meat and marine products, 19 items of textiles and gar-
ments, alcohol, sugar, molasses and castor oil. The import
items include edible oil (6 items), cement, explosives, natural .
rubber, standard and glazed newsprint and white printing
paper.
The major items of export in 1994-95 were cereals, coffee,
cashew kernels, leather, drugs and chemicals, engineering and
construction material, sugar, textiles and garments. The major
items of imports were edible oils and sugar.
The STC has developed a sound infrastructure for development
of exports in the form of 17 branches in India and 17 overseas
offices and a large force of trained marketing personnel.
STC’s Indian branches playa vital role in port clearance, storage,
move-ment and distribution of imported items, in addition to
procurement and ship-ment operations for export items. The
foreign branches provide valuable support in identification of
new products and markets, assessment of market potential,
quality and packaging needs, preparation of new product
development strategy and assistance in carrying out negotiations
for import and export.

11.675.1 247
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

LESSON 34:
STATE TRADING ORGANISATION IN INDIA

Introduction recent years, the percentage of canalised items has gone down in
exports, but in imports, canalised items still predominate.
Short Notes
Chairman-cum-Managing Director
• HHEC
• PEC
• MMTC
• CCI
Introduction
Government of India’s policy on State trading has undergone a
sea change “from 1985 onwards. Abid Hussain Committee
(whose recommendations were discussed earlier in the chapter
on India’s Trade Policy) recommended that State trading in
imports should be restricted to only very sensitive items, such
as crude petroleum or in those cases where economies of bulk
procurement are clearly evident. In other cases, imports should
not be canalised. Similarly in the case of exports, canalisation
should be used only when very specific social objectives are to be
achieved. As a result, the number of canalised items, both
export and import, has been progressively reduced. In the latest
Export-Import Policy (1997-2002), only 6 export products are
canalised. These include, among others, petroleum products,
onions and niger seeds. On the import side, 8 products are
canalised. Principal among these products are petroleum
products, edible oils, oilseeds and cereals.
The major State trading organizations in India are:
1. Handicraft and handloom Exports Corporation of India
Ltd. (HHEC).
2. The Projects and Equipment Corporation of India Ltd. Organization Chart
(PEC).
Products
3. MMTC Ltd. Over a period, the products handled by STC have also shown
4. Mica Trading Corporation Of India Ltd. (MITCO). an increase. STC-The Merchant of India, an STC publication,
5. Spices Trading Corporation Ltd. refers to 17 agricultural commodities, 8 consumer products, 15
items of army software, 3 items of con-struction material, 6
Thus over the years the turnover of the STC has increased
major and a number of miscellaneous engineering items, 10
manifold. The increase in exports has been significant after
items of fresh and processed foods, 7 items of leather, 3 items
1971-72. They reached the maximum of Rs. 796 crores in 1983-
of meat and marine products, 19 items of textiles and gar-
84 after which there has been a decline. As a result of efforts
ments, alcohol, sugar, molasses and castor oil. The import
made by STC to promote non-canalised trade, an all time high
items include edible oil (6 items), cement, explosives, and
export turnover of Rs 806 crores was achieved in 1994-95. On
natural. Rubber, standard and glazed newsprint and white
the other hand, there was almost a continuous increase in
printing paper
imports till 1984-85. Imports declined as canalisation policy
changed. The major items of export in 1994-95 were cereals, coffee,
cashew kernels, leather, drugs and chemicals, engineering and
One important point to be noted is that in imports, the
construction material, sugar, textiles and garments. The major
percentage of canalised items is far higher than the percentage
items of imports were edible oils and sugar.
of non-canalised items. The percentage of canalised items
varied between 74 and 94 in exports and between 72 and 97 in The STC has developed a sound infrastructure for development
imports during the period 1972-73 to 1976-77. This is because of exports in the form of 17 branches in India and 17 overseas
the STC’s efforts are mostly guided by the policies of the offices and a large force of trained marketing personnel.
Government of India from time to time and it is left with STC’s Indian branches playa vital role in port clearance, storage,
limited scope for showing its initiative in there areas. But in move-ment and distribution of imported items, in addition to

248 11.675.1
procurement and ship-ment operations for export items. The
foreign branches provide valuable support in identification of
new products and markets, assessment of market potential,
quality and packaging needs, preparation of new product
development strategy and assistance in carrying out negotiations
for import and export.
Handicraft and Handloom Exports Corporation of
India Ltd. (HHEC)
The Handicraft and Handloom Exports Corporation of India
Ltd. (HHEC) was set up in 1962. It undertakes the export of
handicrafts (including woolen carpets), handloom products
(inducting ready-to-wear garments) and gold jewellery. The
HHEC is a wholly owned subsidiary of the STC. It acts as a
supplementary agency to provide private sector agencies
participating in the exports of handicrafts and handloom
products. In 1976 the HHEC has started its wholly owned
subsidiary called the Central Cottage Industries Corporation of
India (CCIC). It has also established showrooms at New York,
Boston, Paris and Tokyo.
A Central Public Sector Undertaking under the administrative
control of the Ministry of Textiles, Government of India
established with the twin objectives of:
I. To undertake export of Handicrafts, Handlooms Products,
Khadi & Products of Village Industries from India.
II. Export Promotion and Trade development of Handicrafts
and Handlooms products (including hand-knotted woolen
carpets and ready made garments) and also to undertake
export of gold and silver jewellery/articles and import of
bullion, timber and other raw Material.
India has a rich history of handicrafts that has evolved over the
centuries. The entire wealth of timeless Indian handicrafts have
survived through ages. The legacy of Indian culture promises
everything- beauty, dignity, form and style. The magnetic appeal
of Indian culture resides in its exclusivity, its mystical tone that
leaves people amazed at their sight.
HHEC has been involved for the past 4 decades in develop-
ment and exports of handicrafts utilising the crafts skills from
all over India to create visually appealing and economically
suitable products for the world markets.
Main Functions of Handicraft and handlooms
Exports Corporation of India
i. The HHEC studies consumer preferences abroad and
introduces new products with special attention to quality.
ii. It provides information and financial facilities in the form
of loans to those engaged in the manufacturing of
handicrafts and handloom products for exports.
iii. It participates in the trade fairs and exhibitions abroad and
also arranges visits of foreign trade delegations.
iv. Its “Sonar” retail outlets offer to public a variety of
handicrafts not usually available in the market.
v. It is doing good business in the USA and West European
markets as regards handicrafts and handloom goods.
About HEPC - A Gateway to Handloom Exporters
Handloom Export Promotion Council (HEPC) is a statutory
body constituted under The Ministry of Textiles, Government
11.675.1
of India to promote the exports of all handloom products like
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
fabrics, home furnishings, carpets and floor coverings, etc.
HEPC was constituted in the year of 1965 with 65 members
and its present membership is around 2000 spread all over the
country. The Handloom industry mainly exports fabrics, bed
linen, table linen, toilet and kitchen linen, towels, curtains,
cushions and pads, tapestries and upholstery’s, carpets and floor
coverings, etc. The basic objective of HEPC is to provide all
support and guidance to the Indian Handloom exporters and
International buyers for trade promotion and International
marketing. HEPC has its head office at Chennai and regional
offices at New Delhi and Mumbai.
Administration
HEPC is incorporated as a non profit making company under
section 25 of the Companies Act, 1956 and governed by the
Memorandum and Articles of Association framed by the
Council. It is administered by an Executive Committee
consisting of elected representatives from the export trade,
exofficio members and nominated Government officials. The
Committee is headed by Chairman. The Chairman and Vice
Chairman hold office for a period of two years. The secretary
(Executive Director) of the Council, an IAS cadre officer
appointed by the Government, assists the Council to run the
administration.
Our Objectives
1. Organizing participation in trade fairs, exhibitions and
buyer-seller meets in India and Abroad.
2. Providing guidance, consultancy and support to handloom
exporters to promote handloom exports.
3. Conducting propaganda regularly and popularise Indian
Handloom products abroad though various means of
publicity.
4. Collect, collate and disseminate trade data and commercial
intelligence to exporters.
5. Facilitate the upgrading, popularisation and adoption of
technology, quality and design improvement, standards and
specifications, product development, diversification and
innovations, etc.
6. Undertaking market studies in individual foreign countries.
7. Sending trade missions to the foreign countries.
8. Bringing out useful publications like colour catalogue,
colour trends catalogue, importers and exporters directories
etc.
9. Laying down standards of quality and packaging in respect
of Indian Handlooms for export.
10. Approving agents, representatives or correspondence in
foreign markets for continuously and regularly reporting the
price, market preferences and reception accorded to Indian
Handloom products.
11. Undertaking or assisting in research on schemes of
technological nature designed to improve the efficiency of
the handloom sector.
12. To advise the Government, local authorities and public
bodies on the policies adopted by them in relation to their
249
 effect on industry or commerce and other measure including
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
direct and indirect taxations in so far as such policies or
measure having a bearing directly or otherwise on export of
Indian Handloom products
Inquiring and investigating into complaints received from
foreign buyers or Indian exporters and act as arbitrators if asked
for it.
Our Strategies
a. Arrange for the participation of member exporters in the
important trade fairs, organising buyer-seller meet (BSM),
business missions.
b. Provide financial grants to the exporters with market
development assistance for under taking sale-cum- study
tours, participation in international fairs, publicity etc.
c. Popularise Indian Handloom products abroad through
website publicity, advertisements in commercial portals,
trade magazines, conducting exclusive hand woven shows,
and through Council publications.
d. Dissemination of trade information like market studies,
colour trends, design trends, export trends, standards and
specifications, Government policies, circulars etc. through
publications and news letters.
e. Conducting workshops, seminars on upgrading technology
in pre-loom, loom, post loom practices to improve quality
and productivity, popularising modern dyeing practices,
product innovations, diversifications and improvement,
quality compliance, better merchandising practices, packaging
methods and so on to improve the competitiveness of
Indian Handloom products.
f. Promote product innovation, diversification and
improvement in the selected handloom clusters under
Development of Exportable Products and Marketing
scheme (DEPM) for promoting the production of
exportable products.
g. Providing design support to develop new designs, fabric
simulation colour printouts, peg plan graph outputs, layout
information and computer aided colour matching etc. to the
exporters.
h. Generating and dissemination of trade enquiries for
facilitating International buyers to source the handloom
products from Indian Handloom exporters.
i. Liaison with Government for strengthening infrastructure
facilities in handloom export production centres, take
efforts to improve forward and backward linkages in
handloom sector.
j. Serve as a link between trade and Government to formulate
appropriate policies to promote handloom export growth.
k. Inquiries into the complaints made against exporters and
take up the exporter’s problems related to the buyers with
respective embassies.
About EPCH - A Gateway to Handicrafts Exporters
Export Promotion Council for Handicrafts (EPCH) has been
established under the Exim Policy of Govt. of India in 1986-87
and is a non-profit earning organization. EPCH is an apex
250
organization of trade, industry and government sponsored by
ministry of Textile, government of India for promotion of
handicraft from country and projected India’s image abroad as a
reliable supplier of high quality of handicraft goods & services
and ensured various measures keeping in view of observance
of international standards and specifications.
The Council has created necessary infrastructure as well as
marketing and information facilities, which are availed both by
the member exporters and importers.
EPCH Council
The Council is run and managed by team of professionals
headed by Executive Director. The Committee of Administra-
tion consist of eminent exporters
Export Promotion Council for Handicrafts has a rarest
distinction of being considered as MODEL COUNCIL which
is self sustaining and where all the promotional activities are
self financed.
Export of Handicraft:-A rising trend of the export of
handicrafts (other than hand knotted carpets) was merely Rs.
387.00 crores during the year of establishment of the Co
Management
The Council is run and managed by team of professionals
headed by Executive Director. The Committee of Administra-
tion consist of eminent exporters, professionals and senior
Govt. officials. The Export Promotion Council for Handicrafts
has a rarest distinction of being considered as MODEL
COUNCIL which is self sustaining and all the promotional
activities are self financed.uncil i.e. 1986-87 rose to level of Rs.
8343 crores in 2002-2003.
Project and Equipment Corporation of India Ltd.
(PEC)
The Projects and Equipment Corporation of India (PEC) was
formed in April 1971 as a wholly owned subsidiary of the STC.
It took over the Railway Equipment and Engineering Division
of the STC.
Main Objectives of Project and Equipment of India
Ltd
a. To boost the export of engineering and railway equipment
in established markets.
b. To boost the exports of turnkey projects in the field of
railway systems, public utilities and industrial plants.
c. To penetrate new markets
d. To promote the export of non-traditional and new
products
Minerals and Metals Trading Corporation of India
(MMTC)
MMTC is an independent corporation, set up in October 1963
in the public sector by transferring to it all activities of STC
relating to trade in minerals and metals. MMTC was set up by
the Government as a conalising agency for export and import
of minerals, metals and fertilizers, over the years the Corpora-
tion has been discharging the service responsibility efficiently by
imbibing confidence in the customer community. Simulta-
neously with this, responding to the customer community.
11.675.1
Simultaneously with this responding to the imperative need for pertains to capital goods imports. In the circumstances, the only

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

generating foreign exchange to this, responding to the impera- meaningful solution available to MMTC is to meet the
tive need for generating foreign exchange to bridge the challenge of balance of payments crisis and to plan for major
lwidening trade gap, the corporation started channelising its thrust in exports.
organizational and marketing acumen for development of
Review of Operations
exports in noncanalised areas. The results have been highly
The year 1989 – 90 can truly be described as one of the most
impressive. MMTC’s socialized exports which were a meager
eventful year for the MMTC. It has been a year of record
Rs. 40 million in 1983-84 registered accelerated growth and
achievements. The Corporation’s turnover crossed the magical
increased more than 125 folds to Rs. 5250million in 1989-90.
figure of Rs. 50,000 million recording an increase of 31% over
Corporation’s total exports have crossed the 10,000 million
the previous year. This is indeed an outstanding achievement
rupee mark. MMTC’s total turnover during the magical mark of
for the corporation, considering that the turnover during 1988 –
Rs. 50,000 million. With the bonus issue the original capital of
89 itself had registered an increase of 34% over the previous
Rs. 30 million contributed by the government have now grown
year. During the last two years the turnover has gone up from
to Rs. 500 million and net worth to Rs. 2,828 million. It is the
Rs. 27,941 million to Rs. 50,973 million. The performance on
first international trading company of India to be given the
the export front has also been spectacular. From a level of Rs.
coveted status ‘Super Star Trading House’ and it is the first
7,284 million in 1987 – 88 the exports have jumped to Rs.
Public Sector Enterprise to be accorded the status of ‘Gold
11,483 in 1989 – 90.
Super Star Trading House’ for long standing contribution to
export. 1987 - 88 1988 – 89 1989 - 90 Percentage
increase (+)/
Activity Profile of MMTC decrease (-) for
Going Place:- MMTC is a state owned enterprise discharging last 2 years
an important responsibility that of finding markets for India’s Exports
exports and meeting India’s requirements of essential Goods. Canalised 3334 4778 6231 86.9
Non – canalised 3950 3947 5252 33.0
Towards this end MMTC has a wide spectrum of activities.
These cover international marketing, trade finance, distribution, Total Exports 7284 8725 11483 57.6
infrastructure development and new joint collaborations with Imports
other important manufacturing companies to set up projects in Canalised 20697 29303 38149 84.3
India and abroad. Non – canalised 490 410 997 103.5
Total Imports 21187 29714 344 (-) 26.7
Between these activities MMTC has been able to harness India’s
Domestic 470 361 344 (-) 26.7
rich potential in international trading.
Total Turnover 28941 38800 50973 76.1
Activities and Services
i. Exports of primary and manufactured products. Profitability
ii. Import of Industrial commodities. Another record achievement is significant improvement in the
iii. Trade and counter trade. profitability of the Corporation during the year. Profit before
tax at Rs. 851million is the highest ever achieved by the
iv. Agents and representatives for domestic produces.
Corporation in its 30-year’s history – an increase of 23% over
v. Domestic trade services. the previous highest level of Rs. 691 million reached in the year
vi. Investments in joint ventures. 1988 – 89.
Trading Groups Foreign Exchange Earnings and Outgo
i. Minerals Group: mineral based products. During the year the outgo of foreign exchange on trading
activities was Rs. 32,788 million compared to Rs. 23,371 million
ii. Metals Group: ferrous and non-ferrous metals and metal-
during the previous year. The inflow of foreign exchange was
based products.
Rs. 11,021 million as against Rs. 8,642 million in 1988 – 89.
iii. Fertilisers Group: fertiliser raw material, intermediates and
After over 30 years as India’s leading trading house MMTC is
finished fertilisers.
creating a new, more powerful role for itself. It’s now joining
iv. Export Trade Group: light engineering products, gems and hands with others to set up joint ventures in India and abroad.
jewellery, handicrafts, agro products and counter trade. This fusion of powerful conglomerates will add another
MMTC’s imports have been steadily rising. From a level of Rs. chapter to India’s drive for achieving international recognition as
210,000 million in 1985 – 86, imports have risen to Rs. 350,000 an important sourcing centre.
million in 1989 – 90. The intensity of exports has also been
Corporate Mission of the MMTC
steadily rising. There is however, a broad measure of agreement
As a-major trading company in Asia, MMTC aims at achieving
that imports do not offer any substantial scope for pruning
sustainable and viable growth rate by achieving excellence in its
even in the face of severe balance of payments pressure. Most
activities, generating optimum profits through total satisfaction
of MMTC’s imports are essential imports required for agricul-
of shareholders, customer suppliers, employees and society.
ture or industrial growth. A fair proportion of imports are
directly related to exports and another significant proportion

11.675.1 251
 Main Functions of the MMTC c. It undertakes to procure and distribute, at the instance of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

a. It organises and undertakes trade in metals and minerals the Union Government, minerals, ores and concentrated
and other allied commodities as may be entrusted to it metals with a. view to stabilising their prices.
from time to time by the Government of India. d. It purchases or takes on lease any mines or mining rights,
b. It explores new markets for metals, minerals and allied f8.llow land in the country or elsewhere and any interest
commodities in overseas markets with a view to diversifying therein.
and expanding Indian exports.
Organization Chart of MMTC
BOARD

CMD BOARD SECTT

VIGILANCE GM
EXPORT PRODUCTS - 1 CGM
CPPM – 1 GM

DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR

(MINERALS) (METALS) (FERTILISERS) (FINANCE) (PERSONNEL)

IRON ORE NFM FINISHED F&A PERSONNEL

FERTILISER & ADMIN
RAW
MATERIALS
AND
INTERMIDIATE
(FERT)

OTHER ORES IRM ALL OVERSEAS AUDIT PR & OL

PROJECTS LINKED
WITH FERTILISERS

SHIPPING & STEEL LAW AGRO MARINE &

TRANSPORTATION MINERALS

JOINT VENTURES MSD &

IN MINERAL COMPUTER
RELATED
AREAS
INSURANCE
INFRASTRUCTURE
PROJECTS RELATING
TO IRON ORE MITCOMICA
& OTHER MINRALS

CGM CGM CGM CGM CGM CGM CGM

(F&A) (LAW) (MICA) (PERS (ARGO
& MARINE
ADMIN &
MINOR
MIN)
GM GM GM GM GM GM (A/CS)
IRON (OTHER (NFM) (STEEL (FERT RAW
ORE MINERALS) & IRM) MAT.) GM (AUDIT)
PURCHASE
GM (EXPORT GR.)

GM (STEEL)

GM (FERT)

252 11.675.1
Mica Trading Corporation of India Ltd. (MITCO)
During 1989 – 90, MITCO achieved record turnover of Rs.
322.85 million. Its total exports of mica was Rs. 312.90 million
– highest ever – registering an increase of about 28% over the
previous year export of Rs. 245.10 million. Export to General
Currency Area increased by 36% from Rs. 125.50 million during
1988 – 89 to Rs. 170.13 million in 1989 – 90. For the RPA
countries the growth rate was about 19% with exports increas-
ing from Rs. 118.92 million during 1988 – 89 to Rs. 141.82
million in 1989 – 90.
The sales turnover of mica products during 1989 – 90, how-
ever, stagnated around the previous year level of Rs. 15 million
due to continued teething problems in marketing of mica
paper. Report of mica paper increased marginally from Rs. 7.3
million in 1988 – 89 to Rs. 7.8 million during 1989 – 90. Cost
disadvantage vis – a – vis the long established competitors in
the developed countries was the major obstacle in boosting
export of this product. Efforts are being made to overcome
these problems through change in marketing strategy. With the
commissioning of the first phase of the Insulating Materials
Project it has become possible to convert mica paper into heater
micanite sheets for which there is good demand. Samples of
heater micanite sheets have been sent to the prospective buyers
for evaluation. Second phase of the Insulating Material Project
is expected to be completed by the end of 1990.
The proposed R & D Centre by MITCO has been registered as
an approved centre by the Department of Science & Technology
and further steps are being taken for its implementation. The
government have merged MITCO with its holding company
MMTC Ltd.
Conclusions
The STC’s efficiency has varied directly with the quality of the
persons in actual charge of its operations. It handles a sizable
value of India’s total foreign trade. Though the STC has not
done any harm to foreign trade interests, it should show greater
determination and drive in pushing the nation’s exports.
From the beginning, the STC has met with severe hostility
from private traders and trading interest. All the traders have
been unanimous in objecting to what they consider as an
unwarranted intrusion of the state in the trade. Complaints
regarding wagon allotments in movement of goods have been
voiced.
The traders obviously view export and import from their point
of view: they should, in fact, change their attitude. However,
care should be taken to ensure that existing channels do not
abruptly dry up and adversely affect the country’s foreign trade.
The choice of the name STC seems a bit tactless. The name
could have been India’s Commodity Exchange or India’s
International Trade Centre, without explicitly thrusting forward
the concept of the much argued and rather suspected State
Trading. The STC should not be judged on profit – and – loss
account alone, but rather on the basis of its ability and success
in fulfilling the objectives of maximisation of exports and
diversification of trade. It has created an awareness among
private traders that if they do not maintain a certain minimum
code of conduct, the state would step in to set matters right.
11.675.1
This awareness is perhaps the greatest contribution of the STC
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
to the success of India’s foreign trade.
There are certain inherent weaknesses in the STC because it is
largely manned by bureaucrats who lack business experience and
initiative. Businessmen with practical knowledge must replace
government officials. The interlocking of the activities of the
Government of India and the STC makes possible the
concealment of inefficiency under intricate official procedures.
There is an urgent need for coordinating the trade conducted by
private traders and the STC. Moreover, the STC offices abroad
have not been in a position to create an impact. There is,
therefore, a need for creating a better image of India’s foreign
trade, not only in this country but in the markets of the world
as well.
STC has been arranging imports of edible oils, chemicals, fatty
acid, rubber, newsprint, etc., on a wide scale. To achieve its
stated objectives, it established as its subsidiaries Cashew
Corporation of India, Handicrafts and Handloom Export
Corporation, Project and Equipment Corporation, Tea Trading
Corporation of India Ltd and Central Cottage Industries
Corporation of India Ltd.
With the new Exim policy liberalising the imports of certain
items for government departments, banks, and public sector
units, the role and activities of STC have widened. It needs to
take some more steps to diversify its operations. The new policy
has decanalised a number of items. The subsidiaries of the STC
have helped in importing some essential materials in time.
Their role in the promotion of export of handicraft, handloom
items, engineering goods and turnkey projects is praiseworthy.
In the new policy the role of STC has been reduced to a mere
export house. Now it has to seen that in years to come what
contribution STC could make in the export drive of India.
Article
MMTC Keeps Exports to S. Korea Intact through
Novel Tieups
MMTC Ltd. has managed to salvage its iron ore exports to
currency crisis-hit South Korea through a $ 6 million revolving
line of credit from Indian Overseas Bank (lOB) in favour of
Pohang Iron & Steel Company (Posco), the second largest steel
producer in the world. A similar facility from an international
bank has also been worked out while MMTC is negotiating a
credit arrangement from a Japanese trading company in a bid to
assist Pasco.
While helping Posco, which is all set to overtake global leader
Nippon in a few years, the financing arrangements would also
ensure that MMTC’s exports to South Korea, valued at more
than $30 million, is not hit. The first shipment under the
revolving line of credit extended by lOB was cleared on April 1,
1998. Another shipment is expected to leave on April 20. The
two shipments together account for 2.80 lakh tonnes, valued at
around $6 million. Since lOB has provided a revolving credit
facility valid for 90 days, Posco could buy iron ore worth at least
$18 million from MMTC if three cycles are completed within a
year.
MMTC has a five-year agreement with South Korea to sell 2.3
million tonnes of iron ore per annum. The public sector
253
 trading company sold iron ore worth $32 million to South
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

Korea in 1997-98 despite the currency crisis which led to steep

devaluation of the Won, affecting Posco, which is the sole buyer
from that country. Since Posco is a strong company, MMTC was
advised to support it at the time of difficulty. Following the
Asian currency crisis, the. South Korean major had expressed its
inability to pay on time for iron ore and sought supplies from
MMTC without an L/C (Letter of Credit).
When MMTC approached Export Credit Guarantee Corpora-
tion (ECGC) for insurance cover, the plea was turned down.
After persuasion from the Government, ECGC agreed to
provide cover to shipments destined for South Korea whose
rating has gone down after devaluation of the Won. However,
ECGC is seeking a 3.86 per cent premium and the insurance
payable would be only 60 per cent of the value of shipment.
The payment would be made only after a period of nine
months. In other cases, the premium is lower while the
payment works out to 90 per cent of the shipment value and
ECGC pays the amount after three to four months.
Since the ECGC option was not considered viable, MMTC
worked out a credit arrangement with an international bank
based in the US. After the shipments w!>,re made, the bank
made payments to MMTC and recovered it from Posco after 90
days. Now, MMTC is having talks with a Japanese trading
major for a different sort of arrangement following a successful
pact clinched by a private exporter. Trade sources said S.
Salgoankar, a Goa-based exporter, has struck a deal with Itochu
of Japan for supplies to Posco. According to this arrangement,
touch would pay the exporter once the shipments are cleared.
Payments from the South Korean company will be collected
after 90 days or ltochu would buy steel against the credit.
It is understood that MMTC is having talks with another
Japanese trading company and had even considered the option
of buying steel from Posco through this arrangement. How-
ever, the Steel Ministry has not cleared the proposal since
domestic producers like Steel Authority of India (SAIL) are
already facing poor off take. Therefore, the current arrangement
would be to ensure that MMTC gets paid on delivery of iron
ore shipments while the Japanese trading company squares off
the deal with Posco later through cash payment or steel
supplies.
The Hindustan Times, April 17, 1998.
Questions Bank
Q1. What are the functions of State Trading Corporation?
Q2. What services are rendered by the state trading
Corporation to different entities.
Q3. Analyses the achievements of STC in the field of imports
and export.
Q4. Name the major STC organizations in India, Explain any
one of them.
Q5. Write a note on MMTC and HHEM.
Q6. Write a note on canalization of trade. What are its
objectives?
Q7. What are the objectives of STC? To what extent it is
successful in achieving them?

254 11.675.1
 EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 35:
CASE- 18 - MMTC KEEPS EXPORTS TO S. KOREA
INTACT THROUGH NOVEL TIEUPS

MMTC Ltd. has managed to salvage its iron ore exports to Payments from the South Korean company will be collected
currency crisis-hit South Korea through a $ 6 million revolving after 90 days or Itochu would buy steel against the credit.
line of credit from Indian Overseas Bank (lOB) in favour of It is understood that MMTC is having talks with another
Pohang Iron & Steel Company (Posco), the second largest steel Japanese trading company and had even considered the option
producer in the world. A similar facility from an interna-tional of buying steel from Pasco. through this arrangement. How-
bank has also been worked out while MMTC is negotiating a ever, the Steel Ministry has not cleared the proposal since dames
credit arrangement from a Japanese trading company in a bid to tic producers like Steel Authority of India (SAIL) are already
assist posco. facing poor off take. Therefore, the current arrangement would
While helping Pasco, which is all set to. overtake global leader be to. ensure that MMTC gets paid an delivery of iron are
Nippon in a few years, the financing arrangements would also. shipments while the Japanese trading company squares off the
ensure that MMTC’s exports to South Korea, valued at mare deal with Pasco. later through cash payment steel supplies
than $30 million, is not hit. The first shipment under the The Hindustan Times, April , 1998.
revolving line at credit extended by IOB was cleared an April 1,
1998. Another shipment is expected to. leave an April 20. The
two. shipments together account for 2.80 lakh tonnes, valued at
around $6 million. Since IOB has provided a revolving credit
facility valid far 90 days, Pasco. could buy iron ore worth at least
$18 million from MMTC if three cycles are completed within a
year.
MMTC has a five-year agreement with South Korea to. sell 2.3
million tonnes of iron are per annum. The public sector trading
company sold iron are worth $32 million to South Korea in
1997-98 despite the currency crisis which led to steep devalua-
tion at the Wan, affecting Pasco., which is the sale buyer from
that country. Since Pasco. is a strong company, MMTC was
advised to support it at the time of difficulty. Fallowing the
Asian currency crisis, the. South Korean major had expressed its
inability to. pay an time for iron are and sought supplies from
MMTC without an L/C (Letter of Credit).
When MMTC approached Export Credit Guarantee Corpora-
tion (ECGC) for insurance cover, the plea was turned dawn.
After pursuatian from the Government, ECGC agreed to.
provide caver to. shipments destined far South Korea whose
rating has gone dawn after devaluation of the Wan. However,
ECGC is seeking a 3.86 per cent premium and the insurance
payable would be only 60 per cent of the value of shipment.
The payment would be made only after a period of nine
months. In other cases, the premium is lower while the
payment works out to. 90 per cent of the shipment value and
ECGC pays the amount after three to four months.
Since the ECGC option was not considered viable, MMTC
worked out a credit arrangement with an international bank
based in the US. After the shipments were made, the bank
made payments to. MMTC and recovered it from Pasco. after 90
days. Now, MMTC is having talks with a Japanese trading
major for a different sort of arrangement following a successful
pact clinched by a private exporter. Trade sources said S.
Salgoankar, a Goa -based exporter, has struck a deal with Itochu
of Japan for supplies to. Pasco. According to. this arrangement,
In touch would pay the exporter once the shipments are cleared.

11.675.1 255
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 36:
IMPORT TRADE PROCEDURES
Learning Objectives
• Introduction of Import
• Liberalisation of Imports.
• Types of Importers.
• Special Schemes for Importers.
• Import Procedure :-
• pre-import Procedure.
• legal Dimensions of Import Procedure.
• Question Bank.
Introduction
In 1992 import of goods and services into India were valued at
Rs. 50,000 crores. Merchandise imports exceeded exports. This
flow of goods and services from abroad provides a wide verity
of critical materials, parts and products not otherwise available.
Additionally the flow provides a basis for foreigners to pay for
Indian exports and provides Indian consumers with a wide
selection of goods from which to purchase. The import
function however often receives little attention because of the
emphasis on the expansion of exports, except when imports
directly compete with domestically produced products. Despite
the quantitative importance of the function and the critical need
for imported goods, the import function remains little
understood by many in universities, government and busi-
nesses alike.
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 good
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.
Liberalisation of Imports
Consequent upon a comfortable balance of payments position
of the country, increasing necessity of imports for export
production and globalisation of Indian economy, the Govern-
ment of India has liberalised the import regime from time to
time. At present, practically, all controls ‘on imports have been
lifted. Under the new EXIM Policy 2002-07 announced on
March 31,2002, the Government has initiated a comprehensive’
package intended to make international trade a vital part of
development strategy. It has substantially eliminated licensing,
quantitative restrictions and other regulatory and discretionary
controls both on exports and imports.
All goods may be imported freely in India without any
restriction except to the extent such imports are regulated by the
256
provisions of the EXIM Policy 2002-07 or any other law for the
time being in force. Moreover, the customs duties on imports
have been considerably reduced and rationalised during the last
few years. The procedure for imports has been considerably
simplified and the bureaucratic controls have been reduced to
the bare minimum.’ Besides, availability of foreign exchange for
imports has also been eased. Regulations regarding personal
imports such as consumer goods, baggage etc., have been
substantially liberalised.
The Import Process
Importing has been considered in several place in this text. The
present chapter serves:
i. to organize the various aspects of importing by
presentation of the import process,
ii. to describe major importing institutions,
iii. to portray probation confronting Indian importers.
iv. To elucidate major facts of the custom law and procedure
and
v. Because of its close relationship to customs arrangements.
The discussion should aid you in conceptualizing the import
process and should provide a somewhat different perspective
on Indian commercial policy.
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 plan for resale or use.
1. Determining Market Demand And Purchase Motiva-
tion:- 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
11.675.1
crude materials from abroad but operate mines and processing
plants abroad from which they import to meet their require-
ments.
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 characteris-
tics, 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 perfor-
mance 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 interna-
tional 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.
11.675.1
5. Developing a Plan for Restate or Reuse :-Importers need
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
to have a plan for resale or use of the goods they buy Other-
wise, 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.
Types of Importers
Four basic types of importing institutions are found in the
most countries: private industrialists end users, government
agencies and facilititating agencies. These are augmented by
many agents of foreign suppliers.
1. Private Industrialists:- Private industrialists who buy and
sell for their own account. There are numerous private industri-
alists may carry on a significant portion of the import business
while in India, the activities of industrialists are hampered by
government attempts to achieve economic development goals.
Restrictions such as the following are not unusual:
Private industrialists are precluded from importing any item on
the controlled list and they are often unable to get government
approval to import on deferred payment terms . for industrial
raw material importation licensing has been liberalised by the
government of India.
2.End Users:- End users are manufacturers public- utilities,
hospitals, colleges, university etc, who buy for their own use.
They purchase raw materials, supplies, machinery and equip-
ment to facilitate their own operations and gear level of their
importing to their expected level of operations. Imports of this
group often constitute the major source of imports for our
country.
Traditionally Indian industrial buyers purchased from abroad
only the domestic suppliers could not service their require-
ments. Recently however the growth of multinational
companies improved transportation and communication
supply shortages and increased exposure to foreign firms have
led to increased use of foreign sources.
The importation of goods from abroad has enabled many end
users to gain the advantages of technological developments
abroad as the Europens, Japanese, and others have expanded
their research and development. Often goods are available at
lower prices than from domestic sources, thereby permitting
domestic manufacturers to be more competitive when they
incorporate materials and parts in their final product.
3.Governmental agencies :- governmental agencies constitute
a separate class of importers because of their operating
characteristics, usually being subject to an extensive budgeting
process detailed procedures for bidding and bidding and
ordering and attempted close co-ordination with governmental
development and social plans. The exact role of governmental
agencies varies among countries.
In India purchases by government agencies and government
owned corporations account for a large percentage of all
imports. This is true of all developing countries where the
emphasis is on developmental plans and conservation of
foreign exchange.
257
 4.Facilitating Agencies:-
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
a. clearing agents: For the routine associated with clearing
merchandise through customs as well as resolving
controversies that may ensue an importer may engage the
services of a customhouse broker. These intermediaries are
export in the complicated paperwork connected with
customs procedures. They often combine functions and
serve also as forwarding agents.
The clearing agent verifies the documents on shipments
into India, sees to the payment of duties and collects freight
charges and arranges for the shipment of goods from ports
to importers. Not only must brokers have knoeledge of
documents, classifications and duty rates but they must also
be familiar with countervailing duties. The value of their
services is indicated by the fact that over 90% of all imports
are processed customhouse brokers.
b. Customs Bonded Warehouses:- Importers may not always want
to take immediate possession of imported merchandise.
They can postpone the payment of duty by storing dutiable
import in customs bonded warehouses where they may
clean sort repack and make certain changes in the condition
of merchandise.
Customs bonded warehouses are in the charge of a customs
officer who jointly with the proprietor has custody of all stored
merchandise subject to detailed customs regulations. Imported
merchandise may be withdrawn from the warehouse:
1. for consumption
2. for transportation and exportation or
3. for transportation and warehousing at the another port.
Special Schemes for Importers
As per the latest EXIM Policy 2002-07, import of goods is
permissible under the following ‘special schemes, designed for
encouraging exports :-
a. Export Promotion Capital Goods Scheme (EPCG) ;-
EPCG scheme was introduced by the EXIM policy of 1992-
97 in order to enable manufacturer exporter to import
machinery and other capital goods for export production at
concessional or no customs duties at all. This facility is
subject to export obligation, i.e., the exporter is required to
guarantee exports of certain minimum value, which is in
multiple of the value of capital goods imported.
b. Duty Free Replenishment Certificate (DFRC) : DFRC is
issued to a merchant exporter or manufacturer exporter for
the duty free in:1port of inputs such as raw materials,
components, intermediates, consumables, Spare paJ1:S,
including packing materials to be used for. export
production. Such certificate is subject to the fulf1lment of
time bound export obligation, arid is issued in respect of
products covered under the Standard Input Output Norms
(SIONs).
c. Duty Entitlement Passbook Scheme (DEPB) ;- Under
the DEPB scheme, ‘an . exporter may apply for credit as a
specified percentage of FOB value of exports, . made in
freely convertible currency. The credit shall be available
against such export products and at such rates as may be
258
specified by the Director General of Foreign Trade..(DGFT)
by way of public notice issued in this behalf, for import’ “
of raw materials, intermediates, components, parts,
packaging materials, etc
d. Advance Licence :- An advance licence is issued for duty
free import of components which are physically
incorporated in the, products manufactured for export. In
addition, fuel, oil, energy, catalysts, etc., which; are
consumed in the course of production process may also -be
allowed.
Duty free import of mandatory spares up to 10% of the C.I.F.
value of the licence which are required to be exported or
‘supplied with the resultant product may also be allowed.
Advance Licence can be issued for :--
• Physical Exports.
• Intermediate Supplies.
• Deemed exports.
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 Iraq. However, there
shall be no ban on the import of items form Iraq in case
where the prior approval of the concerned sanction
committee of the UN Security Council has been 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.
e. Inquiry; Offer and Counter-offer :- It is advisable that
before finalising the terms of import order, one should call
11.675.1
 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 but leaves them to the discre-
tion of the buyer in the exporting country. A 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.
Though one order goods directly generally importers prefer to
make use of the services of indent houses for this purpose.
The indent firms serves as middlemen between the exporters
and importers and charge a certain %age of commission from
the importer . in India many of the big indent houses have
their offices in port towns like Bombay, Calcutta.
The indent houses maintain close touch with the well known
foreign firms who send the samples of their products to them.
Their salesmen take these samples to the intending importers
and book orders from them. The details of the order taken
down by the salesmen in their note books are entered in the
indent form. Two copies of the indent form are sent to the
importer for his acceptance. The importer returns one of the
copies duly accepted and signed to the indent house which then
sends a copy of the indent to its agent in the foreign country
concerned.
If an importer does not act through an indent house, he may
place an order directly with the exporter.
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
11.675.1
sanction the release of a certain amount of the desired foreign
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
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 docu-
mentary 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 = Docu-
ments 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
259
 of the first form and two copies of the second are presented to
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
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.
Import Procedure Simplified
As per the new Import Policy 1992-1997 Import procedure has
been simplified:
• Against seven application forms required for import of
various items in the negative list only one form will now be
required.
• Most of the imports are now free from licensing. However,
where licensing is required-cases like duty-fee imports for
export production-considerable delegation of powers has
been made to the regional licensing authorities.
• Under the new procedure, import licences/customs clearance
permits will have validity of 12 months. However, capital
goods licences and customs clearance permits will be valid
for 24 months. Revalidation may be granted on merits.
• Other highlights of import procedure are: grant of licences
for certain items of raw materials. Components and
consumables in the negative list of imports decentralized
application for second hand capital good upto a CIF value
of Rs 50 lakh to be considered by the regional licensing
authorities.
• Imports through courier service up to a value of Rs. 5000 at
a time can be made in accordance with the policy.
• Licences for import of cloves, cinnamon and cassia to be
granted to the extent of 10 per cent of best year’s imports
260
in value in any of the preceding 5 licensing years, subject to
fulfillment of export obligation. Items qualifying for
exports include tea, coffee, tobacco and certain spices.
• Dealers of books may be granted licences on the basis of 20
per cent of the purchase turnover for import of fiction and
other books.
• Import of motor vehicles including tourist coaches and air-
conditioning units will be permitted within the entitlement
of the licences given to hotels travel agent and tour
operators.
• The import entitlement of any one licensing year can be
carried forward either in full or in part and added to the
entitlement of the two succeeding licensing years.
• A special licensing committee headed by the Chief controller
of Imports and Exports may consider applications for
advice on the grant of licence for import of restricted items.
• Import of spares for imported motor vehicles and tractors
upto a maximum value per year of Rs. 20000 (for motor
vehicles ) and Rs.10000 for tractors for each imported vehicle
can be made without a licence.
• Similarly, aircraft après can also be imported without a
licence on the basis of the manual of the aircraft or on the
recommendations of the department of civil aviation.
• Goods imported without restrictions may be transferred to
other. However, in the case of goods imported with actual
used conditions can be transferred only with the prior
permission of the licensing authority.
• Import licences issued under various provisions of the
policy will indicate the value both in rupees and in foreign
currency at the exchange rate prevailing on the date of the
issue of licence. No enhancement of rupee value will be
necessary if the imports are covered by the amount of
foreign currency indicated in the licence.
• Authorized dealers of foreign exchange will indicate the
value in foreign currency as well as in rupees determined on
the basis of the market and official exchange rate in the
letters of credit opened for import of freely importable
items or the items proposed to be imported against a
licence.
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
11.675.1
 (ICC), Paris, has given detailed definition of a few standard
terms popularly known as ‘INCO TERMS’. These terms
have almost universal acceptance.
c. 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 (lEe) 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
11.675.1
letter of credit then the importer should obtain the letter of
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
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.
Import by Export Oriented Units/ Export
Processing Zones Units
The Government of India decided to establish export process-
ing zones in 1965 in order to provide all facilities to the
exporters to promote exports from India. The entire scheme
was reviewed in 1980 when it was decided by the Government
to introduce the scheme of export oriented units and provide
them with all facilities in order to achieve faster rate of growth
in exports. The export oriented units could be established in
the export processing zones or outside the zones. The 100%
EOUs located in export processing zones were known as EPZ
units. Besides, the export processing zones the Government
also established specialised processing zones to promote the
export of elec-tronics hardware, and computer software. For
this purpose electronics hard. ware technology parks and
software technology parks were established. The basic require-
ment of the units to be established under these zones or for
the export oriented units outside the zones is that these units
shall undertake to export their entire production of goods and
services.
The units established as export oriented units or units in the
export processing zones may be engaged in the manufacture,
services, trading, development of software, agriculture, agro-
processing, aqua-culture, animal husbandry, bio-technology,
floriculture, horticulture, pisciculture, viticulture, poultry,
sericulture and granites. Such units are allowed to export all
prod-ucts except banned items.
Duty Free Imports
The most significant feature of the units in these zones or
export oriented units is that these units are allowed to make
duty free import of all types of goods including capital goods
required by the units for the manufacture of goods or trading
of goods or supply of services. The only condition is that the
items of import should not be banned under the Export
Import Policy 1997--2002.
Such units are also allowed to import goods including capital
goods required by them free of cost or on loan from their
clients in foreign countries. The units in the STP /EHTP /EPZ
are also allowed to import duty free all types of goods for
creating a central facility for use by software development units
in STP /EHTP /EPZ.
The EOU /EPZ/EHTP /STP units can procure the goods
from bonded warehouses in the domestic tariff area without
payment of import duty .The units are allowed to import even
second hand capital goods or import goods on lease basis.
The EOU /EPZ/EHTP /STP units are allowed to import
without payment of import duty all other goods besides capital
goods required by them for their activities. The list of items
permitted for export is as follows:
261
 Capital goods, as defined in the Policy including the following Question Banks
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

and their spares. Q1. Name the different categories of importers.

i. DG sees, captive power plants, transformers and accessories, Q2. Explain the special schemes of import liberalisation in
ii. Pollution control equipment, India.
iii. Quality assurance equipment, Q3. Explain the main steps in pre-import procedure.
iv. Material handling equipment, like fork lifts and overhead Q4. What are the legal dimensions of import procedure?
cranes,
v. Un-interrupted Power Supply System (UPS), Special racks
for storage, storage systems, modular furniture, computer
furniture, anti-static carpet, teleconference equipment, servo
control system, air-con-ditioners, panel for electrical Security
Systems.
vii. Tools, jigs, fixtures, gauges, moulds, dyes, instruments and
acces-sories; Raw materials, components, consumables,
intermediates, spares and packing materials;
viii. Prototypes and technical samples for product diversification,
development or evaluation;
viii.Drawings, blue prints, charts, microfilms and technical data;
ix. Office equipment, including P ABX, fax machines, video
projection system;
Spares and consumables for the above items.
The facility of duty free import available to the EOO / EPZ/
STP /EHTP is subject to fulfilment of export obligation by
these units. The obligations of these units are at two different
levels as explained below:
Import of Commercial Samples
The import of commercial samples is exempt from the levy of
import duty as provided vide General Exemption No. 42
(Notification No. 154/94-Cus dated 13.07.1994 - with latest
amendment on 6.07.1999 vide notification no. 86/99-Cus). The
samples may be paid for or imported free of any charge. The ex-
emptions from import duty are different in both the cases.
Commercial Samples (Paid for)
A bonafide commercial traveller or businessman may import
commer-cial samples without payment of import duty upto a
value. limit of Rs. 60,000 or 15 units in number, within a
period of twelve months subject to the fol-lowing conditions:
The samples are imported as a part of personal baggage or by
post or by air.
1. The importer produces Importer-Exporter Code (1EC)
2. Number at the time of importation.
3. The goods are clearly marked as samples.
4. The importer, at the time of importation:
Commercial Samples and Prototypes (Free of
Charge)
A bonafide business firm may import, without payment of
import duty, bonafide commercial samples and prototypes by
post or by air or by courier service upto a value limit of Rs.
5,000 provided the said goods have been supplied free of
charge. The postal charges or the air freight is not taken into
account for determining the value of commercial samples and
prototypes.

262 11.675.1

LESSON 37:
IMPOR T TRADE DOCUMENTATION
Learning Objectives
• Introduction
• Capital goods
• Custom Clearance Procedure for Imported goods
• Import Documents
• Retirement of Import Documents
• Classification of Goods for Import Policy & Assessment of
Duty.
• Bill of Entry.
• A Note on Forward Contract
Intoduction
The Export-Import policy offers facilities for the import of raw
materials, parts, components other inputs and the capital goods
to facilitate production of goods for the purpose of promotion
of exports.
Many a time, an export firm is required to make import of the
various inputs and machines for the purpose of export
production.
The facility of import is allowed under the ‘following categories:
1. Import of unrestricted items
2. Import of restricted items
3. Import of capital goods
The present chapter deals with these facilities and explains the
pro-cedure involved in customs clearance of the import
consignments.
1. Import of Unrestricted Items
The business firms having Importer- Exporter Code Number
are allowed to import the goods which do not attract any kind
of restriction under the Export-/import Policy: 2002-07, as
amended from time to time. There is no permission .or
approval required to import such items. The importer intend-
ing to import la certain item should first of all, ascertain the
ITC(HS) classification number ‘of the item by referring to the
ITC(HS) Classifications of Import and Export Items. Thereaf-
ter, relevant chapter as given in Schedule 1 ( Import Policy)
should referred to find out the policy regarding import against
the item at the desired TC(HS) number. If the item is unre-
stricted for import, the only requirement make import in terms
of procedure would be to pay for the import duty leviable that
item and seek the customs clearance of the import consign-
ment.
2. Import of restricted items
Any business firm intending to import restricted items shall be
required to apply for import licence under the Negative List. (
Negative List refers to the list of restricted items.) The details of
these restricted items can be obtained by making a reference to
Schedule l(lmport Policy) as given in the ITC(HS) Classification
11.675.1
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
of Import and Export Items. The importer has to give reasons
as to why he needs to import the restricted items. In other
words, justification for the import has to be provided because
import licence cannot be claimed as a matter of right. It is a
privilege extended by the Government to the importer. If the
licensing authority is not satisfied then it may not grant the
import licence
Capital Goods
Import of Capital Goods
The policy regarding the import of capital goods is very liberal.
There are no restrictions for the import of New Capital Goods.
The only require-ment is to arrange for the customs clearance of
the import consignment against the payment of the applicable
import tariff.
Import of Second Hand Capital Goods
As far as second hand capital goods are concerned, their import
is allowed freely provided the second hand capital good is not
more than 10 years old. However, such goods shall not be
transferred, sold or otherwise disposed off within a period of 2
years from the date of import without the prior permission of
the Director General Foreign Trade.
Warehousing of Imported Goods
An importer may not like to clear or may have certain problems
in clear-ing the goods imported immediately on payment of
duty for home consump-tion. In such an eventuality, he can,
subject to certain conditions being sat-isfied, deposit the goods
in a Public or Private Bonded Warehouse. The object of
warehousing is to allow the facility of deferring payment of
duty on im-ported goods pending actual clearance for Home
Consumption on payment of duty or their re-export without
payment of duty to any foreign port.
The importers are required to file a set of yellow coloured bill
of entry commonly known as warehousing or Into bond Bill
of Entry (B/E) if they want the facility of warehousing of the
imported goods. The warehousing BIE is almost the same as
Home Consumption Bill of Entry and the procedures for its
processing are also the same except that the payment of the
duty is de-ferred.
After the assessment of goods for the lievy of the import duty
is com. pelted, the scrutinizing appraiser debits the import
licence{s} where necessary, and the set of warehousing Bill of
Entry {WR B/E} undergoes usual counter checks by the
Assistant Collector of Customs. The formalities of calculation
of duty, licence, registration and its pre-audit are also gone
through as in the case of a Borne Consumption, B/E.
The W R Bill of Entry is thereafter audited by the Internal
Audit Depart-ment and then sent to Import Bond Department
where the importers file the requisite warehousing Bond u/s 59
of Customs Act, 1962. The Bond after scrutiny is accepted by
263
 A.C. {Bond} and registered in the Bond Department and WR
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
number is impressed on all copies of B.E. The original copy it
kept in the Bond Department, while the others are handed over
to importers I clearing agent. The goods are thereafter examined
by the Dock Appraising staff on the basis of orders of the
scrutinising Appraiser on Duplicate copy, and if found in order,
the same are allowed to be physically warehoused by the Dock
Appraiser under the escort of a Preventive Officer.
Clearance of Warehoused of Goods for Home
Consumption Under Ex-Bonds B/E
In order to clear the dutiable imported goods from warehouse,
the Bonder is required to present an ex-bond bill of entry,
printed on green paper in the Imported Bond Department. It is
not obligatory for the importer to take clearance of the entire
consignment which was warehoused under a particular Into
Bond BIE while filing an Ex-bond Bill of Entry. Even Ex-
bond Bills of Entry for part clearance can be submitted. The
importer after getting the Ex-Bond BIE registered in the
Import Bond Department submits it to Appraising Depart-
ment alongwith Triplicate copy of related Into Bond BIE and
invoice/ packing list, for verification of the particulars furnished
on the BIE (made on the basis of Into Bond B/E). The
concerned Group Appraiser classifies and reassesses, if neces-
sary. Concerned group A.C. and calculation of import duty
thereafter hand over the assessed BIE to the importers clearing
agents for payment of duty and taking delivery of the goods
after the usual counter check.
Custom Clearance Procedure for
Imported Goods
Under the Ministry of Finance (Department of Revenue), there
independent Boards of Revenue :-
a. Central Board of Direct Taxes (for Income Tax, Wealth Tax
etc.)
b. Central Board of Excise and Customs.
The Customs administration vests with the Central Board for
Excise and Customs, which shapes the policy and decides the
functions of the customs formalities in the country, in terms of
the provisions of the Customs Act 1962.
All goods imported in India have to pass through the customs
clearance after they cross the Indian border. The goods so
imported are examined, appraised, assessed, evaluated and then
allowed to be taken out of customs charge for use by the
importer.
The procedure for customs clearance in general for goods
imported ,in India is as follows :
a. Import Manifest :- As per the section 30 of the Customs
Act, 1962, the persons in charge of a conveyance carrying
imported goods should hand over, within 24 hours of the
arrival of the conveyance, an import manifest to the
customs. The import manifest is a complete list of all items
the conveyance carries on board, including those to be
transshipped and those to be carried to the subsequent
ports of call.
b. Entry in the Import Department of Customs House :.
On receipt of information regarding the arrival of the
goods, the importers or their agents have to make an entry
264
by filing a Bill of Entry, in a prescribed form in the’ Import
Department of Customs House. The, date of presentation
of Bill of Entry is an important date as the rate of duty
applicable to the imported goods will be the rate, which is
in force on t1}e date of presentation.
c. Presentation of Bill of Entry for Appraisal :- After the
Bill of Entry is noted in the import department, the same
should be presented to the Appraising Counters along with
the following necessary documents :-
• Import licence,jf necessary.
• Exporter invoice.
• A copy of Letter of Credit.
• Original Bill of Lading and its non-negotiable copy.
• Two copies of Packing List. ‘
• ‘Weight spe9ifications.,
• Manufacturers test certificate.
• Certificate of Origin.
• Delivery order issued by Shipping company or its,
agent.
• Freight and insurance amount certificate if the import
is on FOB terms
• A declaration from importer that he has not paid nay
commission to agents in India.
• Customs declaration
• Catalogue/drawing, etc for machinery imported.
In addition to the above, the following documents are also
required to be submitted wherever necessary:-
• If the spare part are imported-exporters invoice
showing unit price and extended total of leach item;
• If the second hand machinery is imported-chartered
Engineer’s Certificate;
• If the steel is imported-Manufacturer’s Analysis
Certificate;
• If Chemicals and allied products are imported-
Literature showing chemical consumption;
• If the textiles items are imported- Textile
Commissioners endorsement or certificate.
If the above documents furnished by the importer are
found to be adequate for acceptance of the declared value
and determination of classification and acceptance of ITC
Licence, the Bill of Entry is completed by the Assistant
Collector and sent to the Licence Section with an order to
the Dock Staff for examination of goods before clearance.
d. Clearance of Goods ;- After payment of duty (the original
copy of Bill of Entry is retained in the Customs House) the
importer should obtain the duplicate copy of Bill of Entry
on which order for examination of the goods is given by
Customs and get the goods examined. If the description of
goods. is found to be correct, on the basis of declared and
accepted particulars, clearance of goods is allowed by the
appraiser.
e. Warehousing the Goods;- The imported goods can be
warehoused at the port of shipment without the payment
11.675.1
 of duty by presenting a “Bill of Entry for Warehousing” to
the Bonds Department along with a bond for twice the
amount of duty payable. Initially the facility is granted for 3
months, which may be extended upto a period one year.
The warehoused goods can be cleared in one or more
installments. For clearance of goods from the warehouse,
the importer is required to present what is known as ‘Ex-
bond Bill of Entry’.
f. Import Follow-up ;- Once an importer is allowed to remit
foreign exchange out of the country he has an obligation to
import the permitted goods of equivalent value in the
country. If no goods or goods for lesser values are
imported, it would lead to leakage of foreign exchange.
Import Documents
You have learnt the export documents in detail. Let us now
discuss the import documents.
1. Importer Exporter Code (IEC) Number: No person can
import goods without obtaining an Importer-Exporter
Code (lEC) Number unless he has been specifically
exempted. The IEC Number is obtained from the Regional
Licensing Authority. You have already learnt the procedure
of obtaining IEC Number in Unit .
2. Bill of Entry: It is a document on which clearance of
imported goods is effected. All goods discharged from a
vessel, from foreign or coastal ports are cleared on Bill of
Entry in the prescribed form. The Bill of Entry form has
been standardised by the Central Board of Excise and
Customs.
Four copies of bill of entry are submitted. Original and
duplicate for customer departments, triplicate is owner’s copy
and the fourth copy is for the purpose of foreign exchange to
be submitted to bank. There are three types of Bill of Entry as
discussed below:
i. Bill ofentry for home consumption (white in colour):
where an importer wants to get his goods cleared in one lot,
he has to present the Bill of entry for home consumption.
ii. Bill of entry for warehousing (into bond, yellow in
colour): Where an importer wants to shift goods to a
warehouse and thereafter gets his goods cleared in small
lots, he has to present ‘into bond’ bill of entry. Reason may
be that he is unable to pay duty leviable on all goods at one
instance or may be because of storage problem.
iii. Ex.-Bond Bill of Entry (Green in Colour): When an
importer wants to remove goods from the warehouse, he
has to present an Ex-bond bill of entry which is green in
colour.
a. Bill of Entry is not required in the following cases:
b. passengers baggage favour parcels
c. mail box and post parcels
d. boxes, kennels of cargos containing live animals or
birds
e. unserviceable stores, e.g. dunnage wood, empty
bottles, drums etc. of reasonable value
f. ship’s stores in small quantities for personal use
11.675.1
g. cargo by sailing vessels from customs ports when
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
landed at open bundles only
For imports through the medium of post there is no bill of
entry. Instead a way bill is r prepared by the foreign post office
for assessment of duty.
Retirement of Import Documents
a. Loading of Goods and Receipt of Shipment Advice :-
On loading of goods the overseas supplier dispatches the
shipment advice to the importer informing him about the
shipment of goods. The shipment advice contains invoice
number, bill of lading, airways bill number and date, name
of the vessel with date, the port of export, description of
goods and quantity and the date of sailing of the vessel.’
b. Retirement of Import Documents :- After shipping the
goods, the overseas. 40' supplier prepares the necessary
documents as per the terms of contract’ and letter of credit
and hands them over to his bank for their onward
negotiation< to importer in the manner as specified in the
L/C. The set normally contains bill of exchange,.
commercial invoice, bill of lading, packing list, certificate of
origin, marine insurance policy, etc.
For the retirement of documents, the importer is required to
submit the following documents to his bank :-
a. A letter authorising his bank to debit the equivalent Indian
rupees to the value of documents including bank charges.
b. Exchange control copy of the Import Licence, if applicable.
c. Form Al duly completed for the remittance in foreign
excl1ange.
d. Acceptance of the Bill of Exchange :- Bill of Exchange
accompanied by the above documents is known as the
Documentary Bill of Exchange. It is of two types :-
• Documents against Payment (Sight Drafts) :- In
case of sight draft, the drawer instructs the bank to
hand over .the relevant documents to the importer
only against payment.
• Documents against Acceptance (Usance Draft) :- In
case of usance draft, the drawer instructs the bank to
hand over the relevant documents to the importer
against his ‘acceptance’ of the bill of exchange.
e. Scrutiny of Documents Received under L/c :- After
receipt of import documents from the exporter’s bank, the
importer’s bank will scrutinise the documents as to their
correctness as per the terms and conditions of L/C and
hands over them to the importer after payment. The
importer should also scrutinise the documents and ensure
that there are no discrepancies.
f. Appointment of C & F Agent :- In India, the procedure
for clearance of imported goods is very lengthy, time
consuming and involves lots of legal formalities. Therefore,
it is advisable to hire the services of C&F agents who are
well versed with such formalities. The C&F Agent prepares
the bill of entry containing details of goods to be cleared
from the customs. In case, the C&F agent does not have
relevant information about the goods to be cleared, he
265
 prepares a bill of sight in order to enable himself to
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
physically check the goods imported and prepare bill of
entry on that basis.
Classification of Goods for Import Policy
and Assessment of Duty
Most of the goods imported are assessed and valued for
calculation of import duty provided they are imported in terms
of the Import Policy and evaluated for calculation of customs
duty by virtue of the nature of goods or by virtue of its end
use. The imported goods, which do not fall in parameter of the
Import Policy, are’ normally confiscated or allowed to be cleared
only on payment of heavy penalty.
Types of Customs Duties
The following types of Customs Duties are levied on goods
imported into or exported out of India :-
a. Basic Duty ;- Basic duty is levied on all goods imported
into India as prescribed in Schedule-I of Customs Tariff
Act. This duty is levied as a percentage of value of goods
imported or at a specified rate.
b. Auxiliary Duty ;- This duty was levied in addition to the
basic duty prescribed under the Finance Act every year.
However, with effect from 28th February 1993, the
government has withdrawn auxiliary duty.
c. Additional or Countervailing Duty ;- This duty is levied
on the total cost of imported goods at the rate equal to
excise duty on like goods when manufactured in India. This
duty is levied to protect the domestic industry.
d. Specific Duty :- This duty is levied in order to counter
balance the excise duty leviable on the imports going into
the production of such goods in India.
Mode of Levy of Customs Duty
a. Specific Duties :- Specific duty is a duty imposed on each
unit of a commodity imported or exported. For example,
Rs.5 on each meter of cloth imported or Rs.500 on each
T.V. set imported. In this case, the value of commodity is
not taken into consideration.
b. Advalorem Duties :. Advalorem duty is a duty imposed
on the total value of a commodity imported or exported.
For example, 5% of F.O.B. value of cloth imported or 10%
of C.LF. value of T.V. sets imported. In this case, the
physical units of commodity are not taken into
consideration.
c. Compound Duties :- Compound duty is the combination
of specific and advalorem duties. In this case, the quantities
as well as the value of the commodity are taken into
consideration while computing tariff. For example, 5% of
F.O.B. value plus,50 paise per meter of cloth imported.
Valuation of Goods
Valuation of goods is done as per principles and down in
Customs Valuation Determination and Prices. of Imported
Goods) Rules, 1998.
Demurrage Charges
The goods imported and discharged in the Customs area are
stored in the warehouses of CWC or Port Trusts or other
266
designated authority. Initially, such goods are allowed to be
stored freely for few days and thereafter demurrage or storage
charges are levied. The “Free Period” for different cargo is
different as under :-
a. Commercial and Non-commercial Cargo :- 7 calendar
days from date of landing.
b. Unaccompanied Baggage :- 14 calendar days from date of
landing.
Direct Delivery Facility for Imports by Air
The facility of ‘Direct Delivery’ of goods imported by air-is
allowed in certain cases:
a. Goods like fresh fruits, frozen food, life saving drugs and
appliances, TV films;
b. Any cargo requiring special handling or storage; and
c. Any cargo in respect of which order of the Deputy Collector
of Customs, Air Cargo Unit, have been obtained in advance
permitting direct delivery.
Bill of Entry
The bill of entry is a document, prepared by the importer or his
clearing agent in the prescribed form under Bill of Entry
Regulations, 1971, on the strength of which clearance of
imported goods can be made.
When goods are imported in a particular country, the importer
has to pay the necessary import duty. For this purpose,
necessary information about the goods imported must be given
to the customs authorities in a prescribed form called bill of
entry form. Bill of entry is a document, which states that the
goods of the stated values and description in the specified
quantity have entered into the country from abroad. The bill of
entry is drawn in triplicate. The customs authorities may ask the
importer to supply other documents like invoice, -broker’s note
and insurance policy, etc., in’ order to verify the correctness of
the information supplied in the bill of entry form.
Types of Bill of Entry
For the purpose of giving information in the bill of entry
form, goods are classified into three categories namely :-
a. Bill of Entry for Goods Imported for Home
Consumption (White coloured) :- This kind of bill of
entry is used for clearing imported goods by paying
customs duty at the port.
b. Bill -of Entry for Bonded Goods’ (Yellow coloured) :-
This kind of bill of entry is used when no duty is paid on
imported goods and, therefore, they are transferred to
customs recognised bonded warehouses.
c. Bill of Entry for Ex-bond Clearance for Home
Consumption (Green coloured) :- This kind of bill of
entry is used where the importer intends to clear the
dutiable goods, either in part or full, from a bonded
warehouse by paying necessary duty.
Contents of Bill of Entry
The main contents of the Bill of Entry are :-
a. Name and address of the importer.
b. Name and address of the exporter.
11.675.1
c. Import licence number of the importer. on the entries made from day-to-day showing the result of

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

d. Name of the port/dock where goods are to be cleared. weighment.
e. Description of goods. A Note on Forward Contract
f. Value of goods. International contracts are either concluded in Indian rupees or
in foreign currency. If the contract is concluded in terms of
g. Rate and amount of import duty payable.
Indian rupees, all relevant documents are prepared in Indian
h. Other relevant documents. rupees and hence no conversion is involved. However, if the
However, no bill of entry is required in the following cases :- contract is concluded in some internationally accepted currency
a. Passengers’ baggage; then the importers have to pay Indian rupees equivalent. to the
amount of foreign currency.
b. Favour parcels;
Where the international contract has been concluded in foreign
c. Mail bags and Post parcels;
currency, an importer is always at risk due to adverse fluctuations
d. Boxes, kennels of cages containing live animals or bird~; in the exchange rates in the international market. Such risks can
e. Post parcels, ship stores in small quantities for persona, use. be avoided by the following methods :-
f. Un-serviceable stores, such as, dunnage wood, empty a. Invoicing the Goods in Indian Rupees :- The first remedy
bottles, drums, etc., of reasonable value (below Rs. 50); to adverse movements in exchange rates is invoicing goods
g. Cargo by sailing vessels from Customs Ports when landed in Indian rupees. However, foreign seller may not agree to
at open bunders only. invoicing goods in Indian rupees.
b. Entering into a Forward Exchange Contract :- This is
Processing of the Bill of Entry
the most commonly practised alternative for insuring the
Once the Bill of Entry is completed by the Appraiser, and the
risks arising out of adverse movements in exchange rates.
same has been countersigned by the Assistant Collector, then it
Under this adjustment, the importer enters into contract
is forwarded to the Licence Department for debit and audit, and
with its bank to purchase from the bank, foreign exchange
thereafter returned to the importers for payment of duty in the
at a future date or period and the bank agrees to sell the
Accounts / Cash department. After recovery of duty, the
firm the foreign exchange on that date or during the agreed
original Bill of Entry is retained in the Accounts Department
period at certain predetermined rate agreed upon at the time
and the duplicate and other copies are returned to the importers
of entering into contract. Thus, the importer knows in
for getting the goods examined in the docks. In the Docks,
advance the exchange rate that he is going to pay on delivery
Shed Appraiser / Examiner shall examine the goods, and if the
of import documents.
consignment is in order, he will give the out of charge for
payment of the Port Trust Charges. This procedure under Question Bank
which 80 to 90% of the consignments are being cleared is Q1. Describe the procedure for the retirement of import
known as the Second Check Proce-dure. As against this, in the documents.
alternative procedure what is known as the First Check Proce-
Q2. Explain the customs clearance procedure for imported
dure, the Scrubnising Appraiser in the Group gives the
goods.
exami-nation order. The goods are then examined in the docks
and the Bill of Entry returned to the Scrutinising Appraiser for Q3. Explain the different types and modes of levying import
completion and licence debit. In this case, the Customs out of duties.
charge is given by the Accounts Department soon after the Q4. What is Bill of Entry? What is its significance?
recovery of duty. This procedure is resorted to only in cases Q5. Write a note on Forward Contracts.
where the appraisers or the assessing Group finds it difficult to
complete the assessment on the basis of the documents made
available.
The import consignment can be opened only by the proper
officer of the customs for examination of the goods lying in a
Customs Area. Examination of cargo for assessment purpose
is chiefly the function of the Appraising Department having
special staff of examiners in the docks / Air Cargo shed.
‘The result of the examination or weighments is noted on the
reverse of the Bill of Entry. It is absolutely essential that records
of examination and weighment should be made, attested and
dated at the time of examination or weighment. If examina-
tion or weighment takes place on more than one day, the result
of examination or weighment made on each day is clearly
recorded. The Officer at the same time, obtains on the docu-
ments the importer’s or his accredited representative’s signature

11.675.1 267
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
LESSON 38:
IMPORT FINANCE
Learning Objectives
• Objective
• Introduction
• Import Financing
• The Regulatory Framework
• Exchange Control Regulations Concerning Imports
• Methods of Import Finance
a. Financing Import under Letter of Credit
b. Financing against Bills under Collection
c. Financing Imports against Deferred Payment
d. Financing under Foreign Credit
e. Import Loans by Export Import Bank of India
• Let Us Sum up
• Answers to Check Your Progress
• Terminal Questions
Objectives
After studying this unit, you should be able to:
• explain the nature and significance of import financing
decisions
• describe the institutional regulatory framework of import
financing
• discuss the exchange control regulations concerning
imports.
• explain various methods of import financing
Introduction
Imports play an important role in the economy of every
country, rich and poor alike. Rich countries need to import
capital goods, raw materials and technology to ensure an
optimum utilisation of their production capacity. They need to
import a wide variety of consumer goods to enable their people
to enjoy a high standard of living. Poor countries need to
import technology and capital equipment and some time
strategic raw materials to develop indus-tries for accelerating pace
of their development. In India, for example, the pace of
industrialization, level of exports and consequently the rate of
economic growth is heavily dependent upon imports. A low
level of imports usual1y indicates low purchasing power of its
people and also emergence of recessionary trends in economy.
At a firm’s level efficient management of import operations is
critical factors in determining the overall profitability of its
imports. Hence, a through understanding of import financing
techniques and practices is necessary for concerned managers. In
this unit, you will learn the regulatory framework and related
exchange control mechanism of import financing and various
methods of import financing.
268
Import Financing
India followed a restricted import policy till mid eighties.
Nothing could be imported without a licence involving
cumbersome procedures alongwith intricate documentation.
Although some liberalization measures were taken in second
half of eighties, real breakthrough came only in 1991. Steady
progress has been made in nineties in replacement of quantita-
tive restrictions, licensing and discretionary control over imports
by deregulation, simplification of procedures and protection
through tariff and exchange rates. Export Import policies of
1992-97 and 1997-2002 were the steps in this direction.
It is against the background of nature and significance of
India’s import trade, one has to understand import financing
methods and techniques. Import financing involves making
payment to foreign entities for the goods purchased from
them. From the management decision making viewpoint, it
means making decision regarding terms of payment (Le.
choosing one among several alternatives), arranging funds,
involving choice of financial institution and the instrument to
be used for making payment and involving choice of intermedi-
ary, through whom the payment is to be made.
The Regulatory Frame Work
The principal objectives of India’s Export Import Policy is to
accelerate the country’s transac-tion to an internationally oriented
economy with a view to derive maximum benefit from the
expanding global market. Various policy objectives are achieved
basically through three legislations.
These are:
1. Foreign Trade (Development & Regulation) Act, 1993
administered by Director General, Foreign Trade (DGFT)
replacing the earlier legislation Import & Export (Control)
Act, 1947, administered by the Chief Controller of Imports
& Exports (CCIE).
2. Foreign Exchange Management Act, 1999 administered
by the Department of Economic Affairs, Ministry of
Finance and the Exchange Control Development of the
Reserve bank of India. FEMA has been brought is place of
Foreign Exchange Regulation Act.
3. Indian Customs and Excise Act, 1962 administered by
Central Board of Excise and Customs.
The Foreign Exchange Dealers Association of India (FEDAI)
frames the rules and operational procedures and changes
relating to imports. In addition, Uniform Customs & Practice
for Documentary Credit (UPDC) formulated by International
Chamber of Commerce, Paris which has a global acceptance, is
indispensable to cover transactions under documen-tary credits.
India’s import policy is formulated within the framework of
obligations of the membership of World Trade Organisation
(WTO). Hence, the policy does not have a discriminatory and
restrictive dimension. Whatever restrictions on imports
11.675.1
continue are the ones which have -been allowed under the
WTO regime. In line with WTO provisions for according
preferential treatment of imports from developing countries,
India has signed several preferential treading arrangement with
some South Asian Countries and the products, which will
attract concessional rate of duty, are also specified.
Physical control over imports is exercised by DGFT and the
Customs Dept. RBI exercise financial controls through the
guidelines provided to authorised dealers. Of late, tariffs rather
than quantitative restrictions are being used to regulate import
trade.
Under the present policy, all goods, except those appearing on
Negative list can be freely imported in India. For goods
included in the restricted, or banned list, import licence may be
issued by the Director General of Foreign Trade. An import
licence is an authorisation which includes a customs clearance
permit (CCP) indicating inter alia, quantity description and value
of the goods, actual user conditions if any, the minimum
export value if any, export obligation, if any, and value addition
obligation, if any. Import licences which are issued on C.I.F.
basis, is given in duplicate viz. Customs Copy (for clearance
from customs) and Exchange Control copy for remittances.
For exporting units, certain special facilities have been provided
under the present policy. Under the Export Promotion Capital
goods (EPCG) Scheme, capital goods can be imported at a
concessional rate of custom duty, subject to an export obliga-
tion to be fulfilled within a specified period of 5-8 years. Under
the Duty Exemption Scheme, the government permits import
of raw materials. intermediates, components, consumables,
spare parts, accessories, packing materials and computer
software required for direct use in the product to be ex-ported
duty free under different categories of licences. Advance licence is
issued for inputs needed for export production. It can be issued
for physical exports, intermediate supply and deemed exports.
Exchange Control Regulations
Concerning Imports
Exchange control regulations refer to rules and regulations
framed and administered by the Reserve bank of India (RBI)
under the provisions of Foreign Exchange Management Act,
1999. These regulations aim at pooling resources for national
development in the best interest of the country. Under the
provisions of the Act, RBI regulates sale and purchase of
foreign currencies, Commercial banks with a licence to deal in
foreign currencies, called authorised dealers (ADs) buy and sell
foreign currencies in accordance with the guidance provided by
the RBI. Let us learn various regulations regarding payment of
imports.
Mode of Payment: Exchange control regulations govern sales
of foreign currencies to non -residents against import of goods
from any country except - Nepal and Bhutan. It may be pointed
out that residents of these two countries are residents for the
purposes of exchange control regulations, hence, ADs cannot
sell any foreign exchange for financing imports from these two
countries.
Under the existing regulations, ADs provide foreign currencies
to importers:
11.675.1
i. for remittance to foreign supplies as advance payments.
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
ii. Paying the foreign supplies in compliance of their
undertaking under the letter of credit.
iii. discounting on purchasing except documents.
iv. advances against shipping documents.
Authorised dealers can open a letter of credit (L/C) to facilitate
imports, subject to following regulations:
a. Letters of credit may be opened by banks only on behalf of
their customers who maintain account with them.
b. L/C should be opened in favour of overseas suppliers of
shipper of goods.
c. Application for L/C must be accompanied by sale contract
and other documentary evidence relating to the order and its
confirmation and import licence, if any.
Authorised dealers have been permitted to sell foreign curren-
cies for making payment towards imports into India. For this
purpose, importers have to submit an application in form A
giving the necessary details including classification of goods
based on Harmonized system. It is also obligatory on the part
of an importer to submit exchange control copy of customs
bill of entry to the authorised dealer through whom the relative
remittance was made as evidence that the relative goods for
which the payment was made have actually been imported into
India within three months from the date of remittance.
In respect of imports by post parcel, postal wrappers are
required to be submitted as docu-mentary evidence in support
of imports into India.
Currency of Payment: According to exchange control regula-
tions, payment for imports should be made in a currency
appropriate to the country or through an account appropriate to
the country of origin of goods irrespective of the country from
where they are shipped or supplied. RBI has given a list of
permitted currencies and approved methods of payment for
imports in Exchange Control Manual for guidance of import-
ers.
Time limit for settlement of imports bills: Time limit for
settlement of import bill is 6 months from the date of
shipment, but authorised dealers can settle without reference to
RBI even if the period of six months has expired, provided the
AD is satisfied about the bonafides of the circumstances.
Methods of Import Finance
The methods of import financing include: financing under L/
C, financing against bills under collection, financing against
deferred payment, financing under foreign credit and finance by
EXIM Bank of India. Let us discuss them in detail.
1. Financing Import Under Letter of Credit
Letter of credit can be defined as a commitment of bank to pay
the seller of goods or services a certain amount provided he
presents stipulated documents evidencing the shipment of
goods or the performance of services within a prescribed period
of time. As a credit instru-ment and as a means of making and
securing payment, the letter of credit is an essential instrument
for conducting world trade today. It fulfils all the requirements
provided the conditions regarding its use are stated in clear and
unambiguous terms.
269
 Import letters of Credit Financing Involves three
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
Principal Stages
i. Requesting bank to open a letter of credit
ii. Retiring documents under letter of credit
iii. Import Trust receipt facility.
Each time a L/C is opened, the importers has ~o file a formal
stamped “Letter of credit application and Agreement” in the
prescribed form. The application should set forth the precise,
terms and conditions under which the importer wishes his
bank to establish the credit, and describe the documents
covering the goods purchased which the bank is to receive in
exchange for payments.
As the correct opening of the credit is the first essential to the
ultimate success of the transaction and as the L/C will .be
issued on the basis of information supplied by the importer in
the L/C application, it is absolutely necessary that the informa-
tion supplied by him must be complete and precise, After due
scrutiny of the application form, the relevant letters are issued
by the bankers subject to the Uniform Customs And Practice
for Documentary Credits, in order to guard against confusion
and misunderstanding.
Letters of credit may be opened by mail or Fax depending upon
the urgency of the situation. It may be revocable or irrevocable.
Irrevocable L/C implies that the terms and conditions of the
credit can be amended only with the consent of all the con-
cerned parties. At times, the importer may ask the issuing bank
to get the credit confirmed by another bank. It means that in
addition to the issuing bank (the confirming bank) assumes the
commitment to pay provided the terms of the credit are
fulfilled.
L/C is sent by the issuing bank to a bank in the suppliers
country with a request to deliver the same to the supplier, called
the beneficiary. If the beneficiary is satisfied with terms and
conditions mentioned in L/C he ships the goods, obtains the
required documents and submits them to bank, usually his
own, unless a name has been specified in the credit. Bank
scrutinizes the documents and if he finds them in conformity
with the L/C and the reimburse-ment instructions, he pays the
suppliers. Thereafter he sends the documents to the issuing
banker who again scrutinises the documents with references to
the terms of the credit. If he is satisfied, he pays the negotiating
banker.
After paying the negotiating banker the issuing banker releases
documents of title to the importer on his executing a stamped
Letter of Trust (Trust Receipt). It means that the importer
undertakes to deposit with the bank the sale proceeds immedi-
ately on relisation but in no case later then period stipulated in
the trust letter. The import trust receipt facility is given by the
banks to first class customers only.
Bankers also grant import loans to their approved customers
and undertake the clearance of goods on their behalf. In such
cases, the bills received under letter of credit are retired to debit
of loan account of the customer by the bank and the relative
documents forwarded to an approved clearing agents for
clearance of goods. After the goods are cleared, dispatched and
Railway Receipts sent to the bank, the relative goods or Railway
270
Receipts are delivered to the importer after receiving the due
amount. Where arrangements exist, the goods may be stored in
the bank godown under bank’s lock and released against
proportionate payments as and when desired by the importer.
2. Financing against Bills under Collection
In the case of imports not covered by letters of credit, the
documents are forwarded by a bank in the supplier’s country,
known as the collecting bank, for collection of proceeds from
the importer and payment to the supplier through the remit-
ting bank. In such cases, the collecting bank would examine the
documents and the instructions stated in the covering schedule
to ensure that all the stated documents have been received intact
and the bill of lading and the bill of exchange are endorsed in
its favour or blank endorsed to enable the bank to handle the
documents. The bank than presents the documents to the
importer on payment (in case of sight or D/P Bill) or against
written acceptance (in case of usance or d/p bill). Where the
importer is eligible to receive the documents only on payment,
he can avail an import loan or a trust receipt facility, as discussed
before. Obligations of various parties involved are provided in
Uniform Rules for Collection (URC) Publication No. 322 issued
by International Chamber of Commerce, Paris
Sometimes, shipping documents may be sent by the exporter
directly to his importer. In such a case, the bank may receive
clean bills for collection of proceeds. I n such cases, banks are
required to call for documentary evidence of imports such as
custom noted invoice, exchange control copy of bill of entry
and import licence, if any.
Payment for bills in respect of imports through post can also
be arranged through a bank. In such cases, the relative postal
receipts must be produced as evidence of shipment through
post and an undertaking to submit postal wrappers within
three months from the date of wrappers.
3. Financing Imports against Deferred Payment
Imports under deferred payment implies that the supplier has
agreed to supply goods on credit terms extending beyond six
months. In such cases, authorised dealer has to refer each
deferred payment case to RBI for prior approval of advance
payment, bank guarantee and installments (principal and
interest) with documents viz. exchange control copy of import
licence, if any, contract copy and statement of desired facilities.
Appraisal for issue of guarantees or loans is similar to term
finance. For importing under deferred payment, the importer
should have sufficient cash generated to pay the due
instalments. He should arrange for payment of advance and
down payments from his own resources which would cover
bank’s margin requirement. Imported machinery has to be
hypothecated to the bank and the importer should counter
guarantee the transaction.
4. Financing under Foreign Credit
Government of India gets assistance in the form of loans and
development credits from international financial institutions as
also foreign governments. These loans are of two types - tied
loans and loans in free foreign currencies. Terms and conditions
of each loan along with detailed instructions regarding the
procedure to be followed for opening letters of credit, submis-
11.675.1
sion of documents etc. are set out in public notices issued by
DGFT. RBI also issues circulars for each foreign credit giving
important instructions relating to such imports.
Payment under foreign credit may be made under
a. letter of commitment method or
b. reimbursement method.
Under the letter of commitment procedure, remittances from
India for the relative imports are not permitted. The importer
in India obtains a letter of commitment from the Government
of India after furnishing a bank guarantee for payment of rupee
equiva-lent of the import value. The importer furnishes the
letter of commitment to the bank opening L/C. Then the
usual procedure follows. The shipping documents are delivered
to the importer on payment I acceptance. Where no L/C is
opened at all and on receipt of document covering imports
rupee deposits are made to Government account by the
importer through the bank.
Under the reimbursement method, the aid giving the country
makes available to the Govern-ment of India on production of
evidence of payment of imports. Hence, payment to the
suppliers is made by the L/C opening bank through the
normal banking channels and reimbursement is by the Govern-
ment of India by submitting the required documents.
5. Import Loans by Export-Import Bank of India
Bank finances imports from third countries required for
executing projects overseas for which Indian exporters have
won contracts.
Regarding imports into India, Exim Bank finances such
imports which are export. related, i.e. imports by Export
Oriented Units, import of computer systems for development
and export of software, import of plant, machinery, technology
for up gradation/expansion of production capability for export
markets.
Exim Bank also finances bulk imports of consumable inputs
and canalized items. Under this scheme, promissory notes
drawn in favour of commercial banks by their importer
borrowers are discounted, Exim bank will issue letter of
commitment for finance on request from commer-cial bank
indicating its requirement The quantum of finance depends on
the condition that import order should not be less than Rupees
one Crore.
Let Us Sum Up
Imports play an important role in economy of every country -
rich and poor a like. Their role in India is particularly crucial in
view of country’s continued dependence of foreign capital and
technology. Hence, it is necessary to ensure that import opera-
tions at firm’s level also are managed efficiently. Significant
changes in India’s import policy aiming at removing bottle-
necks on account of red tape and lengthy documentation have
taken place in recent years.
Import financing means making decisions regarding term of
payment (choosing one among several alternatives) arranging
funds, involving choice of financial institution and the instru-
ment through which the payment is to be made. The choice is
conditioned by regula-tory framework concerning imports and
availability of foreign currencies.
11.675.1
In India, Foreign Trade (Development and Regulation) Act
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
1993, Foreign Exchange Manage-ment Act 1999 and Indian
Customs and Excise Act 1962 are the three legislations consti-
tuting the regulatory framework. While Foreign Trade
(Development & Regulation) Act and Indian Customs & Excise
Act regulate the physical importation, Foreign Exchange
Regulation Act regulates remittances on account of payment for
imports. As a result of liberalisation in foreign trade sector,
import licensing has been abolished and import licences are
needed only for terms included in the negative list on imports
at concessional rates of import duty. Exchange control regula-
tions have prescribed requirements regarding mode of
payment, currencies to be used and the period within the
payments for imports have to be paid.
Imports can be financed in several ways. Importer can request
his banker to open a letter of credit in favour of his supplier.
Under the system supplier gets paid immediately upon
submission of specified documents to the- bank. Importer
obtains release of these documents either upon payment or
debit to his loan account. He can ask the supplier to send the
documents to the banker. Whom he instructs to make payment
by debiting his account. Importer gets a loan either on Trust
Receipt or hypothecation of imported goods to pay for the
imports. Where an importer contracts to pay instalments,
permission of RBI needs to be taken. He can obtain a loan
from the bank to pay for the jnstalment. Imports under credit
extended International Financial Institutions and foreign
Governments can be financed either through commitment (i.e.
Government of India commits a part of loan to the importer
and gets paid in Indian rupees) or reimbursement method i.e.
after paying the supplier, the bank gets reimbursed by loan
giving agency. Export Import Bank of lndia lends to importers
to finance their export related imports.
Reference : Case Studies on HSBC
Import Services
With over 130 years of experience supporting importers
globally, HSBC is well positioned to fulfill your trading needs.
A full range of import services is available, ensuring that your
import documents are processed without delay by our experi-
enced staff.
Simply apply to us for import facilities, and we can begin
handling your imports immediately.
Our Range of Services Includes
Letter of credit
Import Collections
Import Finance
Shipping Guarantees
Letter of credit:- For importers who are looking for new
suppliers, one of the primary considerations when deciding on
the payment terms is to ensure that the goods supplied are the
goods ordered. The two main instruments to ensure this are
documentary collections, whereby the importer only makes
payment in exchange for documents of title for the goods
shipped, and a Letter of Credit, where the importer requests his
bank to confirm payment for the goods, given certain condi-
tions being met.
271
 Using HSBC to process your Letter of Credit and collections
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
offers a number of advantages both to you and your suppliers
• Financial Strength
A Letter of Credit issued by HSBC has the backing of one
of the world’s largest financial services organizations. This
means that any LCs issued by us in your name will be
universally acceptable both by your vendors and your
vendors’ banks.
• Global Network
Our global network of over 9,500 offices in more than 80
countries and territories means that wherever you trade, an
HSBC representative is available overseas to assist your
transactions. In addition, by routing your Letter of Credit
through our overseas branches, we can ensure that the credit
is advised to your supplier without delay. This is particularly
important if you need your goods in a hurry, or your
vendor needs some time to prepare the export documents.
• Expert Assistance
Our highly trained staff is available at any time to provide
you advice on any aspect of issuing a letter of credit and
processing collections. We can also arrange training sessions
for your staff at your offices
• Vendor support
Beneficiaries of an HSBC Letter of Credit are entitled to the
same high level of professional support and advice as our
customers. Our overseas trade services staff is available to
explain complex LC terms to your suppliers and to assist
them in preparing export documents and identifying
discrepancies. In addition, we are even prepared to provide
export finance to your supplier after completion of some
simple documentation*.
• Wide Range of Special LCs available
With our wide range of specialist knowledge in Letters of
Credit, we can advise on and deliver a range of specialized
instruments: Standby Letter of Credit, transferable Letter of
Credit, Back-to-Back Letter of Credit, Revolving Letter of
Credit and Red Clause Credits.
Import Collection:- Collections offer a cost-effective but secure
means of trading internationally. Using these instruments, the
importer only effects payment in exchange for the documents
of title for the goods shipped. If these are found to be
unacceptable, payment can be refused, giving the buyer piece of
mind.
Using HSBC to process your collections offers the following
additional benefits:
• Global network
With a network of over 9,500 offices in more than 80
countries and territories, chances are that your suppliers will
be able to easily dispatch their collections to us from one of
our branches. This ensures that your documents will arrive
faster, allowing settlement without delay.
• Financial strength
By banking with one of the world’s largest financial service
organizations you can rest assured that your suppliers will
get paid as soon as your account is debited. No hidden
interest or payment delays.
272
• Expert assistance
Our highly trained staff is available at any time to provide
you advice on any aspect of issuing processing collections.
We can also arrange training sessions for your staff at your
offices.
• Excellence in service
We have established strict service standards, which will
ensure that we will inform you within one working day of
any documentary collections drawn on you.
• Technology
To automate the collection generation process, we have
developed Electronic Direct Sends, a collection generating
system integrated with our EDI service, allowing collections
to be generated and dispatched to you without delay.
Import Finance:- Whether you import using documentary
credits or collections, we are prepared to consider providing
import finance for you. Financing your imports with HSBC
offers a number of advantages:
• Facilities structured around your Trade Cycle
Many banks treat import finance in the same manner as they
treat overdrafts. This means higher interest charges for you,
and a risk that your facilities are fully utilized when a
shipment comes in. With HSBC, your import finance
facilities are carefully constructed around your actual trading
cycle after a consultation session with your corporate
relationship manager. This means your facilities will be
structured around the actual business you do, allowing you
to enjoy lower interest rates, and finance will always be
available to cover your shipments.
• Stronger Capital Base
With HSBC, you have the backing of one of the world’s
largest financial service institutions with over 130 years of
experience financing trade. This means your facilities are
structured with the long term objectives of your business in
mind and we will stand by you in market downturns. In
addition, we can call upon the HSBC Group’s extensive
international resources to provide appropriate trade-finance
solutions.
• Partnership Philosophy
HSBC has always sought to work with our clients based on
our core philosophy of partnership and many of our largest
clients today started their relationship with us as a small
trader many years ago. The strengths of our partnerships
have been clearly demonstrated in the wake of the recent
financial turmoil in Asia. We have continued to stand by
our clients. As one of our customers recently commented,
we don’t take the umbrella away when it rains.
• Experienced dedicated corporate relationship
managers
A meeting with our corporate relationship managers is
more like a meeting with a consultant than with your
banker. When you talk, we listen, and we put maximum
effort in identifying your requirements and developing
solutions.
Shipping Guarantee:- In certain situations your goods may
arrive in port before the shipping documents have been
processed through the banking system. In these circumstances,
11.675.1
HSBC can issue a shipping guarantee, allowing you to take 3. Enumerate the methods of import finance. Describe the

EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

control of the goods from the shipping company without the procedure of financing import under letter of credit.
bill of lading. The advantages of using HSBC for this are as 4. Explain various methods of import finance alongwith the
follows: documentation procedure.
• Rapid Issuance 5. Write notes on:
Shipping guarantees are only of value if they are issued
i. Financing against bill under collection
immediately. HSBC can issue shipping guarantees as soon
as the application is made*, meaning you can release your ii. Financing under foreign currency Import loan by Exim
goods from the carrier immediately. Bank of India
• Financial Strength iii. Financing under deferred payment arrangement
HSBC-issued shipping guarantees are universally accepted
by all shipping companies. This means you can always be
assured that you will get your goods on time.
Source: hsbc.com
Question Banks
Q1. What is Import Financing?
Q2. What do you mean by import Licence?
Q3. What do you mean by Trust receipt?
Q4. What do you mean by deferred payment?
Q5. State whether following statements are true or False.
I. Time limit for settlement of import bill is 6 months
from the date of shipment.
II. Uniform Custom and practice for Documentary
Credit is not indispensable to cover transactions
under documentary credit
III. Import licences are issued on CIF basis.
IV. Authorised dealers can sell foreign exchange for
financing imports from Bhutan.
V. Payment of import should be made in a currency
appropriate to the country.
VI. Letter of credit can not be opened by mail.
VII. After paying the negotiating bankers, the issuing
bankers release documents of title to the importer on
executing a stamped letter of Trust.
VIII. When shipping documents are directly sent to
importer by exporter the bank receives clean bills for
collection of proceeds.
IX. Government of India gets assistance in the form of
loans and development credits from international
financial Institutions.
Answers to Check Your Progress
i. True vi. False
ii. False vii. True
iii. True viii. True
iv. False ix True
v. True
Terminal Questions
1. What is importing financing? Describe the regulatory
framework related to import financing.
2. Explain various exchange control regulations concerning
imports.

11.675.1 273
 11.675.1
Abbreviations
LESSON 39:

274
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

275
11.675.1
 11.675.1
276
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
 EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

277
Annexures

11.675.1
 11.675.1
278
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

279
11.675.1
 11.675.1
280
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

281
11.675.1
 11.675.1
282
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

283
11.675.1
 11.675.1
284
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

285
11.675.1
 11.675.1
286
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

287
11.675.1
 11.675.1
288
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION

289
11.675.1
 11.675.1
290
EXPOR T IMPORT PROCEDURE AND DOCUMENTATION