Foreign trade is exchange of capital, goods, and services across international borders or territories.

Foreign trade is further bifurcated as 1.Imports Products of foreign origin brought into a country. Its simply a product shipped into a country or region 2.Exports Products of local origin sold to other countries. It is sending goods or services across national frontiers for the purpose of selling and realizing foreign exchange .Governments normally encourage exports and discourage imports.

The buyer The seller The manufacturer The shipping company or airline company, The insurance company Governments and embassies various professional bodies, lawyers, agents, shipping registries, chamber of commerce, and banks.

The basic methods of payment are: Cash in advance Open account Bank Guarantee Letter of credit

ADVANCE PAYMENT
Cash in Advance is a pre-payment method in which, an importer is responsible of the payment for the items to be imported in advance before the shipment of goods. Cash-in-Advance method of payment creates a lot of risk factors for the importers. However, this method of payment is inexpensive as it involves direct importerexporter contact without commercial bank involvement. This method is use only when the importer must be confident of: The reliability of the exporter The stability of the exporters country

CONTRACT / OPEN ACCOUNT

In case of an open account, an importer takes the delivery of goods and ensures the supplier to make the payment at some specific date in the future. This type of payment methods are mostly seen where when the buyer has a strong credit history and is well-known to the seller. Open Account method of payment offers no protection in case of non-payment to the seller. In this case, the risk is of exporter.  Contract and cash in advance methods will be use only when there are mutually understanding between the importer and exporter.

BANK GUARANTEE

A bank guarantee is an undertaking of a bank on behalf of its customer and it comes to play only when the principal party (the buyer) has failed to pay its supplier.

METHODS OF COLLECTION OF BILLS

There are two methods of collection of bills: Documents Against Payment D/P: In this case documents are released to the importer only when the payment has been done. Documents Against Acceptance D/A: In this case documents are released to the importer only against acceptance of a draft.

LETTER OF CREDIT
A Letter of Credit is a payment term generally used for international sales transactions. It is basically a mechanism, which allows buyers to offer secure terms of payment to sellers in which a bank) gets involved. The technical term for Letter of credit is 'Documentary Credit'.  LC and Bank Guarantee will be use only when there are lack of understanding between the importer and exporter.

IMPORTER
First of all importer get form I from his bank to import goods.
 Request For Quotation: It is the request made by importer regarding his wish to import certain goods/items. The Request for Quotation includes:  The description of Goods Required  Payment terms  Delivery schedule  Minimum order Quantity  Price

Request is accepted by exporter expressing his intention to export specific goods with specific terms and conditions. Exporter sends the invoice according to importer requirements.

 When both the parties agree upon terms and conditions , the exporter start manufacturing the required goods. If the relation between both the parties is trustworthy they do not involve banks as a guaranteer. If there is not so much understanding between importer and exporter, exporter wants importer to open an LC in his bank.

DOCUMENTS REQUIRED FOR LC To open an LC importer submits the following documents in his bank Form-I Proforma invoice LC request form

FORM I
Form "I" is a form required by an importer for the imports of goods All imports to Pakistan which are subject to Foreign Exchange Regulations are required to be declared on form 'I. The importer should submit the Form 'I' to the bank after it has been completed and signed by the importer himself or his authorized agent.

It contains following informations Place of issue Date of issue Name & address of authorized dealer importer name & address Description of goods Quantity Port of shipment Date of shipment Invoice value in foreign currency

PROFORMA INVOICE
 When the exporter and importer have met before and have already discussed and thrashed out an agreement , only one final proforma invoice is necessary to confirm that the two parties are indeed in agreement.  Every proforma invoice should be as precise as possible to ensure that both parties understand each other.

PROFORMA INVOICE
 If the importer is satisfied with this final proforma invoice, he/she will request their bank to issue an L/C on the strength of information in the proforma invoice.

The following details are required to the setting up of the proforma invoice and need careful attention:  A complete and clear description of the goods in question  The quantity of goods in question including the number and kinds of packaging involved  The total price of the goods (and unit price where applicable)  The currency in which the goods will be sold

 The likely delivery schedule and delivery terms  The physical addresses of both the exporter (referred to as the shipper) and importer (sometimes referred to as the consignee)  The payment methods, for example cash in advance or L/C  The payment terms and conditions  Who is responsible for the banking fees and other related costs (insurance and freight costs)

 The exporter's banking details  The country of origin of the goods  The expected country of final destination  Any freight details such as the port of loading and discharge  Any transshipment requirements  Any other information relevant to the order

LC REQUEST FORM
After receiving Performa invoice from exporter, importer writes an application to his bank that includes: Branch name Client name Type of industry Sector of import Client Legal status Client credit limit And some conditions

This document include inter bank memo in which the bank of the importer sends all the information regarding client to its Main branch. It include:
Applicant name/current A/c No. LC limit Credit approval reference

LETTER OF CREDIT
A Letter of Credit is a payment term generally used for international sales transactions. It is basically a mechanism, which allows importers/buyers to offer secure terms of payment to exporters/sellers in which a bank (or more than one bank) gets involved. The technical term for Letter of credit is 'Documentary Credit'.

Letter of credit
Almost all letters of credit are irrevocable. The idea in an international trade transaction is to shift the risk from the actual buyer to the banks. Thus a LC (as it is commonly referred to) is a payment undertaking given by a bank to the seller and is issued on behalf of the applicant i.e. the buyer.

LC Amendment:
Any change made to a letter of credit after it has been issued is called an Amendment.

There are four parties to a letter of credit: 1. Importer/Applicant

It is on his account and his request and according to his instructions that the L/C is opened. He is an importer of goods from a foreign country. Normally, this party is named either as the consignee in the shipping documents and/or as the buyer in the exporter`s invoice. 2.

Issuing Bank
Buyer`s or importer`s bank which establishes (Opens) a Letter of credit in favour of a beneficiary (seller or exporter), forwards it to an advising bank for delivery to the beneficiary, and commits itself to honour demand draft drawn by the beneficiary against the amount specified in the L/C. Also called opening bank.

3.

Exporter/Beneficiary
The person in whose favour the L/C is opened and he is an exporter in a foreign country. He is also known as beneficiary as it is he who derives the benefit of the L/C.

4. Advising Bank Correspondent bank in the Exporter`s bank of an Issuing bank that receives a letter of credit (L/C) from the issuing bank for authenticating it and informing ('advising') the exporter (the L/C's beneficiary) that a L/C has been opened by the importer in the exporter's favour. The advising bank usually also takes on other roles in the transaction, such as confirming the letter of credit (playing the role of the confirming bank

TYPES OF LC

Irrevocable LC Revocable LC Sight LC D/A LC

 Irrevocable LC: It cannot be changed unless both the buyer and seller agree. Revocable LC: In this, changes to the LC can be made without the consent of the beneficiary.

 Sight LC: It means that payment is made immediately to the beneficiary/exporter upon presentation of the correct documents in the required time frame. D/A LC: It will specify when payment will be made at a future date and upon presentation of the required documents.

The LC is transferred through SWIFT. Messages in LC are transferred through special coding with every bank having different code with every branch allotted different code. The transferring of LC information through this system makes it full proof that the message is authenticated and dont have a change in it.

 When the LC is received by the exporters bank, it informs its client that LC on your behalf has been received. Then the exporter comes to his bank, the bank advises him that which documents required in the LC and how many copies of all the documents are required.

After getting covering letter from bank, the exporter collects all the forms required. The requirements mostly include the following documents(with multiple copies):  Packing List  Form-E  Commercial Invoice  Bill Of Lading/Airway Bill  Insurance Certificate  Goods Declaration Certificate  Certificate Of Origin  Bill Of Exchange

DOCUMENTS REQUIRED FOR EXPORT

E-Form (Through authorized Commercial Bank). Commercial Invoice Packing List Certificate of origin bill of exchange Insurance certificate Goods declaration B/L or AWB (Through Clearing agents)

FormForm-E
Form E(export form) is in set of four copies each. Original Duplicate Triplicate Quadruplicate

COMMERCIAL INVOICE
An invoice is very important as it contain the name of importer, exporter and consignee, and description of goods. it has to be signed by exporter. other documents are prepared by deriving information from invoice. it is required to be presented before different authorities for different purposes.

PACKING LIST
This statement gives the packing details of goods in prescribed format. It is very useful document fort custom at the time of examination and for warehouse keeper of the buyer to maintain a record of inventory and to effect delivery.

CERTIFICATE OF ORIGIN
This certificate is issued by the local chamber of commerce indicates that the goods, which are being exported, are actually manufactured in a specific country mentioned therein. It is sent by the exporter to the importer and is useful for the clearance of the goods from customs authority of the importing country.

BILL OF EXCHANGE
It is an instrument in writing, containing an order, signed by the maker, directing a certain person to pay a certain sum of money only to the order of a person to the bearer of the instrument. It is commonly known as draft.

INSURANCE CERTIFICATE
This document obtained from freight forwarder, is used to assure the consignee that insurance will cover the loss or damage to the cargo during transit.

 The documents which are submitted to custom clearance office are: E-Form Commercial Invoice Packing List Certificate of origin bill of exchange Insurance certificate

GOODS DECLERATION
After getting these documents custom issues a goods declaration form: The GD-I document include: (i) All the relevant information of importer and exporter. (ii)The country of export and import (iii)The relevant information of the ports (v)Form-E(NUMBER) (vi)The freight (vii)The value of goods and the value of goods assessed (ix)Custom duty value Then the goods or consignment proceeds to shiping line or airlines.

BILL OF LADING

This document is issued by the shipping company acknowledging the receipt of the good mentioned in the bill for shipment on board of the vessel.

 The B/L is the legal document to be referred in case of any dispute over the shipment. It contains : The shipping companys name and address. The consignees name and address. The port of loading and port of discharge. Number of packages and goods. Gross weight and net weight. Freight details and name of the vessel. Signature of the shipping companys agent.

AIRWAY BILL
This receipt issued by an airlines company or is agent for carriage of goods is a contract between the owner of the goods and the carrier. It should indicate freight pre-paid or freight to collect. The first three digits of the airway bill number represents the code, which identifies the carrier.

 When the exporter collects all the documents required in LC, present to the bank, bank will give payment to him and will send all the documents with covering letter to the importers bank. Importers bank informs importer that the documents have been received. If the LC payment method was sight LC then the importer will make the whole payment on receiving the documents. But if the payment method mentioned in LC was D/A , the importer will take the documents but will not make payment. Instead, signs a letter of under taken in which he makes a promissory note that I will pay the whole amount according to the terms and conditions.

 Then bank will give documents to the importer and will endorse on the back of BILL OF LADING in the favor of importer then importer will give these documents to the shipping line. Shipping line will keep these documents and handover the goods to the importer.

7 Importers The buyers bank is bank(RBS) gives him/her the RBS documents to claim the goods 6 Advising bank(HBL) forwards documents to the opening bank(RBS)

1 Initial agreement and contract between importer and exporter

Exporter s bank is HBL

Import/Export process

2 importer opens a letter of credit in his bank (RBS)

5 Freight forwarder dispatches the goods

Seller reviews & fulfils terms & conditions of LC

3 Opening bank (RBS) advises the seller bank(HBL) that LC has been opened

Prohibited Imports
The GoP permits imports from all countries except Israel.  Pakistan controls certain imports through the negative list. Goods not on the negative list may be freely imported. The negative list is made up of: Items banned for religious reasons. Capital and consumer goods banned to protect domestic industry. Intermediate goods used in producing protected goods Products and by-products of pigs/hogs/boars. Hazardous products: Weapons, instruments of war, explosives and radioactive products are banned.  Edible agricultural and food products shall have remaining at least six months or 50% of the shelf life. They shall also be free of any "haram" (non-kosher) elements and ingredients to be imported.

EXPORT RESTRICTIONS

Foreign exchange rules and procedures are applied to exports as determined by the State Bank of Pakistan Certain items are forbidden and controlled for export from Pakistan by Customs. Export of goods from Pakistan is allowed, except for some specified items in short supply.

EXPORT RESTRICTIONS
Items That Are Forbidden For Export From Pakistan
Dangerous goods. Live animals Timber Ferrous & Non-Ferrous Metals Human body parts Explosives Money Passports Gold Used goods