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Question-1

Discuss the formalities involved in getting an export license.

Solution:
On getting an assurance on the payments, the exporting firm looks forward to the rules and regulations and the compliance. Export of goods in India is subject to Laws of the Customs which demand that the export firm should possess an export license before it proceeds with exports. The credentials for getting an export license are as follows: Should hold a bank account in any bank authorized by the Reserve Bank of India (RBI) with a valid account number.
  Should possess Import Export Code (IEC) number from the Directorate General of Foreign Trade (DGFT) or Regional Import Export Licensing Authority.
  Should register with appropriate export promotion council.
  Should register with Export Credit and Guarantee Corporation (ECGC) in order to prevent risks of non payments. An export firm needs to have the Import Export Code (IEC) number as it has to be duly filled in various exports/ import documents. For obtaining the IEC number, a firm has to apply to the Director General for Foreign Trade (DGFT) with valid documents such as exporter/importer profile, bank receipt for requisite fee, certificate from the banker on the prescribed form, two copies of photographs duly attested by the banker, particulars of the non-resident interest and declaration by the applicant for non association with caution listed firms.

It is mandatory for every exporter to register with the appropriate export promotion council. The export promotion councils such as Engineering Export Promotion Council (EEPC) and Apparel Export Promotion Council (AEPC) were incepted by the Government of India to enhance the exports of different products. It is mandatory to hold a membership in export promotion council and obtain a Registration cum Membership Certificate (RCMC) in order to avail benefits from the Government. Registration with the ECGC is required to protect overseas payments from political and commercial risks. This document of registration also helps the export firm in acquiring financial assistance from commercial banks and other financial institutions.

Question-2

Why is it necessary to get registered with an export promotion council?

Solution:
It is mandatory for every exporter to register with the appropriate export promotion council. The export promotion councils such as Engineering Export Promotion Council (EEPC) and Apparel Export Promotion Council (AEPC) were incepted by the Government of India to enhance the exports of different products. It is mandatory to hold a membership in export promotion council and obtain a Registration cum Membership Certificate (RCMC) in order to avail benefits from the Government. Registration with the ECGC is required to protect overseas payments from political and commercial risks. This document of registration also helps the export firm in acquiring financial assistance from commercial banks and other financial institutions.

Question-3

What is IEC number?

Solution:
An export firm needs to have the Import Export Code (IEC) number as it has to be duly filled in various exports/ import documents. For obtaining the IEC number, a firm has to apply to the Director General for Foreign Trade (DGFT) with valid documents such as exporter/importer profile, bank receipt for requisite fee, certificate from the banker on the prescribed form, two copies of photographs duly attested by the banker, particulars of the non-resident interest and declaration by the applicant for non association with caution listed firms.

Question-4

What is pre-shipment finance?

Solution:
On acquiring a confirmed order and letter of credit, the exporter requests his banker for pre-shipment finance, which the exporter requires for procuring raw materials and other important components for processing and packing of goods and there by also carry out the transportation of goods to the port of shipment.

Question-5

Why is it necessary for an export firm to go in for pre-shipment inspection?

Solution:
The Government of India has implemented measures to ensure that only good quality products are exported from the country. One such measure is inspection of certain products by a competent agency as designated by the government. The Export Quality Control and Inspection Act, 1963 has been passed by the government and has also authorized a few agencies to act as inspection agencies. For instance, if the product to be exported falls under such a category, the exporter has to contact the Export Inspection agency (EIA) or the other designated agency to obtain inspection certificate. The pre-shipment inspection report is also needs to be submitted along with other export documents during exports. This inspection need not be carried out if the goods are being exported by star trading houses, trading houses, export houses, industrial units located in export processing zones/special economic zones (EPZs/SEZs) and 100 per cent export oriented units (EOUs).

Question-6

Discuss the procedure related to excise clearance of goods.

Solution:
As per the Central Excise Tariff Act, excise duty is to be paid on the materials utilized for manufacturing goods. The exporter, hence, has to apply to the Excise Commissioner of the region enclosing an invoice. On getting an approval from the Excise Commissioner, he may issue the excise clearance. But in many cases the government exempts payment of excise duty or later on refunds it if the goods so manufactured are meant for exports. The idea behind such exemption or refund is to offer an incentive to the exporters to enhance the number of exports and also to make products more competitive to reach the world markets. The refund of this excise duty is known as duty drawback which is being administered by the Directorate of Drawback under the Ministry of Finance and is responsible for fixing the rates of drawback for different products. The work relating to sanction and payment of drawback is, on the other hand, looked after by the Commissioner of Customs or Central Excise in-charge of the concerned port/ airport/land custom station from where the export of goods takes place.

Question-7

Explain briefly the process of customs clearance of export goods.

Solution:
The goods have to be cleared from the customs before these can be loaded on to the ship. In order to obtaining customs clearance, the exporter has to prepare the shipping bill which is the key document, based on which the customs office gives the permission for export. Shipping bill holds particulars of the goods being exported, the name of the vessel, the particular port at which goods are to be delivered, country of final destination, exporter’s name and address, etc.

Question-8

What is bill of lading? How does it differ from bill of entry?

Solution:
The shipping company receives the mates receipt from the C&F agent to determine the freight. The shipping company gives a bill of lading which serves as an evidence that it has agreed to carry the goods to the consigned place. If the goods are being transported through airways an airway bill will be issued.

Question-9

What is shipping bill?

Solution:
Shipping bill holds particulars of the goods being exported, the name of the vessel, the particular port at which goods are to be delivered, country of final destination, exporter’s name and address, etc.

Question-10

Explain the meaning of mate’s receipt.

Solution:
The captain of the ship issues a receipt called the mates receipt after the goods are loaded on the ship, to the port superintendent. The receipt contains details like the ship’s name, berth, shipment date, marks, numbers, and information regarding the package and the condition of the goods when they were boarded on to the ship. After receiving the port dues the port superintendent gives the mate receipt to the C& F agent.

Question-11

What is a letter of credit? Why does an exporter need this document?

Solution:
The goods have to be cleared from the customs before these can be loaded on to the ship. In order to obtain customs clearance, the exporter has to prepare the shipping bill which is the key document, based on which the customs office gives the permission for export. Along with this, the exporter has to prepare a letter of credit which is proof that the importer will pay for the goods he has imported.

Question-12

Discuss the process involved in securing payment for exports.

Solution:
The importer receives information about the shipment from the exporter. The importer has to submit a certified invoice copy, bill of lading, a list of the packing, insurance policy, certificate of origin and letter of credit to receive the title of the goods, to the customs in his country. The exporter send these documents via his bank on a condition that they are to be given to the importer only after the bill of exchange is being accepted. Filing the required documents to the bank in order to receive the payment from the bank is known as ‘negotiation of documents’. An order received by the importer to make a payment to a particular person is called a bill of exchange.

Question-13

(i) Sight and usance drafts

(ii) Bill of lading and airway bill

(iii) Pre-shipment and post-shipment finance.

 


Solution:
(i) Sight and usance drafts
 
S. No Sight Draft Usance Draft
1. A sight draft is used when the documents are given to the importer only after receiving the payment the documents are delivered to the importer against the acceptance of the bill of exchange for usance draft for making payment within a specified period

 

(ii) Bill of lading and airway bill

 

S. No Bill of Lading Airway Bill
1. The shipping company gives a bill of lading which serves as an evidence that it has agreed to carry the goods to the consigned place. This is a non negotiable instrument and is evidence that the goods are carried by that particular courier company

 

(iii) Pre-shipment and post-shipment finance

 

S. No Pre-shipment Finance Post-shipment Finance
1. Pre-shipment finance is given for purchase, packing, manufacturing and processing.

Post shipment finance is done for the date of extending the credit after the shipment of goods to the export country.

 

Question-14

Explain the meaning of the following documents used in connection with import transactions.

Solution:
(i) trade enquiry
A trade inquiry is made for the particular product after gathering information about the firm and product. The inquiry is done to find the available quantity, export terms and conditions and to know the price of that product. A quotation is prepared by the exporter and sends it to the importer. This is known as pro forma invoice which contains details like quality, quantity, size, grade, design and price of that product on which the export will take place.

(ii) Import license
Some goods need license and some are free to import. The rules for export and import should be known from the EXIM (export import) policy. In case if a license is required for a product an import license has to be procured. In India every importer and exported has to register with Directorate General of Foreign Trade or Regional Import Export licensing Authority and should get an Import export code number. Most of the import documents should bear this code number.

(iii) Shipment of advice
The overseas supplier dispatches the shipment advice to the importer. This advice contains details about the shipment of goods. This includes invoice number, airway bill number, landing bill, name of the vessel with arrival date, the export port, description of goods and their quantity and the sailing date of the vessel.

(iv) Import general manifest
The captain of ship informs the dock in charge or the airport about the arrival of goods in the importing country. The document provided by him for this purpose is called Import general manifest. On the basis of this document the unloading of goods takes place.

(v) Bill of entry
The importer can take the delivery of goods with this order. The importer has to bear the freight charges before possession of goods. The importer also pays the dock dues and takes the port trust dues receipt. To obtain this two copies of application to import duly filled should be submitted to landing and shipping dues office. One of the copies of this bill is handed over to the importer which is known as port trust dues receipt. Then the importer fills a form called bill of entry for the customs import duty assessment. The importer procures the document prepared by the appraiser and pays if any duty being laid by them.

Question-15

List out major affiliated bodies of the World Bank.

Solution:
International Bank for Reconstruction and Development (IBRD) 1945

International Financial Corporation (IFC) 1956

International Development Association (IDA) 1960

Multilateral Investment Guarantee Agency (MIGA) 1988

International Centre for Settlement of Investment Disputes (ICSID) 1966.

Question-16

Write short notes on the following.
(i) MIGA

(ii) World Bank

(iii) ITPO


(iv) IMF.

Solution:
(i) MIGA

Established in April 1988, The Multinational Investment Guarantee Agency was aimed to supplement the task of the World Bank and IFC. Major objectives of MIGA are listed below:

To promote flow of direct foreign investment into the less developed member nations;
  To give insurance cover to investors against political hazards;
  To offer assurance against noncommercial hazards such as risks involved in currency transfer, war and civil conflicts, and violation of contract;
  To insure new investments, expansion of present investments, privatization and financial restructuring;
  To offer promotional and advisory services; and
  To set up reliability.

 

(ii) World Bank

As regards IMF and the World Bank, it was decided originally at the Bretton Woods conference to establish the International Trade Organisation (ITO) to encourage and facilitate foreign trade amid the member countries and to surmount different limitations and discriminations that were in use at that time. But it was not possible to put it to practice due to strict hostility from the US. Instead of totally discarding the idea, the countries that used to participate at the Bretton Woods conference decided on having some kind of agreement amid themselves in order to slacken the world from high customs rates and other different types of limitations in trend at that time. This agreement was called the General Agreement for Tariffs and Trade (GATT). GATT came into practice from 1st January 1948 and was in force till December 1994. Numerous rounds of discussions and talks were conducted under the support of GATT to reduce tariff and non-tariff hurdle. The last one, called the Uruguay Round, was the most widespread one with regards to coverage of issues, and also the longest one with regards to the view of period of discussions and talks which went for over a period of seven years from 1986 to 1994. One of the major accomplishments of the Uruguay Round of GATT discussions was the judgment to establish a stable institution for looking after the advancement of free and fair trade amid countries. As a result of this agreement, with effect from 1st January 1995, the GATT was changed to World Trade Organisation (WTO).

(iii) ITPO

The ministries of Commerce setup this organization on 1st January 1992 under the company’s act 1956, which is based in New Delhi. The two erstwhile agencies trade development authority and trade fair authority was merged into one to form ITPO. This ITPO is a service organization which maintains a regular and close relation with trade, industry and government. ITPO organizes trade fairs both domestically and internationally through this the export firms are given opportunity to participate in international trade fairs. The five branches of ITPO are located in Bangalore, Mumbai, Kolkata, Kanpur and Chennai. The international offices are in Germany, Japan, UAE and USA.

(iv) IMF

International Monetary Fund (IMF) is the second international organization next to the World Bank. IMF came into existence in 1945 and it has its headquarters situated in Washington DC. It had 191 countries as its members in the year 2005. The major idea behind establishing the IMF is to create a systematic international monetary system, i.e., assisting system of overseas payments and amendments in exchange rates amid national currencies. The main objectives of IMF include:

To encourage international monetary support through a stable institution,
  To ease expansion of fair growth of international trade and to thereby play a role in the promotion and maintenance of high levels of employment and real income,
  To encourage exchange permanence in order to maintain systematic exchange agreements amid member nations, and
  To aid in the setting up of a multilateral system of payments with regards to present transactions between members.

Question-17


Solution:
The procedure and the sequence in which these are documented vary from one export transaction to another. Following are the steps involved in a typical export transaction:

(i) Receipt of enquiry and sending quotations: The potential buyer of a particular product sends an enquiry to various exporters requesting them for information regarding price, quality, terms and conditions for export of the goods. Exporters can be informed of such an enquiry even by way of advertisement in the press put in by the importer. The exporter replies to the enquiry by forwarding a quotation— referred to as pro forma invoice. The proforma invoice provides information about the price at which the exporter is ready to sell the goods and also provides information about the quality, grade, size, weight, and mode of delivery, type of packing and payment terms.

(ii) Receipt of order or indent: In case if the export price and other terms and conditions are acceptable to the potential buyer, they place an order for the goods to be despatched. This order, which is also known as indent, shows a description of the goods ordered, prices to be paid, delivery terms, packing and marking details and delivery instructions.

(iii) Assessing importer’s creditworthiness and securing a guarantee for payments: On receiving the indent, the exporter enquires about the creditworthiness of the importer. The purpose of the enquiry is to analyze the risk factor of non payment by the importer once the goods reach the import destination. To minimize this risk, most exporters insist on a letter of credit from the importer. A letter of credit can be defined as an assurance issued by the importer’s bank that it will honour payment to a certain amount of export bills to the bank of the exporter. Letter of credit is identified as the most appropriate and secure method of payment adopted to settle international transactions.

(iv) Obtaining export license: On getting an assurance on the payments, the exporting firm looks forward to the rules and regulations and the compliance. Export of goods in India is subject to Laws of the Customs which demand that the export firm should possess an export license before it proceeds with exports. The credentials for getting an export license are as follows:

Should hold a bank account in any bank authorized by the Reserve Bank of India (RBI) with a valid account number.
  Should possess Import Export Code (IEC) number from the Directorate General of Foreign Trade (DGFT) or Regional Import Export Licensing Authority.
  Should register with appropriate export promotion council.
  Should register with Export Credit and Guarantee Corporation (ECGC) in order to prevent risks of non payments. An export firm needs to have the Import Export Code (IEC) number as it has to be duly filled in various exports/ import documents. For obtaining the IEC number, a firm has to apply to the Director General for Foreign Trade (DGFT) with valid documents such as exporter/importer profile, bank receipt for requisite fee, certificate from the banker on the prescribed form, two copies of photographs duly attested by the banker, particulars of the non-resident interest and declaration by the applicant for non association with caution listed firms.

It is mandatory for every exporter to register with the appropriate export promotion council. The export promotion councils such as Engineering Export Promotion Council (EEPC) and Apparel Export Promotion Council (AEPC) were incepted by the Government of India to enhance the exports of different products. It is mandatory to hold a membership in export promotion council and obtain a Registration cum Membership Certificate (RCMC) in order to avail benefits from the Government. Registration with the ECGC is required to protect overseas payments from political and commercial risks. This document of registration also helps the export firm in acquiring financial assistance from commercial banks and other financial institutions.

(v) Obtaining pre-shipment finance: On acquiring a confirmed order and letter of credit, the exporter requests his banker for pre-shipment finance, which the exporter requires for procuring raw materials and other important components for processing and packing of goods and there by also carry out the transportation of goods to the port of shipment

(vi) Production or procurement of goods: On receipt of the preshipment finance from the bank, the exporter proceeds with the production and packing of goods as per the specifications of the importer. Either the firm itself goes in for producing the goods or else it is bought from the market.

 

(vii) Pre-shipment inspection: The Government of India has implemented measures to ensure that only good quality products are exported from the country. One such measure is inspection of certain products by a competent agency as designated by the government. The Export Quality Control and Inspection Act, 1963 has been passed by the government and has also authorised a few agencies to act as inspection agencies. For instance, if the product to be exported falls under such a category, the exporter has to contact the Export Inspection agency (EIA) or the other designated agency to obtain inspection certificate. The pre-shipment inspection report is also needs to be submitted along with other export documents during exports. This inspection need not be carried out if the goods are being exported by star trading houses, trading houses, export houses, industrial units located in export processing zones/special economic zones (EPZs/SEZs) and 100 per cent export oriented units (EOUs).

(viii) Excise clearance: As per the Central Excise Tariff Act, excise duty is to be paid on the materials utilized for manufacturing goods. The exporter, hence, has to apply to the Excise Commissioner of the region enclosing an invoice. On getting an approval from the Excise Commissioner, he may issue the excise clearance. But in many cases the government exempts payment of excise duty or later on refunds it if the goods so manufactured are meant for exports. The idea behind such exemption or refund is to offer an incentive to the exporters to enhance the number of exports and also to make products more competitive to reach the world markets. The refund of this excise duty is known as duty drawback which is being administered by the Directorate of Drawback under the Ministry of Finance and is responsible for fixing the rates of drawback for different products. The work relating to sanction and payment of drawback is, on the other hand, looked after by the Commissioner of Customs or Central Excise in-charge of the concerned port/ airport/land custom station from where the export of goods takes place.

(ix) Obtaining certificate of origin: Few countries provide tariff concessions or other exemptions to the goods exported from a one particular country. In order to avail such benefits, the importer might ask the exporter to produce a certificate of origin. This certificate of origin is the proof that the goods have actually been manufactured in the country from where the export has been transacted. This certificate is obtained from the trade consulate located in the exporter’s country.

(x) Reservation of shipping space: The exporting firm in turn applies to the shipping company appealing for provision of shipping space. Specifications on the types of goods to be exported, feasible date of shipment and the port of destination. On receipt of application for shipping, the shipping company issues a shipping order. A shipping order serves as an instruction to the captain of the ship that the goods specified in the order after their customs clearance at a designated port is received on board.

(xi) Packing and forwarding: The goods are then rightly packed and marked with required details viz., name and address of the importer, gross and net weight, port of shipment and destination, country of origin, etc. The exporter in turn, makes appropriate arrangements for transportation of goods to the port. On loading goods into the railway wagon, the railway authorities would issue a ‘railway receipt’ which serves as a title to the goods. The exporter in turn endorses the railway receipt in favour of his agent for him to take delivery of goods at the port of shipment.

(xii) Insurance of goods: The goods are required to be insured with an insurance company to avoid risk factors like loss or damage of the goods due to the perils of the sea during the transit.

(xiii) Customs clearance: The goods have to be cleared from the customs before these can be loaded on to the ship. In order to obtaining customs clearance, the exporter has to prepare the shipping bill which is the key document, based on which the customs office gives the permission for export. Shipping bill holds particulars of the goods being exported, the name of the vessel, the particular port at which goods are to be delivered, country of final destination, exporter’s name and address, etc. There are five copies of the shipping bill along with the following documents that submitted to the Customs Appraiser at the Customs House:

Export Contract or Export Order
  Letter of Credit
  Commercial Invoice
  Certificate of Origin
  Certificate of Inspection, wherever necessary
  Marine Insurance Policy

On proper submission of these documents, the Superintendent of the concerned port trust is consulted for obtaining the carting order. Carting order serves as the instruction to the staff at the gate of the port to allow cargo inside the dock. Later the cargo is physically moved into the port area and stored in the appropriate shed. These formalities are generally carried out by an agent — referred to as Clearing and Forwarding (C&F) agent.

(xiv) Obtaining mates receipt: The captain of the ship issues a receipt called the mates receipt after the goods are loaded on the ship, to the port superintendent. The receipt contains details like the ship’s name, berth, shipment date, marks, numbers, and information regarding the package and the condition of the goods when they were boarded on to the ship. After receiving the port dues the port superintendent gives the mate receipt to the C& F agent.

(xv) Payment of freight and issuance of bill of lading: The shipping company receives the mates receipt from the C&F agent to determine the freight. The shipping company gives a bill of lading which serves as an evidence that it has agreed to carry the goods to the consigned place. If the goods are being transported through airways an airway bill will be issued.

(xvi) Preparation of invoice: After the goods are sent, an invoice is prepared about the goods. The invoice contains details like the volume of the goods sent and also the amount which the importer has to pay. The C&F agent has to give the invoice to the customs for their attestation.

(xvii) Securing payment: The importer receives information about the shipment from the exporter. The importer has to submit a certified invoice copy, bill of lading, a list of the packing, insurance policy, certificate of origin and letter of credit to receive the title of the goods, to the customs in his country. The exporter send these documents via his bank on a condition that they are to be given to the importer only after the bill of exchange is being accepted. Filing the required documents to the bank in order to receive the payment from the bank is known as ‘negotiation of documents’. An order received by the importer to make a payment to a particular person is called a bill of exchange. A bill of exchange is of two kinds namely a document against sight or known as sight draft and a document against acceptance or known as usance draft. A sight draft is used when the documents are given to the importer only after receiving the payment. On the other hand the documents are delivered to the importer against the acceptance of the bill of exchange for usance draft for making payment within a specified period. After receiving bill of exchange importer has to release payment in sight draft or accept the usance draft for payment on maturity of bill of exchange. On signing a letter of indemnity and submitting the same immediate payment is made by bank to the exporter. By signing the indemnity letter the exporter undertakes to indemnify the bank in the event of non-receipt of payment from importer along with accrued interest. A bank certificate of payment has to be obtained by the exporter on receiving exports. This certificate says that the goods received are in accordance with exchange control regulations.

Question-18

Your firm is planning to import textile machinery from Canada. Describe the procedure involved in importing.

Solution:
Purchase of foreign goods is referred as import goods. Depending on a countries export policy the procedures differ from country to country. Typical import transaction for importing goods into Indian Territory is discussed below:

(i) Trade Inquiry: Detailed information on the country and on firms that exports product is studied. This information’s are collected from various sources. A trade inquiry is made for the particular product after gathering information about the firm and product. The inquiry is done to find the available quantity, export terms and conditions and to know the price of that product. A quotation is prepared by the exporter and sends it to the importer. This is known as pro forma invoice which contains details like quality, quantity, size, grade, design and price of that product on which the export will take place.

 

(ii) Procurement of Import License: Some goods need license and some are free to import. The rules for export and import should be known from the EXIM (export import) policy. In case if a license is required for a product an import license has to be procured. In India every importer and exported has to register with Directorate General of Foreign Trade or Regional Import Export licensing Authority and should get an Import export code number. Most of the import documents should bear this code number.

 

(iii) Obtaining foreign exchange: As the supplier resides in a foreign country he demands payment in foreign currency. This kind of payment requires exchange of foreign currency to Indian currency. In our country Reserve Bank of India’s exchange control department regulates all the foreign exchange transactions. The importer makes an application to the bank which is authorized by RBI for sanction of such foreign exchange. On a prescribed format the importer along with import license makes an application. The bank after scrutiny sanctions the required foreign exchange for the import transaction.

 

(iv) Placing Order or Indent: An indent to exporter is placed by the importer for the supply of specified goods. The indent or import order contains the details of the product with terms and conditions and delivery details like packing, shipping, port of shipment and expected delivery date. The import order should be drafted carefully to avoid conflict between importer and exporter.

 

(v) Obtaining Letter Of Credit: A letter of credit is a payment term agreed between importer and the overseas supplier. The importer obtains the letter of credit from the bank and forwards it to overseas supplier. The letter of credit is a guarantee issued by the importer’s bank which will honor payment up to specified amount of export bills to the exporter’s bank. The most valid and appropriate method of international transaction is letter of credit. The exporters need this document to be sure that there is no risk of non-payment.

 

(vi) Arranging for Finance: The importer makes payment arrangement before the delivery of goods so that the payment can be made to the exporter on delivery of goods. Hence planning in advance for finance to avoid huge demurrage is very important or else penalties for goods lying unlearned at the port will be high and will be an extra burden to the importer.

 

(vii) Receipt of Shipment Advance: The overseas supplier dispatches the shipment advice to the importer. This advice contains details about the shipment of goods. This includes invoice number, airway bill number, landing bill, name of the vessel with arrival date, the export port, description of goods and their quantity and the sailing date of the vessel.

 

(viii) Retirement of Import Documents: The overseas supplier hands over a set of documents to his or her banker for their onward transmission and negotiation to the importer in accordance with the letter of credit. This document contains bill of exchange, commercial invoice, packing list airway bill certificate of origin, marine insurance policy etc, this is known as documentary bill of exchange. This documentary bill is of two types one is sight draft and the other is usance draft. In case of sight draft drawer instructs the bank to handover the documents to the importer only against payment whereas in usance draft the drawer instructs the bank to deliver the documents on acceptance of the bill of exchange. The acceptance of bill of exchange is known as retirement of import documents.

 

(ix) Arrival of Goods: The captain of ship informs the dock incharge or the airport about the arrival of goods in the importing country. The document provided by him for this purpose is called Import general manifest. On the basis of this document the unloading of goods takes place.

 

Custom clearance and Release of Goods: All the goods imported into India have to undergo customs clearance. This is a tedious process and calls for many formalities. Due to this many of them appoint C&F agents who would take care of these formalities. An endorsement for delivery has to be obtained in the first place. This is obtained at the back of bill of landing by the importer and this is done by the concerned shipping company. Some shipping companies issue delivery order instead of this endorsement for delivery. The importer can take the delivery of goods with this order. The importer has to bear the freight charges before possession of goods. The importer also pays the dock dues and takes the port trust dues receipt. To obtain this two copies of application to import duly filled should be submitted to landing and shipping dues office. One of the copies of this bill is handed over to the importer which is known as port trust dues receipt. Then the importer fills a form called bill of entry for the customs import duty assessment. The importer procures the document prepared by the appraiser and pays if any duty being laid by them. After this payment of import duty the bill of entry should be handed over to dock superintendent. After this an examiner examines carefully and releases the goods. Later the port authority issues the release order after receiving the necessary documents.

Question-19

Discuss the principal documents used in exporting.

Solution:
(i) Receipt of enquiry and sending quotations: The potential buyer of a particular product sends an enquiry to various exporters requesting them for information regarding price, quality, terms and conditions for export of the goods. Exporters can be informed of such an enquiry even by way of advertisement in the press put in by the importer. The exporter replies to the enquiry by forwarding a quotation— referred to as proforma invoice. The proforma invoice provides information about the price at which the exporter is ready to sell the goods and also provides information about the quality, grade, size, weight, and mode of delivery, type of packing and payment terms.

(ii) Receipt of order or indent: In case if the export price and other terms and conditions are acceptable to the potential buyer, they place an order for the goods to be despatched. This order, which is also known as indent, shows a description of the goods ordered, prices to be paid, delivery terms, packing and marking details and delivery instructions.

(iii) Assessing importer’s creditworthiness and securing a guarantee for payments: On receiving the indent, the exporter enquires about the creditworthiness of the importer. The purpose of the enquiry is to analyze the risk factor of non payment by the importer once the goods reach the import destination. To minimise this risk, most exporters insist on a letter of credit from the importer. A letter of credit can be defined as an assurance issued by the importer’s bank that it will honour payment to a certain amount of export bills to the bank of the exporter. Letter of credit is identified as the most appropriate and secure method of payment adopted to settle international transactions

(iv) Obtaining export license: On getting an assurance on the payments, the exporting firm looks forward to the rules and regulations and the compliance. Export of goods in India is subject to Laws of the Customs which demand that the export firm should possess an export license before it proceeds with exports. The credentials for getting an export license are as follows:

Should hold a bank account in any bank authorised by the Reserve Bank of India (RBI) with a valid account number.
  Should possess Import Export Code (IEC) number from the Directorate General of Foreign Trade (DGFT) or Regional Import Export Licensing Authority.
  Should register with appropriate export promotion council.
  Should register with Export Credit and Guarantee Corporation (ECGC) in order to prevent risks of non payments. An export firm needs to have the Import Export Code (IEC) number as it has to be duly filled in various exports/ import documents. For obtaining the IEC number, a firm has to apply to the Director General for Foreign Trade (DGFT) with valid documents such as exporter/importer profile, bank receipt for requisite fee, certificate from the banker on the prescribed form, two copies of photographs duly attested by the banker, particulars of the non-resident interest and declaration by the applicant for non association with caution listed firms.

It is mandatory for every exporter to register with the appropriate export promotion council. The export promotion councils such as Engineering Export Promotion Council (EEPC) and Apparel Export Promotion Council (AEPC) were incepted by the Government of India to enhance the exports of different products. It is mandatory to hold a membership in export promotion council and obtain a Registration cum Membership Certificate (RCMC) in order to avail benefits from the Government. Registration with the ECGC is required to protect overseas payments from political and commercial risks. This document of registration also helps the export firm in acquiring financial assistance from commercial banks and other financial institutions.

(v) Excise clearance: As per the Central Excise Tariff Act, excise duty is to be paid on the materials utilized for manufacturing goods. The exporter, hence, has to apply to the Excise Commissioner of the region enclosing an invoice. On getting an approval from the Excise Commissioner, he may issue the excise clearance. But in many cases the government exempts payment of excise duty or later on refunds it if the goods so manufactured are meant for exports. The idea behind such exemption or refund is to offer an incentive to the exporters to enhance the number of exports and also to make products more competitive to reach the world markets. The refund of this excise duty is known as duty drawback which is being administered by the Directorate of Drawback under the Ministry of Finance and is responsible for fixing the rates of drawback for different products. The work relating to sanction and payment of drawback is, on the other hand, looked after by the Commissioner of Customs or Central Excise in-charge of the concerned port/ airport/land custom station from where the export of goods takes place.

(vi) Obtaining certificate of origin: Few countries provide tariff concessions or other exemptions to the goods exported from a one particular country. In order to avail such benefits, the importer might ask the exporter to produce a certificate of origin. This certificate of origin is the proof that the goods have actually been manufactured in the country from where the export has been transacted. This certificate is obtained from the trade consulate located in the exporter’s country.

(vii) Customs clearance: The goods have to be cleared from the customs before these can be loaded on to the ship. In order to obtaining customs clearance, the exporter has to prepare the shipping bill which is the key document, based on which the customs office gives the permission for export. Shipping bill holds particulars of the goods being exported, the name of the vessel, the particular port at which goods are to be delivered, country of final destination, exporter’s name and address, etc. There are five copies of the shipping bill along with the following documents that submitted to the Customs Appraiser at the Customs House:

Export Contract or Export Order
  Letter of Credit
  Commercial Invoice
  Certificate of Origin
  Certificate of Inspection, wherever necessary
  Marine Insurance Policy

On proper submission of these documents, the Superintendent of the concerned port trust is consulted for obtaining the carting order. Carting order serves as the instruction to the staff at the gate of the port to allow cargo inside the dock. Later the cargo is physically moved into the port area and stored in the appropriate shed. These formalities are generally carried out by an agent — referred to as Clearing and Forwarding (C&F) agent.

(viii) Obtaining mates receipt: The captain of the ship issues a receipt called the mates receipt after the goods are loaded on the ship, to the port superintendent. The receipt contains details like the ship’s name, berth, shipment date, marks, numbers, and information regarding the package and the condition of the goods when they were boarded on to the ship. After receiving the port dues the port superintendent gives the mate receipt to the C& F agent.

(ix) Payment of freight and issuance of bill of lading: The shipping company receives the mates receipt from the C&F agent to determine the freight. The shipping company gives a bill of lading which serves as an evidence that it has agreed to carry the goods to the consigned place. If the goods are being transported through airways an airway bill will be issued.

(x) Preparation of invoice: After the goods are sent, an invoice is prepared about the goods. The invoice contains details like the volume of the goods sent and also the amount which the importer has to pay. The C&F agent has to give the invoice to the customs for their attestation.

Question-20

List and explain various incentives and schemes that the government has evolved for promoting the country’s export.

Solution:
Foreign Trade Promotion Measures and Schemes

Various trade promotion measures and schemes are announced by EXIM policy. The main trade promotion measures are listed below:

(i) Duty Drawback Scheme: The exported goods are not subject to customs and excise duty on producing the export documents these duties paid if any are refunded to the exporter this is called duty drawback scheme.

(ii) Export Manufacturing under Bond Scheme: The firms manufacturing for export purpose obtain a bond which will entitle them to produce goods without payment of excise and other duties.

(iii) Exemption from Payment of Sales Tax: The export goods are free from sales tax. Now this exemption of income tax is available only to 100 percent export oriented units and to the units in the export processing zones and special economic zones.

(iv) Advance License Scheme: In this scheme the exporter is allowed duty free supply of domestic and imported inputs required for the manufacture of export goods. Advance license is available for those who export on regular basis as well as adhoc basis. Such license is obtained against exporter’s production programme or on export orders received by exporters.

(v) Export promotion Capital Goods Scheme: This scheme encourages the import of capital goods for export manufacturing. This scheme allows the export firms to import capital goods with a small amount of custom duty.

(vi) Scheme of Recognizing export Firms as Export House, Trading house and Superstar Trading House: On achieving a prescribed average export of performance in past select years by a firm the government grants the status of export house, Trading house and star trading house to select export firms. Apart from this the export house also need to fulfill the conditions laid by export import policy.

(vii) Export of Services: The exporter’s performance of service providers is taken into consideration and is recognized. Based on their performance they are categorized as Service Export house, International service export house and international star service export house.

(viii) Export Finance: The exporters need finance for their production and also during pre-shipment and post shipment period. These export finance are of two types namely Pre-shipment finance or packaging credit and post shipment finance. The pre-shipment finance is given for purchase, packing, manufacturing and processing whereas the post shipment finance is done for the date of extending the credit after the shipment of goods to the export country.

(ix) Export processing Zones: these are industrial estates generally situated near airports and seaports. These EPZ provide concessional duty free environment for export production. Such zones have been setup in various parts of India like Kandla in Gujarat, Santa Cruz in Mumbai, Falta in West Bengal, Noida in Uttar Pradesh, cochin in Kerala, Vizhagapatnam in Andhra Pradesh and Chennai in Tamil Nadu. Government has allowed development of these zones by private, state or joint sector.

(x) 100 percent export Oriented Units (EOUs): This scheme was introduced in 1981 this is a complimentary unit to EPZ. The production regime is same as EPZ but these EOUs have more facilities and options for location, raw material, ports, skills and technology.

Question-21

Identify various organizations that have been set up in the country by the government for promoting country’s foreign trade.

Solution:
Organizational Support
In order to process foreign trade the government has setup various institutions. Some of these are:

(i) Department Of Commerce: This comes under Ministry of Commerce and acts as the apex body which is responsible for country’s external Trade activities. This Department of Commerce also frames the import and export policy of the country in general.

(ii) Export Promotion Council (EPC): These are non-profit organizations which come under the companies act or the society’s registration act. This council promotes the product that comes under their jurisdiction. There are 21 EPCs dealing with different commodities at present in our country.

(iii) Commodity Boards: The government of India has established this board to promote and develop the production of traditional commodities and their exports. This board is again a supplementary to EPCs and function the same way. In India there are seven commodity boards namely, coffee board, rubber board, tobacco board, spice board, central silk board, tea board and coir board.

(iv) Export Inspection Council (EIC): Under section 3 of export quality control and inspection act 1963 this council was setup by the Indian government. This council aims at developing and maintaining quality control of the export trade and also takes care of pre shipment inspection. This council acts as the apex body. With few exceptions all commodities for export must be passed by EIC.

(v) Indian Trade Promotion Organization (ITPO): The ministries of Commerce setup this organization on 1st January 1992 under the company’s act 1956, which is based in New Delhi. The two erstwhile agencies trade development authority and trade fair authority was merged into one to form ITPO. This ITPO is a service organization which maintains a regular and close relation with trade, industry and government. ITPO organizes trade fairs both domestically and internationally through this the export firms are given opportunity to participate in international trade fairs. The five branches of ITPO are located in Bangalore, Mumbai, Kolkata, Kanpur and Chennai. The international offices are in Germany, Japan, UAE and USA.

(vi) Indian Institute of Foreign Trade(IIFT): An autonomous body registered under the societies registration act with the main aim of professionalizing the country’s foreign trade management. The IIFT was setup by government of India in 1963. This has been recognized as a deemed university and provides training for international trade, conduct research in areas of international business and analyze data related to international trade and investment.

(vii) Indian Institute if Packaging(IIP): The ministry of commerce and the Indian packaging industry jointly setup this IIP in 1966. The headquarters and laboratory is situated in Mumbai and the other regional offices are in Kolkata, Chennai and Delhi. IIP provides training and research pertaining to packaging. The IIP has a great infrastructure facility which caters to the packaging industries. This institute caters to both domestic and export markets.

State Trading Organization (STC): The trade channels and export units faced difficulty to compete in world market. In 1956 the state trading organization was setup to face this problem. The main aim of STC is to promote and stimulate trade primarily export trade among different trading partners of different nations. Later MMTC (metal and minerals trading corporation) and HHEC (handloom and handicraft Export Corporation) was also setup by the Indian government.

Question-22

What is World Bank? Discuss its various objectives and role of its affiliated agencies.

Solution:
The international bank of reconstruction and development (IBRD) is commonly known as World Bank. The main aim of IBRD is to reconstruct the war affected economies of Europe and assist the development of under developed economies of world. The World Bank after 1950 concentrated more on underdeveloped countries and invested more into social sectors like health and education of such under developed countries. For this purpose the International Development Association(IDA) was formed in 1960. This IDA provided loan at concessional rates to those countries whose per capita income are lesser then a critical level. The borrowing country need not pay any interest on the borrowed amount. IDA, hence, gives long-term interest free loans to the poor countries. IBRD also provides loans but they have interest charged on commercial basis. Over the course of time, additional bodies have been established under the World Bank. At the present moment, the World Bank comprises of five international bodies accountable for offering finance to different nations. These bodies and its associates headquartered in Washington DC catering to different financial requirements are mentioned in the Box A on World Bank and its associates. As mentioned earlier, the World Bank is assigned the task of economic growth and increasing the scope of foreign trade. During its initial years of establishment, it gave more importance on developing infrastructure facilities like transportation, energy, and others. All this has benefited the under-developed countries too with no doubt, but due to poor administrative structure, lack of institutional framework and lack of availability of skilled labour in these countries has led to satisfactory results. Additionally, since the underdeveloped infrastructure did not have any effect on these two sectors. With this in mind, the World Bank henceforth decided to redirect resources to bring about industrial and agricultural development in such nations. Aid in different forms is extended to various nations for cultivating cash crops so that their incomes increase and they may export the same for earning foreign exchange. The bank has also been offering resources for education, health care, sanitation, and other small scale enterprises. Presently, the services provided by the World Bank have increased by many times. The World Bank is no longer restricted to just offering financial aid for infrastructure development, agriculture, industry, health and sanitation. It is rather considerably involved in areas like elimination of rural poverty by increasing productivity, increasing income of the rural poor, offering technical support, and starting research and cooperative schemes.

Question-23

What is IMF? Discuss its various objectives and functions.

Solution:
International Monetary Fund (IMF) is the second international organization next to the World Bank. IMF came into existence in 1945 and it has its headquarters situated in Washington DC. It had 191 countries as its members in the year 2005. The major idea behind establishing the IMF is to create a systematic international monetary system, i.e., assisting system of overseas payments and amendments in

Exchange rates amid national currencies. The main objectives of IMF include:

To encourage international monetary support through a stable institution,
  To ease expansion of fair growth of international trade and to thereby play a role in the promotion and maintenance of high levels of employment and real income,
  To encourage exchange permanence in order to maintain systematic exchange agreements amid member nations, and
  To aid in the setting up of a multilateral system of payments with regards to present transactions between members.

Functions of IMF
A variety of functions are carried out by the IMF to reach the above mentioned objectives. Some of the chief functions of IMF include:

Serving as a short-term credit institution;
  Supplying machinery for the systematic amendment of exchange rates;
  Serving as a reservoir of the currencies of all the member nations, so that a borrower country could borrow the currency of other countries;
  Serving as a lending institution of foreign currency and current transaction;
  Deciding the worth of a nation’s currency and amending it, if necessary, in order to bring about a systematic amendment of exchange rates of member nations; and
  Supplying machinery for overseas consultations.

Question-24


Solution:
As regards IMF and the World Bank, it was decided originally at the Bretton Woods conference to establish the International Trade Organisation (ITO) to encourage and facilitate foreign trade amid the member countries and to surmount different limitations and discriminations that were in use at that time. But it was not possible to put it to practice due to strict hostility from the US. Instead of totally discarding the idea, the countries that used to participate at the Bretton Woods conference decided on having some kind of agreement amid themselves in order to slacken the world from high customs rates and other different types of limitations in trend at that time. This agreement was called the General Agreement for Tariffs and Trade (GATT). GATT came into practice from 1st January 1948 and was in force till December 1994. Numerous rounds of discussions and talks were conducted under the support of GATT to reduce tariff and non-tariff hurdle. The last one, called the Uruguay Round, was the most widespread one with regards to coverage of issues, and also the longest one with regards to the view of period of discussions and talks which went for over a period of seven years from 1986 to 1994. One of the major accomplishments of the Uruguay Round of GATT discussions was the judgment to establish a stable institution for looking after the advancement of free and fair trade amid countries. As a result of this agreement, with effect from 1st January 1995, the GATT was changed to World Trade Organisation (WTO). Geneva, Switzerland is the head quarters of WTO. Setting up of WTO, hence, symbolizes the execution of the initial proposition of establishing the ITO has emerged nearly five decades ago. Though, WTO is a successor to GATT, it is an even more powerful organization than GATT. It regulates trade not only in goods, but also in services and intellectual property rights. Unlike GATT, the WTO is a stable body shaped by an international treaty sanctioned by the governments and legislatures of member states. It is indeed a member-driven rule-based body which means that all the decisions are taken by the member governments based on a general agreement. As the primary foreign body dealing with solving trade issues between nations and offering a forum for multilateral trade discussions, it has a universal position like that of the IMF and the World Bank. India is a pioneer member of WTO. There were 149 members in WTO as on 11th December 2005.

Objectives of WTO

The basic aims of WTO are the same as that of GATT, i.e., improving the quality of living and incomes, fulfill employment requirements, increase manufacture and trade, and fair use of the global resources. The main difference between the aims and principles of GATT and WTO is that those of WTO are more precise and exact and also extend the scope of WTO to cover trade in services. In addition, WTO objectives, talk of the idea of ‘sustainable development’ in relation to the fair use of the global resources in order to ensure safety and conservation of the environment. With the above discussion in mind, we can say more openly that the following are the main objectives of WTO:

To ensure reduction of tariffs and other trade hurdles forced by different countries;
  To involve in those activities that raise the standards of living, increase income, create employment, and effective demand and facilitate higher production and trade;
  To facilitate the fair use of the global resources for sustainable growth; and
  To encourage an integrated, more practical and stronger trading system.

Functions of WTO
The main tasks of WTO comprise:

Encouraging an environment that promotes its member countries to approach WTO in justifying their objections;
  Setting up a generally accepted code of conduct in order to reduce trade hurdles including tariffs and bring an end to discriminations in foreign trade affairs;
  Acting as a dispute settlement organization;
  Ensuring that all the rules and regulations mentioned in the Act are followed promptly by the member countries for solving their issues;
  Raising consultations with IMF and IBRD and its associated agencies in order to bring an understanding and mutual cooperation in making international economic policy; and
  Managing on a regular basis the processes of the amended Agreements and Ministerial declarations pertaining to goods, services and Trade Related Intellectual Property Rights (TRIPS).




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