Business Studies Chapter 12 International Business - II

1. Receipt of enquiry and sending quotations.

2. Receipt or order of indent.

3. Assessing importer’s credit-worthiness.

4. Obtaining export license.

5. Obtaining pre-shipment finance.

6. Production or procurement of goods.

7. Pre-shipment inspection.

8. Excise clearance.

9. Obtaining certificate of origin.

10. Reservation of shipping space.

11. Packing and forwarding.

12. Insurance of goods.

13. Customs clearance.

14. Obtaining mates receipt.
15. Payment of freight and issuance of bill of lading.

16. Securing payment.

2. Procurement of import license.

3. Obtaining foreign exchange.

4. Placing order.

5. Obtaining letter of credit.

6 Arranging for finance.
7. Receipt of shipment advice.

8. Retirement of import documents.

9. Arrival of goods.

10. Customs clearance and release of goods.

The advance licenses are available to both the type of exporters—those who export on a regular basis and also to those who export on an adhobasis.

1. Certificates from bankers.

2. Declaration from exporters that they will not be exporting goods from cautious list.

1. Trade between two or more countries.

2. Payment in foreign currency.

3. High risk.

2. Full name of SEZ is Special Economic Zone.

1. It encourages international peace.

2. It offers loans and training to private and public sectors of poor countries.

1. To provide finance on easy terms.

2. To help the programme of poverty eradication.

3. To help in economic development programmes.

1. It is a duty free enclose which is treated as foreign territory.

2. Units of SEZ are exempted from routine examination of import and export by custom authorities.
3. Sub-contracting of production is allowed.

2. They are exempted from the payment of sales tax.

1. To provide development finance on easy terms to the less developed member countries,

2. To provide assistance for poverty alleviation in the poorest countries,

3. To provide finance at concessional interest rates in order to promote economic development, raise productivity and living standards in less developed nations, and

4. To extend macro economic management services such as those relating to health, education, nutrition, human resource development and population control.

1. to encourage flow of direct foreign investment into the less developed member countries;

2. to provide insurance cover to investors against political risks;

3. to provide guarantee against noncommercial risks;

4. to insure new investments, expansion of existing investments, privatization and financial restructuring;

5. to provide promotional and advisory services; and

6. to establish credibility.

1. To promote international monetary cooperation through a permanent institution.

2. To facilitate expansion of balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income.

3. To promote exchange stability with a view to maintain orderly exchange arrangements among member countries.

4. To assist in the establishment of a multilateral system of payments in respect of current transactions between members.

1. Acting as a short term credit institution.

2. Providing machinery for the orderly adjustment of exchange rates.

3. Acting as a reservoir of the currencies of all the member countries, from which a borrower nation can borrow the currency of other nations.

4. Acting as a lending institution of foreign currency and current transaction.

5. Determining value of a country's currency and altering it, if needed, so as to bring about an orderly adjustment of exchange rates of member countries; and

6. Providing machinery for international consultations.

1. To ensure reduction of tariffs and other trade barriers imposed by different countries.

2. To engage in such activities which improve the standards of living, create employment, increase income and effective demand and facilitates higher production and trade.

3. To facilitate the optimal use of the world's resources for sustainable development; and.

4. To promote an integrated more viable and durable trading system.

1. Promoting an environment that is encouraging to its member countries to come forward to WTO in mitigating their grievances;

2. Laying down a commonly accepted code of conduct with a view to reducing trade barriers including tariffs and eliminating discriminations in international trade relations;

3. Acting as a dispute settlement body;

4. Ensuring that all the rules and regulations prescribed in the Act are duly followed by the member countries for the settlements of their disputes;

5. Holding consultations with IMF and IBRD and its affiliated agencies so as to bring better understanding and cooperation in global economic policy making; and

6. Supervising on a regular basis the operations of the revised Agreements and Ministerial declarations relating to goods, services and Trade Related Intellectual Property Rights.

1. WTO helps promote international peace and facilitates international business.

2. All disputes between member nations are settled with mutual consultations.

3. Rules make international trade and relations very smooth and predictable.

4. Free trade improves the living standard of the people by increasing the income level.

5. Free trade provides ample scope of getting varieties of qualitative products.

6. Economic growth has been fastened because of free trade.

7. The system encourages good government.

8. WTO helps fostering growth of developing countries by providing them with special and preferential treatments in trade related matters.

UNCTAD that come into being in 1964 is the interntional institution shaping international trade. The widening trade gap between the developed an developing countries. The general dis-satisfaction of developing countries with the GATT and the need for international economic cooperation led to the setting up of UNCTAD.

The basic functions of UNCTAD are :

(i) To promote international trade with a view to accelerating economic development.

(ii) To formulate principles and policies on international trade and related problems of economic development.

(iii) To negotiate multinational trade agreements.

(iv) To make proposals for putting its principles and policies into effect.

(ii) MIGA : The Multionational Investment Guarantee Agency was established in April 1988 to supplement the functions of World Bank and International Finance Corporation.

The objectives of MIGA are :

1. To encourage flow of direct foreign investment into the less developed member countries.

2. To provide insurance cover to investors against political risks.

3. To provide guarantee against non-commerical risks (like dangers involved in currency transfer, war and civil disturbances and breach of contract).

4. To insure new investments, expansion of existing investments, privatization and financial restructuring.

5. To provide promotional and advisory services.

6. To establish creditability.

(iii) World Bank : The International Bank for Reconstruction and Development (IBRD) also known as World Bank was established with the objectives of setting up an international organisation to aid the task of reconstruction of the war affected economies of Europe and assist in the development of the underdeveloped nations of the world. World Bank successfully achieved the objective by the late 1950s to a great extent, it turned its attention to the development of under developed nations by investing in social sectors like health and education. To fulfill this objective, the International Development Association (IDA) was set up in the year 1960. The focus of IDA is to provide concessional loans to those countries whose per capita incomes are below a critical level. It is also called the ‘soft loan” window of IBRD.

Over the years, different organisations have been set up under the banner of World Bank namely.

(a) International Financial Corporation (IFC) 1956.

(b) Multilateral Investment Guarantee Agency (MIGA) 1988.

(c) International Centre for Settlement of Investment Disputes (ISCID) 1966.

International Finance Corporation (IFC) was set up in July 1956 to provide finance to the private sector of developing cour tries.

(iv) ITPO : Indian Trade Promotion Organisation was wet up on 1st Jan 1992 under the Companies Act 1956 by the Ministry of Commerce, Government of India. Its headquarter is at New Delhi. ITPO was formed by merging the two existing agencies—Trade Development Auhtority and Trade Fair Authority of India. ITPO is a service organisation and maintains regular and close interactions with trade, industry and Government. It serves the industry by organising trade fair, and exhibitions both within and outside the country, helping export firms participate in international trade fairs and exhibitions, developing exports of new items, providing support and updated commerical business information. It has five regional offices at Mumbai, Bangalore, Kolkatta, Kanpur and Chennai and fair international offices at Germany, Japan, UAE and USA.

(v) IMF : International Monetary Fund (IMF) came into existence in 1945. It has now 191 countries as its members. The idea behind its establishment is to develop an orderly international; monetary system i.e. fluctuating system of international payments and adjustments in exchange rates among national currencies.

Functions of IMF :

1. Acting as a short term credit institution.

2. Providing machinery for the orderly adjustment of exchange rates.

3. Acting as a reservoir of the currencies of all the member countries, from which a borrower nation can borrow the currency of other nations.

4. Acting as a lending institutions of foreign currency and current transactions.

5. Providing machinery for international consultations.

6. Determining value of a country’s currency and alterning it, if needed, so as to bring about an orderly adjustment of exchange rates of member countries.

The first two institutions namely IBRD and IMF came into existence immediately. The idea of setting up of ITO, however, could not materialise due to stiff opposition from the United States. Instead of this, an agreement was emerged to liberalise international trade from high customs tariffs and various other types of restrictions. This arrangement was known as General Agreement for Tariffs and Trade (GATT). India was one of the founding members of these three international bodies.

WTO agreements contain the procedure for settling disputes and have provisions for special treatment to developing countries.

The 8th round of multi-lateral trade negotiations, popularly known as Uruguay Round, could not be completed because of differences in participating countries on certain critical areas. In order to solve this problem, Mr. Aruthur Dunkel, Director General of GATT compiled a very detailed document known as Dunkel Proposal. 117 nations signed it on April 15,1994. The achievements of Uruguay Round was the decision to set up a permanent and free trade among nations namely World Trade Organisation WTO with effect from 1st Jan 1995.

1. Letter of Credit : It is a guarantee issued by the importer's bank, that it will honour up to a certain amount the payment of export bills to the bank of the exporter.

2. Bill of Exchange : It is a written instrument whereby the person issuing the instrument directs the other party to pay a specified amount to a certain person or the bearer of the instrument. The documents giving title to the export consignment are passed on to the importer only when the importer accepts the order contained in the B/E.

3. Bank Certificate of Payment : It is a certificate that the necessary documents relating to the particular export consignment have been negotitated and the payment has been received in accordance with the exchange control regulations.

(b) Bill of Exchange : It is written instrument whereby the person issuing the instrument directs the other party to pay a specified amount to a certian person or the bearer of the instrument. Here the B/E is drawn by the exporter on the importer asking the latter to pay a certain amount to a certain person or the bearer of the bill of exchange.

(c) Sight draft : It is a type of bill of exchange wherein the drawer of bill of exchange instructs the bank to hand over the relevant documents to the importer only against payment.

(d) Usance draft : It is a type of bill of exchange wherein the drawer of the bill of exchange instructs the bank to hand over the relevant documents to the importer only against acceptance of the bill of exchange.

(e) Dock challan : Dock charges are to be paid when all the formalities of the customs are completed. While paying the dock dues, the importeror his clearing agent specifies the amount of dock dues in a challan or form which is known as dock challan.

If necessary, he may also ask for some samples, patterns etc. to be sent to him. Importer can gather information about exporters from the trade directors, and or trade associations and organisations.

(ii) Import licence : Any person who wants to import goods into his country is required to obtain an import license under the Import and Export Control Act 1947. In order to get an import license, an application in the prescribed form has to be made to the Controller of Exports and Imports. The completed application form has to be submitted along with the following documents: 1. Treasury Receipt from the Reserve Bank of India, 2. Income tax verification certificate from the Income tax authorities. A certificate from the Chartered Accountant Certifying the total C.I.F. value of goods (invoice price of the goods plus freight charges and insurance up to the place of destination) imported by the applicant in the previous financial years, if any.

The Controller of Export and Import will scrutinise these documents and if satisfied about the claim of the applicant, will issue the import license.

(iii) Shipment of advice : When the exporter despatches the goods, he communicates this fact to the importer through an advice note, called “shipment of advice” which contains date of the despatch of the goods, and the date or reference as to when the importer could expect to receive the goods.

(iv) Import General Manifest : It is a document that contains the details of the imported good. It is the document on the basis of which unloading of cargo takes place.

(v) Bill of Entry : It is a document certifying that the goods of specified description and value are entering into the country from abroad. It contains particulars like :

(a) Name and address of the importer, (b) Importer’s license number, (c) Port of destination, (d) Name of ship, its nationality and number, 4. Name of the country, those from goods have been imported, (e) Description of goods in terms of their quantity and value.

1. Letter of Credit : The importer may obtain a letter of credit from his bank in favour of the exporter.

2. Bill of Exchange : The importer can make payment by accepting and honouring the bill of exchange drawn on him by the exporter. The bill of exchange is also known as documentary bill of exchange.

1. International Financial Corporation (IFC) set up in 1956.

2. International Development Association (IDA) set up in 1960.

3. Multilateral Investment Guarantee Agency (MIGA) set up in 1988.

4. International Centre for Settlement of Investment Disputes (ICSID) set up in 1966.

An export firm needs to have the Import and Export Code (IEC) number as it needs to be filled in various export import documents. For obtaining the IEC number, firm has to apply to Director General for Foreign Trade (DGFT) with documents such export / import profile, bank receipt for requisite fee, certificate from the banker on the form, two copies of photographs attested by banker, details of the non-resident interest and declaration about application's non-association with a caution listed firms. Besides, it is obligatory for every exporter to get registered with the appropriate export promotion council and obtain a Registration Cum Membership Certificate (RCMC) for availing benefits available to export firms from the government. In addition to this, registration with Export Credit and Guarantee Corporation (ECGC) is necessary in order to protect overseas payments from political and commercial risks.

After satisfying himself in all respects, the controller will issue the export license, indicating these in the name of the importer’s country and the value of the goods to be exported.

A license is not necessary in the came of exports of all kinds of goods. The goods mentioned in open general license (O.G.L) can be exported freely during a given time. Certain goods, which are in short supply in our own country can be exported only after securing the necessary quota certificate from the government.

1. Delivery order : First of all, the importer has to obtain the delivery order from the shipping company. This document enables the importer to take delivery of the goods from the customs authorities.

2. Port Trust Dues Receipt : In order to take delivery of the goods, the importer has to pay a charge which is collected on all goods entering the boundaries of the country. The charge represents the cost of services render by the dock authorities into connection with the landing of goods. When the importer pays this charge to the “Port Trust Office” or landing and shipping dues office a Port Trust Dues Receipt is, issued to him.

3. Bill of Entry : It is a document certifying that the goods of specified description and value are entering into the country for abroad. One the basis of bill of entry, the customs authorities determine the customs duty payable by the importer. On payment of the customs duty, the goods are delivered to the importer or his agent.

The bill of lading contain the following particulars :

(a) Name of the ship. (b) Place of loading.

(c) Port destination. (d) Date of shipment.

(e) Freight. (f) Name of exporter.

(g) Name of importer.

(h) Number of packages.

(i) Marks thereon, if any.

After giving the necessary information, in the bill of lading, the exporter will submit it, along with the dock’s or mate’s receipt, to the shipping company.

Then, the bill of lading is examined by the shipping company. There after, the shipping company will send a “Freight Note” to the exporter giving the freight charges for the goods. If the exporter pays the freight as given in the freight note, the bill of lading duty counter signed by the captain or master of the ship, will be delivered to the exporter.

Bill of Entry is a form supplied by the customs office to the importer. It is prepared by the importer at the time of receiving the goods. It contain information like :

(a) Name of ship.

(b) Name and address of the imports.

(c) Port of destination.

(d) Customs duty payable.

If the exporter chooses a short cut and delivers the goods straight on board the ship, he will be required to hand on a copy of the “shipping bill” and the “shipping order” to the captain of the ship.

The captain or mate will count the packages and also see if they have been properly packed. After satisfying himself in this respect, he will issue a receipt, called the “mate’s receipt” to the exporter. The receipt may be clean or foul. It fully satisfied with regard to the condition of the packing of the goods. If he is not satisfied, he may make a note of his observation to this effect in the receipt which will then become a foul or dirty receipt.

Letter of credit is a document which authorises a bank to pay the bearer a specified sum of money. Through it, the importer establishes a credit in favour of the exporter at the bank. It provides a useful means for settlement of a foreign trade transaction. Thus, a bank in the importing country issues a letter in favour of the shipper (exporter) containing an understating that bills of exchange drawn by him upon his importer up to the amount specified therein, will be honoured by it on presentation.

Kinds of Letter of Credit :

Letter of Credit is of following types :

(a) General or specific letter of credit : General letter of credit is in favour of all persons while special letter of credit is only in favour of the particular persons mentioned in it.

(b) Assignable or non-assignable letter of credit : If a letter of credit can be transferred by the importer to a third party, it is called an assignable letter of credit. A letter that cannot be so transferred by him is called a nonassignable letter of credit.

(c) Revolving letter of credit : Amount stated in this type of letter of credit remains fixed, whether, it is drawn by the exporter etc. if a revolving letter of credit is for Rs. 5 lakhs, the moment the export has withdrawn the total amount from the paying bank, the same letter will again become valid for a further sum of Rs. 5 lakh and so it goes on and on.

1. Documentary Bill of Exchange : Under this method, the exporter draws a bill of exchange on the importer asking him to make payments to the specified bank. With this bill, documents to title (bill of lading , marine insurance policy, certificate of origin etc.) are attached. Therefore, this bill is known as documentary bill of exchange.” The exporter's bank will send this bill and documents to its branch or agent in the importer’s country The branch or agent will present the bill to the importer if the bill is market “Documents against Acceptance” documents will be handed over to the importer as his bank after they have accepted the bill. On maturity the bank receives the payment and credit the amount to the exporter's account. Incase the bill is marked “Documents against payment” the documents will be delivered only after the importer has paid full amount of the bill.

2. Discounting the bill : D/A is a time bill as it is payable after a period of usance which may vary from one month to three month. If the exporter wants immediate payment, he may discount the bill with a bank. For this purpose, he will have to submit a is letter of mypothecation to the Bank. This letter authorises the bank the take delivery of the goods and dispose them of incase the importer fails to make the payment on the bill.

3. Bill on Bank : When the importer has furnished a letter of credit the exporter draws a bill on the bank which has issued the letter of credit. The exporter sends the bill along with the documents to his bank for collection of payment. This is known as “documentary credit.

b.Difference between bill of lading and airway bill :

Bill of lading : It is document given by shipping company.

Airway Bill : It is a document given by airline company.

c. Difference between pre-shipment and post-shipment finance :

Pre -shipment finance type : This type of finance is needed by exporter to purchase raw-materials and other related items to make the goods exportable.

Post-shipment finance : Importer makes arrangements in advance to pay to the exporter on arrival of goods at the port. This is known as post shipment finance.

Principles of WTO are :

1. It governs trade of both goods and services and intellectual property rights.

2. It helps in the reduction of tariffs and other trade barriers imposed by different countries.

3. Acting as a dispute settlement body.

4. It helps in accelerating the rate of economic growth because of free trade.

2. It has placed more emphasis on developing infrastructure facilities like energy, transportation and others.

3. The World Bank has decided to divert resources to bring about industrial and agricultural development in developing and underdeveloped countries. Assistance is extended to different countires for raising cash crops so that there incomes rise and they may export the same for earning foreign exchange.

4. The bank has also been providing resources for education, sanitation, health care and small scale enterprises.

5. It also helps in solving certain basic problems like, removal of rural poverty, through raising productivity, increasing income of rural poor, providing technical support etc.

World Bank : The International Bank for Reconstruction and Development (IBRD), commonly known as World Bank had been established with the important responsibility of reconstructing the war-effected economies of Europe and assist in the development of the under developed nations of the world. By late 1950’s World Bank was busy in accomplishing the restoring war torn nations in Europe.

After successfully accomplishing this objective, the World Bank turned its attention to the development of underdeveloped nations.

Functions of World Bank :

1. To help in acceleration the rate of economic growth of underdeveloped and developing countries.

2. To help in widening the scope of international trade.

3. It has decided to work for the development of the industrial and agricultural sector in under developed and developing nations.

4. Assistance is being given by world bank to different countries for raising cash crops so that their income rise and they may export the same for earning foreign exchange.

5. The bank is also providing resources for the betterment of education, sanitation, health care and small scale enterprises.

6. It has also extended its help the solve the problem of rural poverty through raising productivity, providing technical support and initiating research and cooperative ventures.

World Bank and its affiliates :

1. International Development Association IDA : It was formed in the year 1960. Its main objective has been to provide loans on concessional terms and conditions to those countries whose per capita incomes are below a critical level. The other objectives of IDA are :

1. The borrowing nation need not to pay any interest on the borrowed amount from IDA. Thus, it provides interest free long term loan to the poor nations.

2. To provide assistance for poverty alleviation in the poorest countries.

3. To extend macro economic management services such as those relating to health, education, nutrition, human resource development and population control.

II. International Finance Cooperation (IFC) : It was set up in July 1956 to provide finance to the private sector of developing countries.

III. The Multinational Investment Gurantee Agency (MIGA) : It was established in April 1988 to supplement the functions of World Bank and IFC.

Objectives of MIGA :

1. To encourage flow of direct foreign investment into the less developed member countries.

2. To provide insurance cover to investors against political risks.

3. To provide guranteee against noncommercial risks.

4. To insure new instruments, expansion of existing investments, privatisation and financial restructuring.

5. To provide promotional and advisory services.

6. To establish credibility.

2. Receipt of Indent : Once the importer is satisfied with the quotation, he will place an indent or order either directly or through an indent house. The term indent has been derived from the ancient practice of cutting or indenting edges of triplicate copies of the order so as to prevent forgery and to facilitate identification. The order or indent contains full particulars of goods with regard to size, quality, method and time of delivery, price and mode of payment, etc. It also gives instructions regarding the packing, marking and insurance of goods. Indent may be of two types. 1. open ident, 2. closed indent.

3. Credit Enquiry : After receiving the indent from the importer the exporter makes efforts to ascertain the creditworthiness of the importer. For this purpose, he may check up with the reference given by the importer.

4. Export License and Quota : It exercise of the power granted by the Imports and Exports Control Act, 1947, the Central Government has issued Export Control Order 1962. The goods covered under this order cannot be exported without obtaining an export license. In order to obtain export license, the exporter must apply to the controller of Exports and Imports in the prescribed form along with a challan from the Government Treasury. Such a challan can be obtained by depositing the prescribed export license free. He has also to submit income-tax verification stating that the exporter is paying income-tax regularly.

5. Foreign Exchange Regulations : Under the Foreign Exchange Regulations Act 1947, an exporter is required to make a declaration that he will surrender the foreign exchange received from the importer to the Reserve Bank of India within the prescribed period. For this purpose he has to fill in four copies of the G.R. form specifying full particulars of the value of the goods, methods of payment, and name of the dealer in foreign exchange through whom the documents are to be negotiated. After the rupee convertibility an exporter can sell his foreign exchange earnings in the foreign market.

6. Fixation of Exchange Rate : Exchange rate refers to the rate at which the currency of one country can be exhanged for the currency of another country. There is a time lag between the despatch of goods by the exporter and the receipt of payment. During this period exchange rate may fluctuate. Hence it is necessary to fix it in advance.

7. Packing and Marking : The next step in export procedure is to collect the goods mentioned in the indent. Once the goods are procured, they are packed and marked as per the instruction of the importer. If the ident contains no instruction in this regard, the exporter must pack and mark the goods properly in accordance with the prevailing customs.

8. Securing the shipping order : The exporter enters into an agreement with a shipping company or its agent to hire space in a ship for transportation of goods to the importer. The shipping company issues a shipping order which contains instructions to the captain of the ship to receive the specified quantity of goods from the exporter mentioned therein. When the quantity of goods to be exporte is very larger, the exporter may hire the whole.

9. Customs formalities : After hiring the ship, the exporter despatches the goods to the port by rail or road transport. At the port, he has to fulfill customs formalities. The exporter or his forwarding agent submits three copies of the shipping bill, along with the export license and G.R. forms to the customs office where the duties payable on the goods are assessed. The customs authorities retain one copy of the shipping bill and return the other copies together with the export license and G.R. forms to the exporter. After this, the exporter presents these documents to the Landing and Shipping Dues Office of the Port Trust. On payment of the port dues and export duty, a Dock Challan or Custom Export Pass is issue to the exporter. This pass permits him to bring the goods in the docks.

10. Mate’s receipt : The exporter delivers the goods to the dock or the ship. When goods are delivered to the dock, a dock receipt is issued to the exporter. If the exporter hands over the goods directly to the captain of the ship or his assistant, called the ‘Mate’, a ‘Mate’s Receipts is issued to him. The exporter has to hand over a copy of shipping bill and the shipping order to the captain of the ship. The captain or the Mate will inspect the goods and will issue a clean Mate's Receipt if he is satisfied with the packing of the goods. But if the packing is defective, a foul receipt is issued specifying the defect in packing. Goods are loaded to the ship in the presence of a customs preventive officer. He compares the goods with the shipping bill and the shipping order to ensure that only those goods are loaded on the ship which are specified in the shipping bill and the shipping order. Mate's receipt certifies that the goods mentioned in it have been delivered to the ship.

11. Bill of lading : The exporter hands over the Mate’s Receipt to the office of the shipping company. In exchange for it, he is issued a bill of lading which severs as the receipt of goods loaded. If the Mate’s Receipt contains a remark regarding any defect in the packing of goods. The same is noted in the bill of Lading, the bill of lading mentions whether the freight has been paid or not. In case the exporter has paid the freights, the bill of lading is marked “freight paid”. When the freight is to be paid by the importer of goods, the bill of lading marked ‘freight forward’. In such a case, the shipping company issues a ‘fright note’ stating the freight charges payable on the port of destination.

12. Marine Insurance : Generally the shipping companies refuse to carry the goods unless they are insured. Commercial banks also refuse to discount the documentary bills of exchange unless insurance policies are attached with them. Therefore, goods are isured agains sea perils before they are despatched. A marine insurance is purchased from the insurance company.

13. Certificate of origin : The certificate indicates the origin of the exports. It can be obtained from a Trade Consul, Secretary of a Chamber of Commerce or from some other authorised person. This certificate is required for calculating import duties at the port of destination. Some countries give preferential treatment to the goods of friendly nations in the matter of customs duties under trade agreements. In such cases the importer can get the benefit of lower tariff on the basis of the certificate of origin. The exporter obtains this certificate and sends it to the importer.

14. Consular invoice : In certain cases, import duties are charged and valorem, i.e. on the basis of the value of the goods. At the port of destination, the goods may have to be opened to ascertain the value of goods and the duties payable on them. To avoid this difficulty, a consular invoice may be sent to the importer. This invoice is issued by the trade consul of the importing country situated in the exporting country. It describes the quantity and value of goods. The customs authorities in the importer’s country usually accept such invoice as a true statement of the value of goods.

15. Export invoice : Then the exporter prepares a commercial invoice for the goods sent to the importer. The invoice is prepared according to the terms and conditions previously agreed upon. For instance, if the goods are sold on C.I.F. basis, no separate chare will be made for insurance and freight. The invoice is prepared in triplicate showing the quantity, quality, description and price of the goods. It also contains ident No. name of the ship, packing and making details etc.

16. Advice to the importer : After completing all the formalities the exporter sends a letter to the importer informing him of the dispatch of goods. He also sends the invoice, certificate of origin, consular invoice, marine policy, bill of lading and other necessary documents to the importer either directly or though a bank. On the basis of this advice, the importer makes arrangements to take delivery of the goods and to make payment to the exporter.

17. Securing payment : The last step in an export transaction is securing payment from the importer. The exporter can secure payment in either of the following ways :

(a) Documentary Bill of Exchange : Under the this methods, the exporter draws a bill of exchange on the importer asking him to make payment to the specified banks. With this bill, documents to title (bill of lading, marine insurance policy, certificate of origin, invoice etc.) are attached. Therefore, such a bill is known as documentary bill of exchange.

(b) Discounting the Bill : D/A (Document against Acceptance) is a time bill as it is payable after a period of usance which may vary from one month to three months. If the exporter wants immediate payment, he may discount the bill with a bank. For this purpose, he will have to submit a “Letter of Hypothecation” to the bank., This letter authroizes the bank to take delivery of the goods and dispose them of in case the importer fails to make payment on the bill.

(c) Bill on Bank : When the importer has furnished a letter of credit, the exporter draws a bill on the bank which has issued the letter of credit. The exporter sends the bill along with the documents to his bank for collection of payment. This method is known as ‘documentary credit’ and it involves no risk to the exporter or the importer.

(d) Foreign Bank Draft : The importer may get a bank draft by depositing a certain sum of money in his country’s currency with a local bank. He then sends the draft to the exporter. The exporter gets cash for this draft through his own bank.

(e) Telegraphic Transfer (TT) : It is a transfer of money by telegram or telex issued by a bank. It is the fastest mode of remittance. Payment can be made on the date the telegram is received and little risk is involved.

1. Trade enquiry : First of all, the Indian importer has to make trade inquiries from various exporters. For this purpose, he sends a letter of enquiry to the exporters seeking information about the availability of goods, the price at which the goods are available, the terms and conditions concerning the delivery and payment. In the letter of enqiry, the importer should specify the quantity, quality and description of the goods desired. In reply to the enquiry, the importer will receive a quotation from the exporter. The quotation states the price at which the goods will be supplied. It also contains the particulars as to the quantity and quality of goods available, the terms and conditions of sale set by the exporter etc.

2. Procuring import license : Any person who wants to import goods into India is required to obtain an import license under the Import and Exports Control Act 1947. In order to get an import license, an application in the prescribed form as to be made to the Controller of Exports and Imports. The completed application form has to be submitted along with the following documents : (a) Treasury Receipt from the Reserve Bank of India or the State Bank of India certifying the payment of import license fee; (b) Income tax verification certificate from the Income tax authorities; (c) A certificate from a Chartered Accountant Certifying the total C.I.F. value of goods (invoice price of goods plus freight charges and insurance upto the place of destination) imported by the applicant in the previous financial year, if any.

The Controller of Imports and Exports, after scrutinising these documents, issue the import license in duplicate.

3. Obtaining foreign exchange : After obtaining the import license, the importer has to procure the necessary amount of foreign currency of the country from which he intends to import the goods. Under the Foreign Exchange Regulations Act, the importer is required to submit an application in the prescribed form along with the import license to any exchange bank. The exchange bank will endorse and forward the application to the Exchange Control Department of the Reserve Bank of India. After scrutinizing the application in accordance with the exchange policy of the Government of India, the Reserve Bank of India, will sanction the release of foreign exchange. '

4. Placing an order or indent : The next step in the import trade procedure is to send an order for the import of goods. The order may be sent directly or through an ident house. Indent house are intermediaries specializing the foreign trade. They maintain wide contacts with foreign firms and charge commission for their services. In case, the importer wants to make use the service of an indent house, he enters into an agreement with the indent house for the supply of specified goods. For this purpose, the indent house fills up the prescribed form and gets it signed by the importer. The indent form contains the particulars of the goods to be imported and the term and conditions with regard to price, shipment, delivery, payment etc.

5. Sending Letter of credit : In case the Indian importer does not enjoy the full confidence of the exporter, he has to give a proof of his creditworthiness. For this purpose, he may send a letter of credit to the foreign supplier. The importer can obtain the letter of credit by depositing amount of money in the bank. A letter of credit contains an undertaking by the bank to honour bills of exchange drawn by the exporter on the importer up to the amount specified in the letter of credit.

6. Receiving shipping documents : After receiving the letter of credit the foreign supplier will despatch the goods and intimate the importer that the goods have been shipped. He will draw a bill of exchange on the importer for the value of god goods despatched and attach to it all the shipping documents, namely, bill of lading, Insurance policy, invoice, certificate of origin and consular invoice. The exporter then forwards through his bank the bill of exchange along with the shipping documents to the importer. The exporter’s bank will deliver the documents to the importer as per the instructions of the exporter.

7. Clearing the goods : After obtaining the documents of title to the goods, the importer waits for the arrival of the ship. When the ship arrives at the ports of destination, the importer makes arrangements for the clearance of the goods from the customs authorities.

For this purpose, he has to comply with the following formalities :

(a) Delivery Order : The importer has to obtain the “delivery order” from the shipping company. This order is given by making an endorsement on the back of bill of lading.

(b) Port Trust Dues Receipt : Then the importer has to pay a charge which is collected on all goods entering the boundaries of the country. The charge represents the cast of services rendered by the dock authorities in connection with the landing of goods. When the importer pays this charge, the Port Trust office issues “Port Trust Dues Receipt”.

(c) Bill of Entry : It is a document certifying that the goods of specified description and values are entering into the country from abroad.

8. Making payments : The import trade procedure comes to an end when the importer makes the payment to the exporter. Unless the payment for the goods has been made in advance, the importer may adopt any of the following methods for making payments.

(a) Letter of Credit : This importer may obtain a letter of credit form his bank in favour of the exporter. Under this arrangement, the bank agrees to honour the bill of exchange drawn upon it by the exporter upto the specified amount.

(b) Bill of Exchange : The importer can make payment by accepting and honouring the bill of exchange drawn on him by the exporter.

After taking delivery of the goods, the importer inspects the quality of the goods. If he is not. satisfied, he will negotiate with the exporter.

1. Export Processing Zones : Export Processing Zones (EPZs) have been set up to provide an internationally competitive duty free environment for export production. Infrastructural facilities are created in the zones to manufacture the products at lower cost. Customs clearance and facilities needed for financial transactions are also provided inside the zones. Import licence is not needed for import of capital goods, raw materials etc. The units located in the zones are expempted from payment of excise duty on capital goods and raw materials bought from the domestic market. 50% produce has been permitted for domestic sale at concessional rate of duty. There are 8 EPZs in India.

2. 100% Export Oriented Units : Export Oriented Units have been set up for the export of entire product expect those which are specially permitted to be sold in the domestic market. These units can be established any where in the country. They can avail of all benefits provided to the units in the EPZ.
3. Special Economic Zones : Special Economic Zones (SEZ) has been created to encourage free trade. It is a specially delineated duty free enclave. It is deemed to be foreign territory for the purpose of trade operations and duties and tariffs. Goods going into the SEZ area from Domestic Tariff Area (DTA) are treated as deemed exports. Goods coming from the SEZ area into DTA are treated as imported goods.

4. Export Houses, Trading Houses, Star Trading Houses and Super Star Trading Houses : Various categories of export houses have been recognized with a view to building marketing infrastructure and expertise required for export promotion. These houses are given national recognition so that they could make greater efforts for export promotion. They are required to operate as highly professional and dynamic institutions and act as an important instrument of export growth. The recognition is granted on the basis of the export performance of the firm.

5. Export of Services : In order to boost the export of services, various categories of service houses have been recognised. These houses are recognised on the basis of the export performance of the service providers. They are named as Service Export House, International Service Export House, International Star Service Export House, International Super Star Service Export House based on their export performance.

6. Export Promotion Capital Goods (EPCG) Scheme : The main objective of this scheme is to encourage the import of capital goods for export promotion. New capital goods including computer software systems may be imported under this scheme. Under this provision, the capital goods may be imported at 5% customs duty. The 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 net foreign exchange basis. This obligation may be fulfilled over a period of 8 years from the date of issuance of license.

7. Deemed Exports : Deemed exports refer to house transactions in which the goods supplied do not leave the country. If goods are supplied to the specified categories of organizaition like EPZ, EOU, projects funded by United Nation agencies, etc. in India, they are treated as deemed exports. Deemed exports are eligible for the following benefits :

(a) Advance license for intermediate supply/deemed export.

(b) Deemed exports drawback.

(ci) Refund of terminal excise duty.

8. Duty Exemption/Remission Schemes : Duty exemption/remission schemes are aimed at facilitating import for export production. The duty exemption scheme enables import of inputs required for export production. The duty remission scheme enables post replenishment/remission of duty on inputs used in the export product.

9. Duty Drawback : Exporters use imported indigenous raw materials and components for export products. They pay customs duty/excise duty on these materials. Under the scheme of duty drawback, customs and excise duties paid on raw materials and components used for export products are refunded back to the exporters.

10. Export Finance : Exporters require finance for the manufacture of the goods. Finance is also needed after the shipment of the goods because it may take some time to receive payment from the importers. Therefore, two types of export finance are made available to the exporters by the authorised bank at concessional rate. They are termed as preshipment finance or packing credit and post-shipment finance. Under preshipment finance, finance is provided to an exporter for financing the purchase, processing, manufacturing or packing of goods for export purposes. Under the post-shipment finance, finance is provided to the exporter form the date of extending the credit after the shipment of goods to the date of realization of export proceeds.

11. Market Development Assistance : Export marketing requires huge resources. It becomes very difficult for the exporter to market their products in the overseas market. They need assistance for this purpose. The main objective of the marketing development assistance is to stimulate exports form the country. Under this scheme, assistance is provided for marketing Indian products in the overseas markets. The marketing development assistance is provided for the following purposes;

(a) Individual sales-cum study tours/trade delegations abroad.

(b) Individual participation in trade fairs/exhibitions and buyer-cum seller meets abroad.

(c) Publicity and advertisement.

(d) Other specified activities.

12. Tax Relief : Income tax exemption has been granted to promote exports. Under this scheme, export profits and foreign exchange earnings from other specified sources are exempted from income tax. The income tax exemption scheme is to be phased out over a five year period by 2004-2005. However, this scheme would remain operational for the units located in Export Processing Zones and 100% Export Oriented Units. As far as sales tax is concerned, export sales are not subject to sales tax. Excise duty on export goods is also exempted or refunded to the exporters.

13 Brand Promotion and Quality Awareness : Quality is the most important element of export marketing. High Quality branded products may be easily accepted in the overseas market. The government of India aims to encourage exporters attain internationally accepted standards of quality for their products. Government extends support to trade and industry to launch a nation wide programme on quality awareness and to promote the concept of total quality management. The central government also assists in the modernization and upgradation of test houses and laboratories to bring them up to the international standards.

Features of Special Economic Zones are as follows :

1. A duty free enclave has been created which is treated as foreign territory for trade operations.

2. Units can be set up for manufacturing trading and service activities.

3. Units are exempted from routine examination of import and export of cargo by customs.

4. Units should be a positive foreign exchange earner in three years.

5. Sale in domestic market is permitted on payment of duty.

6. Duty free goods are allowed to be utilized within the approval period of 5 years.

7. Subcontracting of production is allowed.

1. Export Invoice : It is a seller's bill for merchandise and contains information about goods such as quantity/total value, number of packages, port of destination, name of ship, bill of lading etc.
2. Packing list : A packing list is a statement of the number cases or packs and the details of the goods contained in these packs. It gives details of the nature of goods which are being exported and the form in which these are being sent.

3. Certificate of origin : This is a certificate which specifies the country in which goods are being produced. This certificate entitles the importer to claim tariff concessions or other exemptions such as non-applicability of quota restrictions on goods orginating from certain pre-specified countries. This certificate is also required when these is a ban on imports of certain goods from select countries.

4. Certificate of inspection : For ensuring quality, government has made it compulsory for certain products that these be inspected by some authorised agency. Export Inspection Council of India (EICI) is one such agency which carries out such inspections and issues the certificates that the consignment has been inspected as required under the Export Quality Control and Inspection Act 1968 and satisfies the conditions relating to quality control and inspection as applicable to it.

1. Mate’s Receipt : This receipt is given by the commanding officer the ship to the exporter after the cargo is loaded on the ship. The mate's receipt indicates the name of the vessel, berth, date of shipment description of packages, marks and numbers etc.

2. Shipping bill : The shipping bill is the main document on the basis of which customs office grants permission to the exporter.

3. Bill of lading : Bill of lading a a document wherein shipping company gives its official receipt of the goods put on board its vessel and at the same time gives an undertaking to carry them to the port of destination. It is also document of title to the goods and is freely transferable by the endorsement and delivery.

4. Airway bill : Airway bill is a document wherein the airline company gives its official receipt of the goods on board, its air coaraft and at the same time gives and undertaking to carry them to the port of distinations.

5. Marine Insurance Policy : It is necessary to get insurance of the consignment by the exporter. Marine insurance policy is a certificate of insurance contract given by insurance company who agrees in consideration of a payment to indemnity the insured against loss in respect of goods exposed to perits of the sea.

6. Cart ticket : It is also called cart chit or gate pass. It is prepared by the exporter and includes details of the export cargo in terms of the shipper’s name, number of packages, shiping bill number, port of destination etc. First of all gets assurance about the financial viability of the importer. After that he initiates the steps relating to compliance of export regulations. Export of goods in India is subject to custom laws which demand that the export firm must have an export license before it proceed with export. Important pre-conditions for getting a export license are :

a. Opening a bank account in any bank authorised by RBI and getting the account number.

b. Obtaining Import Export Code Number from the Directorate General of Foreign Trade (DGFT) or Regional Import Export Licensing Authority.

c. Registering with appropriate export promotion council such as Engineering Export Promotion Council and Apparel Export Promotion Council.

d. Registering with Export Credit and Guarantee Corporation (ECGG) in order to safeguard against risks of non-payment.

An export needs to have the Importer Exporter Code (IEC) number as it needs to be filled in various export/import documents.

1. Agreement Forming Part of GATT : The erstwhile General Agreement on Tariffs and Trade (GATT) after as substantial modification in 1994 is very much part of the WTO agreements. Besides the general principles of trade liberalization. GAIT also includes certain special agreements evolved to deal with specific non-tariff barriers. Some of the specific agreements are as under :

• Agreement on Pre-shipment Inspection.

• Agreement on Technical Barriers to Trade.

• Agreement on Import Licensing procedures.

• Agreement on Safeguards.

• Agreement on subsidies and countervailing measures.

• Agreement on Anti-dumping Duties.

• Agreement on Rules of Origin.

2. Agreement on Textile and Clothing

(ATC) : This agreement was evolved under WTO to phase out the quota restrictions as imposed by the developed countries on exports of textiles and clothing form the developing countries. The developed countries were imposing various kinds of quota restrictions under the Multi-Fibre Arrangement (MFA) that itself was a major departure from the GATT’s basis principle of free trade in goods.

3. Agreement On Agriculture (AOA) : It is an agreement to ensure free and fair trade in agriculture. Though original GATT rules were applicable to trade in agriculture, these suffered from certain loopholeas such as exemption to member countries to use some non-tariff measures such as customs tariffs, import quotas and subsidies to protect interests of the farmers in the home country. AOA is a significant step towards an orderly and fair trade in agricultural products. The developed countries have agreed to lower down the customs duties on their imports and subsidies to the exports of agricultural products.

4. General Agreement on Trade Services (GATS) : Services means acts or performances that are essentially intangible and cnanot be as such touched or smelt as goods. GATS is regarded as landmark achievement of the Uruguay Round as it extends the mutlilateral rules and disciplines to services. It is because of GATS that the basic rules governing ‘trade in goods’ have become applicable to ‘trade in services’.

5. Agreement on Trade Related Aspects of Intellecutal Property Rights (TRIPS) : The WTO’s agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) was negotitated in 1986-1994. It were the Uruguay Round of GATT negotiations where for the first time the rules relating to intellectual property rights were discussed and introduced as part of the multilateral trading system. Intellectual property means information with commercial values such as ideas, inventions, creative expression and others. The agreement sets out the minimum standards of protection to be adopted by the parties in respect of seven intellectual properties, viz. Copy rights and related rights, trade marks, geographical indication, industrial designs, patents, layout design of integrated circuits, and undisclosed information.

1. Department of Commerce : This is the apex local body responsible for the country's external trade and all matters connected with it may be in the form of commercial relations with other countries, state trading, export promotional measures and the development etc.

2. Export Promotion Councils : Export promotion councils are non-profit organisations registered under the Companies Act or the Societies Registration Act. The main objective of the Export Promotion Council is to promote and develop the country's exports of particular products falling under their jurisdiction. At present these are 21 EPC’s dealing with different commodities.

3. Commodity Boards : Commodity Boards are the institutions established by the government of India for the development of production of traditional commodities and their export. These boards are supplementary to the Export Promotion Councils (EPCs). At present their are seven Commodity Boards in India e.g. Coffee Board, Rubber Board, Spice Board, Central Silk Board, Coir Board, Tobacco Board.

4. Export Inspection Council : This council was set up under the Export Quality Control and Inspection Act 1963 by the Government of India. The council aims at sound development of export trade through quality control and pre-shipment inspection. It is an apex institution in this area. Except few, all the commodities desired for exports must be passed by EIC.

5. Indian Trade Promotion Organisation (ITPO) : It was set up on 1st Jan. 1992 under by merging two old agencies namely Trade Development Authority and Trade Fir Authority of India by the Ministry of Commerce, Government of India. Its headquarters is in New Delhi. It is a service organisation and maintains regular and close interaction with trade, industry and Government. It organising trade fairs and exhibition both within and outside the country to promote exports of new items providing support and updated commercial information to industry. It has five regional offices and four international offices.

6. Indian Institute of Foreign Trade (IIFT) : It was set up in 1963 by the Government of India under the Societies Registration Act with the exclusive objective of professionalising the country's foreign trade management. It is an autonomous body. It provides training in international trade, conduct researches in areas of international business and analyzing and disseminating data relating to international trade and investments.

6. Indian Institute of Packaging (IIP) : It was set up by ministry of commerce, government of India and the Indian Packaging Industry and allied interests in 1966. Its headquarter and principal laboratory is situated at Mumbai and three regional laboratories are located at Kolkatta, Delhi and Chennai. It is a training cum-research institute giving training to packaging and testing with regard to both the domestic and export markets.

7 State Trading Organisations (STC) : It was set up in May 1956 with the primary objective of giving stimulate, and boost to trade primarily export trade, by helping domestic firms in India to compete in the world market. Also it helps in bringing about diversification of trade with other trading partners of the world.

Objectives of IMF :

1. To promotion international monetary cooperation through a permanent institution.

2. To facilitate expansion of balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income.

3. To promote exchange stability with a view to maintain orderly exchange arrangements among member countries.

4. To assist in the establishment of a multilateral system of payments in respect of current transactions between members.

Functions of IMF

1. Acting as a short term credit institution.

2. Providing machinery for the orderly adjustment of exchange rates.

3. Acting as a reservoir of the currencies of all the member countries from which a borrower notion can borrow the currency of other nations.

4. Acting as a lending institution of foreign currency and current transaction.

5. Determining the value of a country’s currency and altering it, if needed so as to bring about an orderly adjustment of exchange rates of member countries.

6. Providing machinery for international consultations.

WTO governs trade not only in goods, but also in services and intellectual property rights. It is member driven rule based organisation in the sense that all the decisions are taken by the member Government on the basis of general consensus. It has a global status. India is founding member of WTO. As on Dec 11, 2005 there were 149 members in WTO.

Objectives of WTO :

1. Raising standards of living and incomes, ensuring full employment, expanding production, trade and optimal use of world's resources.

2. Ensuring reduction of tariffs and other trade barriers imposed by different countries.

3. To promote an integrated more viable and durable trading system.

Functions of WTO :

1. Promoting an environment that is encouraging to its member countries to came forward to WTO in mitigating their grievances.

2. Laying down a commonly accepted code of conduct with a view to reducing trade barriers including tariffs and eliminating discriminations in international trade relations.

3. Acting as a dispute settlement body.

4. Holding consultations with IMF and IBRD and its affiliated agencies so as to bring better understanding and cooperation in global economic policy making.

5. Supervising on a regular basis the operations of the revised agreements and ministerial declarations relating to goods, services and Trade Related Intellectual Rights (TRIPS).

WTO agreements : The WTO agreements contain the procedure for settling disputes and also have provisions for special treatment to developing countries. The agreements require that the governments make their trade policies transparent by notifying to WTO office. Some of the WTO agreements are :

1. Agreement on Textile and Clothing (ATC) : This agreement has bren developed under WTO to phase out the quota restrictions as imposed by the developed countries under Multi Fibre Arrangement (MFA) on exports of textiles and clothing from the developing countries. Under the ATC, the developed countries have agreed to remove quota restrictions in a phased manner during a period of 10 years starting from 1995. It is a milestone in the world trade of textile and clothing as virtually it would become quota free since Jan 1, 2005.

2. Agreement on Agriculture (AOA) : It is an agreement to ensure free and fair trade in agriculture. Because of this, developed countries have agreed to lower down the customs duties on their imports and subsidies to the exports of agricultural products. However, developing countries have been exempted from making similar reciprocal offers.

3. General Agreement on Trade in Services (GATS) : The major provisions of GATS are :

1. All member countries are required to remove restrictions on trade in services in a phased manner. The developing countries have been given freedom to decide about the period by which they would liberalise the area of services.

2. GATS provides that trade in services is governed by Most Favoured nations’ (MFNs) obligation that prevents countries from discriminating among foreign suppliers and services.

3. All member countries shall promptly publish all relevant laws and regulations pertaining to services.

4. Agreement on Trade Related Aspects of Intellectual Property Rights : This agreement was negotiated in 1986-1994. Intellectual property means information with commercial values such as idea, inventions, creative expressions and others. The agreement set out the minimum standards of protection to be adopted by the parties in respect of seven intellectual properties viz, copy rights and related rights, trade marks, geographical indication, industrial designs, patents, layout design of integrated circuits and undisclosed information (trade secrets).

2. ATC (Agreement on Textile and Clothing).

3. GATs (General Agreement on Trade and services).

2. International Monetary Fund (I.M.F.).

3. World Bank.

2. To create employment opportunity.

3. To acquire and update labour and management skills.

2. Bill of entry for warehousing.

3. Expand bill of entry.

1. It acts as an acknowledgement.

2. It acts as a document of title to goods.

3. It acts as a contract of affreightment.

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2. Receipt of order or indent.

3. Assessing importer’s credit worthiness and securing a guarantee for payment.

4. Obtaining export license.

5. Obtaining pre-shipment finance.

6. Production or procurement of goods.

7. Pre-shipment inspection.

8. Excise clearance.

9. Obtaining certificate of origin.

10. Reservation of shipping space.

11. Packing and forwarding.

12. Insurance of goods.

13. Customs clearance.

14. Obtaining mates receipt.

15. Payment of freight and issuance of bill of lading.

16. Preparation of invoice.

17. Securing payment.