international trade procedures & documentation

8/7/2019 International Trade Procedures & Documentation

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International Trade

Procedures &

Documentation

Dr. A.K. Sengupta

Former Dean, Indian Institute of Foreign Trade


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International Trade

Procedures & Documentation

Export Documentation plays a vital role in international

marketing as it facilitates:

Smooth flow of cargo from the exporter to the importer,

and

Ensure receipt of payment from the importer

International managers are required to follow a certain set of

procedures and deal with a wide range of documents

Exporters need to comply with rules, regulations and trade

customs of both the exporting and importing countries

Exporter-to ensure receiving timely payment and importer to

receive cargo in good condition


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Step by step of Export transaction framework

Identify an importer

S

trike a deal (Export Contract)

Description of goods

Price of each item

Net & gross shipping weight

The terms of delivery

The terms of payment

Insurance & shipping cost

Currency of salesPort of loading

Port of discharge

Estimated shipping date

Validity period of contract


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In an export transaction

Documents are routed through banking institutions to

avoid the risk of non-payment by importer and non-receipt

of goods from exporter

As soon as export contract is finalized exporter initiates

action for procurement or manufacturing of goods.

As documentary requirements and procedures for

export transactions is complex exporter avails services

of C&F agents who specialize in these operations

Bill of Lading: Export Cargo is delivered to the carrier

against the receipt of Bill of Lading which serves as:

Receipt of cargo by the shipping company

Contract of transport

Documents of title


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Goods can be claimed at destination only by lawful

holder of Bill of Lading

Bill of Lading is handed over to the importer by the

importers bank only after payments is made or in case of

DA, when importer makes a commitment to make the

payment on a future date


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xports Transaction Framework

Payment

DocumentsExporters

banks

Exporter

Port of loading

Importers bank

Importer

Port of

discharge

Export contract

Carrier

Manufacturin

g/ purchase

of goods


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Export Import Procedures

The Procedures adopted for export are as follows


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Compliance with legal framework

Concluding an export deal

Procuring/Manufacturing of goodsArranging export finance

Arranging cargo insurance

Appointing C&F agent

Booking shipping space

Sending documents to C&F agent Dispatching of goods to C&F agent (at the port)

Receipt of documents and cargo by C&F agent

Customs clearance, completion of port formalities, and cargo loading by C&F agent

Sending documents to the exporter by C&F agent

Sending shipping adice to the importer

Clearing export incentives

Receiving export incentives

Presentation of documents to the negotiating bank

Exporter receives payment


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Compliance with Legal Framework

Obtaining Importer-Exporter Code Number from DGFT

Registration with EPC Registration with sales

tax authorities

Registration with

jurisdiction central

excise authorities

Obtaining Import-Export Code Number

Mandatory for every exporter to hold a valid import-Export

code (IEC) number-without which Indian customs would notpermit export import transaction.

IEC number is obtained from the Regional Authority under

DGFT


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The number needs to be mentioned in various institutional

trade documents including shipping bill, Guaranteed

Remittance (GR) form

Ayat-Niryat form

Bank account

PAN


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Registration with Sales Tax and Central Excise authorities

Goods shipped out of the country are eligible for exemption

from the sales tax and excise duties

Indian exporters are required to get themselves registered

with Sales Tax Authority of the State underSales Tax Act

Exporters have the option to deposit the central excise duty

at the time of taking goods out of the factory and later avail itsrefund or take the goods out under a bond to the central

excise authority without paying duty


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Registration with Export Promotion Organization

For obtaining benefits under Foreign Trade Policy, an

exporter is required to get registered with an appropriateagency relating to his/her product line

The application for registration is required to accompany by

self-certified copy to IEC number. The registration authority

include:

EPC

EDA

KVIC

FIEO (Compulsory for Export house / Trading house)

Export Promotion agencies issue a Registration Cum

membership Certificate (RCMC) valid for five years.


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Concluding an Export Deal

While concluding an Export Deal an exporter shouldnegotiate the terms of the deal in detail

The processes of concluding an Export Deal is given below

Identify and negotiate with importer

Confirm the export deal

Receive an export order/contract

Examine thoroughly and ask for amendment, if any

Receive letter of credit

Scrutinize thoroughly, compare with terms of contract,

Ask for amendment, if needed

Receive amended letter of credit


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While preparing an Export Contract, the exporter needs to

take care of the following aspects

Details of the contracting party

Description of products, including quality specifications

Quantity

Unit price and the total value of the contract

Packaging

Marking and labeling

Inspection of quality, quantity, and packaging by the

inspection agency

Shipment details such as the choice of carrier, place of

delivery, date of shipment/ delivery, port of shipment,

trans-shipment, etc


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Payment terms including currency, credit period, if any,

and mode of payment such as the letter of credit

(including type of letter of credit such as revocable,

irrevocable, confirmed, unconfirmed, registered,unregistered, etc)

Insurance requirement and risk liabilities

Documentary requirement for payment realization

include the number and type of invoices, certificate ofinspection, certificate of origin, insurance policy, transport

document, bill of exchange, etc

Last date of negotiating documents with bank

Force majeure in case of non-performance of contract

Arbitration

Jurisdiction


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Once the exporter receives the Export Order, he examines it

carefully to ensure that it serves his capacity and interest to

execute the export deal

The exporter should also scrutinize carefully the commercialand legal provisions of the exporting and importing countries

In case the exporter finds it difficult to fulfill the contractual

obligations, such as the quality specifications, delivery

schedule mode of payment availability of the inspectionagency etc. he should ask for amendments

Generally, an exporter prepares a pro forma invoice

mentioning details of the description of goods, number,

quantify, rate, amount etc. as per negotiation. The importerreturns the signed copy of the pro forma invoice, which

becomes an export contract


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Arranging Export Finance

The exporter may avail of packing credit facility fromcommercial banks in India at concessional rates for

manufacturing, purchasing and packing of goods.

Export credit (Pre-shipment credit) is extended to exportersto meet their working capital requirements

Pre-shipment credit is given for the following activities:

Packing credit in rupee

Packing credit advance in foreign currencies

Advances against export incentives

Import financing for opening L/C for importing goodsneeded as input for manufacture of export goods

Export credit is normally given on collateral securitythrough a third party guarantee or mortgage of immoval

property


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Date of receipt of export

order

Date of shipment

Date of realization of export

proceeds

Pre-shipment Credit

Post-shipment Credit


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Procuring or Manufacturing ofGoods

After receiving confirmed export order, the exporting firm

makes preparations for procurement or production of goods

Different companies have their own internal communication

systems which generally involve

Sending a delivery note to the factory manager

The delivery note mentions description of goods, thequantity, quality specifications, packaging requirements,date by which the goods should be manufactured, date ofshipment

In case of merchant exporters similar activities follow forprocurement


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Send delivery note to factory/purchase department

Goods manufactured/procured

Pre-shipment inspection

Central excise clearance

Packing, marking, or labeling

Dispatching of goods to the port


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Pre-shipment Inspection

At the time of exports before clearing the shipment, customs

authorities require submission of an inspection certificate

Under the Export Quality Control and Inspection Act, 1963,

about 1000 commodities including the major groups like

Fisheries, Food & Agriculture, Organic & Inorganic,

chemicals, light engineering, jute products, are subject to

compulsory pre-shipment inspection

Inspection is carried out in any one of the following methods

In-process quality control

Self-certification

Consignment-wise quality control

The exporter has to obtain an inspection or quality certificate

confirming to the prescribed specification


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Central Excise Clearance on Goods for Export

Exports are free from the incidence of taxes as per

internationally accepted practice

All goods exported from India are exempt from payment of

excise duties

Also provides rebate on excise duty levied on inputs used for

manufacture of export productsExporter first makes payments on excise duty and

subsequently gets refund

The exporters prepares six copies of ARE 1 / ARE 2 forms

and submit them to Superintendent of Central Excise

The exporter has option to get the goods examined and

sealed by Central Excise authorities at his factory so that the

goods are not examined in the port.


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Packaging, Marking and Labelling

Proper packaging of export cargo is essential to minimize

transit and delivery costs and loses

Insurance cost also insists on proper packing

Marking for identification

Labelling contains detailed instructions


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Appointment of Clearing and Forwarding Agents

Clearing and forwarding (C&F) agents or freight forwarders are

essential links in international trade operations. They carry out

a number of functions, including the following:

Advising exporters on choice of shipping routes

Reservation of shipping space

Inland transportation at portPacking

Studying provisions of L/C or contract and taking necessaryaction accordingly

Warehousing insuranceComplying with port, shipping, and customs formalities

Arranging overseas transport service

Monitoring movements of goods to the importer

General advisory services


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The export department of the company prepares detailed

instructions regarding shipment of consignment and sends the

following documents to the C&F agent:

Original export order/export contractOriginal letter of credit

Commercial invoice

GR forms (original and duplicate) indicating the IEC number

Certificate of originInspection / quality control certificate

Purchase memo (in case of merchant exporters)

Railway receipt / truck / lorry receipt

Consular / customs invoice (if required)ARE-1/ARE-2 forms

Declaration form (in triplicate) by the exporters that thevalue, specifications, quality, and description of goodsmentioned in the shipping bill are in accordance with theexport contract and statement made in shipping bill are true.


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Arranging Cargo Insurance

The marine insurance cover is arranged by the exportdepartment

The liability to take the insurance cover is determined by theconditions of the export contract

In case of FOB or CFR contracts, the importer has to obtainthe insurance cover once the cargo is loaded on board the

vesselIn case of CIF contracts, the insurance is to be arranged bythe exporter but the policy is to be endorsed in favour of theimporter

The nature of risk coverage and value is also specified in theexport contract

Other procedural formalities such as arranging ECGC cover,certificate of origin, consular invoice are complicated at thisstate


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Booking ofShipping Space

Export Department gets shipping space reserved in thevessel by sending shipping instructions through C&F agent or

freight brokers who works on behalf of the shipping company

Once the space is reserved, the shipping company issuesshipping order as a proof of space reservation

Dispatch of goods to Port

On receiving information on reservation of shipping space,the production department makes arrangements for transportof goods to the port of shipment either by road or rail. Thelorry receipt or railway receipts obtained.

Goods generally consigned to the port town in the name ofC&F agent

Indian Railway allots wagon on priority basis for exportshipment


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The following documents are required for this facility:

Forwarding note

Shipping order (proof of booking shipping space)

Receipt of wagon registration fee

Post Procedures and Customs Clearance

Service of C&F agent

The activities are given below


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C & F agent receives documents from exporter

C & F agent takes delivery of cargo

C&F agent stores cargo in his warehouse till shipment

C&F agent prepares shipping bill and submits along with other documents to customs house

Documentary check by customs appraiser/examiner who also instructs dock

appraiser about extent of physical examination of cargo

Cargo brought to the port shed for

loading

Physical examination by dock appraiser who endorses let exports on duplicate copy

of shipping bill


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Preventive officer endorses let ship on duplicate copy of shipping bill

Cargo loading on board the vessel

Master of vessel issues Mates receipt to shed superintendent of port

C & F agent collects mates receipt after paying port dues

C & F agent presents mates receipt to shipping company

Shipping company issues bill of lading in exchange for mates receipt

C & F agent dispatches bill of lading along with other documents to the exporter


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After receiving documents, C&F agents takes delivery of theconsignment from road transportation company or railwaystation.

The cargo is stored in C&F agents warehouse till shipmentThe C&F agent initiates action to obtain customs clearanceand seeks permission fo port authorities for bringing thecargo to the shipment shed

Customs ControlTo ensure that goods exported out of the country orimported in the country company with various regulationsrelated to export-import

To ensure the authenticity of the value of goods in theexport import trade and check under-invoicing or our-

invoicing

To accurately assess and collect the customs duty,wherever applicable

To com ile data


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The customs department makes both documentary check

and physical examination of goods before clearanace

The C&F agent prepare the shipping bill and along with other

documents (Export order/contract, commercial invoice,

inspection certificate, GR form, ARE form) to customs for

clearance

Despatch of Documents to Exporter

C&F agent sends the following documents to the exporter

Bill of Lading

Commercial invoice attested by customsDuty drawback copy of shipping bill

Original Export Order

Original L/C


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Copies of consular invoice

ARE-1/ARE-2 forms

GR forms (duplicate)

Shipment Advice to importer

Soon after the shipment, the exporter sends a shipmentadvice to the importer intimating about:

Date of shipment

Name & vessel

Expected time of arrival at the port of discharge


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Presentation of Documents at the Negotiating Bank

Soon after the shipment, the has to prevent the followingdocuments to the negotiating bank.

Bill of Exchange (First and second original copies)

Commercial invoice (two copies)

Bill of Lading (2 or more copies)

GR form (duplicate)

Export order (copies)

Letter of Credit (original)

Packing ListMarine insurance policy


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The negotiating bank scrutinizes the documents as per theterms and conditions of Letter of Credit and sends thefollowing documents to the issuing (Importers) Bank

Bill of Exchange

Commercial Invoice

Bill of Lading

Insurance PolicyCustoms/Consular Invoice

Inspection / Quality Control

Certificate of origin

The payment is made by the negotiating bank

Once the payment is received from the importers bank, theduplicate copy ofGR form is transmitted by the negotiatingBank to Exchange Control Department of RBI.


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Clearing of Export Incentives

Soon after the shipment, the exporter files claims for gettingincentives

Excise rebate

Duty drawback