Apparel Export Documentation Unit 1

INTRODUCTION TO EXPORT DOCUMENTATION In general export documentation refers to the bill of lading, or shipping document, the commercial invoice reflecting the transaction between the buyer and the seller, the packing list showing the goods actually being sent and, occasionally, a certificate of origin or some other supporting documentation. Though, these documents are usually commodity specific. There are taxes on certain exports and imports. Export documentation permits the appropriate tariff to be imposed. It also tells the sending country what is leaving and the receiving country what is arriving . There are US laws that limit the export of certain products and many countries have laws limiting the import of certain products so you have to document what is being exported, so the officials can have some reason to believe that you are complying with the laws. As we all know we are living in a global village and there is hardly anything that doesnt shift between borders be it rations, home items, chemical goods and even automobile. Export Import trade is a regular practice for several manufacturing industries, and the basis for living for others. It is almost sure that you have employed various importing methods in your trade before, but there are few essential things to keep in mind when systematizing your documentation. A common saying is that exporting and importing has nothing much to do with products and a lot to do with documentation! It sounds completely odd but it is true! The significance of correct paperwork cant be underplayed in accurately organizing exporting and importing. There is normally little variation in the documentation essential for trade from nation to nation but they are sure to include the following: Letter of credit - this is applied for making payments for imported items, once the required papers are handed over. A letter of credit mainly says that the importers bank guarantees to pay provided the entire documents specified in it are in order. Purchase order - It appears like a trade requirement but it may be desirable for financing. The buyer may need to prove the order to his bank to organize a provisional loan or customs may desire to see the paperwork to make sure the whole thing is legitimate. Page62

Certificates of origin - Various countries have limitations on the introduction of commodities from certain other countries, and may apply duty to these commodities or ban them altogether. On the other hand, there may be tax benefits on items from specific supply sources. In such cases, an exporter will require to present a Certificate of Origin, which is certified by a designated regulatory authority. Bill of lading - a required shipment document for sea consignments when commodities are sent by sea route, as proof that the commodities have been sent by the supplier Airway bill - Same as bill of lading except that it is a document involved in Air shipment Inspection or Quality credential - if the buyer requires an examination of goods prior to shipment, these are vital documents to making sure the deal is established in accordance to the buyers requirement. Packing List - The List of all of the cardboard boxes within the container and the contents within the boxes. Invoice - The most essential document. Make sure that a complete synopsis of merchandise is outlined and it is invoiced in the currency of sale. Others - These are other detailed requirements from country to country. For instance, Australia has strict quarantine limitations governing the trade of animal and food items. You would need to secure a permit, or subject your items to an inspection or both. Export documentation plays a vital role in international marketing as it facilitates the smooth flow of goods and payments thereof across national frontiers. A number of documents accompany every shipment. These documents must be properly and correctly filled. Export documentation is, however, complex as the number of documents to be filled in is large, so also is the number of concerned authorities to whom the relevant documents are to be submitted. Moreover documents required differ from country to country. Incorrect documents may lead to non delivery of goods to the importer. You may get the correct documents after some time but in the meantime storage charges may have to be paid. More important, the importer will think twice before importing from the same exporter. It is therefore, advisable to take the help of shipping and forwarding agents who will obtain fill out the documents correctly as well as arrange for transportation. But every exporter should have an adequate knowledge about export documents and procedures.

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On the basis of the functions to be performed, export documents can be classified under four categories: 1. Commercial Documents: These include commercial invoices, bills of exchange, bills of lading, letters of credit, marine insurance policy and certificates etc. 2. Regulatory Documents: These are the documents which are required for complying with the rules and regulations governing export trade transactions such as foreign exchange regulations, customs formalities export inspection etc. 3. Export Assistance Documents: These are the documents which are required for claiming assistance under the various export assistance measures as may be in operation from time to time. Presently these refer to drawbacks of Central excise and customs duties, packing credit facilities etc, 4. Documentation required by importing Countries . These are the documents which are required by the importer in order to satisfy the requirements of his government. These include certificates of origin, consular invoice, quality control certificate etc. Export documents could be classified into two categories depending upon the specific requirements satisfied by them: (1) Regulatory and (2) Operational. REGULATORY REQUIREMENTS: An exporter has to follow strictly the regulation of both the exporting country as well as that of the importing country . For example, there is exchange control in India. Therefore when we export goods, we have to give an undertaking to the RBI that we shall realize the foreign exchange in lieu of the goods exported. We do this by submitting GR form, and it is obvious that we cannot export unless we submit this document. Then there are certain commodities which are subject to export regulation. We have to obtain a license for exporting the controlled commodities. Thus, another document has necessarily to be used. In order to build up an image of Indian goods abroad there is a system of compulsory pre-shipment inspection and quality control of a number of export goods. The exporter has to obtain an inspection certificate. This gives rise to still another document. There are a number of importing countries which stipulate that the exporter must submit certain specified documents duly certified by their missions in the exporting country. This condition makes it essential the use of the consular invoice and in some cases the use of the legalized invoice. There are countries specially the Commonwealth countries and also those developed countries which have offered concessions to the developing countries under the Generalized System of Preferences which demand that the exporters must submit a certificate of origin. Thus, the exporter has to submit GR form, export license inspection certificate, consular invoice, legalized invoice and certificate of origin. These are examples of regulatory documents. OPERATIONAL REQUIREMENTS: Page62

The customs authorities are charged with the responsibility of verifying compliance on the part of the exporters with all types of regulations in force in the country. For their own record purposes, they have devised the Shipping bill. No shipping company or airline will accept any export cargo unless the customs authorities have granted their permission on the shipping bill. Along with the shipping bill, commercial invoices and packing lists are also to be submitted. TERMS OF SALE Since an entirely different set of terms is used in international trade, the buyer and the seller must have a common understanding of the terms of sale. Based upon the quoted terms of sale, your responsibility for insurance coverage will be clarified in terms called Incoterms. These Incoterms are used universally to determine who pays for what and when the responsibility for goods transfers from the seller to the buyer. Information on new terms can be obtained from the International Chamber of Commerce at www.iccwbo.org/incoterms and other sources. Of note, Incoterms are reviewed and modified every 10 years. Buyer and seller should not only use Incoterms but should also ensure that they are using the same year. The following are descriptions of some of the most common terms and definitions used in international trade: CFR (Cost and Freight) Seller quotes a price for the cost of goods, which includes the cost of inland and overseas transportation from the point of origin to port of discharge. If additional charges outside of the agreed freight charges are charged, they fall to the account of the buyer. Insurance is the responsibility of the buyer. For example, you will see this as "CFR Lagos, Nigeria." This basically means that your quotation will show the costs involved in landing the goods at the port of Lagos, Nigeria. CIF (Cost, Insurance, and Freight) Seller quotes a price for the costs of the goods, insurance, inland and overseas transportation as well as the miscellaneous charges from the point of origin to a named port of discharge of a vessel or aircraft. FOB (Free on Board) Seller quotes a price for the cost of goods which includes the cost of loading that good into trucks, rail cars, barges or vessels at a designated point. The buyer takes the responsibility for ocean transportation and insurance. FAS (Free alongside ship at designated port of export) Seller quotes a price for the cost of goods which includes the charge for delivery of the goods alongside a vessel at the designated port. The seller is also responsible for the unloading and wharf fees. Loading aboard the vessel, ocean transportation, and ocean cargo insurance are the responsibility of the buyer. Page62

EXW (EX Works named point of origin) Price quoted applies only at the point of origin and the seller agrees to place the goods at the disposal of the buyer at a specified place on a certain date or within a fixed period. All other charges are the responsibility of the buyer . Many times this term is seen in forms such as EXW Factory or EXW Warehouse. Most often EXW is used to indicate that title transfers at the seller's loading dock, and that all responsibility for the goods then belongs to the buyer. Using Terms of Sale in a Quotation When quoting a price, the exporter should make it meaningful to the prospective buyer. For example, a price for industrial machinery quoted "FOB Columbia, MD, not export packed" would be meaningless because most prospective buyers would have difficulty determining the total costs. Therefore, they would be hesitant to place an order. For this reason, it is advisable to quote CIF whenever possible because it is easily understood by your prospective customer. A freight forwarder can help you determine a CIF price. However, some countries will not permit quotes in CIF.

METHODS OF PAYMENT There are various methods of receiving payment for your exports. These methods include payment in advance, letters of credit, documentary drafts and open account. Payment in advance This method is most desirable from the seller's standpoint because all risk is eliminated. While cash in advance may seem most advantageous to you, insisting on these terms may cost you sales. Just like domestic buyers, foreign buyers prefer greater security and better cash utilization. Some buyers may also find this requirement insulting, especially if they are considered credit-worthy in the eyes of the rest of the world. Advance payments and progressive payments may be more acceptable to a buyer, but even these terms can result in a loss of sales in a highly competitive market. Letters of credit A letter of credit (LC) is a payment method, which substitutes the creditworthiness of a bank for that of a buyer. Thus, the importer, or buyer, applies to a bank for the LC. An irrevocable LC cannot be changed without the expressed permission of the exporter. If an irrevocable letter is confirmed by a U.S. bank, it virtually eliminates the foreign credit risk of an export sale. In part, a letter of credit also protects the buyer, because a bank cannot pay the exporter until the exporter presents documents that comply fully with the terms and conditions of the letter of credit. Of note, in practice, LCs are hard to use with perishable goods as the

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definition of "quality" that may be part of the contract, and therefore the LC, may be subject to interpretation. In short, LCs are not often used with perishables. Payment under a LC can be at sight, a certain number of days after sight, or by a date certain. At sight signifies that payment must be made within 72 hours, upon presentation of the required documents. Payment a certain number of days after sight means that the exporter will be paid sometime after negotiation or acceptance of the documents. Payment at a date certain is at a date fixed by the terms of the LC. When deciding whether to use a LC, consider the additional cost of bank confirmation and related fees. The greater the value of your shipment, the greater the fees are. Another factor is the possibility that competitors may offer payment terms more favorable to the buyer. Generally, the cost of a LC to the importer is significantly higher than the cost to an exporter. Due to these higher costs, some importers may not accept your payment terms. Consult an experienced international banker to determine which payment method is right for your business. Documentary Drafts A "draft" is a written demand by the exporter directing the importer to pay to the order of a third party. There are three types of documentary drafts: sight drafts, time drafts and date drafts. A sight draft is used when the seller wishes to retain title and control of the shipment until it reaches its destination and is paid for. Before the order can be released to the buyer, the original bill of lading must be properly endorsed by the buyer and surrendered to the carrier of the goods. In actual practice, shipment is made on a negotiable bill of lading that is given to the shipper. The bill of lading is endorsed by the shipper and sent to the buyer's bank or to another intermediary along with the sight draft, invoices, and other necessary supporting documents specified by the buyer or the buyer's country. Some of the necessary supporting documents are packing lists, consular invoices or insurance certificates. The bank notifies the buyer that it has received these documents and as soon as the draft is paid, the bank will turn over the bill of lading, enabling the buyer to obtain the shipment. This method does involve some risk because the buyer's ability and willingness to pay may change between the time the goods are shipped and the time the draft is presented for payment. Also, there exists the risk of a change in the policies of the importing country. If the buyer cannot or will not pay for the goods, the return or disposal of the goods becomes the responsibility of the exporter. A time draft can be used to require payment within a certain time frame after the buyer accepts the draft and receives the goods. By signing and marking "accepted" on the draft, the buyer is formally obligated to pay in the determined period of time. When this signature is received, the draft is called "trade acceptance" and can either be kept by the exporter until maturity or sold to a bank at a discount so the exporter can receive immediate payment. There is a certain risk involved for the

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exporter because a buyer may delay payment by delaying acceptance of the draft or refusing to pay at its maturity. In most countries, an accepted time draft is stronger evidence of debt than an unpaid invoice. A date draft differs slightly from a time draft in that it specifies a date by which the payment is due rather than establishing a time period. When a sight or time draft is used, a buyer can delay payment by delaying acceptance of the draft, but the use of a date draft can prevent this occurrence. Open Account. Selling on open account carries the greatest risk for the exporter. Under this method the buyer does not pay for the goods until they have been received. If the buyer refuses to pay, the only recourse of the exporter is to seek legal action in the buyer's country. Thus, the open account method should only be utilized when there is an established relationship with the buyer and the country of the buyer possesses a stable political and economic environment. If your sales must be made on open account, the date upon which the payment is due should be stipulated.

UNIT 2
PRESENT SCENARIO OF INDIAN APPAREL INDUSTRY India is now a fast emerging market inching to reach half a billion middle income population by 2030. All these factors are good for the Indian textile industry in a long run. Even though the global economic crisis seams to be worsening dayby-day, as long as economies are emerging and growing as those in South and

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South East Asia, textile industry is here to grow provided it takes competition and innovation seriously. Read below to have an insight of the stand of the Indian Textile Industry in the economy. Where Does the Indian Textile Industry Stand Now? A general impression I get talking to the Indian textile industry leaders in the past few days make me understand that the industry is in a pinch. Why so? These are the reasons: 1. Global recession 2. Less export orders due to reductions in inventories by global retail giants like Wal-Mart 3. Price of raw materials like cottons and 4. Infrastructure bottlenecks such as power, particularly in Tamil Nadu. It has been recently reported that textile exports in 2009-10 period will be equal or could be even lower than the one achieved in 2008-09. In this global financial meltdown situation, what should the Indian textile industry do? In the times of adversity, it is an immediate task for all stake holders to pause for a moment and take stock of the difficulties and chart plans for sustainability and growth of the Indian textile industry. Road Ahead for the Indian Textile Industry As the saying goes in the financial sector, it is not advisable to put all eggs in one basket. This is what happened somewhat in the case of the Indian textile industry. With the opening of world markets and the abolition of textile quotas since 2005, there came a negative situation as well. But, hindsight is always 20-20. Indian textile industry should have focused on all major sectors right from fibre to fashion and planned for an organized growth across the supply chain so as to compete with China and even countries such as Pakistan, Vietnam and Thailand. Instead, the industry had put majority of its stock in the spinning sector. This is clearly evident in the utilization of Technology Upgradation Fund Scheme effectively by the spinning sector. Although it is a positive outcome, in my opinion, the industry turned a blind eye on value-adding sectors such as weaving and finishing. Indian powerloom sector, which enables value-addition is a highly unorganized industry and needs major upgradation. Not only India does not have world quality indigenous shuttleless looms, but also investments are not adequate to cope with the quality and quantity to cater to the export market. Technical textiles sector is still in its infancy and a tangible growth will be highly visible by 2035 when the growth in this sector will be exponential. Is there a panacea to the complexities surrounding the India Textile Industry? Page62

Some Solutions for the Growth of Indian Textile Industry A couple of points given below will give food for thought for all the stake holders in the Indian textile industry: 1. The weak links in the Indian conventional industry such as weaving and finishing have to be strengthened. A major thrust here is to have consolidated efforts by Indian Textile Machinery Manufacturers Association, end-users and the Government to undertake a moonshot and come-up with alternatives to European Machinery, which the weaving sector can afford. This should be doable within the next five years, if dedicated efforts are undertaken with the financial support for R & D by the Government through its various schemes; 2. Inch forward in the non-commodity textile sector, i.e., technical textiles sector from a non crawling phase to at least a crawling industry in the next three years. General awareness on nonwoven and technical sectors has been created with the recent marathon training workshops and conferences such as, "Advances in Textiles, Nonwoven and Technical Textiles", organized for the past five years in Coimbatore by Texas Tech University, USA and those such as the Texcellance and IIT's Technical Textiles conferences. These have put India on the international map in technical textiles. These conferences are of less use if they do not translate into investments and new projects. This aspect has been slow. Why is it so? Although the awareness on the broad-based technology know-how and end products has been created, less to no awareness has been created among industrialists on the marketability of non-commodity textile products. What is needed in the Short to Near Long Term? Creating greater awareness on the marketing of technical textiles is the need of the hour. This should include: 1. What will be the growth? 2. Who are the global leaders? 3. Whom to approach to sell globally and 4. Where to go and sell? Over the past few months, I have been pushing interested parties in India and abroad to initiate trade delegations so that connectivity can be established among all stake holders Trade bodies in India such as SRTEPC, SIMA and global bodies such as the USA based INDA and IFAI and Europe based EDANA should consider this issue seriously in 2009. The Ministry of Textiles, Government of India should be a part of this mission. Such a mission will open the black box and will provide the Indian and Western technical textiles sector to get a better picture of the industry situation in India. An important aspect, which cannot be neglected is "Mission based Research",

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that will lead to innovation in the industry. A two prong approach has to be followed: Mission linked basic research spanning the entire supply chain. This should be carried out as a collaborative endeavor between the Ministry of Textiles and the Department of Science and Technology. Atleast in the next budget cycle, a pot of cash has to be earmarked and should be overseen by an autonomous central body. This autonomous body can be operated more or less similar to the National Textile Center consortium in the USA and Industry specific and problem solving research programme supported as a joint venture between the Ministry of Textiles and the Ministry of Commerce, Government of India. This can be modeled after the Fraunhofer Institutes in Germany. In the fast growing and competitive world, those who deliver what the consumers want, and at the same time cheaper and faster will be the industry trend setters. Things have changed and people are improving their life in many different ways. India is a place to eye on and certainly the Indian textile sector will have its share in the growth story.

AN ANALYSIS OF CURRENT SCENARIO OF INDIAN TEXTILE INDUSTRY Indian Textile Industry is one of the leading textile industries in the world. Though was predominantly unorganized industry even a few years back, but the scenario started changing after the economic liberalization of Indian economy in 1991. The opening up of economy gave the much-needed thrust to the Indian textile industry, which has now successfully become one of the largest in the world. Indian textile industry largely depends upon the textile manufacturing and export. It also plays a major role in the economy of the country. India earns about 27% of its total foreign exchange through textile exports. Further, the textile industry of India also contributes nearly 14% of the total industrial production of the country. It also contributes around 3% to the GDP of the country. Indian textile industry is also the largest in the country in terms of employment generation. It not only generates jobs in its own industry, but also opens up scopes for the other ancillary sectors. India textile industry currently generates employment to more than 35 million people. It is also estimated that, the industry will generate 12 mill ion new jobs by the year 2010.

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Indian textile industry can be divided into several segments, some of which can be listed as below:

1. 2. 3. 4. 5. 6.

Cotton Textiles Silk Textiles Woolen Textiles Readymade Garments Hand-crafted Textiles Jute and Coir

India textile industry is one of the leading in the world. Currently it is estimated to be around US$ 52 billion and is also projected to be around US$ 115 billion by the year 2012. The current domestic market of textile in India is expected to be increased to US$ 60 billion by 2012 from the current US$ 34.6 billion. The textile export of the country was around US$ 19.14 billion in 2006-07, which saw a stiff rise to reach US$ 22.13 in 2007-08. The share of exports is also expected to increase from 4% to 7% within 2012. Table 1 shows area, production and productivity of cotton in India during the last six decades. Though during the year 2008-09, the industry had to face adverse agroclimatic conditions, it succeeded in producing 290 lakh bales of cotton comparing to 315 lakh bales last year, yet managed to retain its position as world's second highest cotton producer. GLOBALIZATION Is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. Put in simple terms, globalization refers to processes that promote world-wide exchanges of national and cultural resources. Advances in transportation and telecommunications infrastructure, including the rise of the Internet, are major factors in globalization, generating further interdependence of economic and cultural activities. Though several scholars place the origins of globalization in modern times, others trace its history long before the European age of discovery and voyages to the New World. Some even trace the origins to the third millennium BCE. Since the beginning of the 20th century, the pace of globalization has intensified at a rapid rate, especially during the Post-Cold War era.

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The term globalization has been in increasing use since the mid-1980s and especially since the mid-1990s. In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people and the dissemination of knowledge. Further, environmental challenges such as climate change, crossboundary water and air pollution, and over-fishing of the ocean are linked with globalization.[10] Globalizing processes affect and are affected by business and work organization, economics, socio-cultural resources, and the natural environment. WORLD TRADE ORGANIZATION (WTO) The International trade is based on multilateral trading system. It is a system involving trade amongst various countries. it is therefore, necessary that the rules and regulation of such system are properly define. In the year 1947, an attempt was made by 23 countries in the world to define the basic norms for conduct of international trade. The trade negotiation amongst these 23 countries in multilateral treaty called general agreement On Traffic and Trade (GATT) in the year 1948. The GATT was established to secure the conduct of international trade based on the principles of non-discrimination, transparency and liberalization. The GATT had been organizing international trade negotiation to define the regulation for and strengthening multilateral trading system over the years. The latest round of international trade regulation was conducted under auspices of GATT from 1986 to 1993. It was on 15 December that the latest round of international trade negotiation among 117 countries was conducted at Uruguay. The agreement so conducted were signed on April 16,1994 by 123 countries. The agreement has come to known as a Uruguay round or the GATT 94. One of the agreements during the Uruguay round was regarding renaming of GATT as World Trade Organization (WTO). The GATT 1994 is being implemented with effect from 1 of January 1995 when the very first agreement regarding the establishment of world trade organization (WTO) was established. Thus the World Trade Organization (WTO) held its last round of international trade negotiation at Doha in July 2006. At present 151 countries are member of World Trade Organization (WTO). Objective of World Trade Organization (WTO) To ensure the conduct the international trade on non-discrimination basis. To raise standard of living and income, ensuring full employment To expend production and trade Protecting environment Ensuring better share for developing countries. Function of World Trade Organization (WTO) Page62

Administering World Trade Organization (WTO) trade agreement Forum the trade negotiation Handling trade disputes Monitoring national trade policy Technical assistance and training for developing countries Co-operation with other international organization (like help from World Bank and IMF).

Legal framework of World Trade Organization (WTO) Protection through import traffic Reduction in traffic and binding against further increase Conduct of trade according to M.F.N. clauses Commitment to national treatment rule GATT The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade. According to its preamble, its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis." It was negotiated during the United Nations Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed in 1947 and lasted until 1994, when it was replaced by the World Trade Organization in 1995. The original GATT text (GATT 1948) is still in effect under the WTO framework, subject to the modifications of GATT 1994. Annecy Round - 1949 The second round took place in 1949 in Annecy, France. 13 countries took part in the round. The main focus of the talks was more tariff reductions, around 5000 in total. Torquay Round - 1951 The third round occurred in Torquay, England in 1950. Thirty-eight countries took part in the round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to of the tariffs which were in effect in 1948. The contemporaneous rejection by the U.S. of the Havana Charter signified the establishment of the GATT as a governing world body. Geneva Round - 1955-1956 The fourth round returned to Geneva in 1955 and lasted until May 1956. Twenty-six countries took part in the round. $2.5 billion in tariffs were eliminated or reduced.

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Dillon Round - 1960-1962 The fifth round occurred once more in Geneva and lasted from 1960-1962. The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first proposed the talks. Twenty-six countries took part in the round. Along with reducing over $4.9 billion in tariffs, it also yielded discussion relating to the creation of the European Economic Community (EEC). Kennedy Round - 1962-1967 The sixth round of GATT multilateral trade negotiations, held from 1963 to 1967. It was named after President John F Kennedy in recognition of his support for the reformulation of the United States trade agenda, which resulted in the Trade Expansion Act of 1962. This Act gave the President the widest-ever negotiating authority. As the Dillon Round went through the laborious process of item-by-item tariff negotiations, it became clear, long before the Round ended, that a more comprehensive approach was needed to deal with the emerging challenges resulting from the formation of the European Economic Community (EEC) and EFTA, as well as Europe's re-emergence as a significant international trader more generally. Japan's high economic growth rate portended the major role it would play later as an exporter, but the focal point of the Kennedy Round always was the United States-EEC relationship. Indeed, there was an influential American view that saw what became the Kennedy Round as the start of a transatlantic partnership that might ultimately lead to a transatlantic economic community. To an extent, this view was shared in Europe, but the process of European unification created its own stresses under which the Kennedy Round at times became a secondary focus for the EEC. An example of this was the French veto in January 1963, before the round had even started, on membership by the United Kingdom. Another was the internal crisis of 1965, which ended in the Luxembourg Compromise. Preparations for the new round were immediately overshadowed by the Chicken War, an early sign of the impact variable levies under the Common Agricultural Policy would eventually have. Some participants in the Round had been concerned that the convening of UCTAD, scheduled for 1964, would result in further complications, but its impact on the actual negotiations was minimal. In May 1963 Ministers reached agreement on three negotiating objectives for the round: Measures for the expansion of trade of developing counties as a means of furthering their economic development,

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Reduction or elimination of tariffs and other barriers to trade, and Measures for access to markets for agricultural and other primary products.

The working hypothesis for the tariff negotiations was a linear tariff cut of 50% with the smallest number of exceptions. A drawn-out argument developed about the trade effects a uniform linear cut would have on the dispersed rates (low and high tariffs quite far apart) of the United States as compared to the much more concentrated rates of the EEC which also tended to be in the lower held of United States tariff rates. The EEC accordingly argued for an evening-out or harmonization of peaks and troughs through its cerement, double cart and thirty: ten proposals. Once negotiations had been joined, the lofty working hypothesis was soon undermined. The special-structure countries (Australia, Canada, New Zealand and South Africa), so called because their exports were dominated by raw materials and other primary commodities, negotiated their tariff reductions entirely through the item-by-item method. In the end, the result was an average 35% reduction in tariffs, except for textiles, chemicals, steel and other sensitive products; plus a 15% to 18% reduction in tariffs for agricultural and food products. In addition, the negotiations on chemicals led to a provisional agreement on the abolition of the American Selling Price (ASP). The was a method of valuing some chemicals used by the noted States for the imposition of import duties which gave domestic manufacturers a much higher level of protection than the tariff schedule indicated. However, this part of the outcome was disallowed by Congress, and the American Selling Price was not abolished until Congress adopted the results of the Tokyo Round. The results on agriculture overall were poor. The most notable achievement was agreement on a Memorandum of Agreement on Basic Elements for the Negotiation of a World Grants Arrangement, which eventually was rolled into a new International Grains Arrangement. The EEC clamed that for it the main result of the negotiations on agriculture was that they "greatly helped to define its own common policy". The developing countries, who played a minor role throughout the negotiations in this Round, benefited nonetheless from substantial tariff cuts particularly in non-agricultural items of interest to them. Their main achievement at the time, however, was seen to be the adoption of Part IV of the GATT, which absolved them from according reciprocity to developed countries in trade negotiations. In the view of many developing countries, this was a direct result of the call at UNCTAD I for a better trade deal for them.

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There has been argument ever since whether this symbolic gesture was a victory for them, or whether it ensured their exclusion in the future from meaningful participation in the multilateral trading system. On the other hand, there was no doubt that the extension of the Long-Term Arrangement Regarding International Trade in Cotton Textiles, which later became the Multi-Fiber Arrangement, for three years until 1970 led to the longer-term impairment of export opportunities for developing countries. Another outcome of the Kennedy Round was the adoption of an Anti-dumping Code, which gave more precise guidance on the implementation of Article VI of the GATT. In particular, it sought to ensure speedy and fair investigations, and it imposed limits on the retrospective application of anti-dumping measures. Kennedy Round took place from 1962-1967. $40 billion in tariffs were eliminated or reduced. Tokyo Round - 1973-1979 Reduced tariffs and established new regulations aimed at controlling the proliferation of non-tariff barriers and voluntary export restrictions. 102 countries took part in the round. Concessions were made on $190 billion worth. The Uruguay Round began in 1986. It was the most ambitious round to date, hoping to expand the competence of the GATT to important new areas such as services, capital, intellectual property, textiles, and agriculture. 123 countries took part in the round. The Uruguay Round was also the first set of multilateral trade negotiations in which developing countries had played an active role. Agriculture was essentially exempted from previous agreements as it was given special status in the areas of import quotas and export subsidies, with only mild caveats. However, by the time of the Uruguay round, many countries considered the exception of agriculture to be sufficiently glaring that they refused to sign a new deal without some movement on agricultural products. These fourteen countries came to be known as the "Cairns Group", and included mostly small and medium sized agricultural exporters such as Australia, Brazil, Canada, Indonesia, and New Zealand. The Agreement on Agriculture of the Uruguay Round continues to be the most substantial trade liberalization agreement in agricultural products in the history of trade negotiations. The goals of the agreement were to improve market access for agricultural products, reduce domestic support of agriculture in the form of price-distorting subsidies and quotas, eliminate over time export subsidies on agricultural products and to harmonize to the extent possible sanitary and phytosanitary measures between member countries.

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GATT and the World Trade Organization In 1993, the GATT was updated (GATT 1994) to include new obligations upon its signatories. One of the most significant changes was the creation of the World Trade Organization (WTO). The 75 existing GATT members and the European Communities became the founding members of the WTO on 1 January 1995. The other 52 GATT members rejoined the WTO in the following two years (the last being Congo in 1997). Since the founding of the WTO, 21 new non-GATT members have joined and 29 are currently negotiating membership. There are a total of 157 member countries in the WTO, with Russia and Vanuatu being new members as of 2012. Of the original GATT members, Syria and the SFR Yugoslavia have not rejoined the WTO. Since FR Yugoslavia, (renamed to Serbia and Montenegro and with membership negotiations later split in two), is not recognised as a direct SFRY successor state; therefore, its application is considered a new (non-GATT) one. The General Council of WTO, on 4 May 2010, agreed to establish a working party to examine the request of Syria for WTO membership. The contracting parties who founded the WTO ended official agreement of the "GATT 1947" terms on 31 December 1995. Serbia and Montenegro are in the decision stage of the negotiations and are expected to become the newest members of the WTO in 2012 or in near future. Whilst GATT was a set of rules agreed upon by nations, the WTO is an institutional body. The WTO expanded its scope from traded goods to include trade within the service sector and intellectual property rights. Although it was designed to serve multilateral agreements, during several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements created selective trading and caused fragmentation among members. WTO arrangements are generally a multilateral agreement settlement mechanism of GATT.

DOCUMENTS FOR EXPORTS

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Exporters should seriously consider having the freight forwarder handle the formidable amount of documentation that exporting requires; freight forwarders are specialists in this process. The following documents are commonly used in exporting; which of them are actually used in each case depends on the requirements of both our government and the government of the importing country. 1. Commercial invoice 2. Bill of lading 3. Consular invoice 4. Certificate of origin 5. Inspection certification 6. Dock receipt and warehouse receipt 7. Destination control statement On the basis of the functions to be performed, export documents can be classified under four categories: 1. Commercial Documents: These include commercial invoices, bills of exchange, bills of lading, letters of credit, marine insurance policy and certificates etc. 2. Regulatory Documents: These are the documents which are required for complying with the rules and regulations governing export trade transactions such as foreign exchange regulations, customs formalities export inspection etc. 3. Export Assistance Documents: These are the documents which are required for claiming assistance under the various export assistance measures as may be in operation from time to time. Presently these refer to drawbacks of Central excise and customs duties, packing credit facilities etc, 4. Documentation required by importing Countries . These are the documents which are required by the importer in order to satisfy the requirements of his government. These include certificates of origin, consular invoice, quality control certificate etc. Export documents could be classified into two categories depending upon the specific requirements satisfied by them: (1) Regulatory and (2) Operational. Regulatory Requirements: An exporter has to follow strictly the regulation of both the exporting country as well as that of the importing country . For example, there is exchange control in India. Therefore when we export goods, we have to give an undertaking to the RBI that we shall realize the foreign exchange in lieu of the goods exported. We do this by submitting GR form, and it is obvious that we cannot export unless we submit this document. Then there are certain commodities which are subject to export regulation. We have to obtain a license for exporting the controlled commodities. Thus, another document has necessarily to be used. In order to build up an image of Indian goods abroad there is a system of compulsory pre-shipment inspection and quality control of a number of export goods. The

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exporter has to obtain an inspection certificate. This gives rise to still another document. There are a number of importing countries which stipulate that the exporter must submit certain specified documents duly certified by their missions in the exporting country. This condition makes it essential the use of the consular invoice and in some cases the use of the legalized invoice. There are countries specially the Commonwealth countries and also those developed countries which have offered concessions to the developing countries under the Generalized System of Preferences which demand that the exporters must submit a certificate of origin. Thus, the exporter has to submit GR form, export license inspection certificate, consular invoice, legalized invoice and certificate of origin. These are examples of regulatory documents. Operational Requirements: The customs authorities are charged with the responsibility of verifying compliance on the part of the exporters with all types of regulations in force in the country. For their own record purposes, they have devised the Shipping bill. No shipping company or airline will accept any export cargo unless the customs authorities have granted their permission on the shipping bill. Along with the shipping bill, commercial invoices and packing lists are also to be submitted. TYPES OF DOCUMENTS Bill of exchange A non-interest-bearing written order used primarily in international trade that binds one party to pay a fixed sum of money to another party at a predetermined future date. A bill of exchange is also called a draft but, while all drafts are negotiable instruments, only "to order" bills of exchange can be negotiated. According to the 1930 Convention Providing A Uniform Law For Bills of Exchange and Promissory Notes held in Geneva (also called Geneva Convention) a bill of exchange contains: (1) The term bill of exchange inserted in the body of the instrument and expressed in the language employed in drawing up the instrument. (2) An unconditional order to pay a determinate sum of money. (3) The name of the person who is to pay (drawee). (4) A statement of the time of payment. (5) A statement of the place where payment is to be made. (6) The name of the person to whom or to whose order payment is to be made. (7) A statement of the date and of the place where the bill is issued. (8) The signature of the person who issues the bill (drawer). A bill of exchange is the most often used form of payment in local and international trade, and has a long history- as long as that of writing. Page62 Commercial invoice

Document required by customs to determine true value of the imported goods, for assessment of duties and taxes. A commercial invoice (in addition to other information), must identify the buyer and seller, and clearly indicate the (1) date and terms of sale, (2) quantity, weight and/or volume of the shipment, (3) type of packaging, (4) complete description of goods, (5) unit value and total value, and (6) insurance, shipping and other charges (as applicable). A commercial invoice is a document used in foreign trade. It is used as a customs declaration provided by the person or corporation that is exporting an item across international borders.[1] [2] Although there is no standard format, the document must include a few specific pieces of information such as the parties involved in the shipping transaction, the goods being transported, the country of manufacture, and the Harmonized System codes for those goods. A commercial invoice must also include a statement certifying that the invoice is true, and a signature. A commercial invoice is used to calculate tariffs, international commercial terms (like the Cost in a CIF) and is commonly used for customs purposes. Bill of Lading A bill of lading is issued by a carrier, and details a shipment of merchandise, gives title to the goods, and requires the carrier to deliver the merchandise to the appropriate party. A legal document between the shipper of a particular good and the carrier detailing the type, quantity and destination of the good being carried. The bill of lading also serves as a receipt of shipment when the good is delivered to the predetermined destination. This document must accompany the shipped goods, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper and receiver. The bill of lading evolved with the growth of international trade in the medieval world. Merchants needed a way of knowing what had been loaded onto ships, and began to issue signed receipts to certify the loading of goods on to vessels and to verify the condition of those goods at the time of loading. With the growth of mercantilism, these receipts began to be used as the title to the goods, and the bill of lading became established in much the same form as we know today. The current regulations on bills of lading were codified by the Hague Rules in 1924. Uses As a receipt The principal use of the bill of lading is as a receipt issued by the carrier once the goods have been loaded onto the vessel. This receipt can be used as proof of shipment for customs and insurance purposes, and also as commercial proof of

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completing a contractual obligation, especially under Incoterms such as CFR and FOB. As title The bill of lading confers title to the goods to the consignee noted on the bill. The bill of lading may also be made out "To Order", which confers title to the goods to the holder of the ship. As a negotiable instrument Because the bill of lading represents title to the goods detailed upon it, it can be traded in much the same way as the goods may be, and even borrowed upon if desired. Sea Waybills and Electronic Document Interchange (EDI) In recent years, the use of bills of lading has declined, as they have been replaced in the most part with the sea waybill. The main difference between these two documents is that the waybill does not confer title of the goods to the bearer, and as a result there is no need for the physical document to be presented for the goods to be released. The shipping line will automatically release the goods to the consignee once the import formalities have been completed. This results in a much smoother flow of trade, and has allowed shipping lines to move towards Electronic data interchange which greatly eases the flow of global trade. However, for letter of credit and Documentary Collection transactions, it is important to retain title to the goods until the transaction is complete. This means that the bill of lading still remains a vital part of international trade. Letter of Credit A letter of credit is a document issued by a financial institution, or a similar party, assuring payment to a seller of goods and/or services. The seller then seeks reimbursement from the buyer or from the buyer's bank. The document serves essentially as a guarantee to the seller that it will be paid regardless of whether the buyer ultimately fails to pay. In this way, the risk that the buyer will fail to pay is transferred from the seller to the letter of credit's issuer. The letter of credit also insures that all the agreed upon standards and quality of goods are met by the supplier. Letters of credit are used primarily in international trade for large transactions between a supplier in one country and a customer in another. In such cases, the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits applies. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, storm water ponds, etc.) will be built. The parties to a letter of credit are the supplier, usually called the beneficiary, the issuing bank, of whom the buyer is a client, and sometimes an

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advising bank, of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without the consent of the beneficiary, issuing bank, and confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to giros and traveler's cheques. Origin of the term The name letter of credit derives from the French word accrditation, a power to do something, which in turn derives from the Latin accreditivus, meaning trust. This applies to any defense relating to the underlying contract of sale. This is as long as the seller performs their duties to an extent that meets the requirements contained in the letter of credit. Related terms A sight LC means that payment is made immediately to the beneficiary/seller/exporter upon presentation of the correct documents in the required time frame. A time or date LC will specify when payment will be made at a future date and upon presentation of the required documents. Negotiation means the giving of value for draft(s) and/or document(s) by the bank authorized to negotiate, viz the nominated bank. Mere examination of the documents and forwarding the same to the letter of credit issuing bank for reimbursement, without giving of value / agreed to give, does not constitute a negotiation. Documents that can be presented for payment To receive payment, an exporter or shipper must present the documents required by the letter of credit. Typically, the payee presents a document proving the goods were sent instead of showing the actual goods. The Original Bill of Lading (BOL) is normally the document accepted by banks as proof that goods have been shipped. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin or place. Typical types of documents in such contracts might include Financial Documents Bill of Exchange, Co-accepted Draft Commercial Documents Invoice, Packing list Shipping Documents Transport Document, Insurance Certificate, Commercial, Official or Legal Documents Official Documents Page62

License, Embassy legalization, Origin Certificate, Inspection Certificate, Phytosanitary certificate Transport Documents Bill of lading (ocean or multi-modal or Charter party), Airway bill, Lorry/truck receipt, railway receipt, CMC Other than Mate Receipt, Forwarder Cargo Receipt, Deliver Challan...etc Insurance documents Insurance policy, or Certificate but not a cover note. Definitions of related terms Advising bank: The Bank which advises a Letter of Credit to the Beneficiary at the request of the issuing Bank is known as the Advising Bank Applicant: Applicant is the party on whose request the issuing bank issues a credit . Banking day: The day on which a bank is regularly open at the place at which an act to be performed. Beneficiary: Beneficiary is the party who is to receive the benefit (payment) of the LC. The consignee of an LC and the beneficiary may not be the same. The credit is issued in his favor. Presentation: Presentation is either delivery of documents against an LC or the document itself. Complying when it is 1. 2. 3. presentation : A presentation is said to be complying presentation in accordance with the terms and conditions of the credit, the applicable provisions of UCP and international standard banking practice.

Confirmation: Confirmation is a definite undertaking from the confirming bank to honor or negotiate a complying presentation in addition to that of the issuing bank. Confirming bank: The Bank which adds confirmation to an LC is termed as Confirming Bank. It does so at the request of the issuing bank and taking authorization from the issuing bank. Letter of Credit/ Credit: Credit is a definite undertaking of the issuing bank to honor a complying presentation. According to UCP all credit must be Irrevocable.

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Honor: Honor means act according to commitment of the LC. Presentations are honored in different ways depending on the type of credit like. i. Making payment at sight for sight LC ii.By incurring a deferred payment undertaking and paying at maturity deferred payment LC. iii. by accepting a Draft drawn by the beneficiary and paying at maturity for Deferred Acceptance LC. Issuing bank: The Bank which issues a credit is known as issuing bank. Nominated Bank: The Bank with which credit is available is termed as Nominated Bank of that Credit. If no Bank is mentioned in the credit as nominated bank, all banks are nominated bank. Negotiation: A bank (Nominated Bank) is said to negotiate a document if it purchases a draft and/or documents under a complying presentation either by making advance or agreeing to advance funds to the beneficiary on or before the date on which reimbursement is due to the nominated bank . A draft drawn on a nominated bank cannot be purchased by itself. Different types of letters of credit Import/export Letter of Credit: The same credit can be termed as import and export LC depending on whose perspective it is being looked upon. For the importer it is termed as Import LC and for the Exporter of goods, Export LC Revocable Letter of Credit: In this type of credit buyer and the bank which has established the LC, are able to manipulate the letter of credits or make any kinds of corrections without informing the seller and getting permissions from him. According to UCP 600, all LCs are Irrevocable, hence this type of LC used no more. Irrevocable LC: In this type of LC, Any change (amendment) or cancellation of the LC (except it is expired) done by the Applicant through the issuing Bank must be authenticated by the Beneficiary of the LC. Whether to accept or reject the changes depends on the beneficiary. Confirmed LC: An LC is said to be confirmed when another bank adds its additional confirmation (or guarantee) to honor a complying presentation at the request or authorization of the issuing bank. Unconfirmed LC: This type of letter of credit, does not acquire the other bank's confirmation. Transferrable LC: A Transferable Credit is the one under which the exporter has the right to make the credit available to one or more subsequent beneficiaries. Credits are made transferable when the original beneficiary is a middleman and does not supply the merchandise himself but procures goods from the suppliers and

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arrange them to be sent to the buyer and does not want the buyer and supplier know each other. The middleman is entitled to substitute its own invoice for the one of the supplier and acquire the difference as his profit in transferable letter of credit mechanism. Important Points of Consideration: A letter of credit can be transferred to the second beneficiary at the request of the first beneficiary only if it expressly states that the letter of credit is "transferable". A bank is not obligated to transfer a credit. A transferable letter of credit can be transferred to more than one second beneficiary as long as credit allows partial shipments. The terms and conditions of the original credit must be indicated exactly in the transferred credit. However, in order to keep the workability of the transferable letter of credit below figures can be reduced or curtailed. Letter of credit amount any unit price of the merchandise (if stated) the expiry date the presentation period or the latest shipment date or given period for shipment. The first beneficiary may demand from the transferring bank to substitute his name for that of the applicant. However, if a document other than invoice required in the transferable credit must be issued in a way to show the applicant's name, in such a case that requirement must be indicated in the transferred credit. Transferred credit cannot be transferred once again to any third beneficiary according to the request of the second beneficiary. Untransferable LC: It is said to the credit that seller cannot give a part or completely right of assigned credit to somebody or to the persons he wants. In international commerce, it is required that the credit will be untransferable. Usance LC: It is kind of credit that won't be paid and assigned immediately after checking the valid documents but paying and assigning it requires an indicated duration which is accepted by both of the buyer and seller. In reality, seller will give an opportunity to the buyerto pay the required money after taking the related goods and selling them. At Sight LC: It is a kind of credit that the announcer bank after observing the carriage documents from the seller and checking all the documents immediately pays the required money. Page62 Red Clause LC: In this kind of credit assignment seller before sending the products can take the pre-paid and parts of the money from the bank. The first part of the

credit is to attract the attention acceptor bank. The reason why it named so, is that the first time this credit is established by the assigner bank, to take the attention of the offered bank, the terms and conditions were written by red ink, from that time it became famous with that name. Back to Back LC: This type of LC consists of two separated and different types of LC. First one is established in the benefit of the seller that is not able to provide the corresponding goods for any reasons. Because of that reason according to the credit which is opened for him, neither credit will be opened for another seller to provide the desired goods and sends it. Back-to-back L/C is a type of L/C issued in case of intermediary trade. Intermediate companies such as trading houses are sometimes required to open L/Cs by supplier and receive Export L/Cs from buyer. SMBC will issue a L/C for the intermediary company which is secured by the Export L/C (Master L/C). This L/C is called "Backto-back L/C". The price of letters of credit All the charges for issuance of Letter of Credit, negotiation of documents, reimbursements and other charges like courier are to the account of applicant or as per the terms and conditions of the Letter of credit. If the letter of credit is silent on charges, then they are to the account of the Applicant. The description of charges and who would be bearing them would be indicated in the field 71B in the Letter of Credit. International Trade Payment methods International Trade Payment method can be done in the following ways. Advance payment (most secure for seller): Where the buyer parts with money first and waits for the seller to forward the goods Documentary Credit (more secure for seller as well as buyer): Subject to ICC's UCP 600, where the bank gives an undertaking (on behalf of buyer and at the request of applicant) to pay the shipper (beneficiary) the value of the goods shipped if certain documents are submitted and if the stipulated terms and conditions are strictly complied with. Here the buyer can be confident that the goods he is expecting only will be received since it will be evidenced in the form of certain documents called for meeting the specified terms and conditions while the supplier can be confident that if he meets the stipulations his payment for the shipment is guaranteed by bank, who is independent of the parties to the contract. Documentary collection (more secure for buyer and to a certain extent to seller): Also called "Cash Against Documents". Subject to ICC's URC 525, sight and usance, for delivery of shipping documents against payment or acceptances of draft, where

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shipment happens first, then the title documents are sent to the [collecting bank] buyer's bank by seller's bank [remitting bank], for delivering documents against collection of payment/acceptance Direct payment (most secure for buyer): Where the supplier ships the goods and waits for the buyer to remit the bill proceeds, on open account terms. Risk situations in letter-of-credit transactions Fraud Risks The payment will be obtained for nonexistent or worthless merchandise against presentation by the beneficiary of forged or falsified documents. Credit itself may be forged. Sovereign and Regulatory Risks Performance of the Documentary Credit may be prevented by government action outside the control of the parties. Legal Risks Possibility that performance of a Documentary Credit may be disturbed by legal action relating directly to the parties and their rights and obligations under the Documentary Credit Force Majeure and Frustration of Contract Performance of a contract including an obligation under a Documentary Credit relationship is prevented by external factors such as natural disasters or armed conflicts Risks to the Applicant Non-delivery of Goods Short shipment Inferior Quality Early /Late Shipment Damaged in transit Foreign exchange Failure of Bank viz Issuing bank / Collecting Bank

Risks to the Issuing Bank Insolvency of the Applicant Fraud Risk, Sovereign and Regulatory Risk and Legal Risks

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Risks to the Reimbursing Bank No obligation to reimburse the Claiming Bank unless it has issued a reimbursement undertaking.

Risks to the Beneficiary Failure to Comply with Credit Conditions Failure of, or Delays in Payment from, the Issuing Bank

Letter of Credit Process

Purchase Order A purchase order (PO) is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a purchase order to a supplier constitutes a legal offer to buy products or services. Acceptance of a purchase order by a seller usually forms a contract between the buyer and seller, so no contract exists until

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the purchase order is accepted. It is used to control the purchasing of products and services from external suppliers. Creating a purchase order is typically the first step of the Order-to-cash process in an ERP system. Background Companies use purchase orders for several reasons: Purchase orders allow buyers to clearly and explicitly communicate their intentions to sellers Sellers are protected in case of a buyer's refusal to pay for goods or services Purchase orders help a purchasing agent to manage incoming orders and pending orders Purchase orders provide economies in that they streamline the purchasing process to a standard procedure Commercial lenders or financial institutions may provide financial assistance on the basis of purchase orders. There are various trade finance facilities that almost every financial institution allows to businesspeople against purchase orders such as: 1. Before Shipment credit facility 2. Post Shipment credit facility 3. Trade Finance facility 4. Foreign Bill Purchase credit facility 5. Bill retirement credit facility 6. Order Confirmation Certificate of Origin A Certificate of Origin (often abbreviated to C/O or COO) is a document used in international trade. It is a printed form, completed by the exporter or its agent and certified by an issuing body, attesting that the goods in a particular export shipment have been wholly produced, manufactured or processed in a particular country. The origin does not refer to the country where the goods were shipped from but to the country where they were made. In the event the products were manufactured in two or more countries, origin is obtained in the country where the last substantial economically justified working or processing is carried out. An often used practice is that if more than 50% of the cost of producing the goods originates from one country, the "national content" is more than 50%, then, that country is acceptable as the country of origin. When countries unite in trading agreements, they may allow Certificate of Origin to state the trading bloc, for example, the European Union (EU) as origin, rather than the specific country. Determining the origin of a product is important because it is a key basis for applying tariff and other important criteria. However,

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not all exporters need a certificate of origin, this will depend on the destination of the goods, their nature, and it can also depend on the financial Types of certificates of origin Non- preferential Non-preferential certificates of originare the most common type of certificate. These certificates of origin see that goods do not benefit from any preferential treatment and do not emanate from a particular bilateral or multilateral free trade agreement. Chambers that are authorized to issue certificates of origin are most frequently authorized to issue non-preferential certificates of origin. The fees charged for the issuing will vary depending on several factors, such as the nature of the merchandise, and may also vary if the exporters a member. Indeed, exporters whose companies are member of the chamber often benefit from a preferential price, which is lower than that of non-member firms. Preferential A preferential certificate of origin is a document attesting that goods in a particular shipment are of a certain origin under the definitions of a particular bilateral or multilateral free trade agreement (FTA). This certificate is required by a country's customs authority in deciding whether the imports should benefit from preferential treatment in accordance with special trading areas or customs unions such as the European Union, ASEAN or the North American Free Trade Agreement (NAFTA) or before anti-dumping taxes are enforced. The definition of "Country of Origin" and "Preferential Origin" are different. The European Union for example generally determines the (non-preferential) origin country by the location of which the last major manufacturing stage took place in the products production (in legal terms: "last substantial transformation"). Whether a product has preferential origin depends on the rules of any particular FTA being applied, these rules can be value based or tariff shift based. The FTA rules are commonly called "Origin Protocols". The Origin Protocols of any given FTA will determine a rule for each manufactured product, based on its HTS (Harmonized Tariff Schedule) code. Each and every rule will provide several options to calculate whether the product has preferential origin or not. Each rule is also accompanied by an exclusion rule that defines in which cases the product cannot obtain preferential status at all. A typical value based rule might read: raw materials, imported from countries that are not members of this FTA, used in production do not make up for more than 25% of the Ex-Works value of the finished product. A typical tariff shift rule might read: none of the raw materials, imported from countries that are not members of this FTA, used in production may have the same HTS code as the finished product. In several countries, customs authorities are delegating the right to issue preferential certificates of origin on their behalf to chambers of commerce. These countries include New Zealand, Australia, Sweden and the United Kingdom. Electronic Certificates of Origin Page62

Chambers of commerce issue millions of Certificates of Origin (CO) per year. To keep pace with the rapid shift to e-business and improve their efficiency in serving their business community, the implementation of total eCO is a top priority for Chambers. Increasing concerns on fraud and the need to improve the supply chain security, eCOs are seen as a means not only to facilitate and provide a secure trading environment but also save time, costs and increase transparency. A range of eCO platforms have been developed by chambers and other organizations. Some of the solutions available in the marketplace can be found at the International Chamber of Commerce (ICC) World Chambers Federation CO website.

Airway Bill Air Waybill (AWB) or air consignment note refers to a receipt issued by an international airline for goods and an evidence of the contract of carriage, but it is not a document of title to the goods. Hence, the air waybill is non-negotiable. Description The Air Waybill (AWB) is the most important document issued by a carrier either directly or through its authorized agent. It is a non-negotiable transport document. It covers transport of cargo from airport to airport. By accepting a shipment an IATA cargo agent is acting on behalf of the carrier whose air waybill is issued. Air Waybills have eleven digit numbers which can be used to make bookings, check the status of delivery, and current position of the shipment. The number consists of: 1. The first three digits are the airline prefix. Each airline has been assigned a 3-digit number by IATA, so from the prefix we know which airline has issued the document. 2. The next seven digits are the running number/s - one number for each consignment 3. The last digit is what is called the check digit. It is arrived at in the following manner: The seven digit running numbers are divided by 7, by using a long division calculation. The remainder becomes the check digit. That is why no AWB number ends with a figure greater than 6. Air waybills are issued in sets of different colours. The first three copies are classified as originals. The first original, blue in colour, is the shippers copy. The second, coloured blue, is retained by the issuing carrier. The third, coloured orange, is the consignees copy. A yellow copy acts as the delivery receipt, or proof of delivery*. The other copies are all white. Functions There are several purposes that an air waybill serves, but its main functions are: Contract of Carriage Page62

Behind every original of the Air Waybill are conditions of contract for carriage. Evidence of Receipt of Goods When the shipper delivers goods to be forwarded, he will get a receipt. The receipt is proof that the shipment was handed over in good order and condition and also that the shipping instructions, as contained in the Shipper's Letter of Instructions, are acceptable. After completion, an original copy of the air waybill is given to the shipper as evidence of the acceptance of goods and as proof of contract of carriage Freight Bill The air waybill may be used as a bill or invoice together with supporting documents since it may indicate charges to be paid by the consignee, charges due to the agent or the carrier. An original copy of the air waybill is used for the carrier's accounting Certificate of Insurance The air waybill may also serve as evidence if the carrier is in a position to insure the shipment and is requested to do so by the shipper. Customs Declaration Although customs authorities require various documents like a commercial invoice, packing list, etc. the air waybill too is proof of the freight amount billed for the goods carried and may be needed to be presented for customs clearance The format of the air waybill has been designed by IATA and these can be used for both domestic as well as international transportation. These are available in two forms, viz. the airline logo equipped air waybill and the neutral air waybill. Usually, airline air waybills are distributed to IATA cargo agents by IATA airlines. The air waybills show: 1. the carrier's name 2. its head office address 3. its logo 4. the pre printed eleven digit air waybill number It is also possible to complete an air waybill through a computerized system. Agents all over the world are now using their own in-house computer systems to issue airlines' and freight forwarders' own air waybills. IATA cargo agents usually hold air waybills of several carriers. However, it gradually became difficult to accommodate these pre-numbered air waybills with the printed identification in the computer system. Therefore a neutral air waybill was created. Both types of air waybills have the same format and layout. However, the neutral air waybill does not bear any pre-printed individual name, head office address, logo and serial number. House and Master AWBs and BLs Page62

A freight forwarder offering a consolidation service, will issue its own air waybill or bill of lading. From now on AWB will be used to refer to both. This is called a Forwarder's or House AWB with its equivalent House BL. These act as contracts of carriage between the shipper and the forwarder, who in this case becomes a Deemed Carrier. The forwarder in turn enters into contracts with one or more carriers, often using more than one mode of transportation. The contract of carriage between the forwarder and carrier is called a Master Air Way Bill ( MAWB or MBL). A House Air Waybill (HAWB) or Bill of Lading (HBL) could act as a multimodal transport document.

Certificate of Inspection Required usually for import of industrial equipment, meat products, and perishable merchandise, it certifies that the item meets the required specifications and was in good condition and correct quantity when it left the port of departure. Also called inspection certificate or inspection report. When shipping high-value products or when you are dealing with a very conscientious customer, an inspection certificate might be requested. An inspection certificate provides proof that what you are shipping is, in fact, what the customer ordered, and is also of good quality. If a customer requests this document, agree to it -- but see that they cover the administrative and inspection fee. Also, ask them to recommend an independent inspection agency to perform the review at your end. If they don't have one, refer to your import/export dream team (e.g., banker, logistics expert, accountant and lawyer) for a suitable contact. An inspection certificate can be furnished directly to a buyer, a buyers government or direct to a buyers bank. In the case of presenting to a buyers bank, that is precipitated by the request of a Letter of Credit payment transaction that spells out specifically an inspection certificate is required in order to fulfill payment obligations. Generally, a manufacturer furnishes the certificate or the report. Packing List A shipping list, packing list, waybill, packing slip (also known as a bill of parcel, unpacking note, packaging slip, (delivery) docket, delivery list, manifest or customer receipt), is a shipping document that accompanies delivery packages, usually inside an attached shipping pouch or inside the package itself. It commonly includes an itemized detail of the package contents and does not include customer pricing. It serves to inform all parties, including transport agencies, government authorities, and customers, about the contents of the package. It helps them deal with the package accordingly. Page62

UNIT 4
BALANCE OF PAYMENT Balance of payments (BoP) accounts are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The BoP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items. A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa. When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries. While the overall BOP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account, the capital account excluding the central bank's reserve account, or the sum of the two. Imbalances in the latter sum can result in

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surplus countries accumulating wealth, while deficit nations become increasingly indebted. The term "balance of payments" often refers to this sum: a country's balance of payments is said to be in surplus (equivalently, the balance of payments is positive) by a certain amount if sources of funds (such as export goods sold and bonds sold) exceed uses of funds (such as paying for imported goods and paying for foreign bonds purchased) by that amount. There is said to be a balance of payments deficit (the balance of payments is said to be negative) if the former are less than the latter. Under a fixed exchange rate system, the central bank accommodates those flows by buying up any net inflow of funds into the country or by providing foreign currency funds to the foreign exchange market to match any international outflow of funds, thus preventing the funds flows from affecting the exchange rate between the country's currency and other currencies. Then the net change per year in the central bank's foreign exchange reserves is sometimes called the balance of payments surplus or deficit. Alternatives to a fixed exchange rate system include a managed float where some changes of exchange rates are allowed, or at the other extreme a purely floating exchange rate (also known as a purely flexible exchange rate). With a pure float the central bank does not intervene at all to protect or devalue its currency, allowing the rate to be set by the market, and the central bank's foreign exchange reserves do not change. Historically there have been different approaches to the question of how or even whether to eliminate current account or trade imbalances. With record trade imbalances held up as one of the contributing factors to the financial crisis of 2007 2010, plans to address global imbalances have been high on the agenda of policy makers since 2009. Maintaining a balance of payments with the rest of the world is a macroeconomic objective. In simple terms, if the balance of payments balances, then the combined receipts from selling goods and services abroad, and from the return on investments abroad, equals the combined expenditure on imports of goods and services, and investment income going abroad. BALANCE OF PAYMENT DEFICIT AND SURPLUS To maintain a fixed exchange rate, the central bank will need to automatically intervene in the private foreign exchange (Forex) by buying or selling domestic currency in exchange for the foreign reserve currency. Clearly, in order for these transactions to be possible, a countrys central bank will need a stock of the foreign reserve currency at the time the fixed exchange rate system begins. Subsequently, if excess demand for foreign currency in some periods is balanced with excess supply in other periods, then falling reserves in some periods (when dollars are bought on the Forex) will be offset with rising reserves in other periods (when dollars are sold in the Forex) and a central bank will be able to maintain the

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fixed exchange rate. Problems arise, though, if a country begins to run out of foreign reserves. But before discussing that situation, we need to explain some terminology. When the central bank buys domestic currency and sells the foreign reserve currency in the private Forex, the transaction indicates a balance of payments deficit. Alternatively, when the central bank sells domestic currency and buys foreign currency in the Forex, the transaction indicates a balance of payments surplus. Central bank transactions are recorded in an account titled official reserve transactions. It is found in the financial account of the balance of payments. If this account indicates an addition to official reserves over some period, then the country is running a balance of payments surplus. If over some period the official reserve balance is falling, then the country is running a balance of payments deficit. The deficit or surplus terminology arises from the following circumstances. Suppose a country runs a trade deficit in a fixed exchange rate system. A trade deficit means that demand for imports exceeds foreign demand for our exports. This implies that domestic demand for foreign currency (to buy imports) exceeds foreign demand for domestic currency (to buy our exports). Assuming no additional foreign demands for domestic currency on the financial account (to keep the exchange rate fixed), the central bank would need to intervene by selling foreign currency in exchange for domestic currency. This would lead to a reduction of foreign reserves and hence a balance of payments deficit. In the absence of transactions on the financial account, to have a trade deficit and a fixed exchange rate implies a balance of payments deficit as well. More generally, a balance of payments deficit (surplus) arises whenever there is excess demand for (supply of) foreign currency on the private Forex at the official fixed exchange rate. To satisfy the excess demand (excess supply), the central bank will automatically intervene on the Forex and sell (buy) foreign reserves. Thus by tracking sales or purchases of foreign reserves in the official reserve account, we can determine if the country has a balance of payments deficit or surplus. Note that in a floating exchange rate system, a central bank can intervene in the private Forex to push the exchange rate up or down. Thus official reserve transactions can show rising or falling foreign reserves and hence suggest a balance of payments deficit or surplus in a floating exchange system. However, it is not strictly proper to describe a country with floating exchange rates as having a balance of payment deficit or surplus. The reason is that interventions are not necessary in a floating exchange rate. In a floating system, an imbalance between supply and demand in the private Forex is relieved by a change in the exchange

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rate. Thus there need never be an imbalance in the balance of payments in a floating system. DEBITS AND CREDITS In double entry bookkeeping, debits and credits (abbreviated Dr and Cr, respectively) are entries made in account ledgers to record changes in value due to business transactions. Generally speaking, the source account for the transaction is credited (an entry is made on the right side of the account's ledger) and the destination account is debited (an entry is made on the left). Each transaction's debit entries must equal its credit entries. The difference between the total debits and total credits in a single account is the account's balance. If debits exceed credits, the account has a debit balance; if credits exceed debits, the account has a credit balance. For the company as a whole, the totals of debit balances and credit balances must be equal, otherwise an error has occurred. The balances of all accounts in a company's chart of accounts are listed in the trial balance report. Accountants use the trial balance to prepare financial statements (such as the balance sheet and income statement) which communicate information about the company's financial activities in a standardized format. International transactions are recorded on the balance of payment accounts. The balance of payments accounts can be presented in ledger form with two columns. One column is used to record credit entries. The second column is used to record debit entries. Almost every transaction involves an exchange between two individuals of two items believed to be of equal value. Thus if one person exchanges $20 for a baseball bat with another person, then the two items of equal value are the $20 of currency and the baseball bat. The debit and credit columns in the ledger are used to record each side of every transaction. This means that every transaction must result in a credit and debit entry of equal value. By convention, every credit entry has a + placed before it, while every debit entry has a placed before it. The plus on the credit side generally means that money is being received in exchange for that item, while the minus on the debit side indicates a monetary payment for that item. This interpretation in the balance of payments accounts can be misleading, however, since in many international transactions, as when currencies are exchanged, money is involved on both sides of the transaction. There are two simple rules of thumb to help classify entries on the balance of payments: Page62 Any time an item (good, service, or asset) is exported from a country, the value of that item is recorded as a credit entry on the balance of payments.

Any time an item is imported into a country, the value of that item is recorded as a debit entry on the balance of payments. EXPORT RISK Introduction There are many risks involved in exporting and in this section we briefly cover the main risks you are likely to encounter. Follow the links below to learn more about the risks in question: Credit risk Poor quality risk Transportation and logistics risks Legal risks Political risks Unforeseen risks Exchange rate risks Cultural and language risks Managing your risks Companies need to develop a professional approach when entering the field of exporting. The company's management will have to be extremely committed and will need to devote time and money to starting up their export campaign. Companies will also face greater competition and more stringent rules and regulations pertaining to products and packaging. There are a number of risks facing exporters, while there is an element of risk in all commercial transactions, the complexity of the environments that exporters must operate in, multiplies these risks. Credit risk In most instances - mainly because of the large distances and alien environments involved - it is generally difficult for the exporter to verify the creditworthiness and reputation of an importer. If the creditworthiness of a foreign buyer is unknown there is the increased risk of non-payment, late payment or even straightforward fraud. It is essential, therefore, that the exporter should strive to determine the creditworthiness of the foreign buyer. There are many commercial firms that can provide assistance in credit-checking foreign companies. In addition, the exporter should insist (particularly if the foreign buyer is unknown) for a secure method of payment such as an irrevocable documentary credit. The exporter could approach his bank in South Africa for assistance regarding international payment procedures.

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Poor quality risk If the goods to be exported are not inspected before they are shipped by an independent third-party, the exporter may find his entire shipment being rejected on arrival at the importer's premises due to the poor quality of the goods. Some unscrupulous importers may do this just to put pressure on an exporter and to try and negotiate a lower price - be careful! Experienced importers may request a preshipment inspection, to be conducted by an independent inspection company (this is commonly carried out for exports into other African countries). If they don't, then it may be worth suggesting to the importer during the negotiation stage that such an inspection be carried out as part of the contract. Such an inspection protects both the importer and the exporter. Alternatively, it may be a good idea to ship one or two samples of the goods being produced to the importer by an international courier company. This small task will ensure that if the importer accepts the quality of the sample goods and (this is important!) the main consignment is produced to the same standard, then it will be difficult for the importer to reject the consignment (unless something happened to the goods during shipping. Importers cannot always be present at the time of dispatch to physically inspect the goods for quality. Consequently, they often make use of the services of an independent inspection company. As it is usually at the request of the importer or his government that these inspections are conducted, the costs for the inspection are borne by the importer or it may be negotiated that they be included in the contract price. Transportation and logistics risks With the movement of goods from one continent to another, or even within the same continent, goods face many hazards. There is the risk of theft, damage and possibly the goods not even arriving at all. The exporter must understand all aspects of international logistics, in particular the contract of carriage. This contract is drawn up between a shipper and a carrier (transport operator). Exporters and importers must understand their legal rights to claim against carriers. The "shipper", would be the party that pays the main carrier of freight and this could be either the exporter or the importer, dependant upon the Incoterm (see section on Incoterms 2000, ICC publication) under which that particular transaction was effected.

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Legal risks International laws and regulations change frequently and/or may be applied differently from that of the exporter's own country. It is therefore important that the

exporter drafts a contract in conjunction with a legal firm, thereby ensuring that the exporter's interests are taken care of. The exporter should draw up a checklist of basic legal questions aimed at the imported prior to signing any formal contract. In particular the exporter should be clear as to which law and disputesettlement procedure will apply to the contract (known as the jurisdiction of the contract). The exporter may wish to impose choice of law and choice of forum clauses, which state that disputes will be settled under the exporter's own national law and courts. What is more, the legal environment of a country is developed from, or through, the political environment. Great care must be taken in assessing the legal aspects of trade with a particular country. The law not only in South Africa but also in the country to which he is exporting influences the exporter when doing business internationally. By way of illustration, it is only necessary to refer to the strict product-liability situation in respect to goods sold into the United States of America and the disastrous impact that this could have on the exporter. Another aspect for consideration is when trading with Muslim governed countries, such as Saudi Arabia. Exporters should first approach legal organizations within these countries prior to any legal negotiations being determined, in order to ensure that the exporter's best interests are protected, as these countries do not operate their legal system based on Roman/Dutch law as we do in South Africa. When appointing a middleman or intermediary, such as a trading house, agent or distributor, exporters should be aware of many issues and responsibilities that influence the appointment of such intermediaries. A list clearly stating these issues must be included in the agreement, by specifying the rights and duties of the parties involved in the trade transaction, would prevent unpleasant legal conflicts that could arise at a later stage. Political risk The political stability of a foreign country into which a company is exporting is of the utmost importance. Exporters must be constantly aware of the policies of foreign governments in order that they can change their marketing tactics accordingly and take the necessary steps to prevent loss of business and investment. Instability in the target market could lead to losses resulting from war, civil strife and political instability. It is essential to warn exporters to be aware of government intervention in the target market. Most countries world-wide operate under a capitalist system within which the volumes and values of goods and services whether provided locally or by way of imports, are set by the forces of supply and demand.

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There are, however, still a number of countries in which the government plays an interventionist role. Examples of such economies include North Korea, Cuba and Vietnam. In certain other countries, partial liberalisation of trade has been achieved but the extent of this liberalisation still has to be investigated by any exporter wishing to enter these markets. Furthermore, while there are certain countries that appear to have advanced towards a more open market, there may be constraints upon their foreign currency reserves. In such countries the Reserve or Central bank of that country may not have enough foreign exchange to allow payments to progress thereby again resulting in the risk of non-payment for the exporter. Unforeseen risks A natural disaster or terrorist action in a particular country could completely destroy an export market for a company. Unexpected occurrences may also increase the cost of transport causing great loss to the exporter. It is therefore important that the exporter ensures that a force majeure clause be included in any international contract the exporter concludes. Exchange rate risks All South African exporters face this risk on a daily basis, as our South African Rand strengthens or falls against other major currencies, it is difficult for South African exporters to predict the movement of the Rand, thus resulting in speculation on the part of the exporter on the likely direction of movement of the currency (i.e. up or down). Ultimately one party will benefit over the other. The easiest way to overcome this is to quote in one's own currency namely the SA Rand. However, the exporter still runs the risk that the currency will weaken and thus resulting in the benefit of a weaker exchange rate being passed onto the importer and not benefiting the exporter. The exporter must approach the Foreign Exchange division of his bank prior to quoting any prices internationally, in order to obtain advice and the movement of the South African Rand. A strategy that the exporter could follow in order to protect against the influence of exchange rate movements is to hedge against such movements through the purchase of forward exchange rate contracts. Culture and language risk Misunderstandings in communication and in international trade transactions arise because in most instances the importer and exporter come from different cultures and express themselves with different languages. In most instances business practices, tax systems, rules and regulations, accounting methods,

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currency controls and customs systems all differ from that of the exporter's own country. The exporter must ensure that he fully understands these differences and often an in-market visit to the intended country of export will greatly assist the seller in having a better understanding of his intended market place and the culture differences (s)he may encounter. EXPORT RISK COVERAGE Introduction It is quite important to evaluate the transportation risk in international trade for better financial stability of export business. About 80% of the world major transportation of goods is carried out by sea, which also gives rise to a number of risk factors associated with transportation of goods. The major risk factors related to shipping are cargo, vessels, people and financing. So it becomes necessary for the government to address all of these risks with broadbased security policy responses, since simply responding to threats in isolation to one another can be both ineffective and costly. While handling transportation in international trade following precaution should be taken into consideration. In case of transportation by ship, and the product should be appropriate for containerization. It is worth promoting standard order values equivalent to quantities loaded into standard size containers. Work must be carried out in compliance with the international code concerning the transport of dangerous goods. For better communication purpose people involve in the handling of goods should be equipped with phone, fax, email, internet and radio. About the instructions given to the transport company on freight forwarder. Necessary information about the cargo insurance. Each time goods are handled; there risk of damage. Plan for this when packing for export, and deciding on choice of transport and route. The expected sailing dates for marine transport should be built into the production programme, especially where payments is to be made by Letter of Credit when documents will needs to be presented within a specified time frame. Choice of transport has Balance Sheet implications. The exporter is likely to received payments for goods supplied while they are in transit. Driver accompanied road transport provides peace of minds, but the ability to fill the return load will affect pricing. Page62 Transport Insurance

Export and import in international trade, requires transportation of goods over a long distance. No matter whichever transport has been used in international trade, necessary insurance is must for ever good. Cargo insurance also known as marine cargo insurance is a type of insurance against physical damage or loss of goods during transportation. Cargo insurance is effective in all the three cases whether the goods have been transported via sea, land or air. Insurance policy is not applicable if the goods have been found to be packaged or transported by any wrong means or methods. So, it is advisable to use a broker for placing cargo risks. Scope of Coverage The following can be covered for the risk of loss or damage: Cargo import, export cross voyage dispatched by sea, river, road, rail post, personal courier, and including associated storage risks Good in transit (inland). Freight service liability. Associated stock. However there are still a number of general exclusion such loss by delay, war risk, improper packaging and insolvency of carrier. Converse for some of these may be negotiated with the insurance company. The Institute War Clauses may also be added. Regular exporters may negotiate open cover. It is an umbrella marine insurance policy that is activated when eligible shipments are made. Individual insurance certificates are issued after the shipment is made. Some letters of Credit Will require an individual insurance policy to be issued for the shipment, While others accept an insurance certificate. Specialist Covers Whereas standard marine/transport cover is the answer for general cargo, some classes of business will have special requirements. General insurer may have developed specialty teams to cater for the needs of this business, and it is worth asking if this cover can be extended to export risks. Cover may be automatically available for the needs of the trade. Example of this are: Project Constructional works insurers can cover the movement of goods for the project. Fine art

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Precious stonesSpecial Cover can be extended to cover sending of precious stones. Stock through put cover extended beyond the time goods are in transit until when they are used at the destination.

Seller's Buyer's Contingent Interest Insurance An exporter selling on, for example FOB (INCOTERMS 2000) delivery terms would according to the contract and to INCOTERMS, have not responsibility for insurance once the goods have passed the ship's rail. However, for peace of mind, he may wish to purchase extra cover, which will cover him for loss or will make up cover where the other policy is too restrictive . This is known as Seller's Interest Insurance. Similarly, cover is available to importers/buyers. Seller's Interest and Buyer's Interest covers usually extended cover to apply if the title in the goods reverts to the insured party until the goods are recovered resold or returned. Loss of Profits/ Consequential Loss Insurance Importers buying goods for a particular event may be interested in consequential loss cover in case the goods are late (for a reason that id insured) and (expensive) replacements have to be found to replace them. In such cases, the insurer will pay a claim and receive may proceeds from the eventual sale of the delayed goods. INSURANCE Trade credit insurance, business credit insurance, export credit insurance, or credit insurance is an insurance policy and a risk management product offered by private insurance companies and governmental export credit agencies to business entities wishing to protect their accounts receivable from loss due to credit risks such as protracted default, insolvency or bankruptcy. This insurance product is a type of property & casualty insurance, and should not be confused with such products as credit life or credit disability insurance, which individuals obtain to protect against the risk of loss of income needed to pay debts. Trade Credit Insurance can include a component of political risk insurance which is offered by the same insurers to insure the risk of non-payment by foreign buyers due to currency issues, political unrest, expropriation etc. These points to the major role trade credit insurance plays in facilitating international trade. Trade credit is offered by vendors to their customers as an alternative to prepayment or cash on delivery terms, providing time for the customer to generate income from sales to pay for the product or service. This requires the vendor to assume non-payment risk. In a local or domestic situation as well as in an export transaction, the risk increases when laws, customs communications and customer's reputation are not fully understood. In addition to

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increased risk of non-payment, international trade presents the problem of the time between product shipment and its availability for sale. The account receivable is like a loan and represents capital invested, and often borrowed, by the vendor. But this is not a secure asset until it is paid. If the customer's debt is credit insured the large, risky asset becomes more secure, like an insured building. This asset may then be viewed as collateral by lending institutions and a loan based upon it used to defray the expenses of the transaction and to produce more product. Trade credit insurance is, therefore, a trade finance tool. Trade credit insurance is purchased by business entities to insure their accounts receivable from loss due to the insolvency of the debtors. The product is not available to individuals. The cost (premium) for this is usually charged monthly, and are calculated as a percentage of sales for that month or as a percentage of all outstanding receivables. Trade credit insurance usually covers a portfolio of buyers and pays an agreed percentage of an invoice or receivable that remains unpaid as a result of protracted default, insolvency or bankruptcy. Policy holders must apply a credit limit on each of their buyers for the sales to that buyer to be insured. The premium rate reflects the average credit risk of the insured portfolio of buyers. In addition, credit insurance can also cover single transactions or trade with only one buyer.

The Export Credit Guarantee Corporation of India Limited (ECGC) The Export Credit Guarantee Corporation of India Limited (ECGC) is a company wholly owned by the Government of India based in Mumbai, Maharashtra. It provides export credit insurance support to Indian exporters and is controlled by the Ministry of Commerce. Government of India had initially set up Export Risks Insurance Corporation (ERIC) in July 1957. It was transformed into Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit Guarantee of India in 1983. History ECGC of India Ltd was established in July, 1957 to strengthen the export promotion by covering the risk of exporting on credit. It functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, Government of India. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community. ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The present paid-up capital of the company is Rs.900 crores and authorized capital Rs.1000 crores. What does ECGC do? Page62

1. Provides a range of credit risk insurance covers to exporters against loss in export of goods and services 2. Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them 3. Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan How does ECGC help exporters? 1. Offers insurance protection to exporters against payment risks 2. Provides guidance in export-related activities 3. Makes available information on different countries with its own credit ratings 4. Makes it easy to obtain export finance from banks/financial institutions 5. Assists exporters in recovering bad debts 6. Provides information on credit-worthiness of overseas buyers Need for export credit insurance Payments for exports are open to risks even at the best of times. The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world. An outbreak of war or civil war may block or delay payment for goods exported. A coup or an insurrection may also bring about the same result. Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. In addition, the exporters have to face commercial risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to the political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss. Cooperation agreement with MIGA (Multilateral Investment Guarantee Agency) an arm of World Bank. MIGA provides: 1. Political insurance for foreign investment in developing countries. 2. Technical assistance to improve investment climate. 3. Dispute mediation service. Under this agreement protection is available against political and economic risks such as transfer restriction, expropriation, war, terrorism and civil disturbances etc...

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Buyer Exporter Incentives (Export Incentives) Monetary, tax or legal incentives designed to encourage businesses to export certain types of goods or services. A government providing export incentives often

does so in order to keep domestic products competitive in the global market. Types of export incentives include tax exemption on profits made from exports. Export incentives make domestic exports competitive by providing a sort of kickback to the exporter. The government collects less tax in order to deflate the exported good's price, so the increased competitiveness of the product in the global market ensures that domestic goods have a wider reach. This level of government involvement can also lead to international disputes that may be settled by the World Trade Organization (WTO). Export Incentives The Government of India provides various incentives & facilities to the exporter. These export incentives and facilities are as follow. Duty Drawback (DBK) Duty Entitlement Passbook Scheme (DEPB) Focus Market Scheme (FMS) Focus Product Scheme (FPS). Duty Exemption Scheme Vishesh Krishi and Gram Udyog Yojna (VKGUY) Marketing Development Assistance (MDA) Export Promotion Capital Goods Scheme Served from India Scheme Exchange earner Foreign Currency Account (EEFC A/C)

Duty Drawback The duty drawback refers to the refund in respect of central Excise & Custom duties paid by manufacturer and/or exporter in relation to the inputs used for manufacturing of the products. Duty drawback is not applicable in the respect of a product if No excise/custom duties were paid for its manufacturer and/or exporter. Amount of the drawback is less then 1 % of FOB value.(except where the amount of drawback is more than Rs 500 per shipment) manufacturer and/or exporter is by 100% EOU/EPZ/SEZ Units. If manufacturer and/or exporter apply for duty entitlement pass book scheme. Duty Drawback Rates The government of India announces every year on 31 may, the rates of Duty drawback in respect of scheduled items. All such rates are called all industry rates. The rates indicated custom & excise duty allocation. These rates are generally made effective for one year from 1 June. In case duty drawback rates are not

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announced for a product, then you can submit an application in the prescribed form for determination of specific rate of duty drawback for the particles product. Such a rate is known as Brand rate. If the rate of duty drawback is less then 80 % of the duties paid then the exporter can apply for its upwards revision in prescribes form. Duty Drawback Under EDI System In all custom station where EDI system has been introduced for processing of shipping documents, the exporter are not required to file duty drawback claims, such claims are processed simultaneously with shipping documents. For receiving this amount you have to be maintain a bank account with a bank, which is link with customhouse. Duty Entitlement Pass Book (DEPB) Under the Duty Entitlement Pass Book (DEPB) scheme, exporter is eligible to claim credit as specified percentage of FOB value if exports made in freely convertible currency. The rate of Duty Entitlement Pass Book (DEPB) is announced by DGFT. The rates of Duty Entitlement Pass Book (DEPB) are decided by DGFT after every 5 years but they have right to change the rates at any time. Vishesh krishi And Gram Udyog Yojna The objective of this scheme is to prompt the export of fruits, vegetables, flower, minor forest product and their value added product. Export of agricultural product shall be entitled for duty credit scrip equivalent to 5 % of FOB value of exports for each licensing year. Focus Market Scheme Government of India gives the duty credit scrip equivalent to 2.5 % of FOB value of exports to some countries to increase the export in these countries.

Focus Product Scheme Government of India gives the duty credit scrip equivalent to 1.25 % of FOB value of exports to some products to increase the export of these products. Export Promotion Capital Goods Scheme (EPCG) According to this scheme, a domestic manufacturer can import machinery and plant without paying customs duty or settling at a concessional rate of customs duty. But his undertakings should be as mentioned below: Customs Duty Rate 10% Nil in case CIF value is Export Obligation 4 times exports (on FOB basis) of CIF value of machinery. 6 times exports (on FOB basis) Time 5 years 8 years Page62

Rs200mn or more.

of CIF value of machinery or 5 times exports on net foreign earnings basis of CIF value of machinery. 8 years

Nil in case CIF value is 6 times exports (on FOB basis) Rs50mn or more for of CIF value of machinery or 5 agriculture, aquaculture, times exports on net foreign animal husbandry, floriculture, earnings basis of CIF value of horticulture, poultry and machinery. sericulture.

UNIT 5
Foreign Trade Policy of India Foreign Trade Policy of India is a set of guidelines and instructions established by the DGFT in matters related to the import and export of goods in India. The Foreign Trade Policy of India is guided by the Export Import in known as in short EXIM Policy of the Indian Government and is regulated by the Foreign Trade Development and Regulation Act, 1992.

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DGFT (Directorate General of Foreign Trade) is the main governing body in matters related to Exim Policy. The main objective of the Foreign Trade (Development and Regulation) Act is to provide the development and regulation of foreign trade by facilitating imports into, and augmenting exports from India. Foreign Trade Act has replaced the earlier law known as the imports and Exports (Control) Act 1947. EXIM Policy Indian EXIM Policy contains various policy related decisions taken by the government in the sphere of Foreign Trade, i.e., with respect to imports and exports from the country and more especially export promotion measures, policies and procedures related thereto. Trade Policy is prepared and announced by the Central Government (Ministry of Commerce). India's Export Import Policy also know as Foreign Trade Policy, in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position. History of Exim Policy of India In the year 1962, the Government of India appointed a special Exim Polucy Committee to review the government previous export import policies. The committee was later on approved by the Government of India. Mr. V. P. Singh, the then Commerce Minister and announced the Exim Policy on the 12th of April, 1985. Initially the EXIM Policy was introduced for the period of three years with main objective to boost the export business in India.

Objectives Of The Exim Policy: Government control import of non-essential items through the Exim Policy At the same time, all-out efforts are made to promote exports. Thus, there are two aspects of Exim Policy; the import policy which is concerned with regulation and management of imports and the export policy which is concerned with exports not only promotion but also regulation. The main objective of the Government's EXIM Policy is to promote exports to the maximum extent. Exports should be promoted in such a manner that the economy of the country is not affected by unregulated exportable items specially needed within the country. Export control is, therefore, exercised in respect of a limited number of items whose supply position demands that their exports should be regulated in the larger interests of the country. In other words, the main objective of the Exim Policy is: To accelerate the economy from low level of economic activities to high level of economic activities by making it a globally oriented vibrant economy and to derive maximum benefits from expanding global market opportunities.

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To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components,' consumables and capital goods required for augmenting production. To enhance the techno local strength and efficiency of Indian agriculture, industry and services, thereby, improving their competitiveness. To generate new employment. Opportunities and encourage the attainment of internationally accepted standards of quality. To provide quality consumer products at reasonable prices.

Governing Body of Exim Policy The Government of India notifies the Exim Policy for a period of five years (1997-2002) under Section 5 of the Foreign Trade (Development and Regulation Act), 1992. The current Exim policy covers the period 2002-2007. The Exim Policy is updated every year on the 31st of March and the modifications, improvements and new schemes became effective from 1st April of every year. All types of changes or modifications related to the EXIM Policy is normally announced by the Union Minister of Commerce and Industry who co-ordinates with the Ministry of Finance, The Directorate General of Foreign Trade and network of Dgft Regional Offices.

GOVT. INSTITUTIONS IN EXPORT PROMOTION Introduction In India there are a number of organisation and agencies that provides various types of support to the exporters from time to time. These export organisations provides market research in the area of foreign trade, dissemination of information arising from its activities relating to research and market studies. So, exporter should contact them for the necessary assistance. Export Promotion Councils (EPC) Export Promotion Councils are registered as non -profit organisations under the Indian Companies Act. At present there are eleven Export Promotion Councils under the administrative control of the Department of Commerce and nine export promotion councils related to textile sector under the administrative control of Ministry of Textiles. The Export Promotion Councils perform both advisory and executive functions. These Councils are also the registering authorities under the Export Import Policy, 2002-2007. Page62 Commodity Boards

Commodity Board is registered agency designated by the Ministry of Commerce, Government of India for purposes of export-promotion and has offices in India and abroad. There are five statutory Commodity Boards, which are responsible for production, development and export of tea, coffee, rubber, spices and tobacco.

Federation of Indian Export Organisations (FIEO) FIEO was set up jointly by the Ministry of Commerce, Government of India and private trade and industry in the year 1965. FIEO is thus a partner of the Government of India in promoting Indias exports. Indian Institute of Foreign Trade (IIFT) The Indian Institute of Foreign Trade (IIFT) was set up in 1963 by the Government of India as an autonomous organisation to help Indian exporters in foreign trade management and increase exports by developing human resources, generating, analysing and disseminating data and conducting research. Indian Institution of Packaging (IIP) The Indian Institute of Packaging or IIP in short was established in 1966 under the Societies Registration Act (1860). Headquartered in Mumbai, IIP also has testing and development laboratories at Calcutta, New Delhi and Chennai. The Institute is closely linked with international organisations and is recognized by the UNIDO (United Nations Industrial Development Organisation) and the ITC (International Trading Centre) for consultancy and training. The IIP is a member of the Asian Packaging Federation (APF), the Institute of Packaging Professionals (IOPP) USA, the Insitute of Packaging (IOP) UK, Technical Association of PULP AND Paper Industry (TAPPI), USA and the World Packaging Organisation (WPO). Export Inspection Council (EIC) The Export Inspection Council or EIC in short, was set up by the Government of India under Section 3 of the Export (Quality Control and Inspection) Act, 1963 in order to ensure sound development of export trade of India through Quality Control and Inspection. Indian Council of Arbitration (ICA) The Indian Council for Arbitration (ICA) was established on April 15, 1965. ICA provides arbitration facilities for all types of Indian and international commercial disputes through its international panel of arbitrators with eminent and experienced persons from different lines of trade and professions. India Trade Promotion Organisation (ITPO) ITPO is a government organisation for promoting the countrys external trade. Its promotional tools include organizing of fairs and exhibitions in India and abroad, Buyer-Seller Meets, Contact Promotion Programmes, Product Promotion

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Programmes, Promotion through Overseas Department Stores, Market Surveys and Information Dissemination. Chamber of Commerce & Industry (CII) CII play an active role in issuing certificate of origin and taking up specific cases of exporters to the Govt. Federation of Indian Chamber of Commerce & Industry (FICCI) Federation of Indian Chambers of Commerce and Industry or FICCI is an association of business organisations in India. FICCI acts as the proactive business solution provider through research, interactions at the highest political level and global networking. Bureau of Indian Standards (BIS) The Bureau of Indian Standards (BIS), the National Standards Body of India, is a statutory body set up under the Bureau of Indian Standards Act, 1986. BIS is engaged in standard formulation, certification marking and laboratory testing. Textile Committee Textile Committee carries pre-shipment inspection of textiles and market research for textile yarns, textile machines etc. Marine Products Export Development Authority (MPEDA) The Marine Products Export Development Authority (MPEDA) was constituted in 1972 under the Marine Products Export Development Authority Act 1972 and plays an active role in the development of marine products meant for export with special reference to processing, packaging, storage and marketing etc. India Investment Centre (IIC) Indian Investment Center (IIC) was set up in 1960 as an independent organization, which is under the Ministry of Finance, Government of India. The main objective behind the setting up of IIC was to encourage foreign private investment in the country. IIC also assist Indian Businessmen for setting up of Industrial or other Joint ventures abroad. Directorate General of Foreign Trade (DGFT) DGFT or Directorate General of Foreign Trade is a government organisation in India responsible for the formulation of guidelines and principles for importers and exporters of country. Director General of Commercial Intelligence Statistics (DGCIS) DGCIS is the Primary agency for the collection, compilation and the publication of the foreign inland and ancillary trade statistics and dissemination of various types of commercial informations.

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UNIT 6
EXPORT CREDITS Exim Bank offers the following Export Credit facilities, which can be availed of by Indian companies, commercial banks and overseas entities. For Indian Companies executing contracts overseas Pre-shipment credit Exim Bank's Pre-shipment Credit facility, in Indian Rupees and foreign currency, provides access to finance at the manufacturing stage - enabling exporters to purchase raw materials and other inputs. Supplier's Credit This facility enables Indian exporters to extend term credit to importers (overseas) of eligible goods at the post-shipment stage. For Project Exporters Indian project exporters incur Rupee expenditure while executing overseas project export contracts i.e. costs of mobilization/acquisition of materials, personnel and equipment etc. Exim Bank's facility helps them meet these expenses. For Exporters of Consultancy and Technological Services Exim Bank offers a special credit facility to Indian exporters of consultancy and technology services, so that they can, in turn, extend term credit to overseas importers. Guarantee Facilities Indian companies can avail of these to furnish requisite guarantees to facilitate execution of export contracts and import transactions. For commercial Banks Exim Bank offers Rediscounting Facility to commercial banks, enabling them to rediscount export bills of their SSI customers, with usance not exceeding 90 days. Refinance of Supplier's Credit, enabling commercial banks to offer credit to Indian exporters of eligible goods, who in turn extend them credit over 180 days to importers overseas.

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Other Facilities for Indian Companies Indian companies executing contracts within India, but which are categorized as Deemed Exports in the Foreign Trade Policy of India or contracts secured under international competitive bidding or contracts under which payments are received in foreign currency, can avail of credit under our Finance for Deemed Exports facility, aimed at helping them meet cash flow deficits. For Overseas Entities Buyer's Credit Overseas buyers can avail of Buyer's Credit from Exim Bank, for import of eligible goods from India on deferred payment terms. Eligible Goods Capital goods, plant and machinery, industrial manufactures, consumer durables and any other items eligible for being exported under the 'Exim Policy' of the Government of India Export Credit Agency An export credit agency (known in trade finance as ECA) or Investment Insurance Agency, is a private or quasi-governmental institution that acts as an intermediary between national governments and exporters to issue export financing. The financing can take the form of credits (financial support) or credit insurance and guarantees (pure cover) or both, depending on the mandate the ECA has been given by its government. ECAs can also offer credit or cover on their own account. This does not differ from normal banking activities. Some agencies are government-sponsored, others private, and others a bit of both. Export credit agencies use three methods to provide funds to an importing entity: Direct Lending: This is the simplest structure whereby the loan is conditioned upon the purchase of goods or services from businesses in the organizing country. Financial Intermediary Loans: Here, the exportimport bank lends funds to a financial intermediary, such as a commercial bank, that in turn loans the funds to the importing entity. Interest Rate Equalization: Under interest rate equalization, a commercial lender provides a loan to the importing entity at below market interest rates, and in turn receives compensation from the exportimport bank for the difference between the below-market rate and the commercial rate. Officially supported export credits Credits may be short term (up to two years), medium term (two to five years) or long term (five to ten years). They are usually supplier's credits, extended to the

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exporter, but they may be buyer's credits, extended to the importer. The risk on these credits, as well as on guarantees and insurance, is borne by the sponsoring government. ECAs limit this risk by being "closed" on risky countries, meaning that they do not accept any risk on these countries. In addition, a committee of government and ECA officials will review large and otherwise riskier than normal transactions. PACKING CREDIT (Pre Shipment Credit) A borrowing facility provided by a financial institution to help an exporter finance the costs of buying or making a set of products, and then packing and transporting them before shipment occurs. A packing credit loan will often be extended if a letter of credit has been issued by a purchaser of the products that is based in another country or a confirmed order for exporting the goods exists. Pre Shipment Finance (Packing Credit) Pre Shipment Finance is issued by a financial institution when the seller want the payment of the goods before shipment. The main objectives behind preshipment finance or pre export finance is to enable exporter to: Procure raw materials. Carry out manufacturing process. Provide a secure warehouse for goods and raw materials. Process and pack the goods. Ship the goods to the buyers. Meet other financial cost of the business. Types of Pre Shipment Finance Packing Credit Advance against Cheques/Draft etc. representing Advance Payments. Pre-shipment finance is extended in the following forms : Packing Credit in Indian Rupee Packing Credit in Foreign Currency (PCFC) Requirement for Getting Packing Credit This facility is provided to an exporter who satisfies the following criteria A ten digit importerexporter code number allotted by DGFT. Exporter should not be in the caution list of RBI. If the goods to be exported are not under OGL (Open General Licence), the exporter should have the required license /quota permit to export the goods. Page62 Packing credit facility can be provided to an exporter on production of the following evidences to the bank:

1. Formal application for release the packing credit with undertaking to the effect that the exporter would be ship the goods within stipulated due date and submit the relevant shipping documents to the banks within prescribed time limit. 2. Firm order or irrevocable L/C or original cable / fax / telex message exchange between the exporter and the buyer. 3. Licence issued by DGFT if the goods to be exported fall under the restricted or canalized category. If the item falls under quota system, proper quota allotment proof needs to be submitted. The confirmed order received from the overseas buyer should reveal the information about the full name and address of the overseas buyer, description quantity and value of goods (FOB or CIF), destination port and the last date of payment. Negotiation of Bill Transfer of a bill of exchange from its current holder to another who becomes the new holder. A foreign bill negotiation can help to manage foreign exchange risk in an export contract and assist in business cash flow. A foreign bill negotiation is an advanced by bank for the amount and currency that a manufacturer will receive when your overseas buyer makes payment under the export contract. The Bank will provides with a short-term, postshipment advance by buying (negotiating) a bill of exchange that is issued in a foreign currency in a documentary collection transaction. How does it work? If youre receiving payment in a foreign currency using the documentary collection method, you draw up a bill of exchange in that currency. When you present the shipping documents to your bank for forwarding to your buyers bank, your bank buys the bill of exchange drawn on your overseas buyer. In effect, the bank pays you a foreign currency advance on the security of the promise of future payment from your buyer. You can either keep the advanced funds in the foreign currency or convert them to Australian dollars. You pay interest on the funds until the maturity of the advancethat is, until your buyer pays the bill of exchange. Page62

When the buyer pays the bill of exchange, your bank receives the buyers payment on your behalf. The bank keeps the payment as reimbursement for the advance it made to you and the interest you owe on the advance. A bank may negotiate a bill of exchange as with recourse or without recourse to you. With recourse means that if your buyer doesnt pay the bill of exchange, you must refund the advance you received from your bank and pay interest on the borrowed amount. If your bank agrees to buy your bill of exchange without recourse, it accepts the risk of non-payment by your buyer. Your bank may be more likely to agree to a without recourse facility if your buyers bank has added its aval (guarantee) to the bill of exchange. A bill of exchange tends to be used for short-term credit in the international trade of goods. For longer-term credit, a promissory note is often usedanother type of payment order that you can ask your bank to negotiate before payment from your buyer is due. It represents an irrevocable promise from your buyer to pay you according to the conditions outlined in the note. The below main steps foreign bill diagram shows the in a typical

negotiation.

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Notes to diagram 1. You enter into an export contract with your overseas buyer which requires payment in a currency other than Australian dollars. 2. You ship the goods to your buyer in accordance with the contract. 3. You provide the bill of exchange and shipping documents (including the title documents) to your bank. 4. Your bank buys the bill of exchange, advancing to you in foreign currency the amount you are owed by your buyer less an agreed discount (the discount represents your interest expense for the advance). 5. Your bank forwards the bill of exchange and shipping documents to the buyers bank. 6. The buyers bank presents the bill of exchange to the buyer. The buyer accepts the bill of exchange by signing it and receives the shipping documents from their bank, allowing them to clear the goods. 7. The buyer pays their bank for the goods. 8. The buyers bank transfers the payment to your bank, which retains the payment as reimbursement of the advance made to you in step 4 plus interest payable on the advance.

What are the pros and cons? Pros Can enable you to raise short-term, post-shipment finance in the same currency as your export contract payment You can crystallise the Australian Cons If the foreign bill is negotiated with recourse to you and your buyer doesnt pay, youll have to repay the advanced funds plus interest If you have converted the

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dollar amount you receive for your export order at any time by converting the proceeds of the advance into Australian dollars Since the interest rate on the advanced funds will be the rate applicable to the borrowed foreign currency (rather than that applicable to an Australian dollar loan), you can calculate your interest expense in the same currency as the payment to be received from your buyer A without recourse foreign bill negotiation can reduce your payment risk in a documentary collection transaction

advanced funds to Australian dollars and your buyer doesnt pay, you have to buy foreign currency at the market rate to repay the bank

What costs are involved? Interest rates on advances against foreign bills of exchange reflect the rates that apply to the relevant foreign currency and, if the advance is without recourse, your banks assessment of the non-payment risk associated with your buyer. There may also be service fees payable to your bank.

Role of Terms of Payment in International Trading Introduction There is no predefined definition of personal import. In general a personal import is a direct purchase of foreign goods from overseas mail order companies, retailers, manufacturers or by an individual for the purpose of personal use. The most common terms of purchase are as follows: Page62

Consignment Purchase Cash-in-Advance (Pre-Payment) Down Payment Open Account Documentary Collections Letters of Credit

Consignment Purchase Consignment purchase terms can be the most beneficial method of payment for the importer. In this method of purchase, importer makes the payment only once the goods or imported items are sold to the end user. In case of no selling, the same item is returned to the foreign supplier. Consignment purchase is considered the most risky and time taking method of payment for the exporter. Cash-in-Advance (Pre-Payment) Cash in Advance is a pre-payment method in which, an importer the payment for the items to be imported in advance prior to the shipment of goods. The importer must trust that the supplier will ship the product on time and that the goods will be as advertised. Cash-in-Advance method of payment creates a lot of risk factors for the importers. However, this method of payment is inexpensive as it involves direct importer-exporter contact without commercial bank involvement. In international trade, Cash in Advance methods of payment is usually done when The Importer has not been long established. The Importer's credit status is doubtful or unsatisfactory. The country or political risks are very high in the importers country. The product is in heavy demand and the seller does not have to accommodate an Importer's financing request in order to sell the merchandise. Down Payment In the method of down payment, an importer pays a fraction of the total amount of the items to be imported in advance. The down payment methods have both advantages and disadvantages. The advantage is that it induces the exporter or seller to begin performance without the importer or buyer paying the full agreed price in advance and the disadvantage is that there is a possibility the Seller or exporter may never deliver the goods even though it has the Buyer's down payment. Open Account In case of an open account, an importer takes the delivery of good and ensures the supplier to make the payment at some specific date in the future. Importer is also not required to issue any negotiable instrument evidencing his legal

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commitment to pay at the appointed time. This type of payment methods are mostly seen where when the importer/buyer has a strong credit history and is wellknown to the seller. Open Account method of payment offers no protection in case of non-payment to the seller. There are many merits and demerits of open account terms. Under an open account payment method, title to the goods usually passes from the seller to the buyer prior to payment and subjects the seller to risk of default by the Buyer. Furthermore, there may be a time delay in payment, depending on how quickly documents are exchanged between Seller and Buyer. While this payment term involves the fewest restrictions and the lowest cost for the Buyer, it also presents the Seller with the highest degree of payment risk and is employed only between a Buyer and a Seller who have a long-term relationship involving a great level of mutual trust. Documentary Collections Documentary Collection is an important bank payment method under, which the sale transaction is settled by the bank through an exchange of documents. In this process the seller's instructs his bank to forwards documents related to the export of goods to the buyer's bank with a request to present these documents to the buyer for payment, indicating when and on what conditions these documents can be released to the buyer. The buyer may obtain possession of goods and clear them through customs, if the buyer has the shipping documents such as original bill of lading, certificate of origin, etc. However, the documents are only given to the buyer after payment has been made ("Documents against Payment") or payment undertaking has been given - the buyer has accepted a bill of exchange issued by the seller and payable at a certain date in the future (maturity date) ("Documents against Acceptance"). Documentary Collections make easy import-export operations within low cost. But it does not provide same level of protection as the letter of credit as it does not involve any kind of bank guarantee like letter of credit. Letter of Credit A letter of credit is the most well known method of payment in international trade. Under an import letter of credit, importers bank guarantees to the supplier that the bank will pay mentioned amount in the agreement, once supplier or exporter meet the terms and conditions of the letter of credit. In this method of payment, plays an intermediary role to help complete the trade transaction. The bank deals only in documents and does not inspect the goods themselves. Letters of Credit are issued subject to the Uniforms Customs & Practice for Documentary Credits (UCPDC)(UCP). This set of rules is produced by the International Chamber of Commerce and Industries (CII). Documents Against Acceptance Instructions given by an exporter to a bank that the documents attached to the draft for collection are deliverable to the drawee only against his or her acceptance of the draft.

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International Terms of Payment

CASH IN ADVANCE

Before shipment

After payment

None

LETTER OF CREDIT (L/C) (See next two items.)

Commerical Invoice must match the L/C exactly. Dates must be carefully headed. "Stale" documents are unacceptable for collection. Assures shipment is made but relies on exporter to ship goods as described in documents. Terms may be negotiated prior to L/C agreement, alleviating buyer's degree of risk.

Letters of Credit require total accuracy in conforming to terms, conditions, and documentaion. Consult your United Shipping Associate member for determining feasibility of terms and conditions.

CONFIRED IRREVOCAB LE CREDIT

After shipment is made, documents presented to the bank.

After payment

Gives the seller a double assurance of payments. Depends on the terms of the letter of credit.

The inclusion of a second assurance of payment (usually a U.S. Bank) prevents surprises, and adds assurance that issuing bank has been deemed acceptable by confirming bank. Adds cost and an additional requirement to seller.

UNCONFIRM ED IRREVOCAB LE CREDIT

Same as above

Same as above

DRAFTS

Remittance

A draft may be written with

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Seller has single bank assurance of payment and seller remains dependent on foreign bank. Seller should contact his banker to determine whether the issuing bank has sufficient assests to cover the amount. Drafts, should

Same as above

Credit can be changed only by mutual agreement, as stipulated in a sales agreement. Becomes open account with buyer's bank as collection agent. Foreign bank may have problems making payment in sum or timeliness.

(See next two items.)

time from buyer's bank to seller's bank may still take one week to one month.

contain terms and conditions mutually agreed upon.

SIGHT DRAFT (with documents against acceptance)

On presentation of draft to buyer.

After payment to buyer's bank.

If draft not honored, goods must be returned or resold. Storage, handling, and return freight expenses may be incurred.

Assures shipment but not content, unless inspection or check-in is allowed before payment. Assures shipment but not content. Time of maturity allows for adjustments, if agreed to by seller.

TIME DRAFTS (with documents against acceptance)

On maturity of the draft

Before payment, after acceptance

Relies on buyer to honor draft upon presentation.

OPEN ACCOUNT

As agreed, usually by invoice

Before payment

Relies completely on buyer to pay account as agreed

None

virtually any term or condition agreeable to both parties. When determining draft tenor (terms and conditions), consult with your banker and freight forwarder to determine the most desirable means of doing business in a given country. A draft can be a collection instrument used to exchange possession and title to goods for payment. Seller is essentially drawing a check against the bank account of the buyer. Buyer's bank must have pre-approval, or seek approval of the buyer prior to honoring the check. Payble upon presentation of documents. Payable based upon the acceptance of an obligation to pay the seller at a specified time. Although a time draft has more collection leverage than an invoice, it remains only a promissory note, with conditions. All terms of payment, including extra charges and terms should be mutually understood and agreed upon prior to open account initiation. Companies conducting ongoing business are candidates for open account terms of payment. Seller must measure not only buyer's credit reliability but the country's as well.

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UNIT 7
QUALITY CONTROL AND PRE-SHIPMENT INSPECTION Pre-shipment inspection, also called pre-shipment inspection or PSI, is a part of supply chain management and an important and reliable quality control method for checking goods' quality while clients buy from the suppliers. After ordering a number of articles, the buyer lets a third party control the ordered goods before they are dispatched to him. Normally an independent inspection company is assigned with the task of the PSI, as it is in the interest of the buyer that somebody not connected with the deal in any way verifies the amount and quality. This way the buyer makes sure, he gets the goods he paid for. Although increasing numbers of clients would like to collect suppliers' information from the Internet, this contains high risks because it is not a face-toface transaction, and Internet phishing and fraud can corrupt it. Pre-shipment inspection can greatly avoid this risk and ensure clients get quality products from suppliers. Process The pre-shipment inspection is normally agreed between a buyer, a supplier, and a bank, and it can be used to initiate payment for a letter of credit. A PSI can be performed at different stages: Checking the total amount of goods and packing Controlling the quality and/or consistency of goods Checking of all documentation, including test reports and packaging list Verifying compliance with the standards of the destination country (e.g. ASME or CE mark) The first stage is often performed by the transport company, but for the latter two stages a proper inspection company is needed. Similarly, if between the buyer and seller money transfer via a letter of credit is agreed upon, it is necessary to assign a reputable inspection company. In case of the letter of credit, after inspection of the goods, an inspection certificate is sent to the bank issuing the letter of credit and the buyer, initiating the money transfer.

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46.A is a clause in the Letter of Credit (LC), that expresses the required documents that shall be provided to the bank by the seller. It is mandatory for any fund transfer. So, one of the subjects that can be expressed in 46.A clause is: "The original inspection certificate shall be issued by independent third party preshipment inspection company not sooner than the bill of lading date and the inspection shall be done by "the name of inspection agency" and certifying that: "The quality, quantity, and the packing of the goods dispatched are strongly conforming with provisions of the goods stated in the associated proforma invoice (PI), the terms of Letter of Credit and any attachments built thereto as submitted to "name of third party pre-shipment inspection agency" by the buyer". The clause 46.A expresses lots of documents that shall be provided to the bank to initiate payment. The certificate of inspection is simply one of them. The statement quoted above must be written exactly like this within the certificate of Inspection. Even if the original document (Letter of Credit) contains a spelling error, it shall be written in the same form. Any change in this wording will be disapproved by the bank and the funds will not be transferred to the seller. The inspection agency will submit an inspection certificate once the manufacturer/seller submit them with the following documents: Bill of Lading (BL), Certificate of Origin (COO) and Packing List (PL). The company in charge of the Pre-Shipment Inspection already has the letter of credit (LC), the purchase order (PO), and the proforma invoice (PI). Based on above listed documents; altogether, they will issue a certificate and submit it to the manufacturer/seller. Finally, the manufacturer/seller will collect all mentioned documents and present them to the bank in order to initiate the payment. Inspection companies are classified in two classes: Free-market companies: These are privately owned companies, which sell their services to the market. Danger with these might be, especially if it is a smaller company, that they might be paid as well by the manufacturer, thus working in his interest. State owned inspection companies: Only very few companies operating on the market are state-owned or partly state-owned. The shareholding of governmental institutions guarantees the independence and objectivity.

A higher form of the PSI is called expediting, in this the dates of delivery and the production are controlled as well. Some countries, like Botswana, require PSIs for all goods entering the country in order to fight corruption. In these cases the PSI must be performed by the company designated by the country. Containerization Containerization is a system of freight transport based on a range of steel intermodal containers (also "shipping containers", "ISO containers" etc.). Containers are built to standardized dimensions, and can be loaded and unloaded, stacked, transported efficiently over long distances, and transferred from one mode of

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transport to anothercontainer ships, rail and semi-trailer truckswithout being opened. The system, developed after World War II, led to greatly reduced transport costs, and supported a vast increase in international trade. Container standards There are five common standard lengths, 20-ft (6.1 m), 40-ft (12.2 m), 45-ft (13.7 m), 48-ft (14.6 m), and 53-ft (16.2 m). United States domestic standard containers are generally 48 ft (15 m) and 53-ft (rail and truck). Container capacity is often expressed in twenty-foot equivalent units (TEU, or sometimes teu). An equivalent unit is a measure of containerized cargo capacity equal to one standard 20 ft (length) 8 ft (width) container. As this is an approximate measure, the height of the box is not considered, for instance the 9 ft 6 in (2.9 m) High cube and the 4-ft 3-in (1.3 m) half height 20 ft (6.1 m) containers are also called one TEU. The maximum gross mass for a 20 ft (6.1 m) dry cargo container is 24,000 kg, and for a 40-ft (including the 2.87 m (9 ft 6 in) high cube container), it is 30,480 kg. Allowing for the tare mass of the container, the maximum payload mass is therefore reduced to approximately 22,000 kg for 20 ft (6.1 m), and 27,000 kg for 40 ft (12 m) containers. The original choice of 8-foot (2.4 m) height for ISO containers was made in part to suit a large proportion of railway tunnels, though some had to be modified. With the arrival of even taller containers, further enlargement is proving necessary.

Air freight containers While major airlines use containers that are custom designed for their aircraft and associated ground handling equipment the IATA has created a set of standard aluminium container sizes of up to 11.52 m3 (407 cu ft) in volume.

Container loading
Full container load A full container load (FCL) is an ISO standard container that is loaded and unloaded under the risk and account of one shipper and only one consignee. In practice, it means that the whole container is intended for one consignee. FCL container shipment tends to have lower freight rates than an equivalent weight of cargo in bulk. FCL is intended to designate a container loaded to its allowable maximum weight or volume, but FCL in practice on ocean freight does not always mean a full payload or capacity. Less than container load Less than container load (LCL) is a shipment that is not large enough to fill a standard cargo container. The abbreviation LCL formerly applied to "less than (railway) car load" for quantities of material from different shippers or for delivery to different destinations carried in a single railway car for efficiency. LCL freight was often sorted and redistributed into different railway cars at intermediate railway terminals en route to the final destination. Page62

LCL is "a quantity of cargo less than that required for the application of a carload rate. A quantity of cargo less than that fills the visible or rated capacity of an inter-modal container. It can also be defined as "a consignment of cargo which is inefficient to fill a shipping container. It is grouped with other consignments for the same destination in a container at a container freight station". Other uses for containers Shipping container architecture is the use of containers as the basis for housing and other functional buildings for people, either as temporary or permanent housing, and either as a main building or as a cabin or workshop. Containers can also be used as sheds or storage areas in industry and commerce. Containers are also beginning to be used to house computer data centers, although these are normally specialized containers. There is now a high demand for containers to be converted in the domestic market to serve a specific purpose. As a result, a number of container-specific accessories have become available for a variety of applications, examples include; Racking for archiving, Lining/Heating/Lighting/Power points to create purpose-built secure offices, canteens and drying rooms, condensation control for furniture storage and ramps for storage of heavier objects. Containers are also converted to provide equipment enclosures, pop up cafes, exhibition stands, security huts and much more. Public Containerized Transport is the concept, not yet implemented, of modifying motor vehicles to serve as personal containers in non-road passenger transport. The ACTS roller container standards have become the basis of containerized firefighting equipment throughout Europe. Detailed Quality Control and Pre Shipment is given in the File Unit 7 A.pdf Detailed Clearance of Cargo and Customs export clearance is given in the file Unit 7 B.pdf

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