Notes for Export Import

Introduction OF Export Import

Importing and Exporting are means of Foreign Trade. ... Exporting refers to the
selling of goods and services from the home country to a foreign nation. Whereas,
importing refers to the purchase of foreign products and bringing them into one's
home country.
Imports are the goods and services that are purchased from the rest of the world
by a country’s residents, rather than buying domestically produced items. Imports
lead to an outflow of funds from the country since import transactions involve
payments to sellers residing in another country.

Exports are goods and services that are produced domestically, but then sold to
customers residing in other countries. Exports lead to an inflow of funds to the
seller’s country since export transactions involve selling domestic goods and
services to foreign buyers.

Exporting and importing goods is not just the core of any large, successful
business; it also helps national economies grow and expand. Each country is
endowed with some specific resources. ... Once countries start exporting
whatever they are rich in, as well as importing goods they lack, their economies
begin developing.

Typically, the procedure for import and export activities involves ensuring
licensing and compliance before the shipping of goods, arranging for transport
and warehousing after the unloading of goods, and getting customs clearance as
well as paying taxes before the release of good
Benefit of Exports to individuals
Exporting offers plenty of benefits and opportunities, including:

 Access to more consumers and businesses. If you’re only doing business in

this country, you may be limiting the total potential profits you could earn
on opportunities to expand your business worldwide.

 Diversifying market opportunities so that even if the domestic economy

begins to falter, you may still have other growing markets for your goods
and services.

 Expanding the lifecycle of mature products. If the domestic market seems

saturated for your goods and services, you can introduce them to new
markets in other parts of the world.

 Potential financing assistance from U.S. government agencies through loan

guarantees that can help fund your exporting initiatives.
Government's current policies to boost Exports
To encourage exports, the Government of India has offered a number of
incentives.

1. Import Replenishment (REP) Licenses

Under this scheme, the exporters are allowed to import raw materials and
components used in the manufacture of export products. The policy contains a
list of items of import for which REPs are to be granted. Deemed exporters are
also granted REP license.

2. Import – Export Pass Book Scheme

This scheme enables, the Export House, Trading Houses and manufacturer —
exporters having good track record of exports, to import duty free raw materials.
The scheme has extended its coverage even to well-established manufacturers.

3. Duty Exemption Scheme

Duty exemption scheme allows the duty free import of certain components, raw
materials, consumables and spares for export production. It covers categories of
advance license, blanket advance license and advance customs clearance permits.
It provides benefits to indirect exporters. The license holder of this scheme is also
eligible for REP license.

4. 100% Export Oriented Units

These units are exempted from import licensing formalities. They are allowed to
import capital goods, raw materials, components, consumables and spares under
the Open General License on the condition that their entire production should be
exported and operations are carried out under customs bonded factory.
5. Tax exemption on earnings
The profits earned on export earnings are deducted by 50% for calculation of tax.
It can be availed of by an individual or company. There are also deductions
available for earnings in foreign exchange by approved hotels or travel agents.
There is a provision of deduction in respect of expenditure incurred by the
companies for promoting sales outside India.

6. Exemption of Sales Tax

There is an exemption from sales tax, excise duty and import duty for exports.
Exemption of excise duty can be obtained by way of rebate or duty drawback.
When the exports earning are negative, no duty drawback is paid on claims.

7. Cash assistance to exporters

Cash assistance is given to enable exporters to compete in the international
market. It is given as a percentage on the FOB value of exports. There is
International Price Reimbursement Scheme. This scheme is designed to match the
differences in the international prices of steel, aluminum, pig iron, etc.

8. Liberalized Exchange Rate Management System (LERMS)

Under Liberalized Exchange Rate Management System, the Government allows
partial convertibility of rupee for all the approved transactions. In this system,
exporters of goods and services who receive remittances from abroad would be
able to sell bulk of their foreign exchange receipts at market determined rates
from the authorized dealers.

.
Functions of various bodies involved in Export-Import Business

DGFT
The Directorate General of foreign Trade (DGFT) is the agency of the Ministry of
Commerce and Industry of the Government of India, responsible for execution of
the import and export Policies of India.
DGFT has played a crucial role in launching several export promotion schemes
such as MEIS, SEIS, Advance Authorization Scheme, Duty Free Import
Authorization Scheme, Export Promotion of Capital Goods Scheme (EPCG), Export
Oriented Units (EOU) Scheme, Deemed Exports etc

CHA
A customs house agent (CHA) is licensed to act as an agent for transaction of any
business relating to the entry or departure of conveyances or the import or
export of goods at a customs station.

Customs Department
Customs Department is the Federal Government Agency that is invested with
Authority to conduct Customs Valuation and collect Import as well as Export
Duties on behalf of the Government. ... Imports and Exports cover two channels
of transport of goods. Business related trade is carried on through cargo imports.

Excise Department
Exports are free from excise duty. One can export goods without payment of
excise duty under bond under rule 19. Goods can also be exported with payment
of excise duty and later on rebate can be claimed under rule 18. Container
containing export goods is required to be sealed by Excise Officer.
EPC
Export Promotion Councils are government-initiated authorities that promote and
support export firms in developing their overseas trade and presence by providing
technical and industry insights. ... The EPCs encourage and monitor the
observance of international standards and specifications by exporters.

FIEO
For registration purposes, FIEO has been recognized by the Government as an
Export Promotion Council. An exporter desiring to obtain an RCMC, has to declare
his main line of business in the application made to the Export Promotion Council
relating to that line of business.

EI
The role of EIC is to ensure that products notified under the Export (Quality
Control and Inspection) Act 1963 are meeting the requirements of the importing
countries in respect of their quality and safety. A

ICD
Inland Container Depots (ICDs) and Container Freight Stations (CFSs) are also
called dry ports as they handle all customs formalities related to import and
export of goods at these locations.

CFS
A CFS stands for Container Freight Station (CFS). It is a warehouse station
responsible for the consolidation or deconsolidation of cargo before the
products/goods are imported or exported. The station is involved in an export-
import transaction, both at the point of origin as well as the destination
NVOCC
NVOCC means Non Vessel Operating Common Carrier. NVOCC books large
quantity of space with ship and sells space to shippers in smaller amounts. NVOCC
consolidate small shipments of LCL (less container load) and issues HBL (House Bill
of Lading). NVOCC also undertake the services provided by a freight forwarder

VOCC
VOCC means Vessel Operating Common Carrier. VOCC is a public maritime carrier
with its own fleet. It is a common term for shipping companies that own vessels
and lease them to other entities. It is the ship operators who are responsible for
monitoring the cargo, as well as for safely transporting it to the right port at the
right time. The ship operation and all related aspects are also the responsibility of
the ship operator.

Freight Forwarders
A Freight forwarder can offer expert advice to the exporter on various logistics-
related expenses (such as freight expenses, port expenses, consular fees,
documentation costs, insurance fees, cost of merchandise, custom clearance and
charges) incurred during the process of exports.

RBI
The RBI regulates the foreign exchange matters as per the FEMA Act. It issues
guidelines for realization of export proceeds by the exporter from time to time
through the authorized dealers.

ECGC
ECGC provides (i) a range of insurance covers to Indian exporters against the risk
of non – realization of export proceeds due to commercial or political risks (ii)
different types of credit insurance covers to banks and other financial institutions
to enable them to extend credit facilities to exporters

Commercial Banks
Commercial banks play an important role in financing the credit requirements of
exporters at different stages of export, viz., pre-shipment and post-shipment
stage. ... Commercial banks also offer post-shipment finance against deferred
payment at a concession& rate of interest together with the EXIM Bank

Insurance Companies
Export and import insurance policies protect businesses and cover them against
various risks. This policy helps the business owners to secure against a variety of
perils involved in export and import transactions.

Types of Exporters and difference in benefits

Manufacturer Exporters:
Manufacturer exporters are the manufacturers who export goods directly to
foreign buyers without any intervention from intermediaries. The manufacturer
may also appoint agents abroad for selling products. They enjoy several
advantages:
 Firsthand information about foreign markets.
 Exercise a direct control over marketing activities.
 Enjoy full benefit of export incentives.
 Enjoy greater profits and goodwill in the market.
Merchant Exporters:
Merchant exporters are the exporters who purchase goods from the domestic
market and sell them in foreign countries. They enjoy several advantages:
 Limited capital.
 Specialization in marketing.
 Large market share.

Deemed Exports
Deemed Exports refers to supplies of goods manufactured in India (and not
services) which are notified as deemed exports under Section 147 of the
CGST/SGST Act, 2017. The supplies do not leave India. The payment for such
supplies is received either in Indian rupees or in convertible foreign
exchange.Deemed exporters do not participate in a trade like regular exporters.
Their operations involve a special category of goods called deemed exports. In
such transactions, the goods supplied do not leave the country of origin. While
payments made for the supplies are done in native currency or free foreign
exchange. Some deemed exporters act as middlemen and sell to foreign
customers.
SEZ
Any supply of goods or services or both to a Special Economic Zone
developer/unit will be considered to be a zero-rated supply. That means these
supplies attract Zero tax rate under GST. In other words, supplies into SEZ are
exempt from GST and are considered as exports.

EOU
EOU (export oriented unit) scheme is one of the export promotion schemes of
Govt of India and is in existence since 1980. Under this scheme, manufacturing or
service sector units are allowed to be set up. With the objective of exporting
entire production of goods manufactured or services.
STP
Software Technology Parks (STPs) are export oriented projects catering to the
needs of software development for exports. STPs can be set up by the Central
Government, State Government, Public or Private Sector Undertakings or any
combination thereof.

AEZ
The AEZ takes a comprehensive view of a particular produce/ product located in a
geographically contiguous area for the purpose of developing and sourcing raw
materials, their processing/packaging, and leading to final exports.

Service Exporters
Service Exporter is an exporter who exports the services where we can't see the
product physically, i.e, intangible products. We can explain service export simply
as, any service provided by a person in one nation to people or companies from
another. Service exports are an important emerging trend in global trade.

Project Exports
Export of engineering goods on deferred payment terms and execution of turnkey
projects and civil construction contracts abroad are collectively referred to as
'Project Exports'

Status Holders:
The Government of India introduced the concept of status holders in the in the
year 1960. Export House (EH) was the first category introduced by the
Government with the objective of promoting exports by providing assistance for
building marketing infrastructure and expertise required for export promotion..
International Trading Environment

International trade refers to the exchange of goods and services between the
countries. In simple words, it means the export and import of goods and services.
Export means selling goods and services out of the country, while import means
goods and services flowing into the country

Role of GATT/WTO in regulating international trade.

The General Agreement on Tariffs and Trade (GATT), signed on October 30, 1947,
by 23 countries, was a legal agreement minimizing barriers to international trade
by eliminating or reducing quotas, tariffs, and subsidies while preserving
significant regulations.

WTO facilitates implementation, administration and smooth operations of trade

agreements between the countries. It provides a forum for the trade negotiations
between its member countries. Settlements of disputes between the member
countries through the established rules and regulations

The GATT and the WTO have helped to create a strong and prosperous trading
system contributing to unprecedented growth. The system was developed
through a series of trade negotiations, or rounds, held under the GATT
The main role of GATT in the international trade was regulating the contracting
parties to achieve the purpose of the agreement which were reducing tariffs and
other barriers, and to achieve the liberalization in international trade.The World
Trade Organization (WTO) is the only global international organization dealing
with the rules of trade between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the world's trading nations and ratified in
their parliaments.
WTO: Tariff and non-tariff barriers
In simplest terms, a tariff is a tax. It adds to the cost borne by consumers of
imported goods and is one of several trade policies that a country can enact.
Tariffs are paid to the customs authority of the country imposing the tariff.

In International Business Tariff Barriers are related taxes imposed by

Governments to control Import Export of one or more products with a particular
country. Non-tariff barriers are government policies and actions other than tariff
barriers. Some countries adopt an inward-looking approach to foreign trade. A
nontariff barrier is a way to restrict trade using trade barriers in a form other than
a tariff. Nontariff barriers include quotas, embargoes, sanctions, and levies.

Tariff barriers can include a customs levy or tariff on goods entering a country and
are imposed by a government. ... Non-tariff barriers can include excessive red
tape, onerous regulations, unfair rules or decisions, or anything else that is
stopping you from competing effectively.

The World Trade Organization (WTO) identifies various non-tariff barriers to

trade, including import licensing, pre-shipment inspections, rules of origin,
custom delayers, and other mechanisms that prevent or restrict trade.

Tariffs increase the prices of imported goods. Because of this, domestic producers
are not forced to reduce their prices from increased competition, and domestic
consumers are left paying higher prices as a result. Tariffs also reduce efficiencies
by allowing companies that would not exist in a more competitive market to
remain open.
Import tariffs and India
Import tariffs are taxes charged by the customs authority on the importation of
goods into a country. ... Economically, import tariffs are charged to generate
revenue for the government and to protect local goods against the dominance of
foreign products.

Basic Customs Duty

Basic custom duty is the duty imposed on the value of the goods at a specific rate.
The duty is fixed at a specified rate of ad-valorem basis. This duty has been
imposed from 1962 and was amended from time to time and today is regulated
by the Customs Tariff Act of 1975.

IGST
Under GST, IGST is a tax levied on all Inter-State supplies of goods and/or services
and will be governed by the IGST Act. IGST will be applicable on any supply of
goods and/or services in both cases of import into India and export from India.

Anti-dumping duty
An anti-dumping duty is a protectionist tariff that a domestic government
imposes on foreign imports that it believes are priced below fair market value. ...
While the intention of anti-dumping duties is to save domestic jobs, these tariffs
can also lead to higher prices for domestic consumers.

Safeguard Duty
Safeguards usually take the form of increased duties to higher than bound rate or
standard rates or quantitative restrictions on imports. ... This provision allows a
WTO member to restrict temporarily imports of a product (known as 'safeguards'
action) if its domestic industry is affected by a surge in imports.
Educational Cess.
An education Cess is an additional levy that is applied on the basic tax liability by
the Government to generate additional revenue to fund primary, secondary and
higher education. Apart from individuals, even corporations are required to pay
this cess every year at rates determined during the annual budgets.

ITC of IGST on import of goods and services.

Input Tax Credit in GST
Input Tax Credit means reducing the taxes paid on inputs from taxes to be paid on
output. When any supply of services or goods is supplied to a taxable person, the
GST charged is known as Input Tax.

The import of goods has been defined in the IGST Act, 2017 as bringing goods into
India from a place outside India. All imports shall be deemed as inter-State
supplies and accordingly integrated tax shall be levied in addition to the
applicable Custom duties. The IGST Act, 2017 provides that the integrated tax on
goods imported into India shall be levied and collected in accordance with the
provisions of the Customs Tariff Act, 1975 on the value as determined under the
said Act at the point when duties of customs are levied on the said goods under
the Customs Act, 1962. The integrated tax on goods shall be in addition to the
applicable Basic Customs Duty (BCD) which is levied as per the Customs Tariff Act.
In addition, GST compensation cess, may also be leviable on certain luxury and
demerit goods under the Goods and Services Tax.
Under the GST regime, an importer who is registered can use the IGST levied to
them when importing goods as input tax credit. During the outward supply of
goods by the importer, the input tax credit could be used to pay taxes such as
CGST / SGST / IGST
Exemption will be available only from Basic Customs Duty. IGST will be payable on
such imports. However, the importer can avail ITC of IGST paid and utilize the
same or claim refund in accordance with the provisions of the CGST Act, 2017 and
rules made thereunder.
India's Foreign Trade
Foreign trade plays a vital part in the economy of each country. Foreign trade
helps a country to utilize its natural resources and to export its surplus
production, it contributes hugely to the GDP of a country.
Foreign trade in India includes all imports and exports to and from India. At the
level of Central Government it is administered by the Ministry of Commerce and
Industry.The Government of India has been working on striking important deals
with the Governments of Japan, Australia, and China to increase contribution
towards the economic development of the country and growth in the global
market. India has a potential to increase its goods and services export to Australia
to US$ 15 billion by 2025 and US$ 35 billion by 2035.

Some of the salient features of foreign trade of India are

1. Negative or Unfavorable Trade:
India had to import various items like heavy machinery, agricultural implements,
mineral oil and metals on a large scale after Independence for economic growth.
But our exports could not keep pace with our imports which left us with negative
or unfavorable trade.

2. Diversity in Exports:
Previously, India used to export its traditional commodities only which included
tea, jute, cotton textile, leather, etc. But great diversity has been observed in
India’s export commodities during the last few years. India now exports over
7,500 commodities. Since 1991, India has emerged as a major exporter of
computer software and that too to some of the advanced countries like the USA
and Japan.
3. Worldwide Trade:
India had trade links with Britain and a few selected countries only before
Independence. But now India has trade links with almost all the regions of the
world. India exports its goods to as many as 190 countries and imports from 140
countries.

4. Change in Imports:
Earlier we used to import food-grains and manufactured goods only. But now oil
is the largest single commodity imported by India. Both the imports as well as
exports of pearls and precious stones have increased considerably during the last
few years. Our other important commodities of import are iron and steel,
fertilizers, edible oils and paper.

5. Maritime Trade:
About 95 per cent of our foreign trade is done through sea routes. Trade through
land routes is possible with neighboring countries only. But unfortunately, all our
neighboring countries including China, Nepal, and Myanmar are cut off from India
by lofty mountain ranges which makes trade by land routes rather difficult. We
can have easy access through land routes with Pakistan only but the trade
suffered heavily due to political differences between the two countries.

6. Insignificant Place of India in the World Overseas Trade:

Although India has about 16 per cent of the world’s population, her share in the
world overseas trade is less than one per cent. This shows the insignificant place
of India in the world’s overseas trade. This is, however, partly due to very large
internal trade, vast dimensions of the country provide a solid base for inter-state
trade within the country. Europe is divided into a large number of smaller
countries and the international trade is quite high (trade counted twice, first time
as exports and second times as imports).
Thrust sector in India's Foreign Trade

The thrust on R&D services came after it became one of the fastest-growing
segments among India's services exports. In addition to export promotion, the
government has been working to promote foreign direct investment (FDI) in the
area of R&D services. An empowered technology group has also been established
by the government to unshackle the entire R&D ecosystem, including the
strengthening of linkage between the public sector R&D labs and the market.

India is presently known as one of the most important players in the global
economic landscape. Its trade policies, Government reforms and inherent
economic strengths has attributed to its standing as one of the most sought-after
destination for foreign investments in the world. Also, technological, and
infrastructural development being carried out across the country augurs well for
the trade and economic sector in the years to come.

Foreign Trade Policy 2015-20 does not talk much about R&D service exports other
than mentioning that royalty payments received by the authorisation holder in
freely convertible currency and foreign exchange received for R&D services shall
also be counted for discharge under the Export Promotion Capital Goods Scheme.
The Department of Commerce has indicated that the policy's focus will be to
channelise the synergies gained through merchandise and services exports for
growth and employment with a goal to make India a $5 trillion economy.

The department had informed the Parliamentary Consultative Committee of the

Ministry of Commerce and Industry that the District Export Hubs initiative will
form an important component of the new foreign trade policy.
India's major trading partners

India, one of the so-called BRIC economies, is one of the major emerging national
economies and an important player in the global economic landscape. Its trade
policies, government reforms and inherent economic strengths have made it one
of the most sought-after destinations for foreign investments in the world. Also,
technological and infrastructural developments being carried out throughout the
country will help the trade and economic sector in the years to come.

India’s key exports are petroleum products, followed by precious stones, and drug
formulations. India’s key imports include crude oil, electronic goods and
machinery, and gold and silver. India exports mostly to Asia, Europe and North
America, whereas imports from US and Asia have surged in recent years.

Trade involves buying and selling of products, commodities or services. It involves

a buyer and a seller. A Trading partner is each one of the two companies /
countries which are involved in a business relationship with one another, carrying
out trade between them.

A trading partner agreement is an agreement drawn up by two parties that have

agreed to trade certain items or information. The trading partner agreement lays
out the responsibilities of each party and to help prevent disputes on agreed-
upon terms.The agreement outlines the terms of the trade or trading process,
including responsibilities, who’s involved, how goods or information will be
delivered and received, and duties or fees.Countries trade with each other when,
so that they can export products and services that is easier to produce within the
country, and import those products/services for which there is a scarcity within
the country.
India’s Major Trading Partners
Along with improving export competitiveness, it is also important to improve
information base regarding trade policy regime of India’s main trading partners
and to identify areas which prevents market access of Indian goods and services.

According to the ministry of commerce, the fifteen largest trading partners of

India represent 60% of the total trade by India.

These include US, China, United Arab Emirates, Hong Kong, Singapore, United
Kingdom, Bangladesh, Germany, Netherlands, Nepal, Belgium, Vietnam, Malaysia,
Italy, Saudi Arabia. All these trade partners of India import and export to India in
compliance with the trading partner agreements.
In recent years, India has witnessed increase in imports from Asian trade partners,
especially from China, for electrical and electronic equipment. India also imports
from US, Europe and Arab countries.
India exports mostly to Asia, followed by Europe, North America, Africa and Latin
America.
In recent years, India’s trade with the United States has improved a lot, and the
US is now India’s top trading partner in 2019-20. This indicates increasing
economic ties between the two countries. In 2018-19, the USA surpassed China to
become India’s top trading partner. The USA is one of the few countries with
which India has a trade surplus. Trade with China has dipped in the last few
months due to the increased norder tensions between India and China.

There is a huge potential to boost bilateral trade between India and US on

account of increasing anti-China sentiment in both the nations – US as well as
India.
Foreign Trade policy and Handbook of procedures 2015-2020.
The foreign trade policy is essentially a set of guidelines for the import and export
of goods and services. These are established by the Directorate General of Foreign
Trade (DGFT), the governing body for the promotion and facilitation of exports
and imports under the Ministry of Commerce and Industry.

The Foreign Trade Policy (FTP) was introduced by the Government to grow the
Indian export of goods and services, generating employment and increasing value
addition in the country. The Government, through the implementation of the
policy, seeks to develop the manufacturing and service sectors.

While the trade policy covers both imports and exports, its primary objective is to
facilitate trade by reducing transaction cost and time, thereby making Indian
exports more globally competitive. It aims to:

 Accelerate economic activity and make the most of global market

opportunities
 Encourage sustained economic growth by providing access to raw
materials, components, intermediates (goods used as inputs for the
production of other goods), consumables and capital goods required for
production
 Strengthen Indian agriculture, industry and services
 Generate employment
 Encourage stakeholders to strive for international standards of quality
 Provide quality consumer products at reasonable prices.
The Foreign Trade Policy (FTP) 2015-20

The Foreign Trade Policy (FTP) 2015-20 was unveiled by Ms Nirmala Sitharaman,
Minister of State for Commerce & Industry (Independent Charge), Government of
India on April 1, 2015. Following are the highlights of the FTP:

 FTP 2015-20 provides a framework for increasing exports of goods and

services as well as generation of employment and increasing value addition
in the country, in line with the ‘Make in India’ programme.

 The Policy aims to enable India to respond to the challenges of the external
environment, keeping in step with a rapidly evolving international trading
architecture and make trade a major contributor to the country’s economic
growth and development.

 FTP 2015-20 introduces two new schemes, namely ‘Merchandise Exports

from India Scheme (MEIS)’ for export of specified goods to specified
markets and ‘Services Exports from India Scheme (SEIS)’ for increasing
exports of notified services.

 For grant of rewards under MEIS, the countries have been categorized into
3 Groups, whereas the rates of rewards under MEIS range from 2 per cent
to 5 per cent. Under SEIS the selected Services would be rewarded at the
rates of 3 per cent and 5 per cent.

 Measures have been adopted to nudge procurement of capital goods from

indigenous manufacturers under the EPCG scheme by reducing specific
export obligation to 75per cent of the normal export obligation.
 Measures have been taken to give a boost to exports of defense and hi-
tech items.

 E-Commerce exports of handloom products, books/periodicals, leather

footwear, toys and customised fashion garments through courier or foreign
post office would also be able to get benefit of MEIS (for values up to INR
25,000).

 Manufacturers, who are also status holders, will now be able to self-certify
their manufactured goods in phases, as originating from India with a view
to qualifying for preferential treatment under various forms of bilateral and
regional trade agreements. This ‘Approved Exporter System’ will help
manufacturer exporters considerably in getting fast access to international
markets.

 A number of steps have been taken for encouraging manufacturing and

exports under 100 per cent EOU/EHTP/STPI/BTP Schemes. The steps
include a fast track clearance facility for these units, permitting them to
share infrastructure facilities, permitting inter unit transfer of goods and
services, permitting them to set up warehouses near the port of export and
to use duty free equipment for training purposes.

 Trade facilitation and enhancing the ease of doing business are the other
major focus areas in this new FTP. One of the major objective of new FTP is
to move towards paperless working in 24x7 environment.
Overview of Export-Import policy, Input-Output Norms and ITC (HS)
Classification of Goods.

Export Import Policy

Export Import Policy or better known as Exim Policy is a set of guidelines and
instructions related to the import and export of goods. The Export Import 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.

Objectives of Exim Policy:

 To facilitate sustained growth in exports from India and import in India.
 To stimulate sustained economic growth by providing access to essential
raw materials, intermediates, components, consumables and capital goods
scheme required for augmenting production and providing services.
 To enhance the technological strength and efficiency of Industry Agriculture
industry and services, thereby improving their competitive strength while
generating new employment opportunities, and to encourage the
attainment of internationally accepted standards of quality.
 To provide clients with high-quality goods and services at globally
competitive rates. Canalization is an important feature of Exim Policy under
which certain goods can be imported only by designated agencies. For an
example, an item like gold, in bulk, can be imported only by specified banks
like SBI and some foreign banks or designated agencies.
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 policy covers the period 2002-2007. The Export Import 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 its
network of dgft regional offices.

Standard Input Output Norms

Standard Input Output Norms or SION in short is standard norms which
characterize the measure of input or inputs sources required to make unit of
output for export purpose.

The Direct General of Foreign Trade (DGFT) has published the Standard Input
Output Norms (SION) to specify the required amount of inputs needed to produce
a unit of outputs for exporting. SION is applicable for numerous products,
including electronics, engineering, chemical, handicraft, plastic, leather, and many
more; it is also suitable for various food products such as fish and other marine
products. Advance licenses are issued based on the inputs and export items given
under SION, and the applicant’s exporter needs to ensure that the goods sought
for import and imported are used in the export product. The manufacturer
exporter and merchant-exporter can modify these norms by applying DGFT.

ITC-HS
ITC means Indian Trade Classification, also known as Indian Tariff Code (ITC). This
schedule has two parts – First schedule with an eight digit nomenclature and the
second schedule with description of goods chargeable to export duty. The first
schedule is based on H.S code system.
ITC-HS or better known as Indian Trade Clarification based on Harmonized System
of Coding was adopted in India for import-export operations. Indian custom uses
an eight digit ITC-HS Codes to suit the national trade requirements.

ITC-HS Codes Schedules

ITC-HS codes are divided into two schedules. ITC (HS) Import Schedule I describe
the rules and guidelines related to import policies whereas Schedule II describe
the rules and regulation related to export policies. Schedule I of the ITC-HS code is
divided into 21 sections and each section is further divided into chapters. The
total number of chapters in the schedule I is 98. The chapters are further divided
into sub-heading under which different HS codes are mentioned. Export Policy
Schedule II of the ITC-HS code contain 97 chapters giving all the details about the
guidelines related to the export policies.

Governing Body of ITC (HS) Code:

Any changes or formulation or addition of new codes in ITC-HS Codes are carried
out by DGFT (Directorate General of Foreign Trade). Commodity description,
weeding out of defunct codes, addition of new codes, change of product
description etc., are taken up periodically as a part of the ongoing process
towards perfection.
Duty Remission Scheme: fundamentals of Duty Drawback scheme, Admissibility
and Types of Drawback Rates.

A Duty remission scheme enables post export replenishment/remission of duty on

inputs used in export product. ... MSME involved in the export business, which
can be issued a advance license.

To promote the exports Government has launched various export promotion

schemes under foreign trade policy. Duty Remission scheme is introduced to
make the Import-Export process easier for the Indian exporters & make their
goods cost-competitive in International Market.

A Duty Remission Scheme enables post export replenishment/remission of duty

on the inputs used in the manufacturing of export goods.

As per the Latest Foreign Trade Policy, the Duty remission scheme consists of the
following two schemes –
(a) Duty Drawback Scheme – Administered by Department of revenue
(b) Rebate on State and Central taxes and Levies (RoSCTL) Scheme notified by
Ministry of textiles on 7th March 2019 for made-ups and apparels.

The Council may grant remission of duty under section 140 of the Act. On –
(a) Goods imported for use in the manufacture of goods for export;
(b) Such goods imported for use in the manufacture of approved goods for home
consumption as the Council may, from time to time, by notice in the Gazette,
Fundamentals of Duty Drawback scheme

Duty drawback, or drawback, is a fundamental principle of international trade law

and policy under which duties, taxes and fees paid on imported merchandise are
refunded upon the exportation of qualified articles.

Duty drawback is an export promotion program intended to eliminate or recover

the costs of duties, taxes and fees on merchandise sold on international markets;
in fact, it is one of the few export incentive programs acceptable under World
Trade Organization rules The Duty Drawback Scheme allows exporters to get a
refund on customs duty paid on imported goods, where those goods are: to be
treated, processed, or incorporated in other goods for export, or. Are exported
unused since importation.

The Duty Drawback Scheme allows exporters to get a refund on customs duty
paid on imported goods, where those goods are:
 to be treated, processed, or incorporated in other goods for export, or
 Are exported unused since importation.

The Duty Drawback Scheme (DBK) is a key programme to help exporters offset
some of the costs accrued during the export process, particularly in supply or
value chain. The key benefit of the scheme is that it gives rebates on Customs and
Central Excise chargeable on any imported or excisable materials used in the
manufacture of goods meant for export.The scheme, administered by the
Department of Revenue, has two primary components: All Industry Rate (AIR) and
Brand Rate. One way to grant the duty drawback is to check the rates specified in
the Schedule of All Industry Rate of Drawback, usually announced on June 1 or
three months after the budget. If the product is not mentioned in the AIR
schedule or the exporter claims it is inadequate, the exporter can claim duty
drawback by applying for Brand Rate fixation.
To be eligible, you must be the legal owner of the goods at the time the goods are
exported. Duty drawback is available on most goods on which customs duty was
paid on importation and which has been exported.

The Duty Drawback is of two types:

The All Industry Rate (AIR)

The All Industry Rate (AIR) is essentially an average rate based on the average
quantity and value of inputs and duties (both Excise & Customs) borne by them
and Service Tax suffered by a particular export product. The All Industry Rates are
notified by the Government in the form of a Drawback Schedule every year and
the present Schedule covers 2837 entries. The legal framework in this regard is
provided under Sections 75 and 76 of the Customs Act, 1962 and the Customs and
Central Excise Duties and Service Tax Drawback Rules, 1995.

The Brand Rate

The Brand Rate of Duty Drawback is allowed in cases where the export product
does not have any AIR of Duty Drawback or the same neutralizes less than 4/5th
of the duties paid on materials used in the manufacture of export goods. This
work is handled by the jurisdictional Commissioners of Customs & Central Excise.
Exporters who wish to avail of the Brand Rate of Duty Drawback need to apply for
fixation of the rate for their export goods to the jurisdictional Central Excise
Commissionerate. The Brand Rate of Duty Drawback is granted in terms of Rules 6
and 7 of the Drawback Rules, 1995.

The Duty Drawback facility on export of duty paid imported goods is available in
terms of Sec. 74 (It is discussed in more detail in under mention para) of the
Customs Act, 1962. Under this scheme part of the Customs duty paid at the time
of import is remitted on export of the imported goods, subject to their
identification and adherence to the prescribed procedure.
Institutional framework for export promotion in India: Export Promotion
scheme, Export Houses and Trading Houses.

Export Promotion Councils (EPCs) are organisations set up by the Government of

India to help and assist Indian exporters by providing access to international
markets, promoting Indian products through various activities and increasing the
overall exports from India.

Foreign Trade Policy 2015-20 and other schemes provide promotional measures
to boost India’s exports with the objective to offset infrastructural inefficiencies
and associated costs involved to provide exporters a level playing field. Brief of
these measures are as under:

Exports from India Scheme

(i) Merchandise Exports from India Scheme (MEIS)

Under this scheme, exports of notified goods/ products to notified markets as
listed in Appendix 3B of Handbook of Procedures, are granted freely transferable
duty credit scrips on realized FOB value of exports in free foreign exchange at
specified rate (2-5%).

Duty Credit Scrips are provided for exports to diversify markets and offset the
disadvantage faced by exporters with regard to freight costs, transport hurdles
and other disabilities.They are like debit notes which can be used to pay import
duties.
Such duty credit scrips can be used for payment of custom duties for import of
inputs or goods, payment of excise duty on domestic procurement, payment of
service tax and payment of custom duties in case of EO default.

Exports of notified goods of FOB value up to Rs 25, 000 per consignment, through
courier or foreign post office using e-commerce shall be entitled for MEIS benefit.

(ii) Service Exports from India Scheme (SEIS)

Service providers of notified services as per Appendix 3E are eligible for freely
transferable duty credit scrip @ 5% of net foreign exchange earned.

Export Houses
Export house is mostly home-based organization, located in the manufacturer’s
country, which is involved in the export of products that the manufacturer has
produced. These export houses carry out most of the export-related activities
overseas, via their own agents and distributors who are in place in the country
where the product is being exported.

In most cases, Export houses are used by manufacturers when the manufacturers
do not want their own export team in place, or when having an in-house team is
much more costlier rather then hiring someone from outside – such as an export
house. Because of the very nature of this business, export houses are specially
focused on the export market and know the ins and outs of this industry very
well. This is why, in many cases, export houses are preferred over in-house export
teams.
Advantages of using Export houses
Export houses are most important in the following conditions

 Lack of resources –
When the parent company has a lack of resources which includes manpower,
finance or know how to establish in the new country, then it will most likely use
Export houses to do its work.

 Small-scale operations –
If a large company wants to set up small-scale operations in a new country, then
instead of training and recruiting a local team in the target country, it can simply
outsource the task to an experienced export house in the target country.

 Expertise –
Many time, even if the manufacturer has an in-house team overseas, still export
houses might be used because of their expertise in this segment. This is very true
for products which are highly technical in nature or which are controlled
substances.

 Marketing –
Manufacturers who are product oriented and don’t have the willingness or the
desire to market themselves in a new territory might outsource the work to
export houses so that they can in turn expand.
Trading House
A trading house is a business that facilitates trade between two countries – i.e., a
foreign country and a home country. It provides a service that eliminates trading
barriers to enter into foreign markets, especially for small companies with limited
resources or import or export capability.

Advantages of Trading Houses

 Economies of scale
Trading houses enjoy economies of scale courtesy of large clients’ portfolios. For
instance, established trading houses may reap the benefits of discounts from
manufacturers and suppliers, owing to their significant buying power. They can
also import commodities in bulk on behalf of customers to reduce transportation
costs.

 Management of currency
Trading houses are well-equipped with the expertise to hedge currency risks.
Since they continually trade across international borders, trading houses employ
various risk management strategies to prevent exposure to fluctuations of
different currencies. A currency forward contract is an example of a hedging
technique that a trading house may adopt to minimize risks in its future payment
using a different currency by locking the current exchange rate.

 International presence
Trading houses often develop extensive contacts when conducting international
commercial activities that serve as the basis for major business deals and an
avenue for new clients. Besides, trading houses may have an open foreign office
with staff who collaborate with customs officials to handle any legal disputes to
ensure their businesses operate smoothly.
SEZs in India and Future prospects. Concepts and
Benefits under EOU, SEZ

SEZ
A special economic zone (SEZ) is an area in which the business and trade laws are
different from the rest of the country. SEZs are located within a country's national
borders. • Their aims include increased trade balance, employment, increased
investment, job creation and effective administration.

India was one of the first in Asia to recognize the effectiveness of the Export
Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in
Kandla in 1965. With a view to overcome the shortcomings experienced on
account of the multiplicity of controls and clearances; absence of world-class
infrastructure, and an unstable fiscal regime and with a view to attract larger
foreign investments in India, the Special Economic Zones (SEZs) Policy was
announced in April 2000.

Special Economic Zones in India

 Noida SEZ.
 Kandla SEZ.
 SEEPZ SEZ.
 Cochin SEZ.
 Madras EPZ SEZ.
Benefits of SOU

 Special Economic Zones promote exports of goods and services

 SEZs generate employment opportunities for the population
 Special Economic Zones can develop infrastructure facilities
 SEZs can provide, in a concentrated area, the necessary conditions external
investors may require. Moreover, these may include a skilled labor force,
adequate infrastructure, and local input suppliers. Additionally, they can
facilitate investment from foreign sources
 Additionally, a well-executed SEZ helps generate spill-overs for the economy
of the rest of the country. This is because domestic firms and industries
outside an SEZ tend to upskill and expand, to be able to supply the SEZ firms.
 SEZs can play the role of ‘testing grounds’ for the Government for
implementing liberal business policies in the future. Likewise, the
Government can decide to implement ‘successful’ policies across the
country and dump the ‘unsuccessful’ ones.

EOU
The full form of EOU is Export Oriented Units. Introduced in 1981, the scheme
aims to increase exports from India, to thereby increase foreign exchange
earnings and create employment. This scheme also complements other schemes
such as Free Trade Zone (FTZ) and Export Processing Zone EPZ in India.

Benefits of Export Oriented Units

 They can procure raw materials and capital goods through domestic
sources or import without paying any duty on the purchase
 They can claim reimbursement on GST amounts they pay
  In case they have paid duty on the purchase of fuel from domestic oil
companies, they can claim a refund on the same
 EOUs are allowed to claim an input tax credit on goods and services
 EOUs enjoy priority-basis clearance facilities

Understanding Import benefits and Export process through Into Bond Bill of
Entry and Ex Bond Shipping Bill.

Bond Bill of Entry

A Bill of Entry (BE) is a legal document that is filed by customs clearance agents or
importers on or before the arrival of the imported goods. It is submitted to the
Customs department as a part of the customs clearance procedure. The bill of
entry can be issued for either home consumption or bond clearance.

Warehousing bill of entry is also called Into Bond Bill of Entry. This is in buff color
before introduction of EDI filing, if filed manually where in no electronic filing
available. As per section 46 and section 60 of Indian Customs Act describes in
detail about this type of filing. If an importer does not want to pay duty on his
goods immediately up on arrival of goods at port, he keeps his goods in a customs
bonded ware house by following formalities under such provisions and files Into
bond bill of entry. He pays duty and take the quantity of goods as and when he
requires.

Ex-bond Bill of Entry:

The ex-bond bill of entry is filed to take the goods for home consumption by
importer as and when he requires from the bonded warehouse explained above.
The ex-bond bill of entry is in green color before if filed manually where in no EDI
facility is available. The details of this types of procedures are mentioned in
section 68 of Indian Customs Act.

Ex Bond Shipping Bill

It is used in case of imported goods for re-export and which are kept in bond. It is
printed on yellow paper.
Under manual system, shipping bills or, as the case may be, bills of export are
required to be filed in format as prescribed in the Shipping Bill and Bill of Export
(Form) regulations, 1991. The bills of export are being used if clearance of export
goods is taken at the Land Customs Stations.

Import procedure - Bill of Entry:

 Goods imported into the country attract Customs duty and are also
required to confirm to relevant legal requirements. Thus, unless the
imported goods are not meant for Customs clearance at the port/airport of
arrival such as those intended for transit by the same vessel/aircraft or
transshipment to another Customs station or to any place outside India,
detailed Customs clearance formalities have to be followed by the
importers. In contrast, in terms of Section 52 to 56 of the Customs Act,
1962 the goods mentioned in the IGM/Import Report for transit to any
place outside India or meant for transshipment to another Customs station
in India are allowed transit without payment of duty. In case of goods
meant for transshipment to another Customs station, simple transshipment
procedure has to be followed by the carrier and the concerned agencies at
the first port/airport of landing and the Customs clearance formalities have
to be complied with by the importer after arrival of the goods at the other
Customs station. There could also be cases of transshipment of the goods
after unloading to a port outside India. Here also simple procedure for
transshipment is prescribed, and no duty is required to be paid.
 For goods which are offloaded at a port/airport for clearance the importers
have the option to clear the goods for home consumption after payment of
duties leviable or to clear them for warehousing without immediate
discharge of the duties leviable in terms of the warehousing provisions of
the Customs Act, 1962. For this purpose every ieport.com - India's Premier
Export Import Portal 18 importer is required to file in terms of the Section
46 ibid a Bill of Entry for home consumption or warehousing, as the case
may be, in the form prescribed by regulations. The Bill of Entry is to be
submitted in sets, different copies meant for different purposes and also
bearing different colours, and on the body of the Bill of Entry the purpose
for which it will be used is mentioned.

 The importers have to obtain an Importer-Export Code (IEC) number from

the Directorate General of Foreign Trade prior to filing of Bill of Entry for
clearance of imported goods. The Customs EDI System receives the IEC
number online from the DGFT.

 If the goods are cleared through the EDI system, no formal Bill of Entry is
filed as it is generated in the computer system, but the importer is required
to file a cargo declaration having prescribed particulars required for
processing of the Bill of Entry for Customs clearance.

 The importer clearing the goods for domestic consumption through non-
EDI ports/ airports has to file Bill of Entry in four copies; original and
duplicate are meant for Customs, third copy for the importer and the
fourth copy is meant for the bank for making remittances. Along with the
Bill of Entry the following documents are also generally required: (a) Signed
invoice (b) Packing list (c) Bill of Lading or Delivery Order/Airway Bill (d)
GATT valuation declaration form duly filled in (e) Importers/CHA’s
declaration (f) Import license, wherever necessary (g) Letter of Credit,
wherever necessary (h) Insurance document (i) Import license, where
necessary (j) Industrial License, if required (k) Test report in case of items
 like chemicals (l) DEEC Book/DEPB in original, where relevant (m)
Catalogue, technical write up, literature in case of machineries, spares or
chemicals, as applicable ieport.com - India's Premier Export Import Portal
19 (n) Separately split up value of spares, components, machineries (o)
Certificate of Origin, if preferential rate of duty is claimed

 While filing the Bill of Entry, the correctness of the information given
therein has also to be certified by the importer in the form a declaration at
the foot of the Bill of Entry and any mis-declaration/incorrect declaration
has legal consequences.

 Under the EDI system, the importer does not submit documents as such but
submits declarations in electronic format containing all the relevant
information to the Service Centre. A signed paper copy of the declaration is
taken by the service centre operator for non-reputability of the declaration.
A checklist is generated for verification of data by the importer/CHA. After
verification, the data is filed by the Service Centre Operator and EDI system
generates a Bill of Entry Number, which is endorsed on the printed checklist
and returned to the importer/CHA. No original documents are taken at this
stage. Original documents are taken at the time of examination. The
importer/CHA also needs to sign on the final document before Customs
clearance.

 The first stage for processing a Bill of Entry is termed as the

noting/registration of the Bill of Entry vis-à-vis the IGM filed by the carrier.
In the manual format, the importer has to get the Bill of Entry noted in the
concerned Noting Section which checks the consignment sought to be
cleared having been manifested in the particular vessel and a Bill of Entry
number is generated and indicated on all copies. After noting, the Bill of
Entry gets sent to the appraising section of the Custom House for
assessment functions, payment of duty etc. In the EDI system, the noting
 aspect is checked by the system itself, which also generates Bill of Entry
number.

 After noting/registration the Bill of Entry is forwarded manually or

electronically to the concerned Appraising Group in the Custom House
dealing with the commodity sought to be cleared.

Understanding Working of NFE (Net Foreign Exchange Earner Calculations)

Calculations.

Net Foreign Exchange Earnings means the total foreign exchange proceeds from
the export of the registered product or service minus the total foreign exchange
expenses incurred in the production of the registered product or the rendering of
the export service and the depreciation of imported capital equipment.

How do we calculate the Net Foreign Exchange (NFE) Earnings?

Net Foreign exchange earnings for the scheme are defined as under: Net Foreign
Exchange = Gross Earnings of Foreign Exchange minus Total expenses / payment /
remittances of Foreign Exchange by the IEC holder, relating to service sector in
the Financial year.
Net Foreign Exchange Earnings shall be calculated cumulatively in blocks of 5 year,
starting from commencement of production.
In case unit is not able to achieve NFE due to:
 Prohibition/restriction imposed on any product; 5 years block period may
be extended suitably by Board of Approval (BOA).
 Adverse market condition or any grounds of genuine hardship having
adverse impact to functioning of the unit, 5 years block is extendable upto
1 year
The Unit shall achieve Positive Net Foreign Exchange to be calculated
cumulatively for a period of five years from the commencement of production
according to the following formula, namely:-

Positive Net Foreign Exchange = A B >0, where:

A: is Free on Board value of exports, including exports to Nepal and Bhutan

against freely convertible currency, by the Unit and the value of following supplies
of their products, namely: -

 supply of goods against Advance Licence or Duty Free Replenishment

Certificate under the Duty Exemption or Remission Scheme or Diamond
Imprest Licence under the Foreign Trade Policy
 supply of capital goods to holders of licence under the Export Promotion
Capital Goods scheme under the Foreign Trade Policy
 supply of goods to projects financed by multilateral or bilateral agencies or
funds as notified by the Department of Economic Affairs, Ministry of
Finance under International Competitive Bidding in accordance with the
procedures of those agencies or funds, where the legal agreements provide
for tender evaluation without including the customs duty
 supply of capital goods, including those in unassembled or disassembled
condition as well as plants, machinery, accessories, tools, dies and such
goods which are used for installation purposes till the stage of production
and spares to the extent of ten per cent. of the free on rail value to
fertilizer plants
 supply of goods to any project or purpose in respect of which the Ministry
of Finance, by a notification, permits the import of such goods at zero
customs duty
 supply of goods to the power projects and refineries not covered in (e)
above
 supply to projects funded by United Nations Agencies
 supply of goods to nuclear power projects through competitive bidding as
opposed to International Competitive Bidding
 supply made to bonded warehouses set up under the Foreign Trade Policy
or under section 65 of the Customs Act and free trade and warehousing
zones, where payment is received in foreign exchange
 supply against special entitlements of duty free import of goods under the
Foreign Trade Policy
 export of services by services units including services rendered within
Special Economic Zone or services rendered in the Domestic Tariff Area and
paid for in free foreign exchange or such services rendered in Indian Rupees
which are otherwise considered as having been paid for in free foreign
exchange by the Reserve Bank of India
 supply of Information Technology Agreement items and notified zero duty
telecom or electronic items, namely, Color Display Tubes for monitors and
Deflection components for colour monitors or any other items as may be
notified by the Central Government
Export documentation
Commercial Documents:

1. Commercial Invoice:
This is the first basic and the only complete document in an export transaction. It
is, in fact, a document of contents containing information about goods.
Harmonized System Nomenclature (HSN), price charged, the terms of shipment
and marks and numbers on the packages containing the merchandise.

The exporter needs this document for other purposes also such as:
(i) Obtaining export inspection certificate
(ii) Getting excise clearance
(iii) Getting customs clearance and

This document is prepared at both the pre-shipment and post-shipment stages.

Besides commercial invoice, there is a proforma invoice also. It is a temporary
commercial invoice which is sent by the exporter to the importer. It covers
contemplated shipment which may or may not be made in future.

2. Bill of Lading:
Bill of lading (B/L) is a document which is issued by the shipping company
acknowledging that the goods mentioned therein are either being shipped or
have been shipped. This is also an undertaking that the goods in like order and
condition as received will be delivered to the consignee, provided that the freight
specified therein has been duly paid.
3. Airway Bill:
In air carriage, the transport document is known as the airway bill. This document
performs three functions of a forwarding note for the goods, receipt for the goods
tendered, and authority to obtain delivery of goods. Since it is non-negotiable, so
it does not carry the same validity as a bill of lading for sea transport carries.

4. Bill of Exchange (B/E):

Bill of exchange is an instrument or draft used for the payment in international /
export business. It is an instrument in writing containing an unconditional order,
signed by the marker, directing a certain person to pay a certain sum of money
only to or to the order of a person or to the bearer of the instrument. The person
to whom the bill of exchange is addressed is to pay either on demand or at a fixed
or a determinable future.

5. Letter of Credit:
It is a written instrument issued by the buyer’s (importer’s) bank, authorising the
seller (exporter) to draw in accordance with certain terms and stipulating in a
legal form that all such bills (drafts) will be honoured. Letter of credit provides the
exporter with more security than open accounts or bills of exchange.

A commercial letter of credit involves the following three parties:

(i) The opener or importer – the buyer who opens the credit
(ii) The issuer – the bank that issues the letter of credit.
(iii) The beneficiary – the seller in whose favour the credit is opened.
Regulatory Documents:

1. Legal Documents for Export from India:

There are two types of regulatory documents:
(i) Documents needed for registration, and
(ii) Documents needed for shipment.

The first category documents include applications and other supporting

documents for obtaining:
(i) Code number from the Reserve Bank of India (RBI),
(ii) Importers and exporters’ code numbers from the Chief Controller of Imports
and Exports,

2. Shipping Bill:
The shipping bill is the main document on the basis of which the custom’s
permission for export is given. Post parcel consignment requires customs
declaration form to be filled in.

3. Marine Insurance Policy:

It is the basic instrument in marine insurance. A marine policy is a contract and a
legal document which serves as evidence of the agreement between the insurer
and the assured. The policy must be produced to press a claim in a court of law.
An exporter must also put up the marine insurance policy as a collateral security
when he gets an advance against his bank Credit.
Some important documents for importing country Certificate of Origin

Certificate of Origin
Certificate of Origin is an instrument which establishes evidence on origin of
goods imported into any country. These certificates are essential for exporters to
prove where their goods come from and therefore stake their claim to whatever
benefits goods of Indian origin may be eligible for in the country of exports.

A Certificate of Origin must be signed by the exporter with a permanent

indemnity bond on a non-judicial stamp paper of Rs 10, duly notarised (format for
Indemnity Bond is available with the Certificate of Origin Dept).

GSP Certificate
GSP means, Generalized System of Preference, which is issued by Export
Inspection Agency. After verifying properly and collecting necessary charges,
export inspection agency certifies the document and issues GSP Certificate of
origin along with attested copy of commercial invoices. GSP can be obtained by
filing online.

The Generalized System of Preferences (GSP) is a non-contractual instrument by

which industrially developed countries extend tariff concession to goods
originating in developing countries.
The declared objectives are to assist developing countries:
a). In increasing their export earnings:
b). In promoting their industrialization: and
c). In accelerating their rates of economic growth
Pre-shipment inspection
Pre-shipment inspection is a step in freight shipping that allows you to fix any
issues without receiving and paying for the product; since inspectors examine
items before shipping, you can hold the final payment until you get the report.
The Pre-shipment Inspection Certificate (PSIC) is one of the mandatory
documents for the import of shredded, un-shredded, compressed, and loose
forms of metallic waste and scrap. According to the Foreign Trade Policy of India,
the importer needs to furnish the original copy of the PSIC document for customs
clearance

Phytosanitary Certificate
A phytosanitary certificate for export or for re-export can be issued only by a
public officer who is technically qualified and duly authorized by an NPPO. A
phytosanitary certificate for export is usually issued by the NPPO of the country
where the plants, plant products or regulated articles were grown or processed.

Health certificate
A health certificate is a document used in export import transactions, issued by
the governmental organizations at the countries of origin, to certify that a food
shipment is fit for human consumption, and meets safety standards or other
required legislation for exporting.
Significance of some important documents

Performa invoice
Performa invoice is also called predict invoice (P/I). The buyer learns the general
forms and contents of the future commercial invoice in advance after both sides
reach a deal. On request of the importer, the exporter usually offers an informal
invoice listing cargo name, specification, unit price, total price, delivery term,
payment term and so on, which is used for applying for import license or foreign
exchange from the domestic trade management administration or foreign
exchange management administration. The Performa invoice is not formal, which
cannot be used in Collection or Negotiation1 ,what's more, the price and total
amount is estimated according to the temporal situation, which has no binding
force to both sides. So, the Performa invoice is only a bill of estimation, and
another formal commercial invoice must be followed.
Generally, Performa invoice has the following three functions:
1. Quantifiable quotation, which is a general price reference of the cargo.
2. As sales confirmation, which means once the buyer confirms the Performa
invoice, the contract is also established.
3. Allow the buyer to apply for:
(1) Import admission,
(2) Foreign exchange permit,
(3) Open the L/C.

Commercial Invoice
Commercial Invoice refers to the evidential document of importing accounts, tax
payment or customs declaration. The contents of commercial invoices generally
includes: 1. the word: "INVOICE"; 2. Number and Date of Issuance; 3. Contract
Number or Order Number; 4. Consignee's Name and Address; 5. Exporter's Name
and Address; 6. Commodity, Specifications, Quantity, Gross Weight and Net
Weight, etc; 7. Packing and Measurement; 8. Unit Price and Price Term; 9. Total
Amount; 10.Signature of Maker. The roles of commercial invoice are as follows:

 Check whether the seller performs in conformity with the contract. Invoice
is a comprehensive account of the transaction, focusing on the price in the
contract. Check the invoice contents and the contract terms item by item,
the buyer can get information to the seller's delivery conditions.

 Basis for bookkeeping and accounting. As the evidence of the transaction,

commercial invoice is the basis for the seller's bookkeeping and accounting.

 Basis for customs declaration and calculation of the tax. Customs check and
ratify the tax according to the price and the related description in the
invoice, which is also one of the evidence for customs clearance in export
place or delivery of goods in import place.

Packing list
A packing list is a shipping document that is widely used in international trade. As
its name suggests, it contains information about the contents of the exported
goods. It is glued on the exterior of the shipment.

Shipping Instructions
Shipping Instructions or SI is a document that provides detailed specifications of a
shipment, like Container number, Seal number, exact number of packages, HS
code of the commodity, etc., the instructions in the document are used to create
your Bill of Lading or Sea Waybill.
Bill of exchange
A bill of exchange is used in international trade to help importers and exporters
fulfill transactions. While a bill of exchange is not a contract itself, the involved
parties can use it to specify the terms of a transaction, such as the credit terms
and the rate of accrued interest.

Shipping bills
Shipping bills have to be filed mandatory for every goods moved for exports.
Shipping bills are filed as per the guidelines of customs department of each
country. Before introduction of electronic filing system with customs department,
documents are filed manually.
There are different types of shipping bills and the same are differentiated based
on the colour codes being assigned. Different types of shipping bills and the
assigned different colour codes are being summarized hereunder –

Dutiable Shipping Bill

Goods which are to be exported on payment of certain export duty for export of
such goods ‘dutiable shipping bill’ is to be filed. The same is printed on yellow
paper.

Duty-Free Shipping Bill

Goods which are to be exported without payment of any customs duty and such
goods are also not eligible for duty drawback for such goods ‘ duty-free shipping
bill’ is filed. The same is printed on white paper.
Drawback Shipping Bill
‘Drawback shipping bill’ is to be filed for the goods which are eligible for the
refund. The same is printed on green paper, however, after the drawback has
been paid, the same would be printed on yellow paper.

Ex-Bond Shipping Bill

Goods which are imported and stored in bonded warehouses and are awaiting re-
export for such goods ‘ex-bond shipping bill’ is to be filed. The same is printed on
pink paper.

Coastal Shipping Bill

When goods are required to be shipped for it’s moved from one port to another
port the ‘coastal shipping bill’ needs to be filed. ‘Coastal shipping Bill’ cannot be
said to be an export document.

Bill of Lading
Bill of Lading in a legal document, used between a shipper and a carrier that
specifies the type, quantity and destination of the goods that is being carried. The
bill is also used as a shipment receipt when the carrier delivers goods at the
predetermined destination. This document accompanies the shipped goods, not
taking into consideration the mode of transportation. An authorized
representative from the carriers, shipper and receiver are necessitated to sign it.

Types of Bill of Lading

Clean Bill of Lading
Clean Bill of Lading is issued by the Shipping Company or by its agents without any
declaration on the defective Constitution of the goods/ packages taken on Board/
stuffed in containers.
Received for Shipment Bill of Lading
Received Bill of Lading is a document that is issued by a carrier as evidence of
receipt of goods for shipment. It is issued prior to the vessel loading and is
therefore not an onboard bill of lading.

Through Bill of Lading

Through Bills of Lading are complex than most BOLS. The document permits the
shipping carrier to pass the cargo through several modes of transportation or
through several distribution centers. This bill includes an Inland Bill of Lading and
an Ocean Bill of Lading depending on the destination.

Claused Bill of Lading

Claused Bill of Lading is issued when the cargo is damaged or when the quantity
goes missing.

Container Bill of Lading

Container Bill of Lading is a document that gives information about goods that are
delivered in a safe container or containers from one port to another.

House Bill of Lading

House Bill of Lading is a document generated by an Ocean Transport Intermediary
freight forwarder or non-vessel operating company. The document is an
acknowledgement of the receipt of goods that are shipped, issued to the
suppliers when the cargo is received. This Bill of Lading is also known as
Forwarders Bill of Lading.
Master Bill of Lading
Master Bill of Lading is a document that is created for shipping companies by their
carriers as a receipt of transfer. The document specifies the terms that are
required for transporting the freight, details of the consignor or the shipper, the
consignee and the respective person who possess the goods.

Charter Party Bill of Lading

Charter Party Bill of Lading is an agreement between a charterer and a vessel
owner. The document is issued by the charterer of the vessel to the shipper for
the goods that are shipped on board the vessel.

Multi modal Transport Document/ Combined Transport Document

Multi Modal Transport Document or Combined Transport Document is a type of
Through Bill of Lading the involves a minimum of two different modes of
transport, land or ocean. However, the modes of transportation can be anything
from freight boat to air.

Stale Bill of Lading

Stale Bill of Lading is presented for negotiation after 21 days from the date of
shipment or any other date/ number of days stipulated in the documentary
credit.

Order Bill of Lading

Order Bill of Lading is the bill that expresses words that make the bill negotiable.
This explains that the delivery is to be made to the further order of the consignee
using terms such as ‘delivery to A Limited or to order or assigns.
Bearer Bill of Lading
Bearer Bill of Lading is a bill that states that the delivery shall be made to
whosoever holds the bill. These bills are specially created or it is an order bill that
does not nominate the consignee in its original form or through an endorsement
in blank. A bearer bill can be negotiated by physically delivering it.

Surrender Bill of Lading

Surrender Bill of Lading works under the term ‘import documentary credit’, where
the bank releases documents on receipt from the negotiating bank. The importer
does not make the payment to the bank until the maturity of the draft under the
relative credit.

List of documents required to be submitted by the exporter to various

authorities, organizations & agencies.

Pro Forma Invoice

The Pro Forma Invoice documents the intention of the exporter to sell a
predetermined quantity of goods or products. This invoice is generated as per the
outlined terms and conditions agreed upon between the exporter and the
importer, through a recognised medium of communication such as email, fax,
telephone or in person. It is similar to a ‘Purchase Order’, which is issued prior to
completing the sales transaction.

Customs Packing List

The customs packing list states the list of items included in the shipment that can
be matched against the pro forma invoice by any concerned party involved in the
transaction. This list is sent along with the international shipment and is especially
convenient for transportation companies as they know exactly what is being
shipped. Individual customs packing lists are secured outside each individual
container to minimise the risk of exporting incorrect cargo internationally.

Country of Origin or COO Certificate

The Country of Origin Certificate is a declaration issued by the exporter that
certifies that the goods being shipped have been completely acquired, produced,
manufactured or processed in a particular country.

Commercial Invoice
A commercial invoice is a mandatory document for any export trade. The customs
clearance department will ask for this document first as it contains information
about the order, including details such as description, selling price, quantity,
packaging costs, weight or volume of the goods to determine customs import
value at the destination port, freight insurance, terms of delivery and payment,
etc. A customs representative will match this information with the order and
decide whether to clear this for forwarding or not.

Shipping Bill
A shipping bill is a traditional report where the downside is asserted and primarily
serves as a measurable record. This can be submitted through a custom online
software system (ICEGATE).

Bill of Lading
Bill of Lading is a legal document issued by the carrier to the shipper. It acts as
evidence of the contract for transport for goods and products, mentioned in the
bill provided by the carrier. It also includes product information such as type,
quantity, and destination that the goods are being carried to. This bill can also be
treated as a shipment receipt at the port of destination where it must be
produced to the customs official for clearance by the exporter. Regardless of the
form of transportation, this is a must-have document that should accompany the
goods and must be duly signed by the authorised representative from the carrier,
shipper, and receiver. The Bill of Lading comes in handy if there is any asset theft.

Bill of Sight
Bill of Sight is a declaration from the exporter made to the customs department in
case the receiver is unsure of the nature of goods being shipped. The Bill of Sight
permits the receiver of goods to inspect them before making payments towards
applicable duties. Applying for a bill of sight becomes necessary as it acts as a
substitute document if the exporter does not have all the must-have information
and documents needed for the bill of entry. Along with the bill of sight, the
exporter also needs to submit a letter that allows for the clearance of goods by
customs.

Letter of Credit
Letter of credit is shared by the importer’s bank, stating that the importer will
honour payment to the exporter of the sum specified to complete the
transaction. Depending on the terms of payment between the exporter and
importer, the order is dispatched only after the exporter has this letter of credit.

Bill of Exchange
Bill of Exchange is an alternative payment option where the importer is to clear
payments for goods received from the exporter either on-demand or at a fixed or
determinable future. It is similar to promissory notes that can be drawn by banks
or individuals. You can even transfer a Bill of Exchange by endorsement.

Export License
Businesses must have an export license that they can provide to customs in order
to export or forward any products. This only needs to be produced when the
shipper is exporting goods to an international destination for the very first time.
This type of license may vary depending on the type of export you intend to
make.

Warehouse Receipt
Warehouse Receipt receipt is generated once the exporter has cleared all relevant
export duties and freight charges post customs clearance. This is needed only
when an ICD in involved.

Health Certificates
Health Certificate is applicable only when there are food products that are of
animal or non-animal origin involved in international trade. The document
certifies that the food contained in the shipment is fit for consumption by humans
and has been vetted to meet all standards of safety, rules and regulations prior to
exporting.

Export sales contract, terms of delivery and INCOTERMS:

EXW,FCA,FAS,FOB,C&F/CFR, CIF,CPT,CIP,DES,DEQ,DDP(duty unpaid),DDP,DAF.

Exports Sales Contract

Exports Sales Contract or Export Contract may be defined as a contract whereby
the exporter (seller) transfers or agrees to transfer the property in goods to the
importer (buyer) for a price.

Terms of Delivery
The terms describe mainly the tasks, costs, and risks involved for exporters
delivering goods to their buyers. The Incoterms rule is suited to the type of goods
sold, the means of transport used, and other obligations of the seller and the
buyer which could include insurance or customs clearance.
EXW
Ex Works means that the seller shall deliver the goods as soon as they are made
available to the buyer at the seller's premises or other designated premises (e.g.
factory, plant, warehouse, etc.). The seller shall not be obligated to load the
goods onto a collecting vehicle or to clear the products for export.

FCA
Under the shipping terms for the FCA Incoterms (short for “Free Carrier”), the
seller is responsible for export clearance and delivery of goods to the carrier at
the named place of delivery.

FOB
This basically means that the cost of delivering the goods to the nearest port is
included but YOU, as the buyer, are responsible for the shipping from there and
all other fees associated with getting the goods to your country/address.

FAS
Free alongside ship (FAS) is a contractual term used in the international export
business that stipulates that the seller must arrange for goods to be delivered to a
designated port and next to a specific vessel for easier transfer.

C&F
Cost and freight is a legal term used in contracts for international trade that
specifies that the seller of the goods is required to arrange for the carriage of
goods by sea to a port of destination and provide the buyer with the documents
necessary to obtain the items from the carrier.
CIF
Cost, insurance, and freight (CIF) is an international shipping agreement, which
represents the charges paid by a seller to cover the costs, insurance, and freight
of a buyer's order while the cargo is in transit. Cost, insurance, and freight only
applies to goods transported via a waterway, sea, or ocean.

CPT
Carriage Paid To (CPT) is an international commercial term (Incoterm) denoting
that the seller incurs the risks and costs associated with delivering goods to a
carrier to an agreed-upon destination. CPT costs include export fees and taxes.

CIP
Carriage and Insurance Paid To (CIP) is when a seller pays freight and insurance to
deliver goods to a seller-appointed party at an agreed-upon location.

DES
DES means Delivered Ex Ship (at named port of delivery). The seller (exporter)
bears all costs and risks to deliver goods at named port of delivery mentioned in
contract. The goods are made available to unload at the carrier. ... The shipping
term DES had been widely using till 2010.

DEQ
DEQ means Delivered Ex Quay. In a DEQ terms of delivery, the responsibility of
seller ends only after unloading the goods at the quay (wharf) of destination port
contracted. ... DEQ can be used now also if required as delivery terms by
mentioning in contract that the terms are 'subjected to Inco Terms 2000'.
DDU
DDU means Delivered Duty Unpaid. DDP means Delivered Duty Paid. to be paid by
the seller of goods. In other words, the selling cost of goods included all charges
to deliver goods up to the door of consignee except duty or tax of importing
country.

DDP
Delivered duty paid (DDP) is a delivery agreement whereby the seller assumes all
of the responsibility, risk, and costs associated with transporting goods until the
buyer receives or transfers them at the destination port.

DAF
"Delivered at frontier" (DAF) is a term used in international shipping contracts
that requires a seller to deliver goods to a border location. The seller is usually
responsible for all costs of transporting the goods to the drop-off point for the
buyer.
Export pricing decision: understanding competition, different pricing strategy,
understanding costing and different cost involved in pricing according to
delivery terms.

Export price setting is a crucial managerial decision determining the ability to

compete in foreign markets. Export price competitiveness depends on a
comprehensive identification of environmental factors and a congruence of
pricing decisions and actions by the company.

Export pricing is a technique of fixing the prices of goods and services which are
intended to be exported and sold in the overseas markets.

Export price competitiveness

Export price competitiveness depends on a comprehensive identification of
environmental factors and a congruence of pricing decisions and actions by the
company. Competitive export price should be flexible and change over time due
to external and internal environmental conditions. Based on the reviewed and
examined scientific research findings, the article establishes the most important
environmental factors that have an impact on price competitiveness in export
markets.

Different Pricing Strategy

(a) Skimming Pricing Strategy: A pricing strategy in which exporter charges a very
high price initially in order to recover the cost incurred on high promotional
expenditure, research and development, etc., is known as skimming pricing
strategy. After exploiting the rich market, the exporter can gradually decrease the
price in order to increase his market share.

(b) Penetration Pricing Strategy: A pricing strategy in which an exporter I charges

a very low price initially in order to get hold of the market and drive away
competitors is known as penetration pricing strategy. Sometimes, such strategy is
referred to as dumping. This strategy is suitable for the items of mass
consumption.

(c) Transfer Pricing: Transfer pricing refers to the pricing of goods transferred
from one subsidiary to another or to the parent Company. Due to this, profits of
one subsidiary are transferred to another subsidiary or to the parent company.
Transfer pricing decisions are affected by factors such as differences in tax and
tariff rates, foreign exchange restrictions and import restrictions.

d) Marginal Cost Pricing: Marginal cost is the cost of producing one extra unit of a
product. Under this approach, an exporter simply considers variable costs or
direct costs while arriving at the price to be charged in the international market
and fixed costs are fully recovered from the domestic market.

(e) Market Oriented Pricing: This is a very flexible method of arriving at a price as
it takes into consideration the changing market conditions. The price charged may
be higher when demand conditions are favourable and vice versa. This method is
sometimes referred to as what the traffic will bear method. This is a very flexible
and realistic method of pricing.

(f) Competitor's pricing: Under this method, pricing strategy of dominant

competitors is taken into consideration while arriving at the pricing decisions. A
price leader is the firm, which initiates the price trends in the market. However, if
the competitor's pricing policy is faulty, the followers will also land up with wrong
pricing.
Cost: Cost is the most important factor to be considered in the process of price
determination, since cost constitutes a major part of the price. The export price
should include direct cost like raw material cost and indirect cost like distribution
cost.
Costs, Demand and Competition are the three important factors that determine
price. The price for export should be as realistic as possible. The exporter has to
exclude cost for domestic production which are not applicable for export and add
those elements of costs which are relevant to export product. Exporter has to
compete with manufacturers formal over the world. Hence, his price has to be
realistic considering all export benefits and price in foreign market.

There is no fixed formula for successful export pricing. It differs from exporter to
exporter depending upon whether the exporter is a merchant exporter or
manufacturer exporter or exporting through canalizing agency. Exporter has to
assess the strength of his competitor And anticipate the move of competitor in
the market of operation. Exporter can still be competitive with higher prices with
better delivery package or added advantage.

Cost-plus method is when the exporter starts with the domestic manufacturing
cost and adds administration, research and development, overhead, freight
forwarding, distributor margins, customs charges, and profit. However, the effect
of this pricing approach may be that the export price escalates into an
uncompetitive range once exporting costs have been included. 

Marginal cost pricing is a more competitive method of pricing a product for

market entry. This method considers the direct out-of-pocket expenses of
producing and selling products for export as a floor beneath which prices cannot
be set without incurring a loss. For example, additional costs may occur because
of product modification for the export market. Costs may decrease, however, if
the export products are stripped-down versions or made without increasing the
fixed costs of domestic production.
Understanding different modes of payment in Export-Import Business

Advance Payment
Advance payment; It means that the cost of the goods is paid before the actual
export of the goods. In other words, the cost of the goods is paid by the importer
to the exporter in advance before the delivery of the goods either through a bank
or in other ways.

Documents against Payment (DP)

Documents against Payment – DP/DAP is a term of payment in international
trade. It relies on an instrument generally used in international trade called a bill
of exchange or draft. In this term, the documents under consignment are
delivered to buyer/importer only after collecting payment of goods by buyer's
bank.

Documents against Acceptance (DA)

Documents against Acceptance are another term of payment in international
payment. Simply, D/A is an arrangement in which an exporter instructs a bank to
discharge shipping and title documents to an importer only if the importer
accepts the accompanying bill of exchange or draft by signing it.

Letter of Credit (LC)

A letter of credit, or LC, is a conditional payment method in which the issuing
bank promises to pay you once you have complied with all the terms and
conditions of the sale. Typically, once you and your customer have agreed on the
terms of the sale, your customer arranges for its bank to prepare an LC based on
the terms of sale. The bank then send the LC to your bank.
Open Account
An open account transaction in international trade is a sale where the goods are
shipped and delivered before payment is due, which is typically in 30, 60 or 90
days. Obviously, this option is advantageous to the importer in terms of cash flow
and cost, but it is consequently a risky option for an exporter.

Advantages
 This is a very low-risk option for your customer, since they receive the
goods before paying for them.
 Using open account can help you land a sale, but you should know whether
the buyer’s credit is good before you agree to it.
 In most markets, offering open account terms will make you more
competitive, which can increase repeat business and help you build both
market share and customer loyalty and risk involved to Exporters and
Importers

Disadvantages
 The biggest risk with open account is getting paid late, or not getting paid
at all.
 If the customer doesn’t pay, you may also incur costs trying to collect on
the debt in addition to the loss from unpaid debt itself.
 Simply offering longer payment terms won’t necessarily make you the most
competitive. It’s best to find out what payment terms are most common for
your industry in the target market, and remain within them.
UCPDC (Uniform Customs and Practice for Documentary Credit) 600 and Rules

The Uniform Customs & Practice for Documentary Credits (UCP 600) is a set of
rules agreed by the International Chamber of Commerce, which apply to finance
institutions which issue Letters of Credit – financial instruments helping
companies finance trade. Many banks and lenders are subject to this regulation,
which aims to standardize international trade, reduce the risks of trading goods
and services, and govern trade.

UCP 600 rules

The UCP 600 rules are voluntarily incorporated into contracts and have to be
specifically outlined in trade finance contracts in order to apply. They also allow
flexibility for the international parties involved.

An accompaniment to the UCP 600 is the International Standard Banking Practice

for the Examination of Documents under Documentary Credits (ISBP), ICC
Publication 745. It assists with understanding whether a document complies with
the terms of Letters of Credit.

Credits that are issued and governed by UCP 600 will be interpreted in line with
the entire set of 39 articles contained in UCP 600. However, exceptions to the
rules can be made by express modification or exclusion.

Types of Letter of Credit

There are five commonly used types of letter of credit. Each has different features
and some are more secure than others. Sometimes a letter of credit may combine
two types, such as 'confirmed' and 'irrevocable'.
Revocable
 A revocable letter of credit is uncommon because it can be changed or
cancelled by the bank that issued it at any time and for any reason.

Irrevocable
 An irrevocable letter of credit cannot be changed or cancelled unless
everyone involved agrees. Irrevocable letters of credit provide more
security than revocable ones.

Confirmed
 A confirmed letter of credit is one to which a second bank, usually in the
exporter's country adds its own undertaking that payment will be made.
This is used when the exporter does not find the security of an unconfirmed
credit sufficient due to issuing bank risk or political and/or economic risk
associated with the importer's country.
 An irrevocable and confirmed letter of credit has not only the commitment
of the issuing bank but also a binding undertaking given by the confirming
bank to pay when the documents are presented in accordance with the
terms and conditions of the credit. So a confirmed letter of credit provides
more security than an unconfirmed one.
Unconfirmed
 An unconfirmed letter of credit is one which has not been guaranteed or
confirmed by any bank other than the bank that opened it. The advising
bank forwards the letter of credit to the beneficiary without responsibility
or undertaking on its part but confirming authenticity.
Transferable
 A transferable letter of credit can be passed from one 'beneficiary' (person
receiving payment) to others. They're commonly used when intermediaries
are involved in a transaction.

Other types of letters of credit

Standby
A standby letter of credit is an assurance from a bank that a buyer is able to pay a
seller. The seller doesn't expect to have to draw on the letter of credit to get paid.

Revolving
A single revolving letter of credit can cover several transactions between the
same buyer and seller.

Back-to-back
Back-to-back letters of credit may be used when an intermediary is involved but a
transferable letter of credit is unsuitable.

Credit risk Management

Export Credit Guaranty Corporation (ECGC)
ECGC Ltd. (Formerly known as Export Credit Guarantee Corporation of India Ltd.)
wholly owned by Government of India, was set up in 1957 with the objective of
promoting exports from the country by providing credit risk insurance and related
services for exports. Over the years it has designed different export credit risk
insurance products to suit the requirements of Indian exporter.
ECGC is essentially an export promotion organization, seeking to improve the
competitiveness of the Indian exports by providing them with credit insurance
covers.

The Corporation has introduced various export credit insurance schemes to meet
the requirements of commercial banks extending export credit. The insurance
covers enable the banks to extend timely and adequate export credit facilities to
the exporters. ECGC keeps its premium rates at the optimal level.

ECGC provides
(i) a range of insurance covers to Indian exporters against the risk of non –
realization of export proceeds due to commercial or political risks
(ii) different types of credit insurance covers to banks and other financial
institutions to enable them to extend credit facilities to exporters and
(iii) Export Factoring facility for MSME sector which is a package of financial
products consisting of working capital financing, credit risk protection,
maintenance of sales ledger and collection of export receivables from
the buyer located in overseas country.

Risks covered by Standard Policies fall into two categories –

Commercial Risks
Commercial Risks which includes Insolvency of the buyer, Protracted default in
payment (Importer has to pay within four months of due date) and Under special
circumstances specified in the policy, buyer’s failure to accept the goods though
there is no fault on the part of exporter.
Political Risks
There are mainly 6 types of covers included under political risks policies under
ECGC.
(i) Imposition of restrictions in buyer’s country by the Government for remittance
sale proceeds which may block or delay the payment to the exporter;

(ii) War, revolution or civil disturbances in the buyer’s country;

(iii) New import restrictions in the buyer’s country of cancellation of valid import
license after the date of shipment or contract, as applicable;

(iv) Cancellation of valid export license or imposition of new licensing restrictions

after the date of contract, applicable under Contracts Policy;

(v) Payment of additional transportation and insurance charges occasioned by

interruption or diversion of voyage which cannot be recovered from the buyer
and

(vi) Any other loss that has occurred in buyer’s country, which is not covered
under general insurance and beyond the control of exporter and / or the buyer.
In case, where the buyer happens to be foreign Government or Government
department and it refuses to pay, the default will fall under the category of
political risks
What are the risks not covered under standard policies of Export Credit
Guarantee Corporation ECGC?

1. Commercial disputes including the quality disputes raised by the buyer, unless
the exporter obtains a decree from a competent court in the importer’s country
in his favor;

2. causes inherent in the nature of the goods;

3. Buyer’s failure to obtain import license or exchange authorization in his

country;

4. Insolvency or default of an agent of the exporter or the collecting banks;

5. Losses or damages which can be covered by commercial insurers; and

6. Foreign Exchange fluctuations.

ECGC does not cover those risks that are covered by the commercial insurers.
Exporter can take comprehensive policy that covers both commercial and political
risks. If the exporter wants, he can take only policy that covers political risks,
depending on the requirements.
Percentage of Risk Covered
90% for Standard Policyholders and 80% for others.

Resale of Unaccepted goods

If, upon non-acceptance of goods by a buyer, the exporter sells the goods to an
alternate buyer without obtaining prior approval of ECGC even when the loss
exceeds 25% of the gross invoice value, ECGC may consider payment of claims
upto an amount considered reasonable, provided that ECGC is satisfied that the
exporter did his best under the circumstances to minimize the loss.

Procedures with ECGC to cover insurance:

Once after finalizing the order, the buyer execute a purchase order to the seller
with the terms and conditions as agreed by both. The purchase order should
contain full details of buyer and buyer’s bank account details. The exporter
approaches Export Guarantee Corporation to get approval on the buyer with
amount of limit. Here, the ECGC with their available contact with overseas
network finds out the credit worthiness of the said buyer and arrives a figure of
creditworthiness and inform the maximum limit of amount can be shipped at any
point of time. Export Credit Guarantee Corporation collects premium on the
amount of approval and issue insurance policy accordingly.

The exporter can apply with ECGC for insurance on shipment wise order as
specific insurance policy, or at lump sum as comprehensive policy. If an exporter
obtain a specific policy, the contract of insurance is only for that particular
shipment. You as an exporter has to pay premium only against the said shipment.
If you prefer to obtain a comprehensive policy against any buyer, you can get
approval from ECGC, the amount of credit worthiness of the said buyer.
Role of Bank in Export Business

EXIM Bank extends Lines of Credit (LOCs) to overseas governments, financial

institutions, regional banks and other overseas entities, to finance India's exports
to those countries. EXIM Bank's LOC is a risk-free, non-recourse export financing
option available to Indian exporters for promoting their exports. Under this
arrangement, overseas importers are required to pay advance payment to Indian
exporters, which is usually 10% of the contract value. EXIM Bank pays the balance
amount, which is normally 90% of the contract value, to Indian exporters through
negotiating banks in India, upon shipment of goods. EXIM Bank also operates
LOCs, announced by the Government of India, to the country's trading partners.

Role of Export and Import Bank of India bank:

 Finances import and export of goods and services from India
 It also finances the import and export of goods and services from countries
other than India.
 It finances the import or export of machines and machinery on lease or
hires purchase basis as well.
 Provides refinancing services to banks and other financial institutes for
their financing of foreign trade
 EXIM bank will also provide financial assistance to businesses joining a joint
venture in a foreign country.
 The bank also provides technical and other assistance to importers and
exporters. Depending the country of origin there are a lot of processes and
procedures involved in the import-export of goods. The EXIM bank will
provide guidance and assistance in administrative matters as well.
 Undertakes functions of a merchant bank for the importer or exporter in
transactions of foreign trade.
  EXIM bank can also provide business advisory services and expert
knowledge to Indian exporters in respect of multi-funded projects in
foreign countries.

Export Finance
The term ‘export finance’ refers to credit facilities and techniques of payments at
the pre-shipment and post-shipment stages. Export finance whether short-term
or medium term, is provided exclusively by the Indian and foreign commercial
banks which are the members of the Foreign Exchange Dealers Association. The
Reserve Bank of India (RBI) and the Industrial Development Bank of India (IDBI)
provide refinance facilities to the commercial banks. Export-Import Bank of India
(commonly known as EXIM Bank) also extends finance to exporters and to
overseas projects abroad joint ventures and construction projects abroad.

Pre-shipment Finance:
Pre-shipment finance refers to the financial assistance provided to the exporters
before actual shipment of goods. Pre-shipment finance is provided to the
exporters for the purposes like purchase of raw materials, their processing and
converting into finished goods and packaging them.
For these purposes, the following pre-shipment finance is made available:
 Packaging credit
 Advance against Incentives
 Advance against Duty Drawback.
Pre-shipment credits are granted by the banks under concessional rates of
interest at 7.5 per cent.
Post-Shipment Finance:
Post-shipment finance may be as “any loan or advance granted or any other
credit provided by a bank to an exporter of goods from India from the date of
extending the credit after shipment of goods to the date of realization of export
proceeds. “Thus, post-shipment finance serves as bridge loan for the period
between shipment of goods and the realization of proceeds. Such loan is usually
provided for a maximum period of 6 months. Interest is charged at the rate of
8.65 per cent.

Submitting documents to bank for Purchase, Collection/Negotiation under DA,

DP, and LC.
DA in payment term of international trade means, Documents against
Acceptance. DP in payment term of imports and exports means Documents
against Payments.

LC
An import LC is issued by the buyer's (importer's) bank on their behalf, stating
that the seller is the beneficiary. ... An export LC, on the other hand, is an import
letter of credit that is received by the exporter's bank. Once an import LC has
been accepted by the exporter's bank, it automatically becomes an export LC.

DA
Under Documents Against Acceptance, the Exporter allows credit to Importer, the
period of credit is referred to as Usance, The importer/ drawee is required to
accept the bill to make a signed promise to pay the bill at a set date in the future.
When he has signed the bill in acceptance, he can take the documents and clear
his goods.The payment date is calculated from the term of the bill, which is
usually a multiple of 30 days and start either from sight or form the date of
shipment, whichever is stated on the bill of exchange. The attached instruction
would show "Release Documents Against Acceptance".
DP
This is sometimes also referred as Cash against Documents/Cash on Delivery. In
effect D/P means payable at sight (on demand). The collecting bank hands over
the shipping documents including the document of title (bill of lading) only when
the importer has paid the bill. The drawee is usually expected to pay within 3
working days of presentation. The attached instructions to the shipping
documents would show "Release Documents Against Payment"

FEDAI (Foreign Exchange Dealers Association of India) and Rules.

FEDAI was set up in 1958 as an Association of banks dealing in foreign exchange in

India (typically called Authorised Dealers ADs) as a self regulatory body and is
incorporated under Section 25 of The Companies Act, 1956.

The FEDAI is a self-regulating organization (SRO) that formulates rules around

Indian interbank forex dealings. Some core functions of the FEDAI include advising
and supporting member banks, representing member banks on the Reserve Bank
of India (RBI), and announcing rates to member banks.

The FEDAI's core functions include:

 Advising and supporting member banks with issues that arise in their
dealings
 Representing member banks on the Reserve Bank of India (India's central
bank)
 Announcement of daily and periodical interest rates to member banks
 Guidelines and Rules for Forex Business.
 Training of Bank Personnel in the areas of Foreign Exchange Business.
 Accreditation of Forex Brokers
Rules in FEDAI-
Some of the important rules of FEDAI are as under.

Trading Hours of Authorized Dealers (Rule 1):

Exchange trading hours for interbank forex market in India would be 9a.m to 5
p.m. As per the trading rule, ADs shall not take customer transactions after 4.30
pm on all working days. However, in the cases of cross currency transactions cut-
off time limit of 5 p.m. is not applicable, but the management of the concerned
bank shall lay down the timings for extended dealing hours. Saturday will not be
treated working day for foreign exchange dealings.

Application of Exchange Rate on export bills (Rule 2.1.a):

The post-shipment bill will be purchased/discounted/negotiated by AD at current
bills buying rate. The interest for the normal transit period and/ or usance bills
will be recovered by the AD upfront. Rate of interest and overdue interest will be
charged as per RBI guidelines from time to time.

Crystallization of foreign currency export bills (Rule 2b):

Authorised Dealers have the freedom to formulate their own policy for
crystallisation of foreign currency liability into rupee liability, when an export bill
is not paid on due date. The policy of the bank in this regard should be
transparently available to their customers.

Dishonour of export Bill(Rule 2d):

In case of dishonour of bills before crystallisation, the AD bank shall recover
Rupee equivalent amount of the bill including foreign currency charges if any
arrived at the current spot TT selling rate or amount originally advanced
whichever is higher along with appropriate interest and rupee denominated
charges.
Early realization of an export bill (Rule 2.2.c):
In the case of early realisation of export bill interest collected by the bank for the
unexpired period shall be refunded to the customer. The bank shall also pay or
recover notional swap cost as in the case of early delivery under a forward
contract.

Exchange rate on Collection Bills (Rule 2.5)

The realisation proceeds of export bill in foreign currency sent on collection or
goods sent on consignment basis will be converted at TT buying rate. The
conversion will take place only after the foreign currency amount is credited to
the nostro account of the bank.

Crystallization of import bill (Rule 3.3):

The unpaid foreign currency import bills under Letters of credit shall be
crystallised (click: crystallization of import bills) as per the stated policy of the
bank in this respect.

Early delivery, extension, and cancellation of forex contracts (Rule 6)

If a bank accepts or gives early delivery, the bank shall recover/pay swap
difference, if any. In the case of extension is sought by the customer, the contract
shall be cancelled at appropriate (buying/selling) rate and rebooked
simultaneously at the current exchange rate.

Cancellation of purchase and sale contracts:

In the case of cancellation of contract at the request of the customer, cancellation
is to be effected at following rate;Purchase contract shall be cancelled at TT
selling rate. Sale contract shall be cancelled at TT buying rate. Where the contract
is cancelled before maturity, Forward TT rate shall be applied. In the absence of
any instruction from the customer, a contract which is matured shall be cancelled
by the bank on the 7th working day after maturity date. In such cases the
customer is entitled to the exchange difference if any.

RBI rules governing Exports

1) In case of exports taking place through Customs manual ports, every exporter
of goods or software in physical form or through any other form, either directly or
indirectly, to any place outside India, other than Nepal and Bhutan, shall furnish
to the specified authority, a declaration in one of the forms set out in the
Schedule and supported by such evidence as may be specified, containing true
and correct material particulars including the amount representing –

(i) the full export value of the goods or software; or

(ii) if the full export value is not ascertainable at the time of export, the value
which the exporter, having regard to the prevailing market conditions expects to
receive on the sale of the goods or the software in overseas market, and affirms
in the said declaration that the full export value of goods (whether ascertainable
at the time of export or not) or the software has been or will within the specified
period be, paid in the specified manner.

(2) Declarations shall be executed in sets of such number as specified.

(3) For the removal of doubt, it is clarified that, in respect of export of services to
which none of the Forms specified in these Regulations apply, the exporter may
export such services without furnishing any declaration, but shall be liable to
realize the amount of foreign exchange which becomes due or accrues on account
of such export, and to repatriate the same to India in accordance with the
provisions of the Act, and these Regulations, as also other rules and regulations
made under the Act.
(4) Realization of export proceeds in respect of export of goods / software from
third party should be duly declared by the exporter in the appropriate declaration
form.

Foreign Exchange Management Act (FEMA) and Exports

Foreign Exchange Management Act or in short (FEMA) is an act that provides
guidelines for the free flow of foreign exchange in India. It has brought a new
management regime of foreign exchange consistent with the emerging frame
work of the World Trade Organisation (WTO).

The Foreign Exchange Management Act, 1999 (FEMA), is an Act of the Parliament
of India "to consolidate and amend the law relating to foreign exchange with the
objective of facilitating external trade and payments and for promoting the
orderly development and maintenance of foreign exchange market in India".

Some Important Highlights

 It prohibits foreign exchange dealing undertaken other than an authorised

person;
 It also makes it clear that if any person residing in India, received any Forex
payment (without there being a corresponding inward remittance from
abroad) the concerned person shall be deemed to have received they
payment from a nonauthorised person.
 There are 7 types of current account transactions, which are totally
prohibited, and therefore no transaction can be undertaken relating to
them. These include transaction relating to lotteries, football pools, banned
magazines and a few others.
  FEMA and the related rules give full freedom to Resident of India (ROI) to
hold or own or transfer any foreign security or immovable property
situated outside India.
 Similar freedom is also given to a resident who inherits such security or
immovable property from an ROI.
 An ROI is permitted to hold shares, securities and properties acquired by
him while he was a Resident or inherited such properties from a Resident.
 The exchange drawn can also be used for purpose other than for which it is
drawn provided drawl of exchange is otherwise permitted for such
purpose.
 Certain prescribed limits have been substantially enhanced. For instance,
residence now going abroad for business purpose or for participating in
conferences seminars will not need the RBI's permission to avail foreign
exchange up to US$. 25,000 per trip irrespective of the period of stay, basic
travel quota has been increased from the existing US$ 3,000 to US$ 5,000
per calendar year.

Export realization
The Government of India as well as the Reserve Bank has been receiving
representations from Exporters Trade bodies to extend the period of realisation
of export proceeds in view of the outbreak of pandemic COVID- 19. It has,
therefore, been decided, in consultation with Government of India, to increase
the present period of realization and repatriation to India of the amount
representing the full export value of goods or software or services exported, from
nine months to fifteen months from the date of export, for the exports made up
to or on July 31, 2020. The provisions in regard to period of realization and
repatriation to India of the full export value of goods exported to warehouses
established outside India remain unchanged.
Agency commission
i) AD Category – banks may allow payment of commission, either by remittance
or by deduction from invoice value, on application submitted by the exporter. The
remittance on agency commission may be allowed subject to conditions

(ii) AD Category – banks may allow payment of commission by Indian exporters, in

respect of their exports covered under counter trade arrangement through
Escrow Accounts designated in US Dollar, subject to conditions:

(iii) Payment of commission is prohibited on exports made by Indian Partners

towards equity participation in an overseas joint venture / wholly owned
subsidiary as also exports under Rupee Credit Route except commission up to 10
per cent of invoice value of exports of tea & tobacco.

Reduction in invoice value

Occasionally, exporters may approach AD Category – I banks for reduction in
invoice value on account of cash discount to overseas buyers for prepayment of
the usance bills. AD Category – I banks may allow cash discount to the extent of
amount of proportionate interest on the unexpired period of usance, calculated
at the rate of interest stipulated in the export contract or at the prime rate/LIBOR
of the currency of invoice where rate of interest is not stipulated in the contract.

Reduction in Invoice Value in other cases

(i) If, after a bill has been negotiated or sent for collection, its amount is to be
reduced for any reason, AD Category – I banks may approve such reduction, if
satisfied about genuineness of the request, provided:

(a) The reduction does not exceed 25 per cent of invoice value:
(b) It does not relate to export of commodities subject to floor price
stipulationsThe exporter is not on the exporters’ caution list of the Reserve Bank,
and

(c) The exporter is advised to surrender proportionate export incentives availed

of, if any.

(ii) In the case of exporters who have been in the export business for more than
three years, reduction in invoice value may be allowed, without any percentage
ceiling, subject to the above conditions as also subject to their track record being
satisfactory, i.e., the export outstanding do not exceed 5 per cent of the average
annual export realization during the preceding three financial years.

(iii) For the purpose of reckoning the percentage of export bills outstanding to the
average export realizations during the preceding three financial years,
outstanding of exports made to countries facing externalization problems may be
ignored provided the payments have been made by the buyers in the local
currency.

Overdue export bill

AD Category – I banks should closely watch realization of bills and in cases where
bills remain outstanding, beyond the due date for payment from the date of
export, the matter should be promptly taken up with the concerned exporter. If
the exporter fails to arrange for delivery of the proceeds within the stipulated
period or seek extension of time beyond the stipulated period, the matter should
be reported to the Regional Office concerned of the Reserve Bank stating, where
possible, the reason for the delay in realizing the proceeds.
(ii) The duplicate copies of EDF/SOFTEX Forms should, continue to be held by AD
Category – I banks until the full proceeds are realised, except in case of undrawn
balances.

(iii) AD Category – I banks should follow up export outstanding with exporters

systematically and vigorously so that action against defaulting exporters does not
get delayed. Any laxity in the follow up of realization of export proceeds by AD
Category – I banks will be viewed seriously by the Reserve Bank, leading to the
invocation of the penal provision under FEMA, 1999.

Write off unrealized export bills

An exporter who has not been able to realize the outstanding export dues despite
best efforts, may either self-write off or approach the AD Category – I banks, who
had handled the relevant shipping documents, with appropriate supporting
documentary evidence with a request for write off of the unrealized portion
subject to the fulfilment of stipulations regarding surrender of incentives prior to
“write-off” adduced in the A.P.

Marine Risk and Marine Insurance Policy

For thousands of years, traders have been sailing to foreign lands to do business.
Sea was the primary medium of trade, and it has still been, even after the airways
have become conventional. The reason is that the mega container of the ship can
carry more cargo compared to an aeroplane.

If anything happens to the cargo, the losses will be in millions of dollars; and that
is a lot of money to lose. That is why export businesses require Marine Insurance.
Marine cargo insurance is crucial for exporters to secure any loss, should there be
any.
To protect from loss, exporter may have to take insurance policy to protect him
from physical damage to the goods. ... In case, goods are shipped by sea, the
insurance is known as Marine Insurance'. The term cargo insurance is used in case
of air shipment.

Goods in transit need to be insured by one of the three parties:-

 The Forwarding Agent
 The Exporter
 The Importer

Types of Marine Insurance

Freight Insurance
 In freight insurance, for example, if the goods are damaged in transit, the
operator would lose freight receivables & so the insurance will be provided
on compensation for loss of freight.

Liability Insurance
 Marine Liability insurance is where compensation is bought to provide any
liability occurring on account of a ship crashing or colliding.

Hull Insurance
 Hull Insurance covers the hull & torso of the transportation vehicle. It
covers the transportation against damages and accidents.
Marine Cargo Insurance
 Marine cargo policy refers to the insurance of goods dispatched from the
country of origin to the country of destination

Risks
Loss or damage due to delay. Loss or damage due to improper packing. Financial
default or insolvency of owners, charterers, managers, or operators of the vessel.
Loss or damage due to wire, strike, riot, and civil commotion.