Export import procedures, documentation & logistics

Unit-1
EXPORT IMPORT POLICY & CONTROL
Exim Policy or Foreign Trade Policy is a set of guidelines and instructions established by the DGFT in
matters related to the import and export of goods in India.
The Foreign Trade
Policy of India is guided by the Export Import in known as in short EXIM Policy of the Indian Government
and is regulated by the Foreign Trade Development and Regulation Act, 1992.
DGFT (Directorate General of Foreign Trade) is the main governing body in matters related to Exim
Policy. The main objective of the Foreign Trade (Development and Regulation) Act is to provide the
development and regulation of foreign trade by facilitating imports into, and augmenting exports from
India. Foreign Trade Act has replaced the earlier law known as the imports and Exports (Control) Act
1947.
EXIM Policy
Indian EXIM Policy contains various policy related decisions taken by the government in the sphere of
Foreign Trade, i.e., with respect to imports and exports from the country and more especially
export promotion measures, policies and procedures related thereto. Trade Policy is prepared and
announced by the Central Government (Ministry of Commerce). India's Export Import Policy also know
as Foreign Trade Policy, in general, aims at developing export potential, improving export performance,
encouraging foreign trade and creating favorable balance of payments position.
History of Exim Policy of India
In the year 1962, the Government of India appointed a special
Exim Policy Committee to review the government previous export import policies. The committee was
later on approved by the Government of India. Mr. V. P. Singh, the then Commerce Minister and
announced the Exim Policy on the 12th of April, 1985. Initially the EXIM Policy was introduced for the
period of three years with main objective to boost the export business in India
Exim Policy Documents
1. The Exim Policy of India has been described in the following documents:
2. Interim New Exim Policy 2009 - 2010
3. Exim Policy: 2004- 2009
4. Handbook of Procedures Volume I
5. Handbook of Procedures Volume II
6. ITC(HS) Classification of Export- Import Items

The major information in matters related to export and import is given in the document named "Exim
Policy 2002-2007".
An exporter uses the Handbook of Procedures Volume-I to know the procedures, the agencies and the
documentation required to take advantage of a certain provisions of the Indian EXIM Policy. For
example, if an exporter or importer finds out that paragraph 6.6 of the
Exim Policy is important for his export business then the exporter must also check out the same
paragraph in the Handbook of Procedures Volume- I for further details.
Objectives Of The Exim Policy : -
Government control import of non-essential items through the EXIM Policy. At the same time, all-out
efforts are made to promote exports. Thus, there are two aspects of Exim Policy; the import policy
which is concerned with regulation and management of imports and the export policy which is
concerned with exports not only promotion but also regulation. The main objective of the Government's
EXIM Policy is to promote exports to the maximum extent. Exports should be promoted in such a
manner that the economy of the country is not affected by unregulated exportable items specially
needed within the country. Export control is, therefore, exercised in respect of a limited number of
items whose supply position demands that their exports should be regulated in the larger interests of
the country. In other words, the main objective of the Exim Policy is:
1. To accelerate the economy from low level of economic activities to high level of economic
activities by making it a globally oriented vibrant economy and to derive maximum benefits
from expanding global market opportunities.
2. To stimulate sustained economic growth by providing access to essential raw materials,
intermediates, components,' consumables and capital goods required for augmenting
production.
3. To enhance the techno local strength and efficiency of Indian agriculture, industry and services,
thereby, improving their competitiveness.
4. To generate new employment.
5. Opportunities and encourage the attainment of internationally accepted standards of quality.
6. To provide quality consumer products at reasonable prices.
Governing Body of Exim Policy
The Government of India notifies the Exim Policy for a period of five years (1997-2002) under Section 5
of the Foreign Trade (Development and Regulation Act), 1992. The current
Export Import Policy covers the period 2002-2007. The Exim Policy is updated every year on the 31st of
March and the modifications, improvements and new schemes became effective from 1st April of every
year.

All types of changes or modifications related to the EXIM Policy is normally announced by the Union
Minister of Commerce and Industry who co-ordinates with the Ministry of Finance, the Directorate
General of Foreign Trade and network of Dgft Regional Offices.
EXPORT CONTRACT
An export contract (also referred to as a sales contract) is essentially an agreement between you and a
foreign importer to do business. The export contract can take many different forms. For example:
1. A telephonic offer to sell, covering essential issues such as the product details, quantities
offered, price per unit, delivery particulars and payment terms, made by the exporter to the
foreign buyer (or an offer to buy from the importer to the exporter) and confirmed by the
second party is one example of a legitimate export contract. Such an agreement may or may not
be confirmed in writing. Telephonic contracts are somewhat risky and are not that common in
international trade. They may occur, however, between long-standing trade partners or
between reputable firms dealing in commodities that are subject to rapid price fluctuations.
2. Similarly, any written offer (quotation), either contained in a formal written contract and posted
or couriered to the importer, or sent by e-mail, fax, telex or cable to the importer, and
confirmed (usually also in writing) by the importer, is another form of legitimate contract. Again
this could also be a written offer to buy, initiated by the importer, which is then confirmed by
the exporter, although this is seldom the way it works unless it is a long-standing customer.
3. A proforma invoice sent by fax, e-mail, courier or post to the importer (usually on his/her
request) and confirmed by the importer, is another common form of export contract. The
confirmation could be as simple as the importer writing "I agree to these terms and conditions"
on the proforma invoice and signing it or perhaps the importer may generate a separate, signed
document agreeing to the proforma invoice which is then attached as reference. Alternatively,
the importer may indicate that (s)he is happy with the proforma invoice, but may request a
formal contract containing the terms and conditions stipulated in the proforma invoice to be
drawn up and signed by both parties.
The first offer is seldom accepted
It is seldom the case that the importer will accept the first offer made by the exporter and normally this
first offer will be followed by a series of counter-offers sent back and forth between the exporter and
the importer until each party is satisfied with the terms and conditions outlined in the final offer and
agree to abide by it.
You need to be clear and precise
Whatever form the export contract takes, you need to be careful in formulating this document as they
are drawn up between companies from countries which may have very different legal systems,
regulations and attitudes to doing business. These differences may cause disputes even when trading
with other fairly developed nations. The challenge is to make your export contracts as clear, precise and
comprehensive as is possible.

The provisions in the contract
The basic provision of any contract for the sale of goods is that you, the seller (in this case, the exporter),
will transfer ownership of the goods to your buyer (the importer) in exchange for payment (which, in
international trade, made be made in a foreign currency). The export contract needs to specify the
terms and conditions for doing this, and should at least describe:
1. Who is party to the contract
2. The validity of the contracts
3. The goods being sold (usually described in some detail)
4. The purchase price of the goods and the currency in question
5. The terms of payment
6. Inspection of the goods if required
7. Where the goods should be delivered
8. At what point transfer of title to the goods takes place
9. Any warranty and/or maintenance conditions associated with the sale
10. Who is responsible for obtaining import or export licenses, if these are required
11. What supporting documentation and/or certificates are required
12. Who is responsible for paying import duties and other taxes
13. Any contract performance security requirements, such as bank letters of guarantee
14. What will happen if either of the parties defaults or cancels
The provisions for independent mediation or arbitration to resolve disputes, and whether this would
take place in South Africa or the importer's country, or elsewhere The contract's completion date
The role of Incoterms
To provide a common terminology for international shipping and minimize misunderstandings over
contract terms, the International Chamber of Commerce has developed a set of terms known as
Incoterms. These are the basic terms used in international sales contracts.
Intellectual Property (IP)licensing contracts are particularly tricky
If the contract involves the licensing of proprietary information or technology, be very sure that it's
precise about the licensee's rights. Vagueness about these rights can create serious problems and can
lead to the loss of your intellectual property. If the licensee uses your technology to create other
technologies, for example, this can severely undermine the value of your asset.
Make sure the contract is signed by all contracting parties
Also - and this would seem obvious, but it's sometimes overlooked - be sure that all parties to the
contract have signed it. For instance, if you're working through a representative, be sure that the actual
buyer signs the contract. The representative's signature is not necessarily enough, because without the
buyer's signature, there is no written evidence that the buyer owes you money. Last but certainly not
least, have the contract examined by a lawyer familiar with the export market.

PROCESSING OF AN EXPORT ORDER
The immediate task of the exporter is to acknowledge the export order which is different from its
acceptance. Then he should proceed to examine the export order carefully in respect of item,
specification, pre-shipment inspection, payment conditions, special packaging labeling and marketing
requirements, shipping and delivery date, marine insurance, documentation, arbitration, applicable laws
and jurisdiction, etc. The various aspects relating to processing of an export order as are discussed as
under :
Scrutiny :
The exporter purchase order should be examined carefully and its contents scrutinized in terms of the
Performa invoice / contract sent to the foreign buyer, on the following aspects :
1. Item (product) : The order has been received for the product for which quotation/offer was sent and
the exporter is still in the position to supply the product.
2. Size and Specifications : Should be same as per offer / quotation.
3. Pre-shipment inspection : Should be either by exporter himself or any agency easily available. If the
buyer desires the inspection to be done by an agency/agent of his choice, financial and physical aspects
of inspection should be examined and communicated to the buyer. If compulsory pre-shipment
inspection by Indian Export Inspection Agency is required, the buyer should be informed about the
applicable scheme.
4. Payment Conditions : are same and stipulated. A confirmed sight and irrevocable letter of credit (L/C)
has been opened, where required.
5. Packaging, Labeling and Marking requirements : If any should be noted for compliance. Particular
attention should be paid to the individual packaging of consumer goods required for direct sale to the
consumers. In such a case labels, price tags, poly pack/skin packing etc. would be required and supply be
assured.
6. Shipment and delivery date : It should be in conformity with the exporters plans and whether :
1. Part shipment is allowed.
2. Trans – shipment is permissible or not.
3. Port of shipment/destination is same or changed.
7. Documents particularly those which are required with the bill of exchange. These are :
Commercial invoice as usual or there is any specific notation required thereon.
Certification by an authority on the commercial invoice. For instance, it may require certification
by Embassy Consulate of the foreign country.
Bill of lading ‘straight’ or ‘to order’, ‘shipped’, or ‘received for shipment’. Make sure that there is
no clause in the contract which asks for the AWB or B/L. The importers using their influence with

the Airlines/Shipping companies manage to release the goods even before the negotiable copy
of the AWB or the B/L reaches through normal banking channels.
Certificate of origin whether the usual one issued by a trade association or chamber of
commerce or special ones like that required for availing of GSP concessions or other preference.
Also whether necessary certification on commercial invoice would suffice or a separate
certification of origin is required.
Packaging list.
Insurance policy or certificate.
8. Guarantee/Warranty clause should be same as per quotation/offer.
9. Force Majeure clause should cover acts of Gods and other acts, beyond the control of exporter as
mentioned at quotation / offer stage by exporter.
10. Arbitration as per Indian council of Arbitration clause for International contracts or other acceptable
international clauses as agreed between the parties.
11. Laws applicable and jurisdiction, in case of default / dispute arising during the execution of the
contract.
Entering in to Export Contract :
Export Contract should be explicit as possible and without any ambiguity regarding the exact
specification of goods and terms of sale including export price, mode of payment, storage and
distribution method, types of packaging, port of shipment, delivery schedule, etc. All theses “terms”
have a special connotation and meaning in International trade which must be understood by the parties
(seller & buyer).
1. Product Standards and specifications : The first important element of an exporter contract is to
explicitly state the following :
1. Product name including technical name
2. Sizes, if any in which to be supplied
3. Standard / specifications, national or international or according to specific requirements of
buyer or as the sample approved by him.
2. Quantity : Put the quantity both in figures and words clearly specifying whether it is in terms of
number, weight or volume. If the quantity refers to goods by weight or measurement, specify the nature
of the same.
3. Inspection : Whereas a number of goods are now subject to pre-shipment inspection by designated
agencies, the foreign buyer may still stipulate his own conditions and manner of inspection by any other
agency. Hence the parties must clearly states in their contracts the nature, manner, aspects and the
agency for inspection of goods, different from those laid down under the Quality Control and Pre–
shipment inspection rules.

4. Total Value of the Contract : The total value of the contract may also be put in both figures and words
specifying the currency along with the name of the country.
5. Terms of Delivery : Also known as type of price, terms of delivery should be clearly incorporated in the
contract. It could be f.o.b., c.i.f., c&f. etc.
6. Taxes, Duties and Charges : The taxes, duties and charges relating to exportation of goods are
normally a part of price i.e. terms of delivery quoted by seller. Similarly such levies, if any in the country
of importation are to be account of the buyer.
7. Period of Delivery / Shipment : As distinguished from terms of delivery, period of delivery/shipment
relates to the actual dates of delivery/shipment. In addition, it must be place of dispatch and delivery
because if it is not designated, the place of the business of the seller is usually deemed to be the place of
delivery. It also depends upon the terms of delivery. Moreover, it should be clarified whether the time
for delivery will run from the date of the contract or from the date of receipt of the advance money by
the seller or from the date of receipt of the notice of issuance of the import license by the seller, etc.
The importers invariably ask for a firm date of the receipt of the goods at the port in the country of
import, whereas due to certain circumstances beyond the control of the exporter the goods do not
reach the port of destination within the time frame mentioned in the contract. Hence the exporter
should make sure that the L/C or contract should have specific date of dispatch from the country of
origin, rather than the arrival date in the country of import.
8. Part shipment/Transshipment/Consolidation by Cargo scheme : The contract must clearly state
whether part shipment / transshipment are agreed upon by the parties. In the absence of such
stipulations, disputes generally arise when the exporter is enable to ship the goods in one lot or directly
to the port of delivery. Also indicate the port of transshipment and the number, if any part shipment
agreed upon. In case the goods are likely to be dispatched under the Consolidation of Export – Cargo
scheme, do make a reference to the same in the export contract.
9. Packing, Labeling and Marketing : The exporter contract must be explicit as possible about the type of
package and particulars labels and marking requirements. These requirements are normally quite
different in case of export consignments and as such involve additional cost necessitating and upward
revision in export prices. The language, color of labels and even marking have to be taken care as of
required by the buyer.
10. Terms of Payment – Amount , Mode and Currency : The mode and manner of payment for the goods
to be exported vary from contract to contract depending upon the terms settled between the parties.
While quoting different payment terms, the exporter should specify as to whether the prices are based
on current rate of exchange of the Indian rupee on the basis of another currency say US Dollar or any
other currency.
11. Discounts and Commissions : Depending upon the source of export enquiry and the intermediary
involved, if any in the execution of an order the contract should specify the amount of discount /

commission to be paid and by whom i.e. by exporter or importer. The basis of calculation of commission
and rate of the same may also be clearly stipulated. The commission / discount may or may not be
included in the export price to be quoted / agreed by the exporter / importer.
12. Licenses and Permits : Normally all exporter/importer transaction involve obtaining the licenses and
permits/quotas to the export/import in the country of exportation/importation. The problem with
regard to import licenses in the buyer’s country is sometime more prominent and acute in different
developing countries. The parties should therefore clearly state as to whether the export transaction
would involve any export (import) licenses and whose responsibility and expense it would be to obtain
the same.
13. Insurance : The terms of delivery normally take care of the aspects of insurances to be obtained by
the buyer/seller. In any case, it is important in international trade contracts to provide for insurance of
the goods against loss, damage or destructions during the voyage as it takes a long time before they are
received by the buyer. The extent of insurance risk and its incidence needs to be clearly described and
proper insurance policies should be obtained.
14. Documentary Requirements : International Trade transactions usually involve certain special
documents which can be broadly divided in to four categories :
1. Documents required for exportation/importation of goods
2. Documents needed by the buyer for taking delivery of the goods
3. Documents relation to the payments.
4. Special documents depending upon the nature of goods and the conditions of the sale

Unit-2
METHOD OF PAYMENT IN INTERNATIONAL TRADE
1. Popular methods of payment used in international trade include:
2. cash with order(CWO)-the buyers pay cash when he places an order.
3. cash on delivery(COD)-the buyer pays cash when the goods are delivered.
4. documentary credit-a Letter of credit (L/C) is used; gives the seller two guarantees that the
payment will be made by the buyer:one guarantee from the buyer's bank and another from the
seller's bank.
5. bills for collection -here a Bill of Exchange (B/E)is used
6. open account-this method can be used by business partners who trust each other;the two
partners need to have their accounts with the banks that are correspondent banks.
7. Methods of payment: Cash in Advance (Prepayment) Documentary Collections Letters of Credit
Open Account Combining Methods of Payment Summary Resources Activities Assessment
DOCUMENTARY CREDIT & COLLECTIONS
Think of a documentary collection as an international COD (cash on delivery): the buyer pays for goods
at delivery. A documentary collection, however, is distinguished from a typical COD transaction in two
ways: (1) instead of an individual, shipping company, or postal service collecting the payment, a bank
handles the transaction, and (2) instead of cash on delivery for goods it is cash on delivery for a title
document (bill of lading) that is then used to claim the goods from the shipping company.
Banks, therefore, act as intermediaries to collect payment from the buyer in exchange for the transfer of
documents that enable the holder to take possession of the goods. The procedure is easier than a
documentary credit, and the bank charges are lower. The bank, however, does not act as surety of
payment but rather only as collector of funds for documents.
For the seller and buyer, a documentary collection falls between a documentary credit and open
account in its desirability. Advantages, disadvantages, and issues for both buyer and seller will be
discussed in the following pages.
Documentary Collections vs. Documentary Credits
In a documentary collection, the seller prepares and presents documents to the bank in much the same
way as for a documentary letter of credit. However, there are two major differences between a
documentary collection and a documentary credit: (1) the draft involved is not drawn by the seller (the
"drawer") upon a bank for payment, but rather on the buyer itself (the "drawee"), and (2) the seller's
bank has no obligation to pay upon presentation but, more simply, acts as a collecting or remitting bank
on behalf of the seller, thus earning a commission for its services.
The Uniform Rules for Collections (URC)

Although documentary collections, in one form or another, have been in use for a long time, questions
arose about how to effect transactions in a practical, fair, and uniform manner.
The Uniform Rules for Collections (URC) is the internationally recognized codification of rules unifying
banking practice regarding collection operations for drafts and for documentary collections. The URC
was developed by the International Chamber of Commerce (ICC) in Paris. It is revised and updated from
time-to-time; the current valid version is ICC publication No. 322.
Introducing the Parties to a Documentary Collection
There are four main parties to a documentary collection transaction. Note below that each party has
several names. This is because businesspeople and banks each have their own way of thinking about and
naming each party to the transaction. For example, as far as businesspeople are concerned there are
just buyers and sellers and the buyer's bank and the seller's bank. Banks, however, are not concerned
with buying and selling. They are concerned with remitting (sending) documents from the principal
(seller) and presenting drafts (orders to pay) to the drawee (buyer) for payment. The four main parties
are
THE PRINCIPAL (SELLER/EXPORTER/DRAWER)
The principal is generally the seller/exporter as well as the party that prepares documentation
(collection documents) and submits (remits) them to his bank (remitting bank) with a collection order
for payment from the buyer (drawee). The principal is also sometimes called the remitter.
THE REMITTING (PRINCIPAL'S/SELLER'S/EXPORTER'S) BANK
The remitting bank receives documentation (collection documents) from the seller (principal) for
forwarding (remitting) to the buyer's bank (collecting/presenting bank) along with instructions for
payment.
THE COLLECTING OR PRESENTING (BUYER'S) BANK
This is the bank that presents the documents to the buyer and collects cash payment (payment of a
bank draft) or a promise to pay in the future (a bill of exchange) from the buyer (drawee of the draft) in
exchange for the documents.
THE DRAWEE (BUYER/IMPORTER)
The drawee (buyer/importer) is the party that makes cash payment or signs a draft according to the
terms of the collection order in exchange for the documents from the presenting/collecting bank and
takes possession of the goods. The drawee is the one on whom a draft is drawn and who owes the
indicated amount.
Basic Documentary Collection Procedure

The documentary collection procedure involves the step-by-step exchange of documents giving title to
goods for either cash or a contracted promise to pay at a later time. Refer to the diagram on the
opposite page for each numbered step.
BUYER AND SELLER
The buyer and seller agree on the terms of sale of goods: (a) specifying a documentary collection as the
means of payment, (b) naming a collecting/presenting bank (usually the buyer's bank), and (c) listing
required documents.
PRINCIPAL (SELLER)
1. The seller (principal) ships the goods to the buyer (drawee) and obtains a negotiable transport
document (bill of lading) from the shipping firm/agent.
2. The seller (principal) prepares and presents (remits) a document package to his bank (the remitting
bank) consisting of (a) a collection order specifying the terms and conditions under which the bank is to
hand over documents to the buyer and receive payment, (b) the negotiable transport document (bill of
lading), and (c) other documents (e.g., insurance document, certificate of origin, inspection certificate,
etc.) as required by the buyer.
REMITTING BANK
3. The remitting bank sends the documentation package by mail or by courier to the designated
collecting/presenting bank in the buyer's country with instructions to present them to the drawee
(buyer) and collect payment.
COLLECTING BANK
4. The presenting (collecting) bank (a) reviews the documents making certain they are in conformity
with the collection order, (b) notifies the buyer (drawee) about the terms and conditions of the
collection order, and (c) releases the documents once the payment conditions have been met.
BUYER/DRAWEE
5. The buyer (drawee) (a) makes a cash payment (signing the draft), or if the collection order allows,
signs an acceptance (promise to pay at a future date) and (b) receives the documents and takes
possession of the shipment.
COLLECTING BANK
6. The collecting bank pays the remitting bank either with an immediate payment or, at the maturity
date of the accepted bill of exchange.
REMITTING BANK
7. The remitting bank then pays the seller (principal).

A NOTE CONCERNING CORRESPONDENT BANKS
The remitting bank may find it necessary or desirable to use an intermediary bank (called a
correspondent bank) rather than sending the collection order and documents directly to the collecting
bank. For example, the collecting bank may be very small or may not have an established relationship
with the remitting bank.
Three Types of Collections
There are three types of documentary collections and each relates to a buyer option for payment for the
documents at presentation. The second and third, however, are dependent upon the seller's willingness
to accept the option and his specific instructions in the collection order. The three types are
1. DOCUMENTS AGAINST PAYMENT (D/P)
In D/P terms, the collecting bank releases the documents to the buyer only upon full and immediate
cash payment. D/P terms most closely resemble a traditional cash-on-delivery transaction.
Note: The buyer must pay the presenting/collecting bank the full payment in freely available funds in
order to take possession of the documents.
This type of collection offers the greatest security to the seller.
2. DOCUMENTS AGAINST ACCEPTANCE (D/A)
In D/A terms the collecting bank is permitted to release the documents to the buyer against acceptance
(signing) of a bill of exchange or signing of a time draft at the bank promising to pay at a later date
(usually 30, 60 or 90 days).
The completed draft is held by the collecting bank and presented to the buyer for payment at maturity,
after which the collecting bank sends the funds to the remitting bank, which in turn sends them to the
principal/seller.
Note: The seller should be aware that he gives up title to the shipment in exchange for the signed bill of
exchange that now represents his only security in the transaction.
3. ACCEPTANCE DOCUMENTS AGAINST PAYMENT
An acceptance documents against payment has features from both D/P and D/P types. It works like this:
a. the collecting bank presents a bill of exchange to the buyer for acceptance,
b. the accepted bill of exchange remains at the collecting bank together with the
documents up to maturity,
c. the buyer pays the bill of exchange at maturity,
d. the collecting bank releases the documents to the buyer who takes possession of the
shipment, and (e) the collecting bank sends the funds to the remitting bank, which then
in turn sends them to the seller.

This gives the buyer time to pay for the shipment but gives the seller security that title to the shipment
will not be handed over until payment has been made. If the buyer refuses acceptance of the bill of
exchange or does not honor payment at maturity, the seller makes other arrangements to sell his goods.
This type of collection is seldom used in actual practice.
PAYMENT NOTES
If the buyer draws (takes possession of) the documents against acceptance of a bill of exchange, the
collecting bank sends the acceptance back to the remitting bank or retains it on a fiduciary basis up to
maturity. On maturity, the collecting bank collects the bill and transfers the proceeds to the remitting
bank for crediting to the seller.
UCP 500
The Uniform Customs and Practice for Documentary Credits (UCP) is a set of rules on the issuance and
use of letters of credit. The UCP is utilized by bankers and commercial parties in more than 175
countries in trade finance. Some 11-15% of international trade utilizes letters of credit, totaling over a
trillion dollars (US) each year.
Historically, the commercial parties, particularly banks, have developed the techniques and methods for
handling letters of credit in international trade finance. This practice has been standardized by the ICC
(International Chamber of Commerce) by publishing the UCP in 1933 and subsequently updating it
throughout the years. The ICC has developed and moulded the UCP by regular revisions, the current
version being the UCP600. The result is the most successful international attempt at unifying rules ever,
as the UCP has substantially universal effect. The latest revision was approved by the Banking
Commission of the ICC at its meeting in Paris on 25 October 2006. This latest version, called the UCP600,
formally commenced on 1 July 2007.Contents [hide]
1. ICC and the UCP
2. UCP600
3. eUCP
4. CDCS
5. External links
ICC and the UCP
A significant function of the ICC is the preparation and promotion of its uniform rules of practice. The
ICC’s aim is to provide a codification of international practice occasionally selecting the best practice
after ample debate and consideration. The ICC rules of practice are designed by bankers and merchants
and not by legislatures with political and local considerations. The rules accordingly demonstrate the
needs, customs and practices of business. Because the rules are incorporated voluntarily into contracts,
the rules are flexible while providing a stable base for international review, including judicial scrutiny.
International revision is thus facilitated permitting the incorporation of the changing practices of the
commercial parties. ICC, which was established in 1919, had as its primary objective facilitating the flow

of international trade at a time when nationalism and protectionism threatened the easing of world
trade. It was in that spirit that the UCP were first introduced – to alleviate the confusion caused by
individual countries’ promoting their own national rules on letter of credit practice. The aim was to
create a set of contractual rules that would establish uniformity in practice, so that there would be less
need to cope with often conflicting national regulations. The universal acceptance of the UCP by
practitioners in countries with widely divergent economic and judicial systems is a testament to the
rules’ success.
UCP600
The latest{July 2007} revision of UCP is the sixth revision of the rules since they were first promulgated
in 1933. It is the fruit of more than three years of work by the ICC's Commission on Banking Technique
and Practice.
The UCP remain the most successful set of private rules for trade ever developed. A range of individuals
and groups contributed to the current revision including: the UCP Drafting Group, which waded through
more than 5000 individual comments before arriving at this final text; the UCP Consulting Group,
consisting of members from more than 25 countries, which served as the advisory body; the more than
400 members of the ICC Commission on Banking Technique and Practice who made pertinent
suggestions for changes in the text; and 130 ICC National Committees worldwide which took an active
role in consolidating comments from their members.
During the revision process, notice was taken of the considerable work that had been completed in
creating the International Standard Banking Practice for the Examination of Documents under
Documentary Credits (ISBP), ICC Publication 645. This publication has evolved into a necessary
companion to the UCP for determining compliance of documents with the terms of letters of credit. It is
the expectation of the Drafting Group and the Banking Commission that the application of the principles
contained in the ISBP, including subsequent revisions thereof, will continue during the time UCP 600 is in
force. At the time UCP 600 is implemented, there will be an updated version of the ISBP to bring its
contents in line with the substance and style of the new rules.
Note that UCP600 does not automatically apply to a credit if the credit is silent as to which set of rules it
is subject to. A credit issued by SWIFT MT700 is no longer subject by default to the current UCP – it has
to be indicated in field 40E, which is designated for specifying the "applicable rules".
Where a credit is issued subject to UCP600, the credit will be interpreted in accordance with the entire
set of 39 articles contained in UCP600. However, exceptions to the rules can be made by express
modification or exclusion. For example, the parties to a credit may agree that the rest of the credit shall
remain valid despite the beneficiary's failure to deliver an instalment. In such case, the credit has to
nullify the effect of article 32 of UCP600, such as by wording the credit as: "The credit will continue to be
available for the remaining installments notwithstanding the beneficiary's failure to present complied
documents of an installment in accordance with the installment schedule."
eUCP

The eUCP was developed as a supplement to UCP due to the sense at the time that banks and
corporates together with the transport and insurance industries were ready to utilise electronic
commerce. The hope and expectation that surrounded the development of eUCP has failed the UCP600
and it will remain as a supplement albeit slightly amended to identify its relationship with UCP600.
An updated version of the eUCP came into effect on 1 July 2007 to coincide the commencement of the
UCP600. There are no substantive changes to the eUCP, merely references to the UCP600.
CDCS
The Certified Documentary Credit Specialist is a qualification awarded by IFSA US and IFS UK and
endorsed by ICC Paris as the only International qualification for Trade Finance Professionals, recognising
the competence, and ensuring best practice. It requires Re-Certification every Three years. UCP 600
rules will be included from April 2008 examinations only. CDCS requires some 4–6 months of
independent study and a pass in 3 hour examination of 120 multiple choice questions as well as 3 in
basket exercises with questions which demonstrate skill in real-world applications of UCP.
PRE-PST SHIPMENT EXPORT CREDIT
RUPEE EXPORT CREDIT (PRE-SHIPMENT AND POST-SHIPMENT) :
United Bank of India offers both pre and post shipment credit to the Indian exporters through Rupee
denominated loans as well as foreign currency loans in India.
Exporters having firm export orders or L/C from a recognized Bank can avail the export credit facilities
from United Bank of India provided they satisfy the required credit norms. The details of the credit
norms can be obtained from the nearest authorized branch of the Bank.
Post shipment rupee export credit is available for a maximum period of -180- days /360daysfrom the
date of first disbursement . The corporate, if required can book forward contracts in respect of future
export credit drawals.
EXPORT BILL REDISCOUNTING :
United Bank of India offers financing of export by way of bill discounting of export bills to provide post
shipment finance to the exporters at competitive international rate of interest.
The export bills (both Sight and Usance) can be purchased/ discounted provided they comply with the
norms of the Bank/ RBI.
All exporters are eligible to cover the bills drawn under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
BANK GUARANTEE
It helps to have a third party’s vetting for your business.

When running a business, you might come across a situation that your client may ask you to provide a
financial guarantee from a third party.
In such circumstances, approach your bank and ask it to stand as a guarantor on your behalf. This
concept is known as bank guarantee (BG).
This is usually seen when a small company is dealing with much larger entity or even a government
across border.Let us take an example of a company XYZ bags a project from, say, the Government of
Ethiopia to build 200 power transmission towers.
In this case, companies all over the world would have applied. The selection would be made on the basis
of lowest cost and track record as submitted in the proposal form.
However, the government has limited ability to assess all companies for financial stability and credit
worthiness.
To ensure the project is done satisfactorily and on time, the government puts a condition that company
XYZ will have to furnish a guarantee given by one or more banks.
In banking nomenclature, company XYZ is an applicant, its bank is the issuing bank and the Government
of Ethiopia is the beneficiary.
Usually, the BG is for a specified amount, which is a percentage of the total money required for the
contract.
Obviously, the bank will not just issue such guarantee with its own due diligence. The bank does its own
thorough analysis of the financial well being of company XYZ to assess the amount of guarantee it can
issue. After all, the bank is at a risk too, in case the client defaults. This amount is called a limit.
Here too there is a catch. The bank will issue guarantee provided the company has not exceeded its
overall limit for BGs. And if the Government of Ethiopia is not satisfied with the performance of the
contract at a later date, it can invoke the BG.
In this situation, the bank will have to immediately release the amount of the BG to the government.
BGs can be broadly classified into Performance and Financial BGs. As the name suggests, Performance
BGs are the ones by which the issuing bank, also known as the Guarantor, guarantees the ability of the
applicant to perform a contract, to the satisfaction of the beneficiary.
VARIATIONS
Let us continue with our earlier example, to understand the different types of performance BGs. XYZ
might need to give a BG that guarantees it has the capability to do the project, on winning the bid. This
ensures only serious bidders are in the fray for the project. This is called a bid-bond guarantee. XYZ also
might be getting an advance payment for buying materials, etc. Again, it will have to furnish a BG to the
extent of the advance, called an advance payment BG. To secure the project even further, the

Government of Ethiopia might insist on stage payment guarantees. This would have milestones like 20
per cent, 40 per cent, etc and a period in which these have to be done. As and when XYZ does that part
of the work, the BG would expire, thus freeing its limits with the bank (banks also charge for these
services, typically as a small percentage of the BG amount, even as little as 0.05 per cent).
Another interesting use of the performance BG is in importing materials into the country. In this case, an
importer might want to contest the amount of duty levied by the customs and until the duties are paid,
the goods are not released. The importer can, in this case, present a BG for the amount of the duty (also
known as customs guarantee) and get his goods released. Once the final decision is taken, the import
duty is paid and the BG released.
The other broader types of BGs are financial guarantees. These are used to secure a financial
commitment such as a loan, a security deposit, etc. For example, guarantees of margin money for stock
exchanges. These are issued on behalf of brokers, in lieu of the security deposit that needs to be paid at
the time of becoming a member of the exchange.
The applicant, XYZ, has to prove credit worthiness only to one party, his bank, and can bid for projects
across the world. The beneficiary, Government of Ethiopia, does not have to analyse how financially
sound the companies are and knows that in case something goes wrong, the bank will pay him.
FOREIGN EXCHANGE REGULATION
Some of the foreign exchange markets are regulated by governmental and independent supervisory
bodies, such as the National Futures Association, the Commodity Futures Trading Commission and the
Financial Services Authority.
Objective
The objective of regulation is to ensure fair and ethical business behaviour. In their turn all foreign
exchange brokers, IBs and signal sellers have to operate in strict compliance with the rules and
standards laid down by the Forex regulators, otherwise their activity is regarded as unlawful. First of all,
they must be registered and licensed in the country where their operations are based, which ensures
quality control standards are met. In accord with this regulation licensed brokers are subject to
recurrent audits, reviews and evaluations which force them to maintain the industry standards. Foreign
exchange brokers must keep a sufficient amount of funds to be able to execute and complete foreign
exchange contracts concluded by their clients and also to return clients’ funds intact in case of
bankruptcy.
Not all foreign exchange brokers are regulated.

Unit-3
MARINE INSURANCE
Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by
which property is transferred, acquired, or held between the points of origin and final destination.
Cargo insurance — discussed here — is a sub-branch of marine insurance, though Marine also includes
Onshore and Offshore exposed property (container terminals, ports, oil platforms, pipelines); Hull;
Marine Casualty; and Marine Liability.
A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the
assured, in the manner and to the extent agreed, against losses incidental to marine adventure. There is
a marine adventure when any insurable property is exposed to maritime perils i.e. perils consequent to
navigation of the sea. The term 'perils of the sea' refers only to accidents or causalities of the sea, and
does not include the ordinary action of the winds and waves. Besides, maritime perils include, fire, war
perils, pirates, seizures and jettison, etc.
There are four types of marine insurance:-
Hull Insurance:- covers the insurance of the vessel and its equipment i.e. furniture and fittings,
machinery, tools, fuel, etc. It is effected generally by the owner of the ship.
Cargo Insurance:- includes the cargo or goods contained in the ship and the personal belongings of the
crew and passengers.
Freight Insurance:- provides protection against the loss of freight. In many cases, the owner of goods is
bound to pay freight, under the terms of the contract, only when the goods are safely delivered at the
port of destination. If the ship is lost on the way or the cargo is damaged or stolen, the shipping
company loses the freight. Freight insurance is taken to guard against such risk.
Liability Insurance:- is one in which the insurer undertakes to indemnify against the loss which the
insured may suffer on account of liability to a third party caused by collision of the ship and other similar
hazards.
In a contract of marine insurance,the insured must have insurable interest in the subject matter insured
at the time of the loss. Insurable interest is not required to be present at the time of taking the policy.
Under marine insurance, the following persons are deemed to have insurable interest:-
The owner of the ship has an insurable interest in the ship.
The owner of the cargo has insurable interest in the cargo.
A creditor who has advanced money on the security of the ship or cargo has insurable interest to the
extent of his loan.

The master and crew of the ship have insurable interest in respect of their wages.
If the subject matter of insurance is mortgaged, the mortgagor has insurable interest in the full value
thereof, and the mortgagee has insurable interest in respect of any sum due to him.
A trustee holding any property in trust has insurable interest in such property.
In case of advance freight the person advancing the freight has an insurable interest in so far as such
freight is repayable in case of loss.
The insured has an insurable interest in the charges of any insurance policy which he may take.
Types of Marine Insurance Policies:-
Voyage policy:- is a policy in which the subject matter is insured for a particular voyage irrespective of
the time involved in it. In this case the risk attaches only when the ship starts on the voyage.
Time policy:- is a policy in which the subject matter is insured for a definite period of time. The ship may
pursue any course it likes, the policy would cover all the risks from perils of the sea for the stated period
of time. A time policy cannot be for a period exceeding one year, but it may contain a 'continuation
clause'. The 'continuation clause' means that if the voyage is not completed within the specified period,
the risk shall be covered until the voyage is completed, or till the arrival of the ship at the port of call.
Mixed policy:- is a combination of voyage and time policies and covers the risk during particular voyage
for a specified period of time.
Valued policy:- is a policy in which the value of the subject matter insured is agreed upon between the
insurer and the insured and it is specified in the policy itself.
Open or Un-valued policy:- is the policy in which the value of the subject matter insured is not specified.
Subject to the limit of the sum assured, it leaves the value of the loss to be subsequently ascertained.
Floating policy:- is a policy which only mentions the amount for which the insurance is taken out and
leaves the name of the ship(s) and other particulars to be defined by subsequent declarations. Such
policies are very useful to merchants who regularly despatch goods through ships.
Wagering or Honour policy:- is a policy in which the assured has no insurable interest and the
underwriter is prepared to dispense with the insurable interest. Such policies are also known as 'Policy
Proof of Interest(P.P.I).
ECGC
In order to provide export credit and insurance support to Indian exporters, the GOI set up the Export
Risks Insurance Corporation (ERIC) in July, 1957. It was transformed into export credit guarantee
corporation limited (ECGC) in 1964. Since 1983, it is now know as ECGC of India Ltd.

ECGC is a company wholly owned by the Government of India. It functions under the administrative
control of the Ministry of Commerce and is managed by a Board of Directors representing government,
Banking, Insurance, Trade and Industry. The ECGC with its headquarters in Bombay and several regional
offices is the only institution providing insurance cover to Indian exporters against the risk of non-
realization of export payments due to occurrence of the commercial and political risks involved in
exports on credit terms and by offering guarantees to commercial banks against losses that the bank
may suffer in granting advances to exports, in connection with their export transactions.
OBJECTIVES OF ECGC:
1. To protect the exporters against credit risks, i.e. non-repayment by buyers
2. To protect the banks against losses due to non-repayment of loans by exporters
COVERS ISSUED BY ECGC:
The covers issued by ECGC can be divided broadly into four groups:
1. STANDARD POLICIES – issued to exporters to protect then against payment risks involved in
exports on short-term credit.
2. SPECIFIC POLICIES – designed to protect Indian firms against payment risk involved in (i) exports
on deferred terms of payment (ii) service rendered to foreign parties, and (iii) construction
works and turnkey projects undertaken abroad.
3. FINANCIAL GUARANTEES – issued to banks in India to protect them from risk of loss involved in
their extending financial support to exporters at pre-shipment and post-shipment stages; and
4. SPECIAL SCHEMES – such as Transfer Guarantee meant to protect banks which add confirmation
to letters of credit opened by foreign banks, Insurance cover for Buyer’s credit, etc.
(A) STANDARD POLICIES:
ECGC has designed 4 types of standard policies to provide cover for shipments made on short term
credit:
Shipments (comprehensive risks) Policy – to cover both political and commercial risks from the date of
shipment
Shipments (political risks) Policy – to cover only political risks from the date of shipment
Contracts (comprehensive risks) Policy – to cover both commercial and political risk from the date of
contract
Contracts (Political risks) Policy – to cover only political risks from the date of contract
RISKS COVERED UNDER THE STANDARD POLICIES:
1. Commercial Risks
Insolvency of the buyer

Buyer’s protracted default to pay for goods accepted by him
Buyer’s failure to accept goods subject to certain conditions
2. Political risks
1. Imposition of restrictions on remittances by the government in the buyer’s country or any
government action which may block or delay payment to exporter.
2. War, revolution or civil disturbances in the buyer’s country. Cancellation of a valid import license
or new import licensing restrictions in the buyer’s country after the date of shipment or
contract, as applicable.
3. Cancellation of export license or imposition of new export licensing restrictions in India after the
date of contract (under contract policy).
4. Payment of additional handling, transport or insurance charges occasioned by interruption or
diversion of voyage that cannot be recovered from the buyer.
5. Any other cause of loss occurring outside India, not normally insured by commercial insurers
and beyond the control of the exporter and / or buyer.
RISKS NOT COVERED UNDER STANDARD POLICIES:
The losses due to the following risks are not covered:
1. Commercial disputes including quality disputes raised by the buyer, unless the exporter obtains
a decree from a competent court of law in the buyer’s country in his favour, unless the exporter
obtains a decree from a competent court of law in the buyers’ country in his favour
2. Causes inherent in the nature of the goods.
3. Buyer’s failure to obtain import or exchange authorization from authorities in his county
4. Insolvency or default of any agent of the exporter or of the collecting bank.
5. loss or damage to goods which can be covered by commerci8al insurers
6. Exchange fluctuation
7. Discrepancy in documents.
(B). SPECIFIC POLICIES
The standard policy is a whole turnover policy designed to provide a continuing insurance for the regular
flow of exporter’s shipment of raw materials, consumable durable for which credit period does not
normally exceed 180 days.
Contracts for export of capital goods or turnkey projects or construction works or rendering services
abroad are not of a repetitive nature. Such transactions are, therefore, insured by ECGC on a case-to-
case basis under specific policies.
Specific policies are issued in respect of Supply Contracts (on deferred payment terms), Services Abroad
and Construction Work Abroad.

1) Specific policy for Supply Contracts:
Specific policy for Supply contracts is issued in case of export of Capital goods sold on deferred credit. It
can be of any of the four forms:
1. Specific Shipments (Comprehensive Risks) Policy to cover both commercial and political risks at
the Post-shipment stage.
2. Specific Shipments (Political Risks) Policy to cover only political risks after shipment stage.
3. Specific Contracts (Comprehensive Risks) Policy to cover political and commercial risks after
contract date.
4. Specific Contracts (Political Risks) Policy to cover only political risks after contract date.
2) Service policy:
Indian firms provide a wide range of services like technical or professional services, hiring or leasing to
foreign parties (private or government). Where Indian firms render such services they would be exposed
to payment risks similar to those involved in export of goods. Such risks are covered by ECGC under this
policy.
If the service contract is with overseas government, then Specific Services (political risks) Policy can be
obtained and if the services contract is with overseas private parties then specific services
(comprehensive risks) policy can be obtained, especially those contracts not supported by bank
guarantees.
Normally, cover is issued on case-to-case basis. The policy covers 90%of the loss suffered.
3) Construction Works Policy:
This policy covers civil construction jobs as well as turnkey projects involving supplies and services. This
policy covers construction contracts both with private and foreign government.
This policy covers 85% of loss suffered on account of contracts with government agencies and 75% of
loss suffered on account of construction contracts with private parties.
(C). FINANCIAL GUARANTEES
Exporters require adequate financial support from banks to carry out their export contracts. ECGC backs
the lending programmes of banks by issuing financial guarantees. The guarantees protect the banks
from losses on account of their lending to exporters. Six guarantees have been evolved for this purpose:-
I. Packing Credit Guarantee
II. Export Production Finance Guarantee
III. Export Finance Guarantee
IV. Post Shipment Export Credit Guarantee
V. Export Performance Guarantee
VI. Export Finance (Overseas Lending) Guarantee.

These guarantees give protection to banks against losses due to non-payment by exporters on account
of their insolvency or default. The ECGC charges a premium for its services that may vary from 5 paise to
7.5 paise per month for Rs. 100/-. The premium charged depends upon the type of guarantee and it is
subject to change, if ECGC so desires.
(i) Packing Credit Guarantee: Any loan given to exporter for the manufacture, processing, purchasing or
packing of goods meant for export against a firm order of L/C qualifies for this guarantee.
Pre-shipment advances given by banks to firms who enters contracts for export of services or for
construction works abroad to meet preliminary expenses are also eligible for cover under this
guarantee. ECGC pays two thirds of the loss.
(ii) Export Production Finance Guarantee: this is guarantee enables banks to provide finance at pre-
shipment stage to the full extent of the of the domestic cost of production and subject to certain
guidelines.
The guarantee under this scheme covers some specified products such a textiles, woolen carpets, ready-
made garments, etc and the loss covered is two third.
(iii) Export Finance Guarantee: this guarantee over post-shipment advances granted by banks to
exporters against export incentives receivable such as DBK. In case, the exporter
Does not repay the loan, then the banks suffer loss? The loss insured is up to three fourths or 75%.
(iv) Post-Shipment Export Credit Guarantee: post shipment finance given to exporters by the banks
purchase or discounting of export bills qualifies for this guarantee. Before extending such guarantee, the
ECGC makes sure that the exporter has obtained Shipment or Contract Risk Policy. The loss covered
under this guarantee is 75%.
(v) Export Performance Guarantee: exporters are often called upon to execute bid bonds supported by a
bank guarantee and it the contract is secured by the exporter than he has to furnish a bank guarantee to
foreign parties to ensure due performance or against advance payment or in lieu of or retention money.
An export proposition may be frustrated if the exporter’s bank is unwilling to issue the guarantee.
This guarantee protects the bank against 75% of the losses that it may suffer on account of guarantee
given by it on behalf of exporters.
(vi) Export Finance (Overseas Lending) Guarantee: if a bank financing overseas projects provides a
foreign currency loan to the contractor, it can protect itself from risk of non-payment by the con tractor
by obtaining this guarantee. The loss covered under this policy is to extent of three fourths (75%).
(D) SPECIAL SCHEMES
A part from providing policies (Standards and Specific) and guarantees, ECGC provides special schemes.
These schemes are provided o the banks and to the exporters. The schemes are:

Transfer Guarantee: the transfer guarantee is provided to safeguard banks in India against losses arising
out of risk of confirmation of L/C. the risks can be either political or commercial or both. Loss due to
political risks is covered up to 90 % and that due to commercial risks up to 75%.
Insurance Cover for Buyer’s Credit and Lines of Credit: Financial Institutions in India have started direct
lending to buyers or financial institutions in developing countries for importing machinery and
equipment from India. This sort of financing facilitates immediate payment to exporters and frees them
from the problem of credit management. ECGC has evolved this scheme to protect financial institutions
in India which extent export credit to overseas buyers or institutions.
Overseas Investment Insurance: with the increasing exports of capital goods and turnkey projects from
India, the involvement of exporters in capital anticipation in overseas projects has assumed importance.
ECGC has evolved this scheme to provide protection for such investment. Normally the insurance cover
is for 15 years.

Unit-4
QUALITY CONTROL AND PRE SHIPMENT INSPECTION
This inspection covers: product appearance (AQL), workmanship quality, size measurements, weight
check, functionality assortment, accessories, labeling & logos, packaging, packing and other tests and
special requirements, depending on the product and the export market.
Our team of inspectors chooses a specific quantity of completed products - quantity according to - and
inspects them according to your specifications, requirements and according to our protocols and
expertise.
After completion of the inspection, a fully detailed inspection report with pictures and comments is sent
to you. Then you are able to Accept or Reject your shipment online.
In case of a failed inspection you should consider using our and ask for a Re-inspection. For some tricky
shipments you might also consider a full carton/ products Inspection. We also help you to find solutions
with your supplier.
YOUR REQUESTS:
1. How to make sure I will get what I paid for ?
2. What type of defect is my production suffering from ?
3. What is the % of defective products in my shipment ?
4. Are my products functionning correctly ?
5. Are my shipping marks, packing and labeling correct ?
When? The Pre Shipment Inspection (PSI), also called Final Random Inspection (FRI) will take place when
at least 80% of the products are ready and packed into export cartons. You can of course specify when
booking online that you want 100% of the products to be ready for this inspection.
Where? The final random inspection or pre shipment inspection will take place at the factory; anywhere
in Vietnam & International Local. In some case it could take place at the forwarder's premises or at the
pier.
What? The Pre Shipment Inspection (PSI) covers all possible on site checks of your products:
1. Product appearance (AQL) inspection
2. Workmanship inspection.
3. Safety and function inspection.
4. Quantity inspection.
5. Assortment inspection.
6. Colors inspection.
7. Size & measurements inspection.
8. Weight inspection.

9. Functionality inspection.
10. Accessories inspection.
11. Labeling & logos inspection.
12. Packaging & packing (including the shipping marks) inspection.
13. Loading & Stuffing, Sealing supervision
+ Any other special requirements you may have...
Our team of experienced Vietnamese or Western inspectors chooses a specific quantity of completed
products - quantity according to AQL tables - and inspects them according to your specifications,
requirements and according to our protocols and expertise. After completion of the inspection, a fully
detailed inspection report with pictures and comments is sent to you. Then you are able to Accept or
Reject your shipment online.
Why? Because it is simply essential to check your products before the shipment! And this even if you
work with a trading company or with an agent... Your vendor, wether he is a factory, a trading company
or an agent will have no interest to inform you of any potential or real quality issue...
Trust is good... But control is much better !
Benefit & Advantages of this quality inspection:
Performing a Pre Shipment Inspection will allow you to:
1. Use our inspection report as a bargaining tool with your vendor!
2. Know the percentage of defects affecting your products.
3. Know the seriousness of the quality issues.
4. Refuse defective shipments.
5. Prevent to shortages of quantity & quality goods
6. Bargain with your vendor in case of quality issue(s).
7. Avoid unexpected costs & delays.
8. Keep pressure on your vendor shoulders.
9. Show your client(s) you care.
10. Save time and secure your business!
RATES
Options available for the Pre Shipment Inspection (PSI):
Vietnamese & Western Inspector rate: Negotiation, please kindly email to ceo@aimcontrolgroup.com
For Ho Chi Minh City, Ha Noi Capital, Hai Phong City - NO travel expenses will be charged. For other
provinces, travel expenses might apply. Please kindly contact us in advance to book quality inspections
and factory audits with this option so we can arrange our inspectors & auditors schedules.
Night overtime arte: Negotiation, please kindly email to ceo@aimcontrolgroup.com

The inspector will stay at the factory after 7PM till late in order to supervise a shipment or to implement
the necessary corrective actions.
Additional inspection report rate: € 20.
You might need different inspection reports to be established within the same man-day, especially if
your order has multiple references.
Collection of samples: Free of charge.
Our inspectors can pick up your samples and send it to you. It could be mass production samples,
defective samples etc.
Defect sorting option: Free of charge.
All defective items inspected will be sorted out and we will ask the factory to either rework or replace
these products.
PROCESS
Pre-shipment inspection, also called preshipment inspection or PSI, is a part of supply chain
management and an important and reliable quality control method for checking goods' quality while
clients buy from the suppliers.
After ordering a number of articles, the buyer lets a third party control the ordered goods before they
are dispatched to him. Normally an independent inspection company is assigned with the task of the
PSI, as it is in the interest of the buyer that somebody not connected with the deal in any way verifies
the amount and quality. This way the buyer makes sure, he gets the goods he paid for.
Although increasing numbers of clients would like to collect suppliers' information from the Internet,
this contains high risks because it is not a face-to-face transaction, and Internet phishing and fraud can
corrupt it. Pre-shipment inspection can greatly avoid this risk and ensure clients get quality products
from suppliers.
Process
The pre-shipment inspection is normally agreed between a buyer, a supplier, and a bank, and it can be
used to initiate payment for a letter of credit. A PSI can be performed at different stages:
1. Checking the total amount of goods and packing
2. Controlling the quality and/or consistency of goods
3. Checking of all documentation, including test reports and packaging list
4. Verifying compliance with the standards of the destination country (e.g. ASME or CE mark)
The first stage is often performed by the transport company, but for the latter two stages a proper
inspection company is needed. Similarly, if between the buyer and seller money transfer via a letter of

credit is agreed upon, it is necessary to assign a reputable inspection company. In case of the letter of
credit, after inspection of the goods, an inspection certificate is sent to the bank issuing the letter of
credit and the buyer, initiating the money transfer.
46.A is a clause in the LC, that lists the necessary documents that must be submitted to the bank by the
seller. It is necessary for any fund transfer. So, one of the items that can be included in 46.A clause is:
"The original certificate of inspection must be issued by third party pre-shipment inspection agency not
earlier than the bill of lading date. And the inspection must be done by "the name of inspection
company" and approving that:
"The quality, quantity, and the packing of the commodity dispatched are strongly conforming with
provisions of the commodities stated in the associated proforma invoice, the terms of LC and any
attachments built thereto as submitted to "name of third party pre-shipment inspection company" by
the purchaser"
The clause 46.A lists many documents that must be given to the bank to initiate payment. The
inspection certificate is simply one of them. The wording quoted above must be stated exactly like this
within the inspection certificate. Even if the original document contains a spelling error, it must be
stated in the same form. Any alteration in this wording will be rejected by the bank and the funds will
not be transferred to the beneficiaries.
The inspection company will provide an inspection certificate once the manufacturer or seller provides
them with the following documents: Bill of Lading, Certificate of Origin and Packing List. The company in
charge of the Pre-Shipment Inspection already has the letter of credit, the purchase order, and the
proforma invoice. Based on above listed documents; altogether, they will issue a certificate and give it to
the manufacturer or seller. Finally, the manufacturer or seller will take all of the documents collected
and present them to the bank in order to initiate the payment.[2]
Inspection companies are classified in two classes:
- Free-market companies: These are privately owned companies, which sell their services to the market.
Danger with these might be, especially if it is a smaller company, that they might be paid as well by the
manufacturer, thus working in his interest.
- State owned inspection companies: Only very few companies operating on the market are state-owned
or partly state-owned. The shareholding of governmental institutions guarantees the independence and
objectivity.
A higher form of the PSI is called expediting, in this the dates of delivery and the production are
controlled as well.
Some countries, like Botswana, require PSIs for all goods entering the country in order to fight
corruption. In these cases the PSI must be performed by the company designated by the country.

PSI and corruption charges
The Worldbank recommends pre-shipment inspections (PSI) as a means to fight corruption especially in
developing countries. As SGS S.A. is one of the worldwide market leaders in PSI, it profits well from
these means. Recent international charges show the companies involvement furthering corruption
instead of fighting it due to the payment of millions of dollars to government members and their
families. Most known is the payment to the then husband of Pakistani president Benazir Bhutto, Asif Ali
Zardari.[3][4] Further irregularities were published about the contracts with Paraguay[5] and the
Philippines.
EXCISE AND CUSTOM CLEARANCE
Customs and Central Excise procedures are perceived by the trade as cumbersome involving time
consuming documentation, scrutiny and physical examination of goods, divergent practices and a high
degree of individual discretion, resulting in impediments to the smooth movement of trade and acting
against the interests of genuine importers, exporters and manufacturers. Appreciating this concern we
are committed to streamlining and simplifying the procedures and setting a climate for voluntary
compliance. The introduction of electronic processing of documents also entails a change in approach
and re-engineering of Customs and Central Excise processes based on selectivity, risk assessment and
reduced intervention.
We envisage the following measures to achieve this objective:-
Customs
1. Minimise pre-clearance scrutiny of import/export declarations and examination of goods.
2. Introduce systems assessment i.e. without any human intervention for specified
commodities/identified importers and exporters.
3. Introduce audit-based post-clearance scrutiny for identified importers/exporters, industry
groups. Combine post- clearance audit for Customs and Central Excise in respect of
manufacturer-importers/exporters wherever possible.
4. Accept periodic declarations instead of individual declarations for each consignment for
identified importers/exporters.
5. Introduce a system of deferred duty payment for identified assessees subject to revenue
safeguards.
6. Minimise physical examination of goods by effectively using 'risk assessment' based targeting
techniques.
7. Introduce a system of release of goods even where the documentation is incomplete or there
has been contravention of Customs laws, subject to adequate safeguards.
8. Eliminate divergent practices in the application of Customs laws and procedures at different
Customs stations by effective monitoring and analysis of the computerised database.
9. Move towards a single window clearance wherever possible.
10. Provide 24 hours or 'extended time' Customs clearance facility, wherever required.

11. Implement the provisions of International Conventions on Customs techniques (Revised Kyoto
Convention).
12. Examine all extant procedures and eliminate those not compatible with trade facilitation.
13. Undertake a continual review of Customs procedures so as to be responsive to changing
situations
Central Excise
1. Study all the existing Central Excise procedures, and streamline and simplify them, so that the
assesses are encouraged to comply voluntarily;
2. Evolve a new and comprehensive Central Excise law;
3. Adopt unified Modvat rules for inputs and capital goods.
4. Move towards a system of periodical payment of duties by assessees;
5. Replace physical checks with selective audit;
6. Accept records maintained under Companies Act for the purpose of administration of Central
Excise laws in lieu of statutory records;
7. Evolve simplified schemes for refunds and rebates due to manufacturers and exporters;
8. Eliminate divergent practices in the application of Excise laws and procedures at different
formations by effective monitoring and analysis of the computerised database.
9. Undertake a continual review of Excise procedures so as to be responsive to the changing
situations.
CUSTOM PROCEDURE
1. Registration
2. Processing of Shipping Bill
3. Quota Allocation
4. Arrival of Goods at Docks
5. System Appraisal of Shipping Bills
6. Customs Examination of Export Cargo
7. Stuffing / Loading of Goods in Containers
8. Drawal of Samples
9. Amendments
10. Export of Goods under Claim for Drawback
11. Generation of Shipping Bills
In India custom clearance is a complex and time taking procedure that every export face in his export
business. Physical control is still the basis of custom clearance in India where each consignment is
manually examined in order to impose various types of export duties. High import tariffs and multiplicity
of exemptions and export promotion schemes also contribute in complicating the documentation and
procedures. So, a proper knowledge of the custom rules and regulation becomes important for the
exporter. For clearance of export goods, the exporter or export agent has to undertake the following
formalities:

Registration
Any exporter who wants to export his good need to obtain PAN based Business Identification Number
(BIN) from the Directorate General of Foreign Trade prior to filing of shipping bill for clearance of export
goods. The exporters must also register themselves to the authorised foreign exchange dealer code and
open a current account in the designated bank for credit of any drawback incentive.
Registration in the case of export under export promotion schemes:
All the exporters intending to export under the export promotion scheme need to get their licences /
DEEC book etc.
Processing of Shipping Bill - Non-EDI:
In case of Non-EDI, the shipping bills or bills of export are required to be filled in the format as
prescribed in the Shipping Bill and Bill of Export (Form) regulations, 1991. An exporter need to apply
different forms of shipping bill/ bill of export for export of duty free goods, export of dutiable goods and
export under drawback etc.
Processing of Shipping Bill - EDI:
Under EDI System, declarations in prescribed format are to be filed through the Service Centers of
Customs. A checklist is generated for verification of data by the exporter/CHA. After verification, the
data is submitted to the System by the Service Center operator and the System generates a Shipping Bill
Number, which is endorsed on the printed checklist and returned to the exporter/CHA. For export items
which are subject to export cess, the TR-6 challans for cess is printed and given by the Service Center to
the exporter/CHA immediately after submission of shipping bill. The cess can be paid on the strength of
the challan at the designated bank. No copy of shipping bill is made available to exporter/CHA at this
stage.
Quota Allocation
The quota allocation label is required to be pasted on the export invoice. The allocation number of
AEPC (Apparel Export Promotion Council) is to be entered in the system at the time of shipping bill
entry. The quota certification of export invoice needs to be submitted to Customs along-with other
original documents at the time of examination of the export cargo. For determining the validity date of
the quota, the relevant date needs to be the date on which the full consignment is presented to the
Customs for examination and duly recorded in the Computer System.
Arrival of Goods at Docks:
On the basis of examination and inspection goods are allowed enter into the Dock. At this stage the port
authorities check the quantity of the goods with the documents.
System Appraisal of Shipping Bills:

In most of the cases, a Shipping Bill is processed by the system on the basis of declarations made by the
exporters without any human intervention. Sometimes the Shipping Bill is also processed on screen by
the Customs Officer.
Customs Examination of Export Cargo:
Customs Officer may verify the quantity of the goods actually received and enter into the system and
thereafter mark the Electronic Shipping Bill and also hand over all original documents to the Dock
Appraiser of the Dock who many assign a Customs Officer for the examination and intimate the officers’
name and the packages to be examined, if any, on the check list and return it to the exporter or his
agent.
The Customs Officer may inspect/examine the shipment along with the Dock Appraiser. The Customs
Officer enters the examination report in the system. He then marks the Electronic Bill along with all
original documents and check list to the Dock Appraiser. If the Dock Appraiser is satisfied that the
particulars entered in the system conform to the description given in the original documents and as
seen in the physical examination, he may proceed to allow "let export" for the shipment and inform the
exporter or his agent.
Stuffing / Loading of Goods in Containers
The exporter or export agent hand over the exporter’s copy of the shipping bill signed by the Appraiser
“Let Export" to the steamer agent. The agent then approaches the proper officer for allowing the
shipment. The Customs Preventive Officer supervising the loading of container and general cargo in to
the vessel may give "Shipped on Board" approval on the exporter’s copy of the shipping bill.
Drawal of Samples:
Where the Appraiser Dock (export) orders for samples to be drawn and tested, the Customs Officer may
proceed to draw two samples from the consignment and enter the particulars thereof along with details
of the testing agency in the ICES/E system. There is no separate register for recording dates of samples
drawn. Three copies of the test memo are prepared by the Customs Officer and are signed by the
Customs Officer and Appraising Officer on behalf of Customs and the exporter or his agent. The disposal
of the three copies of the test memo is as follows:-
1. Original – to be sent along with the sample to the test agency.
2. Duplicate – Customs copy to be retained with the 2nd sample.
3. Triplicate – Exporter’s copy.
The Assistant Commissioner/Deputy Commissioner if he considers necessary, may also order for sample
to be drawn for purpose other than testing such as visual inspection and verification of description,
market value inquiry, etc.
Amendments:

Any correction/amendments in the check list generated after filing of declaration can be made at the
service center, if the documents have not yet been submitted in the system and the shipping bill
number has not been generated. In situations, where corrections are required to be made after the
generation of the shipping bill number or after the goods have been brought into the Export Dock,
amendments is carried out in the following manners.
1. The goods have not yet been allowed "let export" amendments may be permitted by the
Assistant Commissioner (Exports).
2. Where the "Let Export" order has already been given, amendments may be permitted only by
the Additional/Joint Commissioner, Custom House, in charge of export section.
In both the cases, after the permission for amendments has been granted, the Assistant Commissioner /
Deputy Commissioner (Export) may approve the amendments on the system on behalf of the Additional
/Joint Commissioner. Where the print out of the Shipping Bill has already been generated, the exporter
may first surrender all copies of the shipping bill to the Dock Appraiser for cancellation before
amendment is approved on the system.
Export of Goods under Claim for Drawback:
After actual export of the goods, the Drawback claim is processed through EDI system by the officers of
Drawback Branch on first come first served basis without feeling any separate form.
Generation of Shipping Bills:
The Shipping Bill is generated by the system in two copies- one as Custom copy and one as exporter
copy. Both the copies are then signed by the Custom officer and the Custom House Agent.

Unit-5
PROCEDURE FOR PROCUREMENT
Who should use this article?
This article will help in a range of situations and scenarios:
If you are responsible for a procurement project and you have limited access to expert procurement
advice
You procurement project is not within the scope of your organizations core business
Your project is highly specialized where detailed technical knowledge and some procurement expertise
is more desirable than expert procurement skills with limited technical know-how.
Why Use a Formal Procurement Process?
A formal procurement process is sometime seen as cumbersome or bureaucratic but for any
procurement exercise it is important to follow a few key steps. If you are not a procurement expert, you
will make mistakes. No doubt you will learn from them but why learn from your mistakes when you can
learn from someone else’s.
1. A procurement process template provides a model and a framework to work within to:
2. Save you time; ensure that you get the right solution to meet your business needs;
3. Ensure you pay the right price (that’s the right price, not necessarily the lowest price!);
4. Ensure you avoid overlooking vital steps that may come back to haunt you later.
By using a standard procurement process, you will find that suppliers will be familiar with the steps you
take. They will know what to expect and will know that they are dealing with a professional
organization.
A few words of warning.
Every project is different. Some procurement projects are small and every step of a formal process may
not be required. Alternatively, some projects are highly complex or regulated and a generic framework
will not be appropriate or sufficient. Despite this, every procurement project follows the same broad
process . The key thing to remember is to adapt the process to fit the project.
The Procurement Process
What is procurement?
The procurement process can be divided into five steps.
Define the business need

You need to understand what the fundamental business requirement is. At this point, it is important to
understand the difference between a requirement and a solution. For example, the business
requirement is to source some software to help to get information published on the company intrantet.
An item of software to publish information on the company intranet is a solution – not a requirement.
The requirement is to be able to publish information on the intranet. It may be that an outsourced
solution is a better option.
Develop the Procurement Strategy
Depending on the scale of your project, there could be a very wide range of potential solutions and
approaches to your business need and a number of ways of researching the market and selecting a
supplier.
Supplier Selection and Evaluation
After researching the market and establishing your procurement approach, you need to evaluate the
solutions available. This may involve a formal tender process or an on-line auction. You criteria for
comparing different solutions and suppliers are critical. Weight the key criteria heavily and don’t attach
too much importance to aspects that will have little impact on the solution.
Negotiation and award.
Even when you have selected a supplier it is important that detailed negotiations are undertaken. This is
not just about price. Think in terms of Total Cost of Ownership. A cheap product is not so cheap if the
carriage costs are huge or if the maintenance contract is onerous.
Consider carefully the process by which the goods or services will be ordered and approved; how they
will be delivered and returned if necessary; how the invoice process will work and on what terms
payment will be made. Considering the whole Purchase to Pay process (P2P) at the outset can reduce
costs and risk significantly
Induction and Integration
No goods or services should be ordered of delivered until the contract is signed, but this is not the end.
It is vital that the supplier is properly launched integrated. The P2P process needs to be in place and
need to be understood on both the buy-side and the supplier side. Any service levels that have been
agreed need to be measured and KPIs put in place. Regular reviews should be established.
IMPORT FINANCING
Definition:
Loan given to the importer to provide liquidity for buying with sight payment to the exporter. Each loan
must be related to one specific import transaction and the term of the financing can vary depending on
the type of products imported and the requirements of the importer.

Advantages:
Obtain liquidity to pay for imports.
The importer can receive better conditions for the purchase based on sight payment.
Citibank® can offer the structure, currency and terms that the business or transaction requires.
Depending on the case, it is possible to create a "tailor made" structure.
Costs:
Is usually expressed as a spread over a base rate (Libor, Prime).
Import Financing with Export Credit Agencies
Definition:
Medium or long term import financing for capital goods. The Export Credit Agencies are export-
promoting agencies from the exporter’s country (run by the government) that cover political and in
some cases, also commercial risk, of the importer, allowing Citibank® to offer financing under better
conditions.
Advantages:
The importer can get financing terms according to the nature of the goods purchased buying,
with adequate costs.
Citibank® works with the main Export Credit Agencies around the world.
In well-ranked companies, it is also possible to get commercial coverage (comprehensive:
political & commercial risk), so the credit line with Citibank® would not be used, except for the minimum
part not covered by the Export Credit Agencies.
Costs:
Rate: usually based on libor.
Structuring fee: based on the deal to be arranged with the Export Credit Agencies.
Commitment fee: collected by the Export Credit Agencies on the amounts committed but not
already disbursed.
Exposure fee: collected by the Export Credit Agencies based on the sovereign risk they are
assuming.

CUSTOM CLEARANCE OF IMPORT CARGO
When any Organization Imports any item into the country, the cargo would need to be Custom Cleared.
The consignment transported by Air, Ship or by Trailer on the Road, would have to be deposited at the
Customs Notified and Bonded Area.
Customs Clearance or brokering is done by third party service providers who are licensed by Customs for
the said purpose. They represent the Importer and co-ordinate with Customs Department as well as
other specific departments to Custom Clear the cargo.
There are list of several items that cannot be imported into the countries freely and would require
specific License. Alcoholic Beverages, Animals and Animal products, Fire Arms and Ammunitions, Meat
and Meat products, Milk, Diary and Cheese products, Plants and Plant products, Poultry and Poultry
Products, Petroleum and Petroleum products etc would have to be imported under the License issued
by various agencies and such imports would have to be in compliance with the rules and conditions laid
down by respective agencies.
There are several other items such as art materials, artifacts and antiques, cultural property, hazardous
and toxic materials, internationally banned products like ivory etc are usually prohibited for imports into
the Country.
Bureau of Alcohol, Tobacco, and Firearms, Animal and Plant Inspection Service, Fish and Wildlife Service,
Food and Drug Administration are few of the agencies that exist in most of the countries which regulate
and oversee imports of the specific items covered under their schedule.
When the Cargo lands at the Customs Bonded W/house, along with Customs Clearance, the licensed
items would need to be inspected and approved for clearance by these specific agencies too. Customs
brokers carry out the necessary process of submitting documentation, facilitate sampling and inspection
and follow up to obtain approvals.
All cargo being imported as well as export from a country would have to be deposited at Customs
Bonded warehouse to complete export and import formalities and receive Customs approval to hand
over the cargo to the freight forwarder in case of Export and to the Importer incase of Imports. The
customs bonded warehouse is a customs notified area and the cargo while in bonded warehouse is
under the Customs Charge. Normally bonded warehouses are available and operated by Customs
Departments at the Airports and Seaports. In case of larger airports and Shipping yards, the Government
set up a separate corporation or agency to setup and operates such bonded warehouse. In many cases
Governments do give licenses to the Customs Clearing Agents to setup bonded warehouses for exports
wherein the cargo can be offloaded by the exporter, customs formalities completed and after customs
approval the cargo can be stuffed into the Shipping container. Generally if the export cargo is of smaller
lots, the clearing agents move the cargo to these bonded warehouses. If the export is of one full
container volume, then the cargo is stuffed into the container at the exporter’s premise itself and the
container is deposited at the shipping yard in the customs bonded warehouse or designated area
waiting for export clearance.

An imported consignment can be imported and warehoused in Customs bonded warehouse for certain
period of time in bond. This gives the flexibility to the importer to custom clear the consignment in parts
when required for consumption and pay customs duty only for the consignment that is being de
bonded. They can further sell the materials to third party while in bond and it would be considered as
high sea sale. Un till the importer files bill of entry for home consumption and pays customs duty to take
delivery of the consignment, the import consignment technically is not considered to be imported and
owned by the importer. Customs bonded warehouses charge normal warehousing rental and other
transaction charges for the goods warehoused. Additionally beyond a certain free period ascertained by
Customs in advance, the importer may be charge a certain interest on the customs duty payable on the
said import, depending upon case to case basis.
MANAGING RISK INVOLVED IN IMPORTING
Dealing with suppliers in other countries adds a layer of complexity to trading. It’s wise to be aware of
potential risks and fraud, and to understand strategies that can help protect your importing business.
Currency risk
What is the risk?
The local currency amount payable on settlement may be higher than the amount calculated when
entering the contract, due to an adverse movement in the market price of the currency.
How does it arise?
Exchange rates between most currencies fluctuate regularly, and there is a time lag between entering
into a contract and making the payment.
How can it be mitigated?
Importers can identify and manage this risk with a range of currency risk management solutions.
Non-delivery or non-performance
What is the risk?
Your supplier will not perform according to the sales contract, either by delivering the wrong or inferior
goods or not delivering on time.
How does it arise?
Your supplier may not be willing or able to perform as contracted.
You might request that the goods be inspected prior to shipment by an independent inspection agency.

Credit risk
What is the risk?
Your supplier lacks the financial means to ship your goods after you have made payment.
How does it arise?
Your supplier, or other parties in the payment chain, may become insolvent.
Consider using conditional methods of payment such as documentary credit or documentary collection.
Transfer risk
What is the risk?
A change in government regulations prevents or restricts your ability to make payments or exchange
foreign currency.
How does it arise?
Many countries regulate the transfer of money and conversion of foreign currency receipts. Unexpected
regulatory changes may occur between entering and settling a contract.
Consult the Australian Trade Commission – Austrade – for specialist knowledge of the markets with
which you trade.
Country risk
What is the risk?
A change in government regulations prevents or restricts your ability to receive goods.
How does it arise?
Many countries regulate the import and export of goods. Unexpected regulatory changes, such as the
cancellation of permits or licences, may occur between entering and settling a contract.
Consult the Australian Trade Commission – Austrade – for specialist knowledge of the markets with
which you trade. You may also want to consult the Australian Customs Service.
Transport risk

What is the risk?
Goods are stolen, lost or damaged in transit.
How does it arise?
Goods may be open to these risks when travelling between the supplier and you.
Consult commercial marine insurance agencies if you wish to insure against transport risk.
Risk of fraud
What is the risk?
Your trading partner is not bona fide.
How does it arise?
There is always the possibility that an unscrupulous person will seek to take advantage of you, and the
complexity of international trade can make it difficult to detect fraud before it occurs.
Do business with reputable parties that have a proven record with the goods in question, including third
parties.
Other risks
Like an export, import of goods is also associated with various types of risks. Some of these are
Transport Risk – This risk is associated with the loss of goods during transportation.
Quality Risk – This risk is associated with the final quality of the products.
Delivery Risk – This risk arises when the goods are not delivered on time.
Exchange Risk – This risk arises due to the change in the value of currency.
These risks are explained more fully below.
Transport Risk
For a better transport risk management, an importer must ensure that the goods supplied by the
exporter is insured. Whether the goods are transported by Sea or by Air, the risk can be covered by
Insurance. It is always advisable to set out the agreement between the parties as to the type of cover to
be obtained in the Contract of Sale. Often Importers will wish to obtain Insurance cover from their own

Insurance Company under a 'blanket cover' called an 'Open Policy' thus taking advantage of bulk billing
and other relationships.
Quality risk
The proper quality risk analysis is important for the importer to ensure that the final products are as
good as the sample. Occasionally, it has been found that the goods are not in accordance with samples,
quality is not as specified, or they are otherwise unsatisfactory. To handle such situations in future,
importer must take necessary protective measures in advance. One the best method to avoid such
situation is to investigate the reputation and standing of the supplier. Even before receiving the final
product, inspection can be done from the importer side or exporter side or by a third party agency.
In case of Bill of Exchange, with documents released against acceptance, the Importer is able to inspect
the goods before payment is made to the Supplier at the maturity date. In this method of payment, if
the goods are not in accordance with the Contract of Sale the Importer is able to stop payment on the
accepted draft prior to maturity. Importers should consider what measures can be taken to ensure that
the need for legal action does not arise. If the Importer has an agent in the Supplier's country it may be
possible for closer supervision to be maintained over shipments.
Delivery Risk
Delivery of goods on time is important factor for the importer to reach the target market. For example
any product or item which has been ordered for Christmas is of no use if it is received after the
Christmas. Importer must make the import contract very specific, so that importer always has an option
of refusing payment if it is apparent that goods have not been shipped by the specific shipment date.
Where an Importer is paying for goods by means of a Documentary Credit, the Issuing Bank can be
instructed to include a 'latest date for shipment' in the terms of the Credit.
Exchange Risk
Before entering into a commercial contract, it is always advisable for the importer to determine the
value of the product in domestic currency. As there is always a gap between the time of entering into
the contract and the actual payment for the goods is received, so determining the value of the good in
domestic currency will help an exporter to quote the right price for the product.
1. Contracting to import in Indian Rupees.
2. Entering into a Foreign Exchange Contract through Bank.
3. Offsetting Export receivables against Import payables in the same currency by using a Foreign
Currency Account.
4. Where Pre / Post-Shipment Finance is provided with a Foreign Currency Loan in the currency of
the transaction and Export receipts repay the loan.

Unit-6
EXPORT INCENTIVES
Monetary, tax or legal incentives designed to encourage businesses to export certain types of goods or
services. A government providing export incentives often does so in order to keep domestic products
competitive in the global market. Types of export incentives include tax exemption on profits made from
exports.
Export incentives make domestic exports competitive by providing a sort of kickback to the exporter.
The government collects less tax in order to deflate the exported good's price, so the increased
competitiveness of the product in the global market ensures that domestic goods have a wider reach.
This level of government involvement can also lead to international disputes that may be settled by the
World Trade Organization (WTO).
EXPORT PROMOTION CAPITAL GOODS SCHEME (EPCG)
According to this scheme, a domestic manufacturer can import machinery and plant without paying
customs duty or settling at a concessional rate of customs duty. But his undertakings should be as
mentioned below:
Customs Duty Rate Export Obligation Time
10% 4 times exports (on FOB basis) of CIF value
of machinery.
5 years
Nil in case CIF value is Rs200mn or more. 6 times exports (on FOB basis) of CIF value
of machinery or 5 times exports on (NFE)
basis of CIF value of machinery.
8 years
Nil in case CIF value is Rs50mn or more
for agriculture, aquaculture, animal
husbandry, floriculture, horticulture,
poultry and sericulture.
6 times exports (on FOB basis) of CIF value
of machinery or 5 times exports on (NFE)
basis of CIF value of machinery.
8 years
Note:-
1. NFE stands for net foreign earnings.
2. CIF stands for cost plus insurance plus freight cost of the machinery.
3. FOB stands for Free on Board i.e. export value excluding cost of freight and insurance.
DUTY DRAWBACK
Drawback, in law in commerce, paying back a duty previously paid on exporting excisable articles or on
re-exporting foreign goods. The object of a drawback is to let commodities which are subject to taxation
be exported and sold in a foreign country on the same terms as goods from countries where they are
untaxed. It differs from a bounty in that a bounty lets commodities be sold abroad at less than their cost
price; it may occur, however, under certain conditions that giving a drawback has an effect equivalent to

that of a bounty, as in the case of the so-called sugar bounties in Germany (see sugar). The earlier tariffs
contained elaborate tables of the drawbacks allowed on exporting or re-exporting commodities, but so
far as the United Kingdom is concerned (as of 1911) the system of bonded warehouses practically
abolished drawbacks, as commodities can be warehoused (placed in bond) until needed for exportation.
Duty Drawback
It means the rebate of duty chargeable on imported material or excisable material used in the
manufacturing of goods in and is exported. The exporter may claim drawback or refund of excise and
customs duties being paid by his suppliers. The final exporter can claim the drawback on material used
for the manufacture of export products. In case of re-import of goods the drawback can be claimed.
The following are Drawbacks:
Customs paid on imported inputs plus excise duty paid on indigenous imports.
Duty paid on packing material. Drawback is not allowed on inputs obtained without payment of
customs or excise duty. In part payment of customs and excise duty, rebate or refund can be
claimed only on the paid part.
In case of re-export of goods, it should be done within 2 years from the date of payment of duty when
they were imported. 98% of the duty is allowable as drawback, only after inspection. If the goods
imported are used before its re-export, the drawback will be allowed as at reduced percent.
Trade Information
Embassies & Consulates
• Export Procedures
• Documents Required
i. Export Incentives
ii. Export Credits
Foreign Trade Policy
• International Ports
• International Airports
• SEZ & EPZ's
• Trade Agreements
• Trade Articles
• Trade Councils & Associations
• Trade Publications
• Trade Statistics
• Trade Terms
• Useful Links

In the United States, drawback is a U.S. law that allows exporters to recover duty paid for importations
provided that the product is subsequently exported. It is considered a Customs privileged program. It is
a cumbersome, time consuming process that requires proof of exportation, and an impeccable audit
trail to the original importation. Further, a Foreign-Trade Zone may be used to either expedite or avoid
the drawback process. A Foreign-Trade Zone Admission in Zone Restricted status is considered the legal
equivalent to an exportation in the eyes of the U.S. Customs & Border Protection.
Under Indian Customs Act, various schemes like EOU, SEZ, Advance Authorisation, manufacture under
bond etc., are available to obtain inputs without payment of customs duty/excise duty or obtain refund
of duty paid on inputs. In case of Central Excise, manufacturers can avail Cenvat credit of duty paid on
inputs and service tax paid on input services. They can utilize the same for payment of duty on other
goods sold in India or service tax on services provided in India, or can obtain refund. Schemes like
manufacture under bond are also available for customs. Manufacturers or processors who are unable to
avail any of these schemes can avail ‘duty drawback’. Here, the excise duty and customs duty paid on
inputs and service tax paid on input services is given back to the exporter of finished product by way of
‘duty drawback’.
DUTY EXEMPTION SCHEMES
The Foreign Trade Policy 2009-2014 (updated as on 27.08.2009) has been announced. The existing Duty
Exemption / Duty Remission Schemes like DEPB / EPCG schemes will continue.
The Duty exemption schemes are broadly divided into following categories:
1. Input - Output norms (SION)
The government has published the standard input-output norms (SION) for more than 6000 products.
These are available in the Handbook of Procedures (Vol-II) of Exim Policy. While applying for advance
Authorization the input-output norms are to be followed for duty free inputs. If however no norms are
available, Authorization can still be applied on self- declaration basis.
2. ADVANCE AUTHORISATION SCHEME:
All the three categories namely Physical Exports, Deemed Exports & Intermediate Supplies are classified
under common platform known as “ADVANCE AUTHORISATION SCHEME” under the popular Duty
Exemption Scheme (DES).
Under DES Scheme, the advance authorizations are issued for duty free imports required for export
production.
Eligibility: -
a. Advance Authorisation are issued to manufacturers exporters or merchant exporters tied to
manufacturer(s) for duty-free imports of inputs.

b. Supply of Goods to ultimate exporter holding another Advance Authorisation / Duty Free Import
Authorisation.
c. Supply of Goods to the various categories as mentioned in Chapter 8.2 of the Policy (10 notified
categories).
d. Supply of stores on board of the foreign going vessels / aircrafts.
Important conditions: -
a. Advance Authorisation shall have minimum 15% Value Addition.
b. Advance Authorisation shall be with actual User Condition i.e. it shall never be transferable, even
after EODC is obtained.
3. DUTY FREE IMPORT AUTHORISATION SCHEME (DFIA)
This scheme is similar to Advance Authorisation Scheme, but is transferable after obtaining EODC and
there are some other minor changes.
The Duty Free Import Authorisation (DFIA) eligibility: -
a) Duty Free Import Authorisations are issued to manufacturer ex-porters or merchant exporters tied to
manufacturer(s) for duty-free import of inputs.
b) Supply of Goods under Deemed Exports to ultimate exporter holding another Advance Authorisation
/ Duty Free Import Authorisation.
c) Supply of Goods to the various categories as mentioned in Chapter 8.2 of the Policy (10 notified
categories).
Important conditions:-
a. DFIA shall have maximum 20% V.A.
b. Sion of the export product must be fixed.
4. Duty Entitlement Passbook Scheme
The objective of DEPB is to neutralize the incidence of Customs duty deemed to have been suffered on
the import content of the export product. The neutralization is provided by way of grant of duty credit
against the export product. The duty credit is given as a specified percentage of FOB value of exports,
made in freely convertible currency.
This duty credit can be utilized for import of any goods/capital goods which are not prohibited.
The DEPB and/or the items imported against it are freely transferable.

4. Indigenous Sourcing
The holder of advance Authorization and DFIA may also source their inputs from indigenous sources. In
such cases, the excise duty payable by the indigenous supplier can be exempted. In addition the
indigenous supplier can import his own raw material duty free or can even get a drawback.
SALIENT FEATURES OF DUTY EXEMPTION SCHEME
ADVANCE AUTHORISATION SCHEME (FOR PHYSICAL & DEEMED EXPORTS) & DUTY FREE IMPORT
AUTHORISATION SCHEME (DIFA)
APPLICATION STAGE
1.1. All export contracts/invoices should be in freely convertible currency except Deemed Exports.
1.2. Manufacturer Exporter or Merchant Exporter can submit application through the Registered Office
/ Head Office / Branches / Manufacturing Unit.
1.3. If the Norms are not fixed, the Exporter has to submit an application on prescribed form for
fixation of the Standard Input Output Norms to the DGFT, New Delhi.
Simultaneously, the Exporter can submit the application to the Regional Authority for issue of Advance
Authorisation on the basis of self-declaration.
1.4. The Advance Authorisation shall be issued with Actual User Condition and with 15% value
addition, while DFIA is transferable after obtaining EODC and minimum value addition is 20%.
1.5. Fuel is allowed for Import under Advance Authorisation / DFIA as specified percentage of FOB
value of export. The Import of fuel is allowed with certain specific conditions.
1.6. In addition to raw materials exporter can apply for import compo-nents, packing material, Fuel, Oil
and energy catalysts for duty free import.
1.7. Exporter can also apply for import of inputs on free of cost basis. In such cases, a specific
endorsement shall be made in this regard.
1.8. Duty Free Import of mandatory spares upto 10% of the C.I.F. Value of the license which are
required to be exported / supplied with the resultant product, are allowed under Advance
Authorisation.
EXPORT STAGE
2.1. Exports / Supplies can be made any time after obtaining online file number for having submitted
the application to the Regional Authority. The hard copy can be submitted subsequently but within 5
days.

2.2. Advance Authorisation / DFIA will be issued showing the quantity and CIF value as limiting factors.
The description, quality and technical characteristics will have to be adhered to as per notified SION.
2.3. Licence is issued with an Export Obligation period of 36 months, No extension
beyond 36 months is granted.
EXEMPTION FROM CUSTOM DUTIES
The following duties are exempt.
a. Basic Customs Duty.
b. Additional Customs Duty including Education Cess.
c. Anti Dumping Duty / Safeguard Duty (these are however payable on deemed exports under para
8.2 (i) & (j).
IMPORT STAGE
4.1 LUT / BG : In case the authorisation holder wishes to import, the inputs against the Advance
Authorisation, prior to exports, he can do so by furnishing the Bank Guarantee / LUT to the Customs
Authorities as per the guidelines of Custom Circular No. 58/04 dated 21.10.2004. However, the
following categories of Exporter can clear the goods against Advance Authorisation on furnishing LUT.
4.2 Goods already imported / shipped / arrived in advance but not cleared from Customs are also
allowed for clearance against Duty Free Authorisation issued subsequently.
4.3 The Advance Authorisation/ DFIA is valid for 36 months for exports & 24 months for imports from
the date of issue of the authorisation (Automatically valid till the end of the month for custom clearance
purpose).
4.4 In case of actual user DFIA and where CENVAT credit facility on inputs have been availed for the
exported goods, even in such cases after completion of export obligation, the goods imported against
such DFIA shall be utilized in the manufacture of dutiable goods within the same factory or outside (by a
supporting manufacturer).
INTERMEDIATE SUPPLIES
The application for grant of Advance Authorisation / DFIA for Intermediate Supplies can be made on the
basis of a tie-up agreement with the ultimate exporter holding an Advance Authorisation / DFIA for
physical exports. The Advance Authorisation / DFIA for Intermediate supplies will be issued only after
making the authorisation invalid for direct import.
DEEMED EXPORTS

Supply of goods by the Main / Sub-Contractor to the categories listed under Chapter 8 Sr. No. (a) to (j) of
Policy Book, which includes supply to EOU/STP/EHTP/BTP etc. are eligible to following benefits
(whichever is applicable).
i) Advance Authorisation / Duty Free Import Authorisation
ii) Deemed Export Drawback.
iii) Exemption from terminal excise duty where supplies are made against International Competitive
Bidding. (ICB) In other cases, refund of terminal excise duty will be given.
TAX INCENTIVES
A tax incentive is an aspect of the tax code designed to incentivize, or encourage a particular economic
activity.
Government of India provides tax incentives for:-
(i) Corporate profit
(ii) Accelerated depreciation allowance
(iii) Deductibility of certain expenses subject to certain conditions.
These tax incentives are, subject to specified conditions, available for new investment in;
1. Infrastructure .
2. Power distribution .
3. Certain telecom services .
4. Undertakings developing or operating Industrial Parks or Special Economic Zones .
5. Production or refining of mineral oil .
6. Companies carrying on R&D .
7. Developing housing projects .
8. Undertakings in certain hill states .
9. Handling of food grains .
10. Food processing .
11. Rural hospitals .

Unit-7
TRADING HOUSES
A business that specializes in facilitating transactions between a home country and foreign countries. A
trading house is an exporter, importer and also a trader that purchases and sells products for other
businesses. Trading houses provide a service for businesses that want international trade experts to
receive or deliver goods or services.
A trading house serves as an intermediary. It might purchase t-shirts wholesale from China, then sell
them to a retailer in the United States. The U.S. retailer would still receive wholesale pricing, but the
price would be slightly higher than if the retailer purchased directly from the Chinese company. The
trading house must mark up the price of the goods it sells to cover its costs and earn a profit. However,
the t-shirt retailer avoids the hassles of importing. The retailer also may be able to simplify its operations
by dealing with one or two trading houses to get its inventory instead of dealing directly with numerous
wholesalers.
POLICY OF EOU EPZ FTZ
The Policy relating to Export Oriented Units (EOUs), units in Export Processing Zones (EPZs), Electronic
Hardware Technology Parks (EHTP) and Software Technology Parks (STP) is given in chapter 9 of the
Policy.
Export Processing Zones can also be set up by State Governments or in private/joint sector as per
guidelines issued vide notification No. 42(RE)/92-97 dated 31st May, 1994 (Appendix-16G).
Software Technology Park (STP)/Electronics Hardware Technology Park (EHTP) complexes can be set up
by the Central Government, State Government, Public or Private Sector Undertakings or any
combination thereof, duly approved by the Inter Ministerial Standing Committee (IMSC) in the Ministry
of Information Technology.
Software units may undertake exports using data communication links or in the form of physical exports
(which may be through courier service also), including export of professional services.
9.2 Application
(a) For setting up a unit in an EPZ or as an EOU, ten copies of the application in the form given in
Appendix 16 may be submitted to the Development Commissioner (DC) of the EPZ concerned
(b) Application for setting up EHTP/STP units shall be in the format prescribed by the Ministry of
Information Technology and shall be submitted to the officer designated by the Ministry of Information
Technology for this purpose
(c) For setting up of Trading/Service units, three copies of the application in the form given in Appendix
16-A may be submitted to the DC of the EPZ concerned.

9.3 Conversion
(a) Conversion of an existing Domestic Tariff Area (DTA) unit into an EOU/EPZ/EHTP/STP may be
permitted. For this purpose, the DTA unit may apply to the concerned DC, EPZ, in the same manner as
applicable to new units. In case there is an outstanding export commitment under the EPCG Scheme, it
will be subsumed in the export performance (EP) of the unit. If the unit is having outstanding export
commitment under the Advance Licensing Scheme, it will discharge the same, as per its condition before
conversion into EOU/EPZ scheme.
(b) Existing EHTP/STP units desiring conversion as an EOU may apply to the DC of the EPZ concerned,
while an EOU desiring conversion into EHTP/STP may apply to the officer designated by the Ministry of
Information Technology, in the same manner as applicable to new units. The unit shall submit the
application through the concerned authority of the scheme under which it is presently operating,
regarding the proposed conversion.
(c) Deleted.

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