Marwadi University EXIM Procedures PDF

 Unit 3 EXIM Procedures Export Import Documentation, INCO Terms, Export Import procedures, Various Payment Methods ❖ Export Documentation The list of documents required for EXPORTS customs clearance: ProForma Invoice Customs Packing List Coun...

 Unit 3 EXIM Procedures Export Import Documentation, INCO Terms, Export Import procedures, Various Payment Methods ❖ Export Documentation The list of documents required for EXPORTS customs clearance: ProForma Invoice Customs Packing List Country of Origin or COO Certificate Commercial Invoice Shipping Bill Bill of Lading or Airway Bill Bill of Sight Letter of Credit Bill of Exchange Export License Warehouse Receipt Health Certificates ❖ Export Documentation Pro Forma Invoice A Pro Forma Invoice serves as a declaration of the exporter’s intent to sell a specified quantity of goods, detailing agreed-upon terms and conditions between the exporter and importer. It acts akin to a preliminary contract, typically communicated via email, fax, telephone, or in person. This document precedes the final sales transaction and resembles a Purchase Order, outlining the items to be sold and their respective terms. It provides both parties with a clear understanding of the proposed transaction before it is finalized, facilitating smoother business operations and ensuring mutual agreement on the terms of sale. Customs Packing List A Customs Packing List shows what’s in a shipment. It helps everyone involved in the deal compare it to the Pro Forma Invoice. This list goes along with the international shipment and helps transportation companies understand what’s in each container. They attach a packing list to each container to make sure they’re sending the right stuff overseas. Matching the packing list to the Pro Forma Invoice helps make sure everything is handled and tracked correctly. This way, mistakes are less likely, and the customs process is smoother for everyone involved in the trade Country of Origin Certificate A Country of Origin (COO) Certificate, issued by the exporter, confirms that the goods in the shipment originate from a specific country, affirming their complete acquisition, production, or processing there. ❖ Export Documentation Commercial Invoice A Commercial Invoice is an essential requirement for any export transaction. It’s typically the first document requested by customs clearance authorities, offering comprehensive details about the order. This includes descriptions, selling prices, quantities, packaging costs, and weights or volumes of the goods. The information provided helps determine the customs import value at the destination port, as well as factors such as freight insurance, terms of delivery, and payment arrangements. Customs representatives scrutinize this document to ensure alignment with the order specifications, making decisions on whether to clear the shipment for onward forwarding or not. Essentially, the Commercial Invoice serves as a crucial record of the transaction, facilitating smooth customs clearance and trade operations. Shipping Bill A Shipping Bill serves as an official declaration of goods being exported, providing a tangible record of the transaction. Exporters can submit it electronically via custom online software like ICEGATE. To obtain a shipping bill, exporters typically require several documents, including GR Forms for shipments to all countries, a Packing List detailing content specifics, an Export License, Indent, Acceptance of Contract, Invoices containing comprehensive information such as package numbers, quantities, prices, and correct goods specifications, a Purchase Order, Letter of Credit, AR4 and Invoice, Examination or Quality Control Certificate, and Port Trust documents. These documents collectively facilitate the smooth processing of export shipments through customs and port authorities. ❖ Export Documentation Bill of Lading The Bill of Lading is a crucial legal paper given by the carrier to the shipper. It proves there’s a deal to transport goods, with details about what’s being shipped, like type and quantity. This document serves as a receipt when the goods arrive at the destination port. It’s vital for customs clearance, so the exporter needs to show it to the customs official. Whether goods are shipped by sea, air, or land, this document is a must. It needs signatures from the carrier, shipper, and receiver to be valid. The Bill of Lading is especially helpful if anything goes missing or gets stolen during transit, as it helps track the shipment and protects everyone involved in the transportation process. Bill of Sight The Bill of Sight is a form exporters use when the receiver isn’t sure what’s in the shipment. It lets the receiver check the goods before paying any customs duties. If the exporter doesn’t have all the necessary info and documents for the regular bill of entry, they can apply for a Bill of Sight instead. This document acts as a temporary substitute. Along with the Bill of Sight, the exporter must also send a letter allowing customs to clear the goods. This process ensures transparency and gives the receiver peace of mind by allowing them to inspect the shipment before committing to any duties or taxes. Letter of Credit A Letter of Credit is a document from the importer’s bank, assuring the exporter that the importer will pay the specified amount for the transaction. The exporter typically receives this letter before sending out the goods, as it guarantees payment. Depending on the agreement between the exporter and importer, the shipment is only dispatched once the exporter has this assurance from the importer’s bank. This letter acts as a safeguard for both parties, ensuring that the payment will be made as agreed upon in the transaction. ❖ Export Documentation Export License An Export License is a must-have for businesses planning to ship products internationally. It’s required for customs clearance when exporting goods for the first time. Depending on what you’re exporting, the license may differ. Getting one involves applying with the licensing authority, and it’s issued by the Chief Controller of Exports and Imports. This license ensures that businesses comply with export regulations and helps streamline the shipping process. Once obtained, it allows companies to legally export their products to international destinations, opening up new opportunities for trade and growth. Warehouse Receipt A Warehouse Receipt is issued after the exporter settles all export duties and freight charges following customs clearance, specifically when an Inland Container Depot (ICD) is part of the process. This document serves as proof of ownership for goods stored in a warehouse, indicating that all necessary fees have been paid. It’s an essential requirement for transactions involving ICDs, providing assurance that the goods are ready for storage or onward transportation. Health Certificates Health Certificates are essential for international trade involving food products of both animal and non-animal origin. These certificates confirm that the food items in the shipment meet stringent safety standards and regulations, ensuring they are safe for human consumption. They are exclusively required for shipments containing food products and are issued by authorized governmental organizations in the country of origin. These certificates serve as crucial documentation, attesting to the quality and safety of the food being exported. By obtaining health certificates, exporters demonstrate compliance with international food safety regulations, providing assurance to importers and regulatory authorities regarding the suitability of the products for consumption. Thus, health certificates play a vital role in facilitating the smooth and safe trade of food products across borders, safeguarding public health and maintaining consumer confidence in the global food supply chain. ❖ Import Documentation The list of documents required for IMPORTS customs clearance: Bill of Entry Commercial Invoice Bill of Lading or Airway Bill Import License Certificate of Insurance Letter of Credit or LC Technical Write-up or Literature (Only required for specific goods) Industrial License (for specific goods) Test Report (If any) RCMC Registration cum Membership Certificate GATT/DGFT declaration DEEC/DEPB/ECGC License for duty benefits ❖ Import Documentation 1. Bill of Entry: A legal document that must be filed by the importer or their agent with the customs department, declaring the details of the imported goods. 2. Commercial Invoice: A document issued by the seller to the buyer, detailing the sale transaction, including the description of goods, quantity, price, and terms of sale. 3. Bill of Lading or Airway Bill: A document issued by the carrier (shipping or airline) acknowledging the receipt of goods for shipment. It serves as proof of the contract of carriage and ownership. 4. Import License: A license issued by the relevant authorities that allows the importer to bring certain regulated goods into the country. Not all goods require an import license, but it is mandatory for restricted items. 5. Certificate of Insurance: A document that provides proof of insurance coverage for the goods being imported, protecting against potential losses or damages during transit. 6. Letter of Credit (LC): A financial document issued by the importer’s bank guaranteeing payment to the exporter, provided the terms and conditions specified in the LC are met. ❖ Import Documentation 7. Technical Write-up or Literature: Required for specific goods, this document provides detailed technical information about the imported goods, often necessary for customs assessment. 8. Industrial License: For specific goods that require regulatory approval, an industrial license is necessary to import the items. 9. Test Report (If any): A report providing the results of any tests conducted on the goods to verify quality, safety, or compliance with standards. 10. RCMC (Registration cum Membership Certificate): Issued by export promotion councils or commodity boards, this certificate is necessary for importers to claim benefits under India’s foreign trade policy. 11. GATT/DGFT Declaration: A declaration under the General Agreement on Tariffs and Trade (GATT) and DGFT regulations, confirming compliance with international trade agreements and Indian laws. 12. DEEC/DEPB/ECGC License: Specific licenses that allow importers to claim duty exemptions or benefits under various export promotion schemes like Duty Exemption Entitlement Certificate (DEEC), Duty Entitlement Pass Book (DEPB), or Export Credit Guarantee Corporation (ECGC) coverage. ❖ International Chamber of Commerce (ICC) The International Chamber of Commerce (ICC) is a global business organization that plays a critical role in facilitating international trade and commerce. Founded in the early 20th century, the ICC has grown to become a powerful advocate for business interests worldwide, promoting open markets, sustainable economic growth, and global trade policies that benefit businesses of all sizes. The ICC was founded in 1919, in the aftermath of World War I, by a group of entrepreneurs and business leaders from Europe and the United States. Their vision was to create an organization that would foster international trade and cooperation, helping to rebuild the global economy. Over the decades, the ICC expanded its presence globally, establishing national committees and chapters in over 100 countries. Today, the ICC represents more than 45 million companies from all sectors of the economy, making it the largest and most representative business organization in the world. The ICC's influence extends to major international organizations and forums, including the United Nations, the World Trade Organization (WTO), and the G20. The ICC works closely with these bodies to shape global economic policies and advocate for the interests of the global business community. ❖ Key ICC Documents The International Chamber of Commerce (ICC) has developed several key documents that are widely used in international trade and finance. These documents provide standardized rules, guidelines, and best practices that help facilitate smooth and efficient cross-border transactions. Three of the most important ICC documents are Incoterms®, the Uniform Customs and Practice for Documentary Credits (UCP 600), and the International Standby Practices (ISP98). ❖ Incoterms Incoterms, short for International Commercial Terms, are a set of rules published by the ICC that define the responsibilities of buyers and sellers in international transactions. They clarify who is responsible for the costs, risks, and logistics of transporting goods from the seller to the buyer. The primary purpose of Incoterms is to avoid misunderstandings and disputes by providing clear guidelines on the delivery of goods, including who pays for transportation, insurance, and customs duties, as well as where the risk of loss or damage transfers from seller to buyer. Classification: Incoterms® are divided into two categories: Rules for Any Mode of Transport: These include terms like EXW (Ex Works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAP (Delivered at Place), DPU (Delivered at Place Unloaded), and DDP (Delivered Duty Paid). Rules for Sea and Inland Waterway Transport: These include FAS (Free Alongside Ship), FOB (Free on Board), CFR (Cost and Freight), and CIF (Cost, Insurance, and Freight). Regular Updates: Incoterms® are periodically updated to reflect changes in global trade practices. The most recent version, Incoterms® 2020, includes 11 terms that are used worldwide. ❖ Incoterms Rules for Any Mode of Transport: EXW (Ex Works): The seller delivers the goods at their premises or another named place (factory, warehouse, etc.). The buyer bears all costs and risks from there onward. FCA (Free Carrier): The seller delivers the goods to a carrier or another person nominated by the buyer at the seller’s premises or another named place. The seller is responsible for export customs clearance. CPT (Carriage Paid To): The seller pays for the transport of the goods to the named destination. The risk passes to the buyer when the goods are handed over to the first carrier. CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller also pays for insurance against the buyer's risk of loss or damage during transit. DAP (Delivered at Place): The seller bears all risks and costs, except for import duties, until the goods are delivered to the named place of destination. DPU (Delivered at Place Unloaded): The seller is responsible for delivering and unloading the goods at the named destination. The buyer bears import customs duties. DDP (Delivered Duty Paid): The seller bears all costs and risks, including import duties, until the goods are delivered to the buyer's premises. ❖ Export Credit Guarantee Corporation (ECGC) Rules for Sea and Inland Waterway Transport: FAS (Free Alongside Ship): The seller delivers the goods alongside the vessel at the named port of shipment. The buyer assumes all costs and risks from that point onward. FOB (Free on Board): The seller delivers the goods on board the vessel nominated by the buyer. The risk passes when the goods are on board the ship. CFR (Cost and Freight): The seller pays for the transport of the goods to the named port of destination. The risk passes when the goods are on board the ship. CIF (Cost, Insurance and Freight): Similar to CFR, but the seller also pays for insurance against the buyer's risk of loss or damage during transit. ❖ Documentary Credits Documentary Credits, also known as letters of credit (LCs), are one of the most critical instruments in trade finance, providing security and trust between buyers and sellers engaged in international transactions. Issued by a bank, a documentary credit guarantees payment to the seller, provided that the seller complies with the terms and conditions specified in the credit, including the presentation of specific documents. ❖ Role of Documentary Credits in Trade Finance 1. Securing Payment in International Trade: Buyer’s Assurance: For the seller, a documentary credit serves as a guarantee that they will receive payment, even if the buyer fails to pay. This reduces the seller's risk, especially when dealing with new or unknown buyers. Seller’s Assurance: For the buyer, it ensures that payment will only be made if the seller meets all the conditions stipulated in the credit, including the delivery of the agreed goods and submission of the required documentation. 2. Risk Mitigation: Reducing Counterparty Risk: In international trade, there is always a risk that one party may default on the agreement. Documentary credits mitigate this risk by involving a trusted third party, typically a bank, which assumes the obligation to pay on behalf of the buyer. Currency and Country Risk Management: By using a documentary credit, businesses can manage risks related to currency fluctuations, political instability, and changes in foreign exchange regulations, as the credit is typically issued in a stable currency and governed by international banking standards. ❖ Role of Documentary Credits in Trade Finance 3. Facilitating Trust in International Transactions: Overcoming Trust Deficit: In cross-border transactions, trust can be a significant barrier, especially when dealing with unfamiliar partners. Documentary credits build trust by providing a structured process and clear guidelines for payment. Enhancing Business Relationships: By ensuring that both parties adhere to the terms of the contract, documentary credits help establish and maintain long-term business relationships. 4. Enhancing Liquidity: Access to Financing: Documentary credits can be used as collateral to secure financing, as banks may offer pre-shipment or post-shipment finance based on the letter of credit. This enhances the liquidity of exporters, enabling them to manage their working capital more effectively. Enabling Larger Transactions: Because the payment is guaranteed, sellers may be more willing to engage in larger transactions or extend more favorable payment terms, facilitating business growth. ❖ UCP 600 and Its Importance The Uniform Customs and Practice for Documentary Credits (UCP 600) is a set of standardized rules published by the International Chamber of Commerce (ICC) that govern the use of documentary credits. UCP 600 is the most recent version, effective since July 1, 2007, and it provides a globally accepted framework for the issuance and operation of letters of credit. Purpose of UCP 600: UCP 600 aims to standardize and harmonize the practices of banks and businesses involved in documentary credit transactions, reducing the risk of discrepancies and misunderstandings and facilitating smoother international trade. ❖ Standby Letters of Credit Standby Letters of Credit (SBLCs) are financial instruments used primarily as a guarantee of payment in the event that one party fails to meet their contractual obligations. Unlike regular letters of credit, which are typically used in trade finance to facilitate the payment for goods or services, standby letters of credit serve as a safety net to protect against default or non-performance. A standby letter of credit is a guarantee issued by a bank on behalf of a client (the applicant), promising to pay a specified amount to a third party (the beneficiary) if the applicant fails to fulfill their obligations under a contract or agreement. Purpose: The primary purpose of an SBLC is to provide security and assurance to the beneficiary that they will be compensated if the applicant defaults on their contractual duties. This makes SBLCs a useful tool in various types of transactions, including performance guarantees, bid bonds, and financial guarantees. ❖ Standby Letters of Credit Types of SBLCs: Performance SBLC: Guarantees that the applicant will perform their contractual obligations. If the applicant fails to do so, the beneficiary can claim payment under the standby letter. Bid Bond SBLC: Used in competitive bidding processes to guarantee that the bidder will enter into the contract and provide performance guarantees if awarded the contract. If the bidder fails to comply, the beneficiary can claim compensation. Financial SBLC: Serves as a guarantee for financial obligations, such as loan repayments or other monetary commitments. If the applicant fails to meet these obligations, the beneficiary can claim the amount specified in the SBLC. ❖ ISP98 Guidelines International Standby Practices (ISP98) is a set of rules published by the International Chamber of Commerce (ICC) that governs the issuance and use of standby letters of credit. ISP98, effective from January 1, 1998, provides a standardized framework for standby credits, addressing various aspects of their operation and ensuring consistency across different jurisdictions. Purpose: ISP98 aims to provide clarity and uniformity in standby letter of credit transactions, reducing the risk of disputes and misunderstandings by establishing clear guidelines for the issuance, use, and claims process. ❖ Export Import Procedures 1. Market Research & Planning: Identify Target Markets: Research potential countries where there is demand for agricultural fertilizers. Consider factors like agricultural practices, import regulations, and competition. Understand Market Regulations: Familiarize yourself with the import regulations and requirements of the target countries, including any restrictions or certifications needed. 2. Obtain Necessary Licenses and Registrations: Importer-Exporter Code (IEC): Apply for an IEC from the Directorate General of Foreign Trade (DGFT). This is mandatory for any export activity from India. Fertilizer Control Order (FCO) License: Ensure that your fertilizer products comply with the FCO, 1985, which regulates the manufacture, sale, and distribution of fertilizers in India. Product Registration in Target Market: Some countries require fertilizers to be registered before they can be imported. Ensure your product meets the regulatory standards of the importing country. ❖ Export Import Procedures 3. Product Classification & Pricing: Harmonized System (HS) Code: Determine the correct HS code for your fertilizer product, which will be used in customs documentation. Pricing Strategy: Set a competitive price considering production costs, shipping, taxes, and profit margins. 4. Packaging & Labeling: Adherence to Standards: Ensure that your packaging meets the safety and environmental standards of both India and the importing country. Labeling Requirements: Include all necessary information on the packaging, such as product name, weight, ingredients, manufacturer details, and usage instructions. Follow the labeling requirements of the importing country. ❖ Export Import Procedures 5. Documentation: Commercial Invoice: This document details the transaction, including the description of the goods, quantity, and price. Packing List: A detailed list of the contents of the shipment, including weight and dimensions. Certificate of Origin: Issued by authorized chambers of commerce, this certifies that the goods being exported are of Indian origin. Bill of Lading (B/L) or Airway Bill (AWB): This is the receipt issued by the carrier to the shipper, detailing the goods being transported. Phytosanitary Certificate: Required for agricultural products, certifying that the shipment meets the importing country’s health regulations. Quality Certification: If required, obtain certifications that confirm the quality of the fertilizer, such as ISO certifications or other relevant standards. 6. Customs Clearance: Filing the Shipping Bill: Submit a shipping bill or bill of export with Indian customs through the ICEGATE portal. Customs Inspection: The goods will be inspected by customs officials. Ensure that all documentation is accurate and complete. Payment of Duties: Pay any applicable export duties or taxes. Although fertilizers may be exempt from export duty, verify current regulations. ❖ Export Import Procedures 7. Logistics & Shipping: Choose a Freight Forwarder: Work with a reliable freight forwarder to manage the logistics of shipping. They can assist with booking cargo space, preparing shipping documents, and navigating customs procedures. Transportation Mode: Depending on the destination, choose the appropriate mode of transport (sea, air, or land). Insurance: Obtain cargo insurance to protect against potential losses during transit. 8. Payment Collection: Negotiate Payment Terms: Agree on payment terms with your buyer. Common methods include Letter of Credit (L/C), advance payment, or documentary collection. Receive Payment: Ensure that the payment method is secure and aligned with the agreed terms. ❖ Export Import Procedures 9. Post-Export Compliance: Record-Keeping: Maintain detailed records of the export transaction for future reference and compliance. Claim Export Incentives: If eligible, claim export incentives like the Merchandise Exports from India Scheme (MEIS) or Duty Drawback Scheme from the government. 10. Monitoring and Follow-Up: Track Shipment: Monitor the shipment until it reaches the destination. Ensure that the buyer has received the goods in satisfactory condition. Customer Feedback: Follow up with the buyer to gather feedback and build a long-term business relationship. ❖ Various Payment Methods 1. Advance Payment: Definition: The importer pays the exporter before the goods are shipped. Risk: High risk for the importer (as they pay upfront) and low risk for the exporter. Usage: Used when the exporter has strong bargaining power or when the importer is a new or untrusted partner. Process: Payment is usually made through wire transfer, and shipment is made after receiving the funds. 2. Open Account: Definition: The exporter ships the goods and then invoices the importer, expecting payment at a later date (usually 30, 60, or 90 days). Risk: High risk for the exporter and low risk for the importer. Usage: Common in established trade relationships where trust is high. Process: Goods are shipped first, and the importer pays after receiving the goods. ❖ Various Payment Methods 3. Letter of Credit (L/C): Definition: A commitment by the importer’s bank to pay the exporter upon the fulfillment of specific terms and conditions. Risk: Balanced risk for both parties, as the bank guarantees payment if conditions are met. Usage: Widely used in international trade where the parties seek to minimize risk. Process: The importer applies for an L/C with their bank. The bank issues the L/C and sends it to the exporter’s bank. The exporter ships the goods and presents the required documents to their bank. The bank verifies the documents and releases payment. 4. Consignment: Definition: The exporter ships goods to the importer but retains ownership until the goods are sold. Risk: High risk for the exporter, as payment depends on the sale of goods. Usage: Typically used when the exporter has a strong relationship with the importer or when entering new markets. Process: The exporter sends goods to the importer, who sells them and pays the exporter from the proceeds. ❖ Various Payment Methods 5. Documentary Collection: Definition: The exporter entrusts the handling of shipping documents to their bank, which forwards them to the importer’s bank with payment instructions. Types: Documents Against Payment (D/P): The importer must pay to obtain the shipping documents. Documents Against Acceptance (D/A): The importer accepts a bill of exchange (promising to pay on a future date) to receive the documents. Risk: Moderate risk for both parties, depending on whether payment is immediate or deferred. Usage: Used when there is some level of trust but not enough for open account terms. Process: The exporter ships the goods and sends documents to their bank. The bank sends documents to the importer’s bank. The importer makes payment or accepts a bill of exchange to receive the documents. ❖ Various Payment Methods 6. Bank Payment Obligation (BPO): Definition: An irrevocable obligation by the importer’s bank to pay the exporter after matching trade data with specified conditions. Risk: Low risk for both parties, with secure and automated processes. Usage: Used in modern trade transactions where electronic data processing is preferred. Process: Trade data is matched through a centralized matching platform, and payment is made when the data aligns with the agreement. 7. Cash Against Documents (CAD): Definition: The exporter instructs their bank to release shipping documents to the importer only after full payment has been made. Risk: Low risk for the exporter and moderate risk for the importer. Usage: Commonly used when the importer needs the documents to clear customs but the exporter wants to ensure payment first. Process: The exporter ships the goods and sends documents to their bank. The bank sends documents to the importer’s bank with payment instructions. The importer pays to obtain the documents and clear the goods.