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1107

INTERNATIONAL TRADE: AN OVERVIEW


(INDIAN CONTEXT)
(COMPILED BY MR. S. KRISHNAMURTHY, B.COM., FCA.) INTERNATIONAL
COMMERCIAL ASPECTS (CONTRACTUA REGULATORY ASPECTS (LEGAL) FOREIGN EXCHANGE ASPECTS

LOCATION PRICE QUANTITY RELIABILITY TRANSPORT LEAD TIME TERMS WARRANTY GUARANTEE BREACH DISPUTES LITIGATION

FORWARD CONTRACTS OPTIONS CURRENCY CHOICE INDIAN EXCHANGE FOREIGN TRADE POLICY POLICY CUSTOMS OTHER LAWS OTHER COUNTRY NETTING SWAPS
ESCROW (COUNTER TRADE)

MULTILATERAL / BILATERAL AGREEMENTS INTERNATIONAL CONVENTIONS & INSTITUTIONS (EXAMPLES) *WTO *ICC *FIDIC *WCO*IMO *ISO * UNCTAD *UNCITRAL *WB/IBRD/MIGA

JURISDICTION INSURANCE DOCUMENTS

EXIM EXCHANGE
REGULATIONS

CUSTOMS OTHER LAWS

1107. VARIOUS ADMN MINISTRIES

OVERVIEW OF INDIAN FOREIGN TRADE POLICY MIN. OF EXTERNAL Page 1 of 11 MIN. OF FINANCE DEPT. R DEPT. ORS

EG.

INDUSTRIES PETROLEUM TEXTILES ETC. I.D.R POLICY NEED & ALLOCATION ETC.

AFFAIRS

OF ECON. AFFRS F O R E X P O L I C Y

B I

OF REV. CBEC CBDT

VARIOUS DEPTS. EG. DC. SSI . DS&CI

INTER MIN. COMT. N A T U R E O F R E L A T I O N S

E X C H A N G E C O N T R O L & A D M N

C U S T O M S E X C I S E S E R V I C E T A X

MININSTRY OF COMMERCE FOREIGN TRADE POLICY EXIM POLICY + PROCEDURES

1107 SOME OF THE IMPORTANT INTERNATIONAL CONVENTIONS INTERNATIONAL TRADE ASPECTS (ILLUSTRATIVE) : WTO (GATT): Import Valuation Anti-dumping & Subsidy CONNECTED TO

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Trade Related Intellectual Property Rights (TRIPS) Trade Related Investment Measures (TRIMS) General Agreement on Trade in Services (GATS) Agreement on Technical Barriers Import licencing & notification procedures Agreement on Sanitary & phyto-sanitary measures Agreement on Agriculture Agreement on Textile Agreement on Technical Barriers to Trade (GATT Standards Code)

UNICITRAL (United Nations Commission on International Trade Laws): Uniform Law for International Contracts for Sale of Goods (CISG) Dispute settlement Rules and Procedures United Nations Convention on Independent Guarantees and Standby Letters of Credit (brought into force by ICC w.e.f. 1.1.1999 vide ISP98 - ICC No. 590) UN Rules on Electronic Commerce UN EDIFACT RULES (Electronic Data Interchange Rules for Administration, Commerce & Transport) UNIDO/OECD Double Taxation UNIDO Models on COLLABORATIONS OECD Guidelines on Transfer Pricing World Customs Organisation: HSN Classification of goods.(with Explanatory notes) Cross Border Formalities Information Exchange on Value. ATA Carnet implementation (Temporary importation & exportation)

FIDIC (Federation Internationale des Ingeneurs Conseils) Belgium on: Conditions of Contract for Works of Civil Engineering Construction Conditions of Contract for Electrical & Mechanical works including erection on site Client/Consultant Model Services Agreement

CERTAIN IMPORTANT OPTIONAL RULES/ GUIDELINES/ UNIFORMITY IN INTERNATIONAL TRADE : INTERNATIONAL CHAMBER OF COMMERCE DEFINITIONS, MODELS & RULES ON -

1107 SUGGESTED MODELS FOR PARIS:* GUIDELINES,

(ICC)

Formation of Contracts & Pre-contractual liability (ICC - 440/9) Penalty & Liquidated Damages (ICC - 478)

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International Commercial Terms (ICC - 560) w.e.f. 1.1.2000 Force Majeure & Hardship (ICC 650 wef from 1.1.1003) ICC shortform Model Contracts-Intl.com agency & distributorship(ICC634) ICC Model mergers and Acquisitions contract Share Purchase(ICC656) ISBP for examination of documents under Doc. Credits UCP600 (ICC681) Distributor/Dealership Contracts (ICC - 518) Arbitration (ICC - 581) Counter Trade & Offsets (ICC - 447/7) Uniform Rules for Collection (URC) (ICC - 522) Letters of Credit (UCPDC) (ICC - 500)- UCP Managing Exchange Rate Risks (ICC - 549) Guide to Incoterms 2000 including CMI Rules for Electronic Bills of Lading & COMBITERMS (ICC - 620) Uniform Rules for Conduct for Interchange of Trade by Tele Transmission (UNCID RULES) (ICC - 542) International Standby Practices ISP98 (ICC - 590 w.e.f. 1.1.1999) Model International Sale Contract (ICC 556) Model Occasional Intermediary Contract (ICC 619) Model International Franchising Contract (ICC 557) Model Contract for Turnkey Supply of Industrial Plant (ICC-653) ICC Legal Handbook on Global Sourcing Contracts (ICC663) * All ICC publications and price lists are available with ICC INDIA, Federation House, Tansen Marg, New Delhi 110 001. Ph:23738760/ 70 (11 lines)23739229 Fax:(011)23320714 & 23721504 E.Mail: iccindia @del2.vsnl.net.in. Anyone can become a member of ICC India for an annual subscription

600 WEF 1.7.07

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1107 WB / IDA* guidelines on * Global Tenders Qualification & Selection of Bidders Guidelines on Private Sector Participation Consultancy contracts Multilateral Investment Guarantee Agency (MIGA) Information on the above can be got from: Development Business (UNDB), UN Department of Public Information UN Plaza, New York 10017, USA AND/ OR World Bank 1818, H. Street, N. W. Washington D.C. 20433 USA

EXIM BANK OF INDIA also have the above details.

ASIAN AND PACIFIC CENTRE FOR TRANSFER OF TECHNOLOGY (APCTT) (UN-ESCAP) Technology offers * Technology requests.

TECHMONITOR & VATIS (Value Added Technology Information Service) are their publications (6 issues a year). Their address is : APCTT, P.B. No. 4575, Off New Mehrauli Road New Delhi - 110 016 India Ph: 26856276, 26966619, 26966629 Fax: (011) 26856274 E.Mail: postmaster @ apctt.org Internet: http/www.apctt.org Biotechnology, Non-Conventional Energy, Food-Processing Ozone-layer protection, Waste-technology.

VATIS updates are on:

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1107
ILLUSTRATIVE OVERVIEW OF SELECT INTERNATIONAL CONVENTIONS, INSTITUTIONS RELATING TO INTERNATIONAL CONTRACTS RULES, GUIDELINES, ADVICE ETC. W.T.O (GATT) GENEVA I.C.C. PARIS
INCOTERMS 560 w.e.f. 2000 &620

W.C.O. BRUSSELS H.S.N. CLASSIFICATION OF GOODS CROSS BORDER FORMALITIES VALUE INFO EXCHANGE A.T.A. CARNET FACILITIES
INTERNATIONAL STANDBY PRACTICES ISP-98 ICC-590

OTHERS

IMPEX VALUATION AGREEMENT ON TECHNICAL BARRIERS TO TRADE: GATT STANDARDS CODE ADD;CVD;SGD TRIPS TRIMS GATS SUBSIDY REMOVALS QUALITY STANDARDS DISPUTE SETTLEMENT TARIFF BARRIERS IMPORT LICENSING NOTIFICATION B.O.P COMMITTEE

L.C. UCPDC 500 (600 WEF 1.7.07) International Std Bnk Prac For exam of documts under UCP600 (ICC681) UNIFORM RULES FOR COLLECTION :URC-522

UNCITRAL
UNIFORM LAW IN INTERNATIONAL SALE OF GOODS: CISG

ARBITRATION UN EDIFACT RULES

FORCE MAJEURE &HARDSHIP 650

MODEL TURNKEY CONTRT FOR INDUSTRIAL PLANT ICC 653 ARBITRATION 581 COUNTER TRADE440/7

W.B. (IBRD)
I.D.A / IMF I.C.B. GUIDE M.I.G.A

ICC Legal Handbook on Global Sourcing Contracts


MODEL IMPORT OF GOODS CONTRACT ICC - 496

OCCASIONAL INTERMEDIARY CONTRACT 619 PRE-CONTRACTUAL LIABILITIES 440/9 UNCID RULES 452 (FOR EDI) ICC Short form Model International Coomercial & Distrbn. Contract (ICC634

ASTRACO
COUNTER TRADE O.E.C.D ADB

INTERNATIONAL FRANCHISING CONTRACT 557 FOREX RISK MANAGEMENT 549 PENALTY & LIQUIDATED DAMAGES 478

L.M.E I.L.O I.M.O UNIDO FIDIC

OPEC

Model Confidentiality Agreement (ICC664

ICC Model Mergers &Acquisition Contracts (Share Purchase Agreement -ICC656

1107

ILLUSTRATION : IMPORT FLOW CHART : FOREIGN SUPPLIER DOCUMENTS

BY SHIP BANK ABROAD

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GOODS TO CARRIER
INF O

DOC. COPY BANK IN INDIA

TERRITORIAL WATERS EI PORT

AGENT IN INDIA
I G M

CUSTOMS * Validity (EXIM) * Value (GATT/WTO) * Classification (HSN) * Duty Rates (C.T.A.) * Examination * Assessment * Duty Collect (TR6) * Out of Charge LEGEND: E.I. IGM B.E. TR6 EXIM GATT/WTO HSN C.T.A.

B.E +

IMPORTER
G O O D S

Entry Inwards Permission by customs for the vessel to enter the port. Import General Manifest To be filed by the carriers Agent with the customs; contains details of consignments for unloading at the port. Bill of Entry Prescribed Document to be filed by the Importer; contains all the details of his consignment. Challan used for paying Customs duties. Export Import Policy Valuation Rules of GATT/WTO adopted as per Section 14(1A) of our Customs Act. Harmonised System Nomenclature Goods Classification Systems as per World Customs Organisation Customs Tariff Act containing Classification and Rates of Duty. 1107
EXCHANGE RISK VS. EXCHANGE RATE RISK E X C H A N G E R I S K RATE PROTECTION * FORWARD * OPTIONS

VALUE RISK (RECOVERY) FLUCTUATION RISK PROTECTION MEASURES: MEASURES: * ADVANCE CONTRACTS * L.C.

PRODUCT PRICE RISK

(VARIATION)

PROTECTION MEASURES: * CONTRACT TERMS * PEGGING

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* ECGC CHOICE * FORFAIT * COUNTER TRADE DEALS * GUARANTEE * INSURANCE * SUITS LEGAL CONSEQUENCE CERTAIN UNDER EXCHANGE CONTROL REGULATIONS

* VARIATION CLAUSES * BARTER * FORWARD BOOKING

* CURRENCY * NETTING * OFF-SHORE

* PRE-FIXING * BILATERAL * COUNTER TRADE * MULTI LATERAL LEGAL CONSEQUENCE NO LEGAL POSSIBLE UNDER CONSEQUENCE DGFT/ CUSTOMS

FOREX
EXAMPLE OF: ACCOUNTS ONLY TRAVEL & CURRENCIES DONT

EXPORTER 1 Docu. For $ 1,000,000 S.B.I A IN IN INDIA INDIA 6A 6B Credit Advice 1 3 6 Goods Docu. For Credit $ 1,000,000 $ 1,000,000 Advice IMPORTER 4 B IN U.S.A. Debit Instruction 5 Documents 4A B A/c with CITIBANK, U.S.A. Dr Cr U$ 1,000,000 CITIBANK IN U.S.A.

As A/c with SBI Dr Cr Rs.49,000,000

4B

SBI NOSTRO A/c with CITIBANK in U.S.A. Dr Cr U$ 1,000,000

1107 LETTER OF CREDIT (DOCUMENTARY CREDIT) A DOCUMENT ISSUED BY A BANK UNDERTAKING THE PAYMENT IS STRICTLY ON TO PAY THE BENEFICIERY, SPECIFIED AMOUNTS COMPLIANCE OF DOCUMENTS AT SPECIFIED TIME ON THE SUBMISSION OF THE ONLY. IT IS NOT CONCERNED SPECIFIED DOCUMENTS TO THE BANK BY THE WHETHER GOODS/SERVICES WERE

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BENEFICIERY IN ACCORDANCE WITH THE TERMS RENDERED OR NOT. HENCE THE OF THE CREDIT. TERM DOCUMENTARY CREDIT

Thus a Letter of Credit is basically a contract between the BANKER (issuing Bank) The above L.C. Contract will be preceded by two other INDEPENDENT Contracts.
1. Contract between BUYER & SELLER, one of the TERMS being PAYMENT THROUGH L.C. 2. Contract between the BUYER & BANK, wherein BANKER agrees to open L.C subject to BUYER agreeing for TERMS & CONDITIONS stipulated by the BANK. EG: Deposit of margin money, guarantees, indemnities, hypothecation of goods etc.. and the BENEFICIERY (through his Nominee Bank)

L.C. MECHANISM CONSTITUTES MORE THAN 90% OF TRADE - PAYMENTS. BECAUSE OF ITS IMPORTANCE INTERNATIONAL CHAMBER OF COMMERCE HAS PUBLISHED RULES FOR DOCUMENTARY CREDITS WHICH ARE FOLLOWED ALMOST BY ALL BANKS IN THE WORLD. THE CURRENT L.C. RULES ARE KNOWN AS:

U.C.P.D.C.

500

OF

I.C.C

FROM

1.1.1994

(600 wef

1.7.07)
UNIFORM CUSTOMS PRACTICE
L.C & FOR YOU WILL FIND THIS PRINTED IN L.C. FORMS ICC HAS FURTHER ISSUED 515 GUIDELINES FOR L.C 516 STANDARD FORMS FOR 923 STAND BY L.C. ETC.

DOCUMENTARY CREDIT
. RESOLVING (DOCDEX)

THERE IS ALSO

ICC GUIDE ON AVOIDING & CREDIT DISPUTES

DOCUMENTARY

IMPORTANT INFORMATION ICC 590 INTERNATIONAL STANDBY PRACTICES ISP98 has come into force from 1.1.1999 in regard to STAND-BY LETTERS OF CREDIT. This is in accordance with UNITED NATIONS CONVENTION ON INDEPENDENT GUARANTEES AND STAND-BY LETTERS OF CREDIT by UNCITRAL adopted by U.N.GENERAL ASSEMBLY in 1995. ICC 458 UNIFORM RULES FOR DEMAND GUARANTEES have also been followed by ICC 503 MODEL FORMS FOR ISSUING DEMAND GUARANTEES

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LETTER OF CREDIT BASIC ILLUSTRATION OF 3 INDEPENDENT CONTRACTS

1107

BUYER

1 BUYER-SELLER CONTRACT

SELLER
BENEFICIERY

2 CONTRACT
TO OPEN L.C ADVISING BANK NEGOTIATING THE SAME BANK MAY OR CAN ACT IN DIFFERENT CAPACITY. CONFIRMING BANK RE-IMBURSING BANK CORRESPONDENT BANK SELECT TYPES OF IMPORTANT L.Cs IN VOGUE IN LAW EACH IS CONSIDERED INDEPENDENT BANK

BUYERS BANK
OPENING BANK OR ISSUING BANK

L.C. CONTRACT

BANK

IRREVOCABLE IRREVOCABLE & CONFIRMED USANCE / DEFERRED PAYMENT INSTALMENT REVOLVING TRANSFERABLE STAND BY RED CLAUSE GREEN CLAUSE BACK TO BACK
*

ALL L.Cs WILL HAVE DATE OF OPENING * * * LAST DATE FOR SHIPMENT LAST DATE FOR NEGOTIATION DOCUMENTS REQUIRED

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ILLUSTRATION OF TRANSFERABLE L.C A FIRST BENEFICIERY L.C. INTIMATION REQUEST FOR TRANSFER B

1107

L.C. ADVISING BANK U$ 100,000 TRANSFERABLE L.C. $ 10,000 L.C.

$ 50,000 L.C TRANSFER TRANSFER C SECOND BENEFICIERY T R A N S F E R E THIRD BENEFICIERY N O T D SECOND BENEFICIERY P E R M I T T E D F THIRD BENEFICIERY

TRANSFERABLE L.C IS AUTOMATICALLY DIVISIBLE FIRST BENEFICIERY CAN SUBSTITUTE HIS DOCUMENTS TO HIS BUYER, WITHOUT REVEALING SECOND BENEFICIERIES DOCUMENT DETAILS

ILLUSTRATION OF REVOLVING L.C. L.C. FOR $ 100,000 REVOLVING 10 TIMES WITHIN 12 MONTHS CR 1.1.98 10.1.98 12.1.98 21.2.98 24.2.98 1.4.98 3.4.98 LC DESP REINS DESP REINS DESP REINS $ 100,000 $ 70,000 $ 100,000 $ 50,000 $ 70,000 $ 100,000 $ 50,000 DR BALANCE $ $ $ $ $ $ $ 100,000 50,000 100,000 30,000 100,000 NIL 100,000 3 R 2 R 1 R

LIKE THIS 10 TIMES THE LC CAN REVOLVE WITHIN

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