Professional Documents
Culture Documents
International Trade Finance Part A Unit
International Trade Finance Part A Unit
– Part A –
Unit wise Important Questions and Answers.
Unit I
Unit II
Unit III
Unit IV
31. Write a short note on Bill of lading. (May 2014) (May 2015) (Nov 2011)(May 2011)
Bill of Lading is issued by the carrier to the shipper for receipt of the goods, and is a
contract between the owner of the goods and the carrier to deliver the goods. The B/L
acts as title to the goods so an “Original” B/L is issued- usually a set of three.
32. What is meant by certificate of origin? (May 2014)
Certificate of Origin is a document prepared by the original manufacturer and certified
by a quasi-official authority - such as a Chamber of Commerce - stating the items’
country of origin. Most countries that require a C/O will accept a generic C/O as long
as all of the required data elements are given. However, some countries, like Israel,
have a special green C/O form that must be used.
33. State the advantages of Bill of Lading (May 2013)
A Bill of Lading is issued by the carrier to the shipper for receipt of the goods, and is a contract
between the owner of the goods and the carrier to deliver the goods. Sometimes the B/L acts as
title to the goods so an “Original” B/L is issued- usually a set of three. Whoever presents one of
those Original, Negotiable B/L can take possession of the goods.
34. What is bill of exchange? (Nov 2012)
Bill of exchange is an instrument in writing containing an unconditional order signed by
the maker directing a certain person to pay certain sum of money only to or to the order
of a certain person or to the bearer of the instrument.
35. What is consular invoice? (May 2015)
A consular invoice is the commercial invoice stamped or notarized by the consulate or
embassy of the customer’s country, if required. For example, if one is exporting to
Egypt and the buyer requires a consular invoice, the Egyptian embassy in Mumbai will
do this for a small fee.
36. What is the purpose of PP form in International Trade documentation? (Nov
2011)
PP Form is similar to GR Form and the only difference is PP Form is used in exports
through post. It is a declaration that exporters give against each shipment done through
post that he will realize the full export proceeds. He submits the declaration in duplicate
to the customs at the time of shipment. After allotting exports, the customs send the
original to RBI and return the duplicate duly endorsed to the exports.
37. What are UPCDC norms? (May 2011)
Uniform Customs and Practices for Documentary Credits Norms shall apply to all
documentary credits where they are incorporated into the text of the credit. They are
also binding all parties unless otherwise expressly stipulated in the credit.
38. Mention the significance of certificate of Inspection. (Nov 2013)
The consumer protection laws of some countries require mandatory certification of
goods and services. The objectives of this certificate is to secure the safety of
consumers life and health , environmental protection and preventing products like food
stufss, consumer goods.
39. What factors determine the export pricing? (May 2013)
Software forms which are known as SOFTEX Forms are to be filed with STPI to
regulate inward outward remittance by Reserve Bank under export of goods in non-
physical form, either domestic or offshore. The products includes computer software,
export of Video and TV software and all other types of software products and packages
which are falling under goods of non physical form.
Unit V
41. Write a short note on EPCG. (May 2014)
Export Promotion Capital Goods (EPCG) scheme allows import of capital goods
including spares for pre production, production and post production at zero duty subject
to an export obligation of 6 times of duty saved on capital goods imported under EPCG
scheme, to be fulfilled in 6 years reckoned from Authorization issue date.
42. State the advantage of EPCG in export promotion (Nov 2011)
1. It will act as a source of finance through duty exemption while importing capital
goods. 2. Manufacturers will be encouraged to import modern technology into the
country
43. What do you mean by export house? (Nov 2012)
Export House is the recognized established exporter by Director General of Foreign Trade with a view to
building marketing infrastructure and expertise required for export promotion. Export House should
operate as highly professional and dynamic institutions and act as important instruments of export growth.
44. Write a short note on DEPB. (Nov 2012)
Duty Entitlement Pass Book schemes is the export assistance provided by the government
and the objective of DEPB is to neutralize incidence of customs duty on import content of
export product. Component of customs duty on fuel (appearing as consumable in the
SION) shall also be factored in the DEPB rate. An exporter may apply for credit, at
specified percentage of FOB value of exports, made in freely convertible currency.
Unit I
2. Explain the impact of EXIM Policy on her International Trade (Nov 2011)
• Promotional Measures
1. Duty Exemption / Remission Schemes
2. Export Promotion Capital Goods Scheme
3. Export Oriented Units (EOUs),Electronics Hardware Technology Parks (EHTPS),
Software Technology Parks (STPs) and Bio-Technology Parks (BTPs)
4. Special Economic Zones
5. Free Trade & Warehousing Zones
6. Deemed Exports
1. Duty Exemption / Remission Schemes of Exim Policy 2004-2009
The Duty Exemption Scheme enables import of inputs required for export
production. It includes the following exemptions-
Duty Drawback: - The Duty Drawback Scheme is administered by the Directorate
of Drawback, Ministry of Finance. Under Duty Drawback scheme, an exporter is
entitled to claim Indian Customs Duty paid on the imported goods and Central
Excise Duty paid on indigenous raw materials or components.
Excise Duty Refund: - Excise Duty is a tax imposed by the Central Government on
goods manufactured in India. Excise duty is collected at source, i.e., before removal of
goods from the factory premises. Export goods are totally exempted from central
excise duty.
Octroi Exemption: - Octroi is a duty paid on manufactured goods, when they enter
the municipal limits of a city or a town. However, export goods are exempted from
Octroi.
2. The Duty Remission Scheme enables post export replenishment/ remission of duty on inputs
used in the export product.
DFRC: Under the Duty Free Replenishment Certificate (DFRC) schemes, import
incentives are given to the exporter for the import of inputs used in the manufacture of
goods without payment of basic customs duty.
• Duty Free Import Authorisation (DFIA): Effective from 1st May, 2006, DFIA is
issued to allow duty free import of inputs which are used in the manufacture of the export
product (making normal allowance for wastage), and fuel, energy, catalyst etc. which are
consumed or utilised in the course of their use to obtain the export product.
3. DUTY ENTITLEMENT PASSBOOK SCHEME
1. Objective of DEPB is to neutralise incidence of customs duty on import content of
export product. Component of customs duty on fuel (appearing as consumable in the
SION) shall also be factored in the DEPB rate
2. An exporter may apply for credit, at specified percentage of FOB value of exports,
made in freely convertible currency. In case of supply by a DTA unit to a SEZ unit/ SEZ
Developer/Co-Developer, an exporter may apply for credit for exports made in freely
convertible currency or payment made from foreign currency account of SEZ Unit/SEZ
Developer/Co-Developer.
3. Credit shall be available against such export products and at such rates as may be
specified by DGFT by way of public notice. Credit may be utilized for payment of
Customs Duty on freely importable items and/or restricted items. DEPB Scrips can also
be utilized for payment of duty against imports under EPCG Scheme.
3. Discuss as to how the Foreign trade and Economic growth are interrelated. (May
2013)
• Where, CA: current account, X and M: export and import of goods and services
respectively, NY: net income from abroad; NCT: net current transfers - The net value of
the balances of visible trade and of invisible trade and of unilateral transfers defines the
balance on current account.
• BOP on current account is also referred to as Net Foreign Investment because the sum
represents the contribution of Foreign Trade to GNP.
Structure of Current Account
Transactions Credit Debit Net Balance
1. Merchandise Export Import -
2. Foreign Travel Earning Payment -
3. Transportation Earning Payment -
4. Insurance (Premium) Receipt Payment -
5. Investment Income Dividend Receipt Dividend Payment -
6.Government (purchase Receipt Payment -
of goods & services)
Current A/C Balance - - Surplus (+) orDeficit (-)
Unit II
6. Describe the INCO terms along with suitable examples. (Nov 2011)
The Inco terms rules or International Commercial Terms are a series of pre-defined
commercial terms published by the International Chamber of Commerce (ICC) that are widely
used in International commercial transactions or procurement processes. A series of three-letter
trade terms related to common contractual sales practices, the Inco terms rules are intended
primarily to clearly communicate the tasks, costs, and risks associated with the transportation
and delivery of goods.
The Inco terms rules are accepted by governments, legal authorities, and practitioners worldwide
for the interpretation of most commonly used terms in international trade. They are intended to
reduce or remove altogether uncertainties arising from different interpretation of the rules in
different countries. As such they are regularly incorporated into sales contracts worldwide.
The Seller makes the goods available at his/her premises. This term places the maximum
obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used
when making an initial quotation for the sale of goods without any costs included. EXW means
that a buyer incurs the risks for bringing the goods to their final destination. The seller does not
load the goods on collecting vehicles and does not clear them for export. If the seller does load
the goods, he does so at buyer's risk and cost. If parties wish seller to be responsible for the
loading of the goods on departure and to bear the risk and all costs of such loading, this must be
made clear by adding explicit wording to this effect in the contract of sale.
The buyer arranges the pickup of the freight from the supplier's designated ship site, owns the in-
transit freight, and is responsible for clearing the goods through Customs. The buyer is
responsible for completing all the export documentation. Cost of goods sold transfers from the
seller to the buyer.
FCA - Free Carrier (named place of delivery)
The seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the
named place. It should be noted that the chosen place of delivery has an impact on the
obligations of loading and unloading the goods at that place. If delivery occurs at the seller's
premises, the seller is responsible for loading. If delivery occurs at any other place, the seller is
not responsible for unloading.
If the buyer nominates a person other than a carrier to receive the goods, the seller is deemed to
have fulfilled his obligation to deliver the goods when they are delivered to that person..
The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier
at place of shipment in the country of Export. The Shipper is responsible for origin costs
including export clearance and freight costs for carriage to named place (usually destination port
or airport). Shipper is not responsible for buying Insurance and for delivery to final destination
(buyer's facilities).
The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance
to the named destination point, but risk passes when the goods are handed over to the first
carrier. CIP is used for intermodal deliveries & CIF is used for Sea .
This term means that the seller covers all the costs of transport (export fees, carriage, insurance,
and destination port charges) and assumes all risk until after the goods are import
duty/taxes/customs costs.
Can be used for any transport mode, or where there is more than one transport mode. The seller
is responsible for arranging carriage and for delivering the goods, ready for unloading from the
arriving conveyance, at the named place. Duties are not paid by the seller under this term (An
important difference from Delivered At Terminal DAT, where the buyer is responsible for
unloading.)
Seller is responsible for delivering the goods to the named place in the country of the buyer, and
pays all costs in bringing the goods to the destination including import duties and taxes. The
seller is not responsible for unloading. This term is often used in place of the non-Inco term
"Free In Store (FIS)". This term places the maximum obligations on the seller and minimum
obligations on the buyer. With the delivery at the named place of destination all the risks and
responsibilities are transferred to the buyer and it is considered that the seller has completed his
obligations
To determine if a location qualifies for these four rules, please refer to 'United Nations Code for
Trade and Transport Locations (UN/LOCODE)'.
The four rules defined by Inco terms 2010 for international trade where transportation is entirely
conducted by water are as per the below. It is important to note that these terms are generally not
suitable for shipments in shipping containers; the point at which risk and responsibility for the
goods passes is when the goods are loaded on board the ship, and if the goods are sealed into a
shipping container it is impossible to verify the condition of the goods at this point.
The seller delivers when the goods are placed alongside the buyer's vessel at the named port of
shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the
goods from that moment. The FAS term requires the seller to clear the goods for export, which is
a reversal from previous Inco terms versions that required the buyer to arrange for export
clearance. However, if the parties wish the buyer to clear the goods for export, this should be
made clear by adding explicit wording to this effect in the contract of sale. This term can be used
only for sea or inland waterway transport.
The seller must advance government tax in the country of origin as off commitment to load the
goods on board a vessel designated by the buyer. Cost and risk are divided when the goods are
actually on board of the vessel. The seller must clear the goods for export. The term is applicable
for maritime and inland waterway transport only but NOT for multimodal sea transport in
containers. The seller must instruct the buyer the details of the vessel and the port where the
goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or
forwarder. This term has been greatly misused over the last three decades ever since Inco terms
1980 explained that FCA should be used for container shipments.
It means the seller pays for transportation of goods to the port of shipment, loading cost. The
buyer pays cost of marine freight transportation, insurance, unloading and transportation cost
from the arrival port to destination. The passing of risk occurs when the goods are in buyer
account. the buyer arranges for the vessel and the shipper has to load the goods and the named
vessel at the named port of shipment with the dates stipulated in the contract of sale as informed
by the buyer .
Exactly the same as CFR except that the seller must in addition procure and pay for the
insurance.
7. Discuss the organizational structure and functions of ECGC. (Nov 2011) (Nov 2013)
Organizational structure
HO
Regions Branches
• Exporters may not be able to obtain such facilities from their bankers for several reasons eg. The
exporter may be relatively new to the business, the extent of facilities needed by him may be
out of proportion to the equity of the firms or the value of the collateral offered by the exporter
may be inadequate.
• The packing credit guarantee of ECGC helps the exporter to obtain better and adequate facilities
from their bankers. The guarantees assure the banks that in the event of exporter failing to
discharge his liabilities to the bank, ECGC would make a good major portion of the bank’s loss.
• The bank is required to be the coinsurer to the extent of the remaining loss.
• Eligibility: any loan given to an exporter for the manufacture, processing, purchasing or packing
of goods meant for export against a firm order or letter of credit qualifies for packing credit
guarantees.
• Pre shipment advances given to parties who enter into contacts for export of services or for
construction works abroad to meet preliminary expenses in connection with such contracts are
also eligible for cover under guarantee.
• The requirement of lodgment of letter of credit or export order for granting packing credit
advance is waived if the bank grants such advances in accordance with the instruction of the
RBI.
• The exchange fluctuation risk cover is intended to provide a measure of protection to exporters
of capital goods, civil engineering contractors and consultants who have often to receive
payments over a period of years for their exports, construction works or services where such
payments are to be received in foreign currency, they are open to exchange fluctuation risk as
the forward exchange market does not provide cover for such deferred payments.
– Cover can be extended from the date of bidding upto the final installment.
– The basis for cover will be a reference rate agreed upon. The reference rate can be the
rate prevailing on the date of bid or rate approximating it.
8. State and explain various financing methods of import of capital goods. (May 2013)
(May 2015)
Letter Of Credit
Letters of credit (LCs) are one of the most secure instruments available to international traders.
An LC is a commitment by a bank on behalf of the buyer that payment will be made to the
exporter, provided that the terms and conditions stated in the LC have been met, as verified
through the presentation of all required documents.
The buyer pays his or her bank to render this service. An LC is useful when reliable credit
information about a foreign buyer is difficult to obtain, but the exporter is satisfied with the
creditworthiness of the buyer’s foreign bank.
An LC also protects the buyer because no payment obligation arises until the goods have been
shipped or delivered as promised.
Bill of exchange
Packing Credit
Advance against Cheques/Draft etc. representing Advance Payments.
Packing credit facility can be provided to an exporter on production of the following evidences
to the bank:
1. Formal application for release the packing credit with undertaking to the effect that the
exporter would be ship the goods within stipulated due date and submit the relevant
shipping documents to the banks within prescribed time limit.
2. Firm order or irrevocable L/C or original cable / fax / telex message exchange between
the exporter and the buyer.
3. Licence issued by DGFT if the goods to be exported fall under the restricted or canalized
category. If the item falls under quota system, proper quota allotment proof needs to be
submitted.
The confirmed order received from the overseas buyer should reveal the information about the
full name and address of the overseas buyer, description quantity and value of goods (FOB or
CIF), destination port and the last date of payment.
Eligibility
Pre shipment credit is only issued to that exporter who has the export order in his own name.
However, as an exception, financial institution can also grant credit to a third party manufacturer
or supplier of goods who does not have export orders in their own name.
In this case some of the responsibilities of meeting the export requirements have been out
sourced to them by the main exporter. In other cases where the export order is divided between
two more than two exporters, pre shipment credit can be shared between them
Quantum of Finance
The Quantum of Finance is granted to an exporter against the LC or an expected order. The only
guideline principle is the concept of NeedBased Finance. Banks determine the percentage of
margin, depending on factors such as:
3. Authorised dealers are permitted to extend Preshipment Credit in Foreign Currency (PCFC) with an
objective of making the credit available to the exporters at internationally competitive price. This is
considered as an added advantage under which credit is provided in foreign currency in order to
facilitate the purchase of raw material after fulfilling the basic export orders.
The rate of interest on PCFC is linked to London Interbank Offered Rate (LIBOR). According to guidelines,
the final cost of exporter must not exceed 0.75% over 6 month LIBOR, excluding the tax.
The exporter has freedom to avail PCFC in convertible currencies like USD, Pound, Sterling, Euro, Yen
etc. However, the risk associated with the cross currency truncation is that of the exporter.
The sources of funds for the banks for extending PCFC facility include the Foreign Currency balances
available with the Bank in Exchange, Earner Foreign Currency Account (EEFC), Resident Foreign Currency
Accounts RFC(D) and Foreign Currency(NonResident) Accounts.
Forfaiting
Forfaiting is afinancing mechanism that enables a company to convert credit sale to cash sale,
on without recourse basis. Exim bank acts as a facilitator for the Indian exporter, enabling him to
access the services of an overseas agency. Forfaiting derived from the French word ‘a forfait’
which means the surrender of rights. Forfeiting is the non recourse discounting of exporting
receivables. In a forfeiting transaction, the exporter surrenders, without recourse to him, his
rights to claim for payment on goods delivered to an importer, in return for immediate cash
payment from a forfeiter. As a result, an exporter in India can convert a credit sale with no
recourse to the exporter or his banker. Forfaiting is a mechanism of financing exports:
9. What is a Letter of Credit? Explain the significance of various types of letter of credits.
(Nov 2013)
Letters of credit (LCs) are one of the most secure instruments available to international
traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made
to the exporter, provided that the terms and conditions stated in the LC have been met, as
verified through the presentation of all required documents. The buyer pays his or her bank to
render this service. An LC is useful when reliable credit information about a foreign buyer is
difficult to obtain, but the exporter is satisfied with the creditworthiness of the buyer’s
foreign bank. An LC also protects the buyer because no payment obligation arises until the
goods have been shipped or delivered as promised.
L/C that carries a provision (traditionally written or typed in red ink) which allows a seller to
draw up to a fixed sum from the advising or paying-bank, in advance of the shipment or before
presenting the prescribed documents. It is normally used only where the buyer and seller have
close working relationship because, in effect, the buyer is extending an unsecured loan to the
seller (and bears the financial risk and the currency risk)
10. Discuss in detail about the role of pre-shipment finance and post shipment finance in
International Trade. (May 2015)
Pre Shipment Finance is issued by a financial institution when the seller want the payment of
the goods before shipment. The main objectives behind preshipment finance or pre export
finance is to enable exporter to:
Packing Credit
Advance against Cheques/Draft etc. representing Advance Payments.
Packing credit facility can be provided to an exporter on production of the following evidences
to the bank:
4. Formal application for release the packing credit with undertaking to the effect that the
exporter would be ship the goods within stipulated due date and submit the relevant
shipping documents to the banks within prescribed time limit.
5. Firm order or irrevocable L/C or original cable / fax / telex message exchange between
the exporter and the buyer.
6. Licence issued by DGFT if the goods to be exported fall under the restricted or canalized
category. If the item falls under quota system, proper quota allotment proof needs to be
submitted.
The confirmed order received from the overseas buyer should reveal the information about the
full name and address of the overseas buyer, description quantity and value of goods (FOB or
CIF), destination port and the last date of payment.
Eligibility
Pre shipment credit is only issued to that exporter who has the export order in his own name.
However, as an exception, financial institution can also grant credit to a third party manufacturer
or supplier of goods who does not have export orders in their own name.
In this case some of the responsibilities of meeting the export requirements have been out
sourced to them by the main exporter. In other cases where the export order is divided between
two more than two exporters, pre shipment credit can be shared between them
Quantum of Finance
The Quantum of Finance is granted to an exporter against the LC or an expected order. The only
guideline principle is the concept of NeedBased Finance. Banks determine the percentage of
margin, depending on factors such as:
1. Before making any an allowance for Credit facilities banks need to check the different aspects
like product profile, political and economic details about country. Apart from these things, the
bank also looks in to the status report of the prospective buyer, with whom the exporter proposes
to do the business. To check all these information, banks can seek the help of institution like
ECGC or International consulting agencies like Dun and Brad street etc.
The Bank extended the packing credit facilities after ensuring the following"
1. The exporter is a regular customer, a bona fide exporter and has a goods standing in the
market.
2. Whether the exporter has the necessary license and quota permit (as mentioned earlier) or
not.
3. Whether the country with which the exporter wants to deal is under the list of Restricted
Cover Countries(RCC) or not.
2. Once the proper sanctioning of the documents is done, bank ensures whether exporter has
executed the list of documents mentioned earlier or not. Disbursement is normally allowed when
all the documents are properly executed.
Sometimes an exporter is not able to produce the export order at time of availing packing credit.
So, in these cases, the bank provide a special packing credit facility and is known as Running
Account Packing.
Before disbursing the bank specifically check for the following particulars in the submitted
documents"
1. Name of buyer
2. Commodity to be exported
3. Quantity
4. Value (either CIF or FOB)
5. Last date of shipment / negotiation.
6. Any other terms to be complied with
The quantum of finance is fixed depending on the FOB value of contract /LC or the domestic
values of goods, whichever is found to be lower. Normally insurance and freight charged are
considered at a later stage, when the goods are ready to be shipped.
In this case disbursals are made only in stages and if possible not in cash. The payments are
made directly to the supplier by drafts/bankers/cheques.
The bank decides the duration of packing credit depending upon the time required by the
exporter for processing of goods.
The maximum duration of packing credit period is 180 days, however bank may provide a
further 90 days extension on its own discretion, without referring to RBI.
3. Exporter needs to submit stock statement giving all the necessary information about the
stocks. It is then used by the banks as a guarantee for securing the packing credit in advance.
Bank also decides the rate of submission of this stocks.
Apart from this, authorized dealers (banks) also physically inspect the stock at regular intervals.
4. Packing Credit Advance needs be liquidated out of as the export proceeds of the relevant
shipment, thereby converting preshipment credit into postshipment credit.
This liquidation can also be done by the payment receivable from the Government of India and
includes the duty drawback, payment from the Market Development Fund (MDF) of the Central
Government or from any other relevant source.
In case if the export does not take place then the entire advance can also be recovered at a certain
interest rate. RBI has allowed some flexibility in to this regulation under which substitution of
commodity or buyer can be allowed by a bank without any reference to RBI. Hence in effect the
packing credit advance may be repaid by proceeds from export of the same or another
commodity to the same or another buyer. However, bank need to ensure that the substitution is
commercially necessary and unavoidable.
Overdue Packing
Bank considers a packing credit as an overdue, if the borrower fails to liquidate the packing
credit on the due date. And, if the condition persists then the bank takes the necessary step to
recover its dues as per normal recovery procedure.
The rate of interest on PCFC is linked to London Interbank Offered Rate (LIBOR). According to
guidelines, the final cost of exporter must not exceed 0.75% over 6 month LIBOR, excluding the
tax.
The exporter has freedom to avail PCFC in convertible currencies like USD, Pound, Sterling,
Euro, Yen etc. However, the risk associated with the cross currency truncation is that of the
exporter.
The sources of funds for the banks for extending PCFC facility include the Foreign Currency
balances available with the Bank in Exchange, Earner Foreign Currency Account (EEFC),
Resident Foreign Currency Accounts RFC(D) and Foreign Currency(NonResident) Accounts.
Banks are also permitted to utilize the foreign currency balances available under Escrow account
and Exporters Foreign Currency accounts. It ensures that the requirement of funds by the account
holders for permissible transactions is met. But the limit prescribed for maintaining maximum
balance in the account is not exceeded. In addition, Banks may arrange for borrowings from
abroad. Banks may negotiate terms of credit with overseas bank for the purpose of grant of
PCFC to exporters, without the prior approval of RBI, provided the rate of interest on borrowing
does not exceed 0.75% over 6 month LIBOR.
4. Deemed exports made to multilateral funds aided projects and programmes, under orders
secured through global tenders for which payments will be made in free foreign exchange, are
eligible for concessional rate of interest facility both at pre and post supply stages.
5. In case of consultancy services, exports do not involve physical movement of goods out of
Indian Customs Territory. In such cases, Preshipment finance can be provided by the bank to
allow the exporter to mobilize resources like technical personnel and training them.
6. Where exporters receive direct payments from abroad by means of cheques/drafts etc. the
bank may grant export credit at concessional rate to the exporters of goods track record, till the
time of realization of the proceeds of the cheques or draft etc. The Banks however, must satisfy
themselves that the proceeds are against an export order.
Post Shipment Finance is a kind of loan provided by a financial institution to an exporter or
seller against a shipment that has already been made. This type of export finance is granted from
the date of extending the credit after shipment of the goods to the realization date of the exporter
proceeds.
Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or
purchased by the banks. It is used in indisputable international trade transactions and the proper
limit has to be sanctioned to the exporter for purchase of export bill facility.
The risk of payment is less under the LC, as the issuing bank makes sure the payment. The risk is
further reduced, if a bank guarantees the payments by confirming the LC. Because of the inborn
security available in this method, banks often become ready to extend the finance against bills
under LC.
However, this arises two major risk factors for the banks:
1. The risk of nonperformance by the exporter, when he is unable to meet his terms and
conditions. In this case, the issuing banks do not honor the letter of credit.
2. The bank also faces the documentary risk where the issuing bank refuses to honour its
commitment. So, it is important for the for the negotiating bank, and the lending bank to
properly check all the necessary documents before submission.
Bills can only be sent on collection basis, if the bills drawn under LC have some discrepancies.
Sometimes exporter requests the bill to be sent on the collection basis, anticipating the
strengthening of foreign currency.
Banks may allow advance against these collection bills to an exporter with a concessional rates
of interest depending upon the transit period in case of DP Bills and transit period plus usance
period in case of usance bill.
The transit period is from the date of acceptance of the export documents at the banks branch for
collection and not from the date of advance.
Bank may choose to finance when the goods are exported on consignment basis at the risk of the
exporter for sale and eventual payment of sale proceeds to him by the consignee.
However, in this case bank instructs the overseas bank to deliver the document only against trust
receipt /undertaking to deliver the sale proceeds by specified date, which should be within the
prescribed date even if according to the practice in certain trades a bill for part of the estimated
value is drawn in advance against the exports.
In case of export through approved Indian owned warehouses abroad the times limit for
realization is 15 months.
It is a very common practice in export to leave small part undrawn for payment after adjustment
due to difference in rates, weight, quality etc. Banks do finance against the undrawn balance, if
undrawn balance is in conformity with the normal level of balance left undrawn in the particular
line of export, subject to a maximum of 10 percent of the export value. An undertaking is also
obtained from the exporter that he will, within 6 months from due date of payment or the date of
shipment of the goods, whichever is earlier surrender balance proceeds of the shipment.
Duty Drawback is a type of discount given to the exporter in his own country. This discount is
given only, if the inhouse cost of production is higher in relation to international price. This type
of financial support helps the exporter to fight successfully in the international markets.
In such a situation, banks grants advances to exporters at lower rate of interest for a maximum
period of 90 days. These are granted only if other types of export finance are also extended to the
exporter by the same bank.
After the shipment, the exporters lodge their claims, supported by the relevant documents to the
relevant government authorities. These claims are processed and eligible amount is disbursed
after making sure that the bank is authorized to receive the claim amount directly from the
concerned government authorities.
Unit III
11. What are the factors which influence the exchange rate? Explain the effects of
exchange rate fluctuations on foreign trade. (Nov 2011)
1. Differentials in Inflation
As a general rule, a country with a consistently lower inflation rate exhibits a rising
currency value, as its purchasing power increases relative to other currencies. During
the last half of the twentieth century, the countries with low inflation included Japan,
Germany and Switzerland, while the U.S. and Canada achieved low inflation only
later. Those countries with higher inflation typically see depreciation in their
currency in relation to the currencies of their trading partners. This is also usually
accompanied by higher interest rates.
2. Differentials in Interest Rates
Interest rates, inflation and exchange rates are all highly correlated. By manipulating
interest rates, central banks exert influence over both inflation and exchange rates,
and changing interest rates impact inflation and currency values. Therefore, higher
interest rates attract foreign capital and cause the domestic currency value gets
appreciated. However, The impact of higher interest rates is mitigated, if inflation in
the country is much higher than in others, or if additional factors serve to drive the
currency down. The opposite relationship exists for decreasing interest rates - that is,
lower interest rates tend to depreciate the domestic currency value and decrease
exchange rates.
3. Differentials in Money supply
If the country or economy prints more money or increases its money supply, then it
will cause inflation. Inflation will depreciate the domestic currency value and
decrease the exchange rates.
4. Current-Account Deficits
The current account is the balance of trade between a country and its trading partners,
reflecting all payments between countries for goods, services, interest and dividends.
A deficit in the current account shows the country is spending more on foreign trade
than it is earning, and that it is borrowing capital from foreign sources to make up the
deficit. In other words, the country requires more foreign currency than it receives
through sales of exports, and it supplies more of its own currency than foreigners
demand for its products. The excess demand for foreign currency lowers the country's
exchange rate until domestic goods and services are cheap enough for foreigners, and
foreign assets are too expensive to generate sales for domestic interests.
5. Public Debt
Countries will engage in large-scale deficit financing to pay for public sector projects
and governmental funding. While such activity stimulates the domestic economy,
nations with large public deficits and debts are less attractive to foreign investors. The
reason? A large debt encourages inflation, and if inflation is high, the debt will be
serviced and ultimately paid off with cheaper real dollars in the future.
In the worst case scenario, a government may print money to pay part of a large debt,
but increasing the money supply inevitably causes inflation. Moreover, if a
government is not able to service its deficit through domestic means (selling domestic
bonds, increasing the money supply), then it must increase the supply of securities for
sale to foreigners, thereby lowering their prices. Finally, a large debt may prove
worrisome to foreigners if they believe the country risks defaulting on its obligations.
Foreigners will be less willing to own securities denominated in that currency if the
risk of default is great. For this reason, the country's debt rating (as determined by
Moody's or Standard & Poor's, for example) is a crucial determinant of its exchange
rate.
6. Terms of Trade
A ratio comparing export prices to import prices, the terms of trade is related to
current accounts and the balance of payments. If the price of a country's exports rises
by a greater rate than that of its imports, its terms of trade have favorably improved.
Increasing terms of trade shows greater demand for the country's exports. This, in
turn, results in rising revenues from exports, which provides increased demand for
the country's currency (and an increase in the currency's value). If the price of
exports rises by a smaller rate than that of its imports, the currency's value will
decrease in relation to its trading partners.
7. Political Stability
Foreign investors inevitably seek out stable countries with strong economic
performance in which to invest their capital. A country with such positive attributes
will draw investment funds away from other countries perceived to have more
political and economic risk. Political turmoil, for example, can cause a loss of
confidence in a currency and a movement of capital to the currencies of more stable
countries.
8. Economic Performance
The country with strong economic performance will attract more foreign capital
which will appreciate the domestic currency value and the exchange rate to rise.
9. Better climate for investment
If the country has a good atmosphere for the foreign companies to start their
business, it will attract more foreign capital and appreciate the domestic currency
value and increase the exchange rate.
10. Less imports
If imports is reduced then, then the demand for foreign currency will be reduced and
in turn it will appreciate the domestic currency value and increase the exchange rate.
12. Describe the tools used to minimize the impact of exchange rate variations. (Nov
2011)
Forward Contract
Forward contract is an agreement to buy or sell an asset at a certain future time for a
certain price. It can be contrasted with a spot contract, which is an agreement to buy or
sell an asset today. Investors or traders may take long or short position. Long position
means buying the underlying asset or short position selling the underlying asset. So in a
particular forward contract, one party takes a long position and another party takes short
position at a specified price for a specified future date. The forward prices for various
duration from today may be increasing or decreasing. If it is increasing, then it is said that
forward market is at premium and if it is decreasing, then the forward market is at
discount. Suppose the spot rate is Rs.42.4488 / $. And the forward rate are as follows
Bid Offer
Spot 42.4488 42.4500
1 month forward 42.4465 42.4470
3 month forward 42.4432 42.4445
6 month forward 42.4395 42.4410
1 year forward 42.4275 42.4283
The quote is for the number of Indian rupees per US Dollar. The forward market is at
discount since the forward rates are decreasing for spot rate. Forward contracts can be
used to hedge foreign currency risk. Suppose an investor predicts that after 3 months, the
spot rate in market will be 42.44. He can hedge his foreign exchange risk by buying 3
month forward rate in the forward market. So that he can save 32 bips for every dollar if
the dollar rates fall to his prediction.
A forward contract is an agreement to buy or sell an asset on a specified date for a
specified price. One of the parties to the contract assumes a long position and agrees to
buy the underlying asset on a certain specified future date for a certain specified pric e.
The other party assumes a short position and agrees to sell the asset on the same date for
the same price. Other contract details like delivery date, price and quantity are negotiated
bilaterally by the parties to the contract. The forward contracts are normally traded
outside the exchanges.
Like a forward contract, a futures contract is an agreement between two parties to buy or sell an
asset at a certain time in the future for a certain price. Unlike forward contracts, futures contracts
are normally traded on an exchange. To make trading possible, the exchange specifies certain
standardized features of the contract. As the two parties to the contract do not necessarily know
each other, the exchange also provides a mechanism that gives the two parties a guarantee that
the contract will be honored.
One way in which a futures contract is different from a forward contract is that an exact delivery
date is usually not specified. The contract is referred to by its delivery month, and the exchange
specifies the period during the month when delivery must be made. For commodities, the
delivery period is often the entire month. The holder of the short position has the right to choose
the time during the delivery period when it will make delivery. Usually, contracts with several
different delivery months are traded at any one time. The exchange specifies the amount of the
asset to be delivered for one contract and how the futures price is to be quoted. In the case of a
commodity, the exchange also specifies the product quality and the delivery location.
Options
Options are traded both on exchanges and in the over-the-counter market. There are two basic
types of options. A call option gives the holder the right to buy the underlying asset by a certain
date for a certain price. A put option gives the holder the right to sell the underlying asset by a
certain date for a certain price. The price in the contract is known as the exercise price or strike
price; the date in the contract is known as the expiration date or maturity. American options can
be exercised at any time up to the expiration date. European options can be exercised only on the
expiration date itself.4 Most of the options that are traded on exchanges are American. In the
exchange-traded equity options market, one contract is usually an agreement to buy or sell 100
shares. European options are generally easier to analyze than American options, and some of the
properties of an American option are frequently deduced from those of its European counterpart.
It should be emphasized that an option gives the holder the right to do something. The holder
does not have to exercise this right. This is what distinguishes options from forwards and futures,
where the holder is obligated to buy or sell the underlying asset. Note that whereas it costs
nothing to enter into a forward or futures contract, there is a cost to acquiring an option. This is
called option price or Premium.
Illustrate the impact and effects of exchange rates in Foreign Trade. (May 2013)
Explain Forward, Futures and Currency options and its uses. (May 2013)
What is a currency trade? Explain how currency trade is regulated and monitored. (Nov
2013).
13. Explain and illustrate the purchasing power parity. (May 2013)
ER = Er X Pd / Pf
14. Discuss the various functions of foreign exchange market. (May 2015)
A foreign exchange market performs the following important functions:
Transfer of Purchasing Power
The primary function of a foreign exchange market is the transfer of purchasing
power from one country to another and from one currency to another. The
international clearing function performed by foreign exchange markets plays a
very important role in facilitating international trade and capital movements.
Provision of Credit
The credit function performed by foreign exchange markets also plays a very
important role in the growth of foreign trade, for international trade depends to a
great extent on credit facilities. Exporters may get pre-shipment and postshipment
credit. Credit facilities are available also for importers. The Eurodollar market has
emerged as a major international credit market.
Provision of Hedging Facilities
The other important function of the foreign exchange market is to provide
hedging facilities. Hedging refers to covering of export risks, and it provides a
mechanism to exporters and importers to guard themselves against losses arising
from fluctuations in exchange rates.
It permits only authorised person to deal in foreign exchange or foreign security. Such an
authorised person, under the Act, means authorised dealer, money changer, off-shore
banking unit or any other person for the time being authorised by Reserve Bank. The Act
thus prohibits any person who:-
Deal in or transfer any foreign exchange or foreign security to any person not
being an authorized person;
Make any payment to or for the credit of any person resident outside India in any
manner;
Receive otherwise through an authorized person, any payment by order or on
behalf of any person resident outside India in any manner;
Enter into any financial transaction in India as consideration for or in association
with acquisition or creation
or transfer of a right to acquire, any asset outside India by any person;
is resident in India which acquire, hold, own, possess or transfer any foreign
exchange, foreign security or any immovable property situated outside India.
The Act regulates two types of foreign exchange transactions, namely 'Capital Account
Transactions' and 'Current Account Transactions'.
According to the Act, 'Capital account transaction' means a transaction which alters the
assets or liabilities, including contingent liabilities, outside India of persons resident in
India or assets or liabilities in India of persons resident outside India, and includes the
following transactions referred in the Act:-
Transfer or issue of any foreign security by a person resident in India;
Transfer or issue of any security by a person resident outside India;
Transfer or issue of any security or foreign security by any branch, office or agency in
India of a person resident outside India;
Any borrowing or lending in rupees in whatever form or by whatever name called;
Any borrowing or lending in rupees in whatever form or by whatever name called
between a person resident in India and a person resident outside India;
Deposits between persons resident in India and persons resident outside India;
Export, import or holding of currency or currency notes;
Transfer of immovable property outside India, other than a lease not exceeding five
years, by a person resident in India;
Acquisition or transfer of immovable property in India, other than a lease not exceeding
five years, by a person resident outside India;
Giving of a guarantee or surety in respect of any debt,obligation or other liability
incurred-
(i) By a person resident in India and owed to a person resident outside India; or
(ii) By a person resident outside India.
It also defines the term 'current account transaction' as a transaction other than a capital
account transaction and without prejudice to the generality of the foregoing such transaction
includes:- (i) payments due in connection with foreign trade, other current business, services,
and short-term banking and credit facilities in the ordinary course of business; (ii) payments due
as interest on loans and as net income from investments; (iii) remittances for living expenses of
parents, spouse and children residing abroad; and (iv) expenses in connection with foreign
travel, education and medical care of parents, spouse and children.
The Act has empowered the Reserve Bank of India (RBI) to specify, in consultation with the
Central Government, the permissible capital account transactions and the limits upto which
foreign exchange may be drawn for such transactions.
Any person may sell or draw foreign exchange if such sale or drawal is a current account
transaction.
Every exporter of goods shall:- (i) furnish to the Reserve Bank or to such other authority a
declaration in such form and in such manner as may be specified, containing true and correct
material particulars, including the amount representing the full export value (ii) furnish to the
Reserve Bank such other information as may be required by it for the purpose of ensuring the
realization of the export proceeds by such exporter.
The Reserve Bank may, cause an inspection to be made, by any officer specially authorized in
writing by it (i) verifying the correctness of any statement, information or particulars furnished
to the Reserve Bank; (ii) obtaining any information or particulars which such authorized person
has failed to furnish on being called upon to do so; (iii) securing compliance with the
provisions of this Act or of any rules, regulations, directions or orders made there under.
If any person contravenes any provision of this Act, / he shall, upon adjudication, beliable to a
penalty.
Unit IV
17.What are the documents used in the context of export? Give a brief
account of each document. (Nov 2011) (MAY 2013) (May 2015)
Financial Documents
Bill of exchange
An instrument in writing containing an unconditional order signed by the maker directing a
certain person to pay certain sum of money only to or to the order of a certain person or to the
bearer of the instrument.
Main features of the Bill of exchange
It must be in writing
It must be signed by the maker
It must be unconditional order to pay
The maker must direct a certain person to pay a certain sum of money.
A written, unconditional order by one party (the drawer) to another (the drawee) to pay a certain
sum, either immediately (a sight bill) or on a fixed date (a term bill), for payment of goods and/or
services received. The drawee accepts the bill by signing it, thus converting it into a post-dated
check and a binding contract.
A bill of exchange is also called a draft but, while all drafts are negotiable instruments, only "to
order" bills of exchange can be negotiated. According to the 1930 Convention Providing A
Uniform Law For Bills of Exchange and Promissory Notes held in Geneva (also called Geneva
Convention) a bill of exchange contains: (1) The term bill of exchange inserted in the body of the
instrument and expressed in the language employed in drawing up the instrument. (2) An
unconditional order to pay a determinate sum of money. (3) The name of the person who is to
pay (drawee). (4) A statement of the time of payment. (5) A statement of the place where
payment is to be made. (6) The name of the person to whom or to whose order payment is to be
made. (7) A statement of the date and of the place where the bill is issued. (8) The signature of
the person who issues the bill (drawer). A bill of exchange is the most often used form of
payment in local and international trade, and has a long history- as long as that of writing.
The parties of Bill of exchange
4. Drawer – The person who draws / writes the bill is known as drawer.
5. Drawee – The person who is liable to pay the amount of bill is known as drawee.
6. Payee – The person who receives the amount is known as payee.
Commercial Documents:
Invoices
Pro-forma Invoice: A pro-forma invoice is an invoice sent to the buyer before the shipment,
giving the buyer a chance to review the sale terms (quantity of goods, value, specifications) and
get an import license, if required in their country. It also allows the buyer to work with their bank
to arrange any financial process for payment. For example, to open a Documentary Credit (Letter
of Credit), the buyer’s bank will use the pro-forma invoice as a source of information. The
exporter/seller should not send their customer a pro-forma invoice unless they fully understand
what they are offering to the buyer. If no changes are required on the pro-forma invoice after the
buyer reviews it, the exporter can simply change its date and title and turn it into a commercial
invoice.
Commercial Invoice: A commercial invoice is prepared by the seller/exporter and addressed to
the buyer/importer, and is one of the first documents prepared when a transaction has been
agreed upon. The invoice identifies the buyer and seller, describes the goods sold and all terms of
sale, including IncoTerms, payment terms, relevant bank information, shipping details, etc. An
invoice may be itemized to show cost of goods, freight, and insurance, or other special handling.
The invoice may be numbered and have multiple “purchase order” numbers. U.S. Customs does
not actually need a copy of the invoice, unless requested, but the information included is used to
prepare other documents.
Consular invoice: A consular invoice is the commercial invoice stamped or notarized by the
consulate or embassy of the customer’s country, if required. For example, if one is exporting to
Egypt and the buyer requires a consular invoice, the Egyptian embassy in Mumbai will do this
for a small fee. Usually a freight forwarder will offer this service, but an exporter can send the
original invoice to the consulate, have it notarized/legalized as required, pay the fee, and have the
documents returned or forwarded on. It is important to understand that consular invoices are
required in the buyer’s country, so one needs to add the time/costs associated with obtaining one
to the price of the goods you are shipping.
Customs Invoice:
The invoice is prescribed by the customs authorities of importing countries and the invoice is
called Customs invoice. This is the requirement in US, Canada and Australia. An exporter can
obtain copies of this invoice from any shop selling government publications and forms.
Legalized invoice
It is the same as consular invoice. This term is in use in countries like Turkey, Liberia, Taiwan,
Latin American countries etc.
Certificate of Origin (C/O): A document prepared by the original manufacturer and certified by
a quasi-official authority - such as a Chamber of Commerce - stating the items’ country of origin.
Most countries that require a C/O will accept a generic C/O as long as all of the required data
elements are given. However, some countries, like Israel, have a special green C/O form that
must be used. To take advantage of duty free provisions in a U.S. Free Trade Agreement, be sure
to use the particular C/O that addresses the “rules of origin” criteria for each country.
Certificate of Insurance: This document indicates the type and amount of insurance in force on a
particular shipment for loss or damage while in transit. It is sometimes referred to as Marine
insurance, but may cover the entire voyage.
Packing List: A packing list is prepared by the shipper and is a detailed break down of the items
within a shipment. It may also include any “special marks” for identification. For example, the
customer may want “ABC XX” in blue letters on the side of the packaging. For insurance claims
and tracking purposes, it helps to describe what is in each “package”. The packing list should
also reference the customer’s purchase order number and destination. Often, a packing list is
taped to palletized cargo or on the main carton/box of a shipment so that the importer’s customs
agency or any transportation handlers can have easy access to it to know what the goods are and
their destination. The quantity and items listed on the commercial invoice must match with the
packing list, but not necessarily match the pro-forma invoice. Some companies prepare a packing
list that is identical to the commercial invoice, minus the prices and other monetary details.
Certificate of Inspection: Some customers will require a “pre-shipment inspection” to satisfy
their own requirements or local regulations, according to an industry, government, or carrier
specification. Neutral organizations specialize in these types of certifications, whereby an
inspector checks the goods in question prior to shipment. Sometimes an inspector can look at a
sample, but other times inspection must occur when the goods are packaged to issue a certificate.
Weight Certificate:
Many a time, the shipping lines may ask for certificate of measurement of the volume of the
shipment to determine the amount of freight payable on the shipment. This certificate is issued
by the Indian Chamber of Commerce or any other recognized chamber.
Certificate of Analysis and Quality:
Sometimes importers ask for a certificate regarding chemical analysis of the contents of products
to ensure their quality and grade of items like metallic ores,pigments etc. The exporter can
obtain this certificate from any recognized chemical analyst.
Health Certificate:
In case of export of food stuffs, marine products, hides etc an exporter is required to obtain a
certificate from health / veterinary / sanitary authorities to certify that the goods being exported
are fit for human consumption. This is generally the requirement of the importing countries. The
exporter should check with the importer to know if he / she required this certificate to comply
with his/ her country’s sanitary and phyto- sanitary regulations.
Certificate of Free Sale: This form may be required by the importing country to ensure that the
goods offered for entry comply with domestic requirements for sale in the U.S. It is often
required for agricultural, medicinal, or cosmetic products and can be issued by the VEDP or U.S.
FDA.
Transport Documents
Dock (or Warehouse) Receipt: The dock or warehouse receipt is issued by a warehouse
supervisor or port officer and certifies that the goods have been received by the shipping
company. This document is used to transfer accountability when goods are moved by the
domestic carrier to the port of embarkation and left with the international carrier. At this time,
the carrier’s Bill of Lading is also signed by both parties and copies are issued accordingly.
Bills of Lading (B/L)
A Bill of Lading is issued by the carrier to the shipper for receipt of the goods, and is a contract
between the owner of the goods and the carrier to deliver the goods. Sometimes the B/L acts as
title to the goods so an “Original” B/L is issued- usually a set of three. Whoever presents one of
those Original, Negotiable B/L can take possession of the goods. A B/L can be either negotiable
or non-negotiable.
Non-negotiable (or “straight”) B/L: Indicates that the shipper will deliver the goods to the buyer
and that title of the goods has not been transferred to the shipper (i.e., the buyer or seller “owns”
the goods while they are being shipped). This type of B/L is often used when payment for the
goods has already been made in advance.
Negotiable (or “shipper’s order” ) B/L: Serves as a title document to the goods, issued “to the
order of” a party, usually the shipper, whose endorsement is required to effect its negotiation. It
can also be issued “to the order of” the buyer’s bank as part of a documentary credit/letter of
credit stipulation so that when the buyer’s bank receives the Original B/L, they can endorse it
over to the buyer at the time of payment for the buyer to clear the goods at customs. Sometimes
the negotiable B/L may be consigned “To Order” without reference to a company. A negotiable
B/L can be bought or traded while the goods are in transit, whereas a “Straight” B/L is non-
negotiable and is consigned to the buyer.
The B/L is frequently electronically manifested by the shipping line company using the data sent
by the shipper or its agent. Bills of Lading also include a “notify party” (usually the buyer or
their agent) so that when the vessel arrives at the port of destination, the carrier can notify the
party that the goods are available, are in need of customs clearing, or are ready for pick up.
Usually the importer can pick up the goods after customs clearance and duties are paid. “Freight
Collect” means the consignee pays the freight charges as well. “Freight Prepaid” means the
shipper pays the freight charges, but not customs clearance unless the terms are “delivered duty
paid”. If payment is due to the exporter before the importer receives the goods, “advance
charges” can be added to the bill so the importer pays for the goods along with the other charges.
Two checks should be received so the carrier can forward one check to the exporter for the cost
of goods.
Inland Bill of Lading: Issued by the trucking company and/or the railroad line for taking the
goods from the exporter’s facility to the port of embarkation or consolidation facility.
Ocean Bill of Lading (OBL): The Ocean B/L is an invoice, and may be issued as a “clean” bill of
lading, meaning the carrier certifies that the goods have been received without visible damage.
An “On-Board” B/L may be issued when the goods are received into the carrier’s port facility,
basically confirming the cargo will be sailing.
Combined or Multimodal Transport document
Combined transport document is also known as Multimodal Transport document and is used
when goods are transported using more than one mode of transportation. In the case of
multimodal transport document, the contract of carriage is meant for a combined transport from
the place of shipping to the place of delivery. It also evidence receipt of goods but it does not
evidence on board shipment, if it complies with ICC500, Article 26(a). The liability of the
combined document transport operator starts from the place of shipment and ends at the place of
delivery. This document needs to be signed with appropriate number of originals in the full set
and proper evidence which indicates the transport charges have been paid or will be paid at
destination port. Multi modal transport document would normally show:
That the consignee and the notify parties are as the credit.
The place goods are received, or taken in charges and place of final destination
Whether freight is prepaid or to be collected
The date of dispatch or taking in charge and the “on board” notation , it must be dated
and signed.
Total number of originals
Signature of the carrier, multimodal transport operator or their agents.
20. Write a short notes on the following a) Insurance cover note b) GSPS C) COD form d)
UPCDC norms
a) Insurance Policy / Cover Note: This is a document indicating the Insurance of the Cargo. It
is issued by the insurance company. The difference between the two is that the certificate is just
an evidence of insurance. It does not state the terms and conditions of insurance. The insurance
policy, on the other hand, states the terms and conditions of insurance of the goods.
b) GSPS: The Generalised System of Preferences (known as GSPS for short) is a scheme
whereby a wide range of industrial and agricultural products originating in certain developing
countries are given preferential access to the markets of the European Union.
Preferential treatment is given in the form of reduced or zero rates of customs duties.
The GSP scheme is specifically designed to benefit certain developing countries and integrate
them into the world economy.
Certain products on importation into the EU are eligible for reduced or zero rates of customs
duties provided that they:
qualify as originating products under the rules of origin set down in the Community Customs
Code Implementing Provisions.
are transported directly from the GSP country to the EU (commonly referred to as the Direct
Transport Rule)
GSP Forms A and Invoice Declarations issued in a GSP Beneficiary country have a period of
validity of 10 months from their date of issue, and they must be presented in support of a claim
to preference within that period. In exceptional circumstances we may accept Forms A and
Invoice Declarations outside their period of validity.
C) COD form: Exports made on value payable and cash on delivery basis by parcel / post have
to be declared on COD form.
D) Uniform Customs and Practices for Documentary Credits Norms (If 4 marks question, write
only four ponts)
1. All documentary credits: UPCDC norms shall apply to all documentary credits where they are
incorporated into the text of the credit. They are also binding all parties unless otherwise expressly
stipulated in the credit.
2. Credit and Contracts: A credit by their nature are separate transactions from the sales or other
contracts on which they may be based and banks are in no way concerned with or bound by such
contracts, even if any reference to such contracts is included in the credit is not subject to claims or
defenses by the applicant resulting from his relationships with the issuing bank or the beneficiary.
3. Credit and Sales In credit operations all parties concerned deal with documents and not with goods,
services and/or other performances to which documents may relate.
4. Complete and Precise: Instructions for the issuance of credit or instructions for an amendment thereto,
shall be complete and precise. In order to guard against confusion and misunderstanding, banks should
discourage any attempt - i. to include excess detail in credit or in any amendment. ii. to give instructions
to issue credit or amendment reference to a previously issued credit where such previous issue of credit
has been subject to accepted or unaccepted amendments.
5. Revocable or Irrevocable: The credit should clearly indicate whether it is revocable or irrevocable. In
the absence of such indication the credit shall be deemed to be irrevocable.
6. Advising Bank: A credit may be advised to a beneficiary through another bank, the Advising bank,
without engagement on the part of the advising bank, but that bank, if it elects to advise the credit, shall
take reasonable care to check the apparent authenticity of the credit which it advises. If the bank elects not
to advise the credit, it must so inform the issuing bank without any delay.
7. Apparent Authenticity: If the Advising Bank cannot establish such apparent authenticity it must
inform, without delay, the issuing bank that it has been unable to establish the authenticity of the Credit.
8. Revocable Credit: A revocable credit may be amended or cancelled by the Issuing Bank at any
moment and without prior notice to the Beneficiary. However, the Issuing Bank must reimburse another
bank with which a revocable Credit has been made available for sight payment, acceptance or negotiation
– for any payment, acceptance or negotiation made by such bank – prior to receipt by it of notice of
amendments or cancellation, against documents which appear on their face to be in compliance with the
terms and condition of the Credit.
9. Irrevocable Credit: An irrevocable Credit constitutes a definite undertaking of the Issuing Bank,
provided that the stipulated documents are presented to the Nominated Bank or to the Issuing Bank and
that the terms and conditions of the Credit are complied with:
i. if the Credit provides for sight payment – to pay a sight,
ii. if the Credit provides for deferred payment – to pay on the maturity date(s) determinable in accordance
with the stipulations of the Credit,
iii. if the Credit provides for acceptance: to accept Draft(s) drawn by the Beneficiary on the Issuing Bank
and pay at maturity
10. Confirming Bank: A confirmation of an Irrevocable Credit by another bank (the ‘Confirming Bank’)
upon the authorization or request of the Issuing Bank, constitutes a definite undertaking of the
Confirming Bank, in addition to that of the Issuing Bank, provided that the stipulated documents are
presented to the Confirming Bank or to any other Nominated Bank and that the terms and conditions of
the Credit are complied.
11.Types of Credit: All credits must clearly indicate whether they are available by sight payment, by
deferred payment by acceptance or by negotiation. Unless the Credit stipulates that it is available only
with the Issuing Bank, all Credits must nominate the bank (the ‘Nominated Bank’) which is authorized to
pay, to incur a deferred payment undertaking, to accept Draft(s) or to negotiate.
12. Teletransmitted and Pre-Advised Credits: i. When an Issuing Bank instructs an Advising Bank by
an authenticated teletransmission to advise a Credit or to amend a Credit, the teletransmission will be
deemed to be the operative Credit instrument or the operative amendment, and no mail confirmation
should be sent.
13. Incomplete or Unclear Instructions: If incomplete or unclear instructions are received to advise,
confirm or amend a Credit, the bank requested to act on such instructions may give preliminary
notification to the Beneficiary for information only and without responsibility. This preliminary
notification should state clearly that the notification is provided for information only and without the
responsibility of the Advising Bank. In any event, the Advising Bank must inform the Issuing Bank of the
action taken and request it to provide the necessary information. The Issuing Bank must provide the
necessary information without delay. The Credit will be advised, confirmed or amended, only when
complete and clear instructions have been received and if the Advising Bank is then prepared to act on the
instructions.
14. Standard for Examination of Documents
Banks must examine all documents stipulated in the Credit with reasonable care to ascertain whether or
not they appear, on their face, to be in compliance with the terms and conditions of the Credit.
Compliance of the stipulated documents on their face with the terms and conditions of the Credit, shall be
determined by international standard banking practice as reflected in these Articles. Documents, which
appear on their face to be inconsistent with one another, will be considered as not appearing on
their face to be in compliance with the terms and conditions of the Credit. Documents not stipulated in the
Credit will not be examined by banks. If they receive such documents, they shall return them to the
presenter or pass them on without responsibility.
15. Force Majeure - Banks assume no liability or responsibility for the consequences arising out of the
interruption of their business by Acts of God, riots, civil commotion, insurrections, wars or any other
causes beyond their control, or by any strikes or lockouts.
Unit V
1. To act as an interface between the industry and Government of India to formulate export
oriented policies and also create a favourable environment to augment exports of the
respective items from India.
2. to Participate in International exhibitions held abroad and invites overseas delegations to
India to promote our exports and establish long term strategic alliances.
3. Assists its members in locating and pinpointing the sources of requirements. It also helps
to effect a smooth trade deal between buyers and sellers to offer a total service package,
completele free.
4. It is the nodal agency appointed by the Ministry of Commerce and Industry for compliance
of REACH legislation of the European Union.
5. Participates in the Grievance committee meeting organized by DGFT from time to time
and take up issues of the member - exporters connected with customs, central excise, port
authorities etc and try to resolve the same.
6.participates in the review meetings as well as the task force meetings being organized by
the Ministry of Commerce and Industry from time to time to chalk out strategies for
promotion of exports of the items coming under the purview of the council with presentations
covering suggestions / views being received from its members.
7. Prepares the Action Plan for promotion of exports of the items covering Budget proposals
for participation in various international exhibitions /Buyer Seller Meets / being held abroad
as well as in India for the benefit of its members / exporters.
8. Issues recommendation letters to various overseas consulates /embassies in India for issue
of Visas for the member exporters for attending exhibitions / delegations as well as export /
business promotion tours aborad
9.It has been authorised by the Ministry of Commerce and Industry to issue non preferential
certificates of origin to its member exporters for the member exporters for export of their
items to various countries aborad on the condition that the said items are manufactured in
India.
10.It organizes export award function to felicitate outstanding exporters on their excellent
export performance.
In short, it is 'one contact point' for sourcing information on any of the products from India.
Commodity Boards
The board is mainly focusing its activities areas of research, extension, development, quality
upgradation, economic and market intelligence, external and internal promotion and labour
welfare. It also maintains collection, collation and dissemination of statistical data, take steps
to promote marketing and exports of the respective products and undertake labour welfare
activities. There are five statutory commodity boards to enhance exports of the respective
commodities. They are Coffee board, Rubber Board, Tea Board, Tobaco board, spices Board.
There are two export development authorities in India. Agricultural and Processed Food
Products Export Development Authority (APEDA) and Marine Products Export
Development Authority (MPEDA). Both have offices all over India. The authority is
responsible for the development of the respective Industry with special focus on respective
exports.
Development authorities have been actively engaged in the development of markets besides
upgradation of infrastructure and quality to promote the export of products. In its endeavour
to promote exports, Export development authorities provide financial assistance to the
registered exporters under its schemes for market development, infrastructure development,
quality development and transport assistance.
APEDA has been entrusted with the responsibility of export promotion and development of
14 agricultural and processed food product groups listed in the Schedule to the APEDA Act.
In addition to this, APEDA has been entrusted with the responsibility to monitor the import
of sugar as well.
2. PEC Ltd
PEC Ltd (formerly – The Project and Equipment Corporation of India Ltd.) was carved out
of the STC in 1971-72 to take over the canalized business of STC’s (State Trading
Corporation of India Ltd.) railway equipment division, to diversify into turn-key projects
especially outside India and to aid and assist in promotion of exports of Indian engineering
equipment.
The main functions of PEC Ltd. includes export of projects, engineering equipment and
manufactured goods, defence equipment & stores, import of industrial raw materials, bullion
and agro commodities, consolidation of existing lines of business and simultaneously
developing new products and new markets; diversification in export of non-engineering
items eg. coal and coke, iron ore, edible oils, steel scraps, etc.; and structuring counter trade/
special trading arrangements for further exports.
3. Export Credit Guarantee Corporation of India Limited (ECGC)
ECGC is the premier organization in the country which offers credit risk insurance cover to
exporters, banks, etc. The primary objective of the Corporation is to promote country’s
exports by covering the risk of export on credit. It provides: (a) a range of insurance covers to
Indian exporters against the risk of non-realization of export proceeds due to commercial or
political causes and (b) different types of guarantees to banks and other financial institutions
to enable them to extend credit facilities to exporters on liberal basis.
Other Government Organizations
Federation of Indian Export Organizations (FIEO)
FIEO was set up jointly by the Ministry of Commerce, Government of India and private trade
and industry in the year 1965. FIEO is thus a partner of the Government of India in
promoting India’s exports.
Indian Institute of Foreign Trade (IIFT)
The Indian Institute of Foreign Trade (IIFT) was set up in 1963 by the Government of India
as an autonomous organisation to help Indian exporters in foreign trade management and
increase exports by developing human resources, generating, analysing and disseminating
data and conducting research.
Indian Institution of Packaging (IIP)
The Indian Institute of Packaging or IIP in short was established in 1966 under the Societies
Registration Act (1860). Headquartered in Mumbai, IIP also has testing and development
laboratories at Calcutta, New Delhi and Chennai. The Institute is closely linked with
international organisations and is recognized by the UNIDO (United Nations Industrial
Development Organisation) and the ITC (International Trading Centre) for consultancy and
training. The IIP is a member of the Asian Packaging Federation (APF), the Institute of
Packaging Professionals (IOPP) USA, the Insitute of Packaging (IOP) UK, Technical
Association of PULP AND Paper Industry (TAPPI), USA and the World Packaging
Organisation (WPO).
Export Inspection Council (EIC)
The Export Inspection Council or EIC in short, was set up by the Government of India under
Section 3 of the Export (Quality Control and Inspection) Act, 1963 in order to ensure sound
development of export trade of India through Quality Control and Inspection..
Indian Council of Arbitration (ICA)
The Indian Council for Arbitration (ICA) was established on April 15, 1965. ICA provides
arbitration facilities for all types of Indian and international commercial disputes through its
international panel of arbitrators with eminent and experienced persons from different lines
of trade and professions.
India Trade Promotion Organisation (ITPO)
ITPO is a government organization for promoting the country’s external trade. Its
promotional tools include organizing of fairs and exhibitions in India and abroad, Buyer-
Seller Meets, Contact Promotion Programmes, Product Promotion Programmes, Promotion
through Overseas Department Stores, Market Surveys and Information Dissemination.
Chamber of Commerce & Industry (CII)
CII play an active role in issuing certificate of origin and taking up specific cases of exporters
to the Govt.
Federation of Indian Chamber of Commerce & Industry (FICCI)
Federation of Indian Chambers of Commerce and Industry or FICCI is an association of
business organizations in India. FICCI acts as the proactive business solution provider
through research, interactions at the highest political level and global networking.
Bureau of Indian Standards (BIS)
The Bureau of Indian Standards (BIS), the National Standards Body of India, is a statutory
body set up under the Bureau of Indian Standards Act, 1986. BIS is engaged in standard
formulation, certification marking and laboratory testing.
Textile Committee
Textile Committee carries pre-shipment inspection of textiles and market research for textile
yarns, textile machines etc.
India Investment Centre (IIC)
Indian Investment Center (IIC) was set up in 1960 as an independent organization, which is
under the Ministry of Finance, Government of India. The main objective behind the setting
up of IIC was to encourage foreign private investment in the country. IIC also assist Indian
Businessmen for setting up of Industrial or other Joint ventures abroad.
Directorate General of Foreign Trade (DGFT)
DGFT or Directorate General of Foreign Trade is a government organization in India
responsible for the formulation of guidelines and principles for importers and exporters of
country.
Director General of Commercial Intelligence Statistics (DGCIS)
DGCIS is the Primary agency for the collection, compilation and the publication of the
foreign inland and ancillary trade statistics and dissemination of various types of commercial
information.
22.Critically appraise the performance of Special Economic Zones taking
into account the economic as well as social impact. (Nov 2011) (Nov
2013)
Special Economic Zones
In order to create an internationally competitive and smooth working environment for exports in
India, the Government of India formulated the Special Economic Zone policy on 1/4/2000.
Under the current foreign trade policy, Special Economic Zone (SEZ) is defined as a specifically
delineated duty free enclave that is deemed to be foreign territory for the purposes of trade
operations and duties and tariffs. Goods and services going into the SEZ area from DTA
(Domestic Tariff Area) are to be treated as exports and goods coming from the SEZ area into
DTA are to be treated as imports.
The following facilities/incentives are available to units in SEZs:
No licence required for import.
Exemption from customs duty on import of capital goods, raw materials,
consumables, spares etc.
Supplies from DTA to SEZ units treated as deemed exports.
Reimbursement of Central Sales Tax paid on domestic purchases.
100% income tax exemption for a block of five years, 50% tax exemptions
for two years and up to 50% of the profits ploughed back for the next three
years under Section 10-A of Income Tax Act.
SEZ units may be for manufacturing, trading or service activity.
SEZ unit to be positive net foreign exchange earner within three years.
100% Foreign Direct Investment in manufacturing sector allowed through
automatic route, barring a few sectors.
Facility to retain 100% foreign exchange receipts in EEFC Account.
Facility to realize and repatriate export proceeds within 12 months.
Re-export imported goods found defective, goods imported from foreign suppliers on
loan basis etc.
Domestic Sales on full duty subject to import policy in force.
No fixed wastage norms.
Full freedom for sub-contracting including sub-contracting abroad.
Job work on behalf of domestic exporters for direct export allowed.
No routine examination by Customs of export and import cargo.
No separate documentation required for Customs and Exim Policy.
In-house customs clearance.
Support services like banking, post office clearing agents etc.
Differences between SEZ and EPZ
• SEZ are much larger in geographical size than EPZ.
• SEZ is found all the countries but EPZ are generally located in under developed or
developing countries.
• SEZ is open to all fields of business like manufacturing, trading and services but EPZ has
more focus on manufacturing.
• There is very limited accountability of export performance in SEZ but it has great influence
over the business carried out in EPZ as the penalties and duty recovery is imposed in case of
shortfall.
• The consumption of raw material that is imported duty free has to be consumed over a
period of 5 years in SEZ but the time period in EPZ is only 1 year.
• Laws concerning the certification of the import goods are much more relaxed in SEZ than
in EPZ.
• Custom department has less interference in the inspection of the premises in SEZ but EPZ
requires routine customs inspection of cargo.
• FDI investment in manufacturing unite does not require sanctions from the board as it is in
EPZ.
23.Explain the scope and functions of EPZ, SEZ and Export House in
export promotions (Nove 2011)
An Export Processing Zone (EPZ) is a Customs area where one is allowed to import plant,
machinery, equipment and material for the manufacture of export goods under security, without
payment of duty.
Free Trade Zones (FTZ)/ Export Processing Zones (EPZs) have emerged as an effective
instrument to boost export of manufactured products. The Zones, set up as enclaves separated
from the Domestic Tariff Area (DTA) by physical barriers, are intended to provide an
internationally competitive duty free environment for export production at low costs. The basic
objectives of EPZs are to enhance foreign exchange earnings, develop export-oriented industries
and to generate employment opportunities. The first Zone was set up at Kandla (Gujarat) in
1965, followed by SEEPZ, Mumbai in 1972. Thereafter, four more Zones were set up at NOIDA
(UP), FALTA (West Bengal), Cochin (Kerala), Chennai (Tamil Nadu) in 1984 and at
Vishakapatnam (Andhra Pradesh) in 1989. In 1997, Surat Export Processing Zone came into
existence. With the announcement of Special Economic Zone Scheme in year 2000, the four
Export Processing Zones / FTZ, namely Kandla, SEEPZ, Cochin and Surat have been converted
into Special Economic Zones with effect from 1-11-2000.
2. Each Zone provides basic infrastructural facilities, like developed land, standard design
factory buildings, built-up sheds, roads, power supply and drainage, in addition to a
whole range of fiscal incentives by way of Customs, Excise and Income Tax exemptions.
Customs clearance facilities are offered within the Zone at no extra charge, while
facilities like banking, post office and clearing agencies are also available in the service
centers attached to each Zone.
3. The Export & Import Policy provisions for Export Processing Zones are the same as
applicable to EOUs. Thus, the provisions of EXIM Policy regarding importability of
goods, DTA sale, clearance of samples, sub-contracting, inter-unit transfer, repairs, re-
conditioning and re-engineering, sale of unutilized material, debonding etc. for EOUs are
applicable to EPZ units.
4. The Development Commissioners appointed by the Ministry of Commerce monitor and
coordinate the functioning of each Zone. The Customs act in close liaison with the
Development Commissioner of the respective Zone in providing bond facilities and for
ensuring that goods imported/indigenously procured duty free are utilised in the
production of goods for export. To enable the EPZs to import/procure locally their
requirement of raw materials, capital goods and office equipment etc. duty free, a number
of Customs and Central Excise notifications have been issued by the Ministry of Finance.
These notifications specify the different categories of items allowed to be
imported/procured duty free as well as the conditions thereof. The permissible item,
cover almost all categories of goods required in connection with the production activity
for export & include capital goods, raw materials, components, packing, consumables,
spares etc.
Special Economic Zones (SEZs)
In order to create an internationally competitive and smooth working environment for exports in
India, the Government of India formulated the Special Economic Zone policy on 1/4/2000.
Under the current foreign trade policy, Special Economic Zone (SEZ) is defined as a specifically
delineated duty free enclave that is deemed to be foreign territory for the purposes of trade
operations and duties and tariffs. Goods and services going into the SEZ area from DTA
(Domestic Tariff Area) are to be treated as exports and goods coming from the SEZ area into
DTA are to be treated as imports.
The following facilities/incentives are available to units in SEZs:
No licence required for import.
Exemption from customs duty on import of capital goods, raw materials,
consumables, spares etc.
Supplies from DTA to SEZ units treated as deemed exports.
Reimbursement of Central Sales Tax paid on domestic purchases.
100% income tax exemption for a block of five years, 50% tax exemptions
for two years and up to 50% of the profits ploughed back for the next three
years under Section 10-A of Income Tax Act.
SEZ units may be for manufacturing, trading or service activity.
SEZ unit to be positive net foreign exchange earner within three years.
100% Foreign Direct Investment in manufacturing sector allowed through
automatic route, barring a few sectors.
Facility to retain 100% foreign exchange receipts in EEFC Account.
Facility to realize and repatriate export proceeds within 12 months.
Re-export imported goods found defective, goods imported from foreign suppliers on
loan basis etc.
Domestic Sales on full duty subject to import policy in force.
No fixed wastage norms.
Full freedom for sub-contracting including sub-contracting abroad.
Job work on behalf of domestic exporters for direct export allowed.
No routine examination by Customs of export and import cargo.
No separate documentation required for Customs and Exim Policy.
In-house customs clearance.
Support services like banking, post office clearing agents etc.
Export House
Trading House, Star Trading House and Super Star Trading House with a view to building
marketing infrastructure and expertise required for export promotion. Such Houses should
operate as highly professional and dynamic institutions and act as important instruments of
export growth.
Eligibility: Merchant as well as Manufacturer exporters, Service providers, Export Oriented
Units (EOUs)/ units located in Export Processing Zones (EPZs)/ Special Economic Zone(SEZ’s)
/Electronic Hardware Technology Parks (EHTPs)/ Software Technology Parks (STPs) shall be
eligible for such recognition.
Criterion for Recognition The eligibility criterion for such recognition shall be on the basis of
the FOB/NFE value of export of goods and services, including software exports made directly, as
well as on the basis of services rendered by the service provider during the preceding three
licensing years or the preceding licensing year, at the option of the exporter. The exports made,
both in free foreign exchange and in Indian Rupees, shall be taken into account for the purpose
of recognition.
Export under Bond- Under Rule 19 of Central Excise Rules, an exporter is permitted to remove
excisable goods for export without payment of excise duty by executing a bond (legal
undertaking) in favour of the excise authorities for the amount of the excise duty payable.
Duty Drawback
Duty drawback is an incentive given to the exporters of different categories of goods under the
"Customs and Central Excise Duty Drawback Rules, 1995". The duty drawback scheme is
administered by the Directorate of Duty Drawback in the Ministry of Finance, Government of
India.
There are two types of drawback rates:
I. All Industry Rates
II. Brand/Special Brand Rates
Information Technology
Strong telecommunication backbone
A unique work environment that powers the city
Optic-fibre cable network
On-site sub-station for failsafe power
Rail station onsite to provide for easy cost effective transport options
Pollution-free, clean and green environment
Free Trade and Warehousing Zones
The units functioning out of such zones will be extended:
i. Income Tax Exemption as per Section 80-IA of the Income Tax Act
ii. Exemption from Service Tax
iii. Free foreign exchange currency transactions
iv. Other benefits as applicable to units in Special Economic Zones
Deemed Exports
i. Supply of goods against Advance Licence/Advance Licence for annual
requirement.
ii. Supply of goods to Export Oriented Units.
iii. Supply of capital goods to holders of licences under the Export Promotion Capital
Goods (EPCG) scheme.
iv. Supply of goods to projects financed by multilateral or bilateral agencies.
v. Supply of capital goods, including in unassembled/disassembled condition as
well as plants, machinery, accessories, tools, dyes.
vi. Supply of goods to any project or purpose in respect of which the Ministry of
Finance.
vii. Supply of goods to the power projects and refineries not covered in (vi) above.
viii. Supply of marine freight containers by 100% EOU.
ix. Supply to projects funded by UN agencies.
x. Supply of goods to nuclear power projects through competitive bidding as
opposed to International Competitive Bidding.
Deemed exports are allowed the following privileges:
Advance Licence for intermediate supply/deemed export/DFRC/DFRC for
intermediate supplies
Deemed Export Drawback
Exemption from terminal excise duty where supplies are made against
International Competitive Bidding. In other cases, refund of terminal excise duty
will be given.
Market Assistance
Export Promotion continues to be a major thrust area for the Government. In view of the
prevailing macro economic situation with emphasis on exports and to facilitate various measures
being undertaken to stimulate and diversify the country's export trade, Marketing Development
Assistance (MDA) Scheme is under operation through the Department of Commerce to support
the under mentioned activities:
(i) Assist exporters for export promotion activities abroad
(ii) Assist Export Promotion Councils(EPCs) to undertake export promotion activities for their
product(s) and commodities ;
(iii) Assist approved organization/trade bodies in undertaking exclusive nonrecurring
innovative activities connected with export promotion efforts for their members ;
(iv) Assist Focus export promotion programmes in specific regions abroad like FOCUS (LAC),
Focus (Africa), Focus (CIS) and Focus (ASEAN +2) programmes ; and
(v) Residual essential activities connected with marketing promotion efforts abroad.
Exporting companies with an f.o.b. value of exports upto Rs. 15.00 crore in the preceding
year will be eligible for MDA assistance for participation in EPC etc. led Trade
Delegations/ BSMs/Trade Fairs/ Exhibitions.
Under Reverse trade visits for prominent delegates and Buyers (one person from each
organization) for participation in buyer cum Seller meets, exhibitions etc. in India from the Focus
Area Regions, exhibitions etc. in India, the foreign delegates/ buyer/journalists would be assisted
in meeting their return air travel expenses in economy excursion class upto the entry point in
India. This would, however, be subject to financing only the well planned participations wherein
the potential of the incoming delegate(s)/buyer(s)/journalist(s) have been screened by the
concerned EPC and territorial division.
1. Zero duty EPCG scheme - it allows import of capital goods for pre production, production and
post production (including CKD/SKD thereof as well as computer software systems) at zero
Customs duty, subject to an export obligation equivalent to 6 times of duty saved on capital
goods imported under EPCG scheme, to be fulfilled in 6 years reckoned from Authorization
issue-date.
2. The scheme will be available for exporters of engineering & electronic products, basic
chemicals & pharmaceuticals, apparels & textiles, plastics, handicrafts, chemicals & allied
products and leather & leather products
3. Concessional 3% Duty EPCG Scheme - Concessional 3% duty EPCG scheme allows import
of capital goods for pre production, production and post production (including CKD/SKD
thereof as well as computer software systems) at 3% Customs duty, subject to an export
obligation equivalent to 8 times of duty saved on capital goods imported under EPCG scheme, to
be fulfilled in 8 years reckoned from Authorization issuedate.
4. In case of agro units, and units in cottage or tiny sector, import of capital goods at 3%
Customs duty shall be allowed subject to fulfillment of export obligation equivalent to 6 times of
duty saved on capital goods imported, in 12 years from Authorization issue-date.
5. For SSI units, import of capital goods at 3 % Customs duty shall be allowed, subject to
fulfillment of export obligation equivalent to 6 times of duty saved on capital goods, in 8 years
from Authorization issue-date, provided the landed cif value of such imported capital goods
under the scheme does not exceed Rs. 50 lakhs and total investment in plant and machinery after
such imports does not exceed SSI limit.
6. However, in respect of EPCG Authorization with a duty saved amount of Rs. 100 crores
or more, export obligation shall be fulfilled in 12 years.
7. Second hand capital goods, without any restriction on age, may also be imported under
EPCG scheme.
8. However, import of motor cars, sports utility vehicles/all purpose vehicles shall be allowed
only to hotels, travel agents, tour operators or tour transport operators and companies
owning/operating golf resorts, subject to the condition that:
(i) total foreign exchange earning from hotel, travel & tourism and golf tourism sectors in current
and preceding three licensing years is Rs.1 .5 crores or more.
(ii) ‘duty saved’ amount on all EPCG Authorizations issued in a licensing year for import of
motor cars, sports utility vehicles/ all purpose vehicles shall not exceed 50% of average foreign
exchange earnings from hotel, travel & tourism and golf tourism sectors in preceding three
licensing years.
(iii) vehicles imported shall be so registered that the vehicle is used for tourist purpose only. A
copy of the Registration certificate should be submitted to concerned RA as a confirmation of
import of vehicle. However, parts of motor cars, sports utility vehicles/ all purpose vehicles such
as chassis etc. cannot be imported under the EPCG Scheme.
9. Spares for existing plant and machinery shall be allowed to be imported under the EPCG
scheme subject to an export obligation equivalent to 50% of the already existing export
obligation to be fulfilled in 8 years.
2. An exporter may apply for credit, at specified percentage of FOB value of exports, made in
freely convertible currency. In case of supply by a DTA unit to a SEZ unit/ SEZ Developer/Co-
Developer, an exporter may apply for credit for exports made in freely convertible currency or
payment made from foreign currency account of SEZ Unit/SEZ Developer/Co-Developer.
3. Credit shall be available against such export products and at such rates as may be specified by
DGFT by way of public notice. Credit may be utilized for payment of Customs Duty on freely
importable items and/or restricted items. DEPB Scrips can also be utilized for payment of duty
against imports under EPCG Scheme.
Advance License
Advance License is issued for duty free import of inputs, as defined in paragraph 7.2, subject to
actual user condition. Such licenses (other than Advance License for deemed exports) are
exempted from payment of Basic Customs Duty, Surcharge, Additional Customs Duty, Anti
Dumping Duty and Safeguard Duty, if any. However, Advance License for deemed export shall
be exempted from Basic Customs Duty, surcharge and Additional Customs Duty only. Such
licenses are issued to:
Merchant exporter where the merchant exporter agrees to the endorsement of the name(s) of the
supporting manufacturer(s) on the relevant DEEC Book and in the case of deemed exports, sub
contractor(s)whose names appear in the main contract. Such licences and/or materials imported
thereunder shall not be transferable even after completion of export obligation. However, in
exceptional cases, the material may be allowed to be transferred on merits by ALC. Such
licences shall be issued with a positive value addition. However, for exports for which payments
are not received in freely convertible currency, the same shall be subject to value addition as
specified in Appendix- 39 of Handbook (Vol.1) , 1997-2002. Advance Licence shall be issued in
accordance with the Policy and procedure in force on the date of issue of licence and shall be
subject to the fulfillment of a time bound export obligation as may be specified.
Advance License may be issued for intermediate supply to a manufacturer-exporter for the
import of inputs required in the manufacture of goods to be supplied to the ultimate
exporter/deemed exporter holding another Advance License. Advance License can be issued for
deemed export to the main contractor for import of inputs required in the manufacture of goods
to be supplied to the categories mentioned in `paragraph 10.2(b), (c), (d), (e), (f) and (g) of the
Policy. In addition, in respect of supply of goods to specified projects mentioned in paragraph
10.2 (d), (e), (f) & (g) of the Policy, an Advance Licence for deemed export can also be availed
by the sub-contractor of the main contractor to such project. Such licence for deemed export can
also be issued for supplies made to United Nations Organisations or under the Aid Programme of
the United Nations or other multilateral agencies and paid for in foreign exchange.
Trading House, Star Trading House and Super Star Trading House with a view to building
marketing infrastructure and expertise required for export promotion. Such Houses should
operate as highly professional and dynamic institutions and act as important instruments of
export growth.
Eligibility: Merchant as well as Manufacturer exporters, Service providers, Export Oriented
Units (EOUs)/ units located in Export Processing Zones (EPZs)/ Special Economic Zone(SEZ’s)
/Electronic Hardware Technology Parks (EHTPs)/ Software Technology Parks (STPs) shall be
eligible for such recognition.
Criterion for Recognition The eligibility criterion for such recognition shall be on the basis of
the FOB/NFE value of export of goods and services, including software exports made directly, as
well as on the basis of services rendered by the service provider during the preceding three
licensing years or the preceding licensing year, at the option of the exporter. The exports made,
both in free foreign exchange and in Indian Rupees, shall be taken into account for the purpose
of recognition.
The level of export performance for the purpose of recognition shall be as per the table below:
STAR TRADING 375 crores 560 crores 312 crores 450 crores
HOUSE
Calculation of Net Foreign Exchange : For the purpose of calculation of the Net Foreign
Exchange earned on exports, the value of all the licences including the value of 2.5 times of the
DEPB Credit earned/ granted and the value of duty free gold/ silver/ platinum taken from
nominated agency or from foreign supplier shall be deducted from the FOB value of exports
made by the person. However, the value of freely transferable SIL, EPCG licences and the value
of licences surrendered during the validity of licence shall not be deducted.
Weightage to exports: For the purpose of recognition, weightage shall be given to the following
categories of exports provided such exports are made in freely convertible currency:
Triple weightage on FOB or NFE on the export of products manufactured and exported by units
in the Small Scale Industry (SSI)/Tiny sector/Cottage Sector and double weightage on FOB or
NFE to merchant exporter exporting products reserved for SSI units and manufactured by units
in the Small Scale Industry (SSI)/Tiny sector/Cottage Sector. The facility under this paragraph
shall not be available to units exporting gems & jewellery products.
Triple weightage on FOB/NFE on the export of products manufactured and exported by the
handlooms and handicraft sector and double weightage on FOB/NFE to merchant exporter
exporting products manufactured by the handlooms and handicraft sector (including handloom
made silk products), hand knotted carpets, carpets made of silk
Double weightage on FOB or NFE on the export of fruits and vegetables, floriculture and
horticulture produce/ products, project exports.
Double weightage on FOB or NFE on export of goods manufactured in North Eastern States;
Double weightage on FOB or NFE on export to such countries as listed in Appendix-33 of the
Handbook (Vol.1).
The manufacturing units registered with KVIC or KVIBs shall be granted triple weightage on
FOB or NFE on the export of products manufactured and exported by them with effect from 15th
August, 97. However, such units shall not be entitled for the weightage given in sub paragraph
(a) and (b) above.
Double weightage on FOB or NFE on exports made by units having ISO 9000(series) or IS/ISO
9000 (series) or ISO 14000 (series) certification.
Double weightage on FOB or NFE on export of goods manufactured in Jammu and Kashmir
Validity Period: Status Certificate shall be valid for a period of three years starting from 1st
April of the licensing year during which the application for the grant of such recognition is made,
unless otherwise specified. On the expiry of such certificate, application for renewal of status
certificate shall be required to be made within a period as prescribed in the Handbook (Vol.1).
During the said period, the status holder shall be eligible to claim the usual facilities and benefits,
except the benefit of a SIL.
Manufacturing companies or Industrial houses : Manufacturing companies or Industrial
houses with an annual manufacturing turnover of Rs.300 crores and Rs.1,000 crores in the
preceding licensing year shall be recognised as Star Trading House and Super Star Trading
House respectively on signing a Memorandum of Understanding in the prescribed form for
achieving physical exports as currently prescribed for these categories over a period of next three
years. Similarly, companies/project exporters, domestic service providers with annual turnover
of Rs.100 crores or more in the preceding licensing year shall be recognised as Export House and
International Service Export House respectively on signing a Memorandum of Understanding in
the prescribed form for achieving physical exports as currently prescribed for this category over
a period of next three years.
Golden Status Certificate : Exporters who have attained Export House, Trading House, Star
Trading Houses and Super Star Trading Houses status for three terms or more and continue to
export shall be eligible for golden status certificate which would enable them to enjoy the
benefits of status certificate irrespective of their actual performance thereafter as per the
guidelines issued in this regard from time to time.