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External Trade

Team A
Submitted To:
Maa’m Habiba
Submission Date:
[24th April 2009]

• B.B.A
• 3rd B

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External Trade
International trade is exchange of capital, goods, and services across
international borders or territories.

Export trade: Goods or any articles of commerce sold and shipped to

other countries another name is outward trade.

Import trade: Goods and other articles of commerce bought and

brought from other countries; another name is inward trade.

Entrepot Trade: The import and export of goods which receive no

further processing but are distributed from the entrepot facility
which is chosen for its location and lack of restrictions on trade.

Export\import transactions:

In both cases of export\import LC (Letter of Credit) is used. Importer is the

buyer and exporter is the seller. LC is basically the agreement between
the importer and exporters for the sale of some goods etc. As there are
two types of LC

1) LC sight
2) LC usage
In import and export transaction normally 90% LC sight is used and 10%
LC usage.

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Foreign trade and its problem
The basic problem which is faced during foreign trade is that if the
exporter ships the goods and dispatches the documents through courier.
But in some cases the documents are misplaced by the courier company
and on the other hand the goods have reached the port, due the
misplacement of the documents. The importer cannot shift the goods to
his warehouse because to take the goods from the port you have to show
the documents to the custom officer. But in the absence of the
documents, the importer asks the bank to issue a SHIPPING GURANTEE. It
is a document by which the importer can take the goods from the port.
The SHIPPING GURANTEE is issued after taking some charges from the
bank. Rs 500 is charged by Bank Al-Habib.

Problems of Foreign Trade

Language: when the goods are exported to a foreign country, the labels,
informative literature, packing technical handout, should be prepared in
the language of the century in which the goods are marketed. There
should also be salesmen who are versed with that language and know the
habits and likings of the people.

Standardized Units: In some countries of the world, the units of length,

weight, capacity, voltage are not the same. The exporters therefore shall
have to see that the goods are prepared and supplied according to the
standard specification of the importing country.

Sale in foreign currency: Every country has its own currency which is
not legal tender in the other country. Buyer abroad prefers to buy the
goods in his own currency just ass seller prefers to sell in the currency of
his own country. The exporter therefore has to calculate the selling price
of the goods into the currency units of country where the goods are sold
taking into consideration due fluctuations in the foreign exchange rate.
The exporter can protect him against possible loss in foreign exchange by

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Licenses and documents: When goods are exported or imported a
number of documents are to be prepared.

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The Export\Import Trade procedure can be explained by the following

There is an importer in Pakistan and exporter in China and they do not

have trust in each other, so they bring a bank in their matter. The Bank
open a LC, basically it is a process in which a document is prepared which
is called a LC which consists of all the details for e.g. price of the goods,
amount of goods to be send, due date to send the goods etc. Then this
document is send to the importers bank through the exporter bank. The
importer goes through the LC and signs it if there is no problem he sign it.
When the shipment of goods is received by the importer then he says the
bank to pay transfer the money to the exporter account. This was
basically the procedure of Export\Import used by mostly all the banks.

Documentation required:

On the shipment of export commodities an Export Declaration Form
(CUSDEC - 2) must be submitted to the Customs Department together
with the following documents:

1. Export license / permit

2. Invoice
3. Packing list
4. Sales Contract
5. Shipping Instruction
6. Letter of Credit or General Remittance Exemption Certificate
7. Payment advice referring Inward Telegraphic Transfer Private No.
/Inward Telegraphic Transfer Government No.
8. Sample of goods
9. Forest pass for the shipment of forestry produce
10. Health Certificate for the export of live animals
11. Forest permit for the export of wild live animals
12. Other certificates and permits as required by the government
agencies concerned.

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The payment of goods received by the exporter from the receiver is

through the bank. When the importer receives the goods he tells the bank
to transfer the money to the exporter banks account, by which exporter
receives the money.


Exporter Sales Contract Importer

3. 2. 6. Bill
Documen GOODS Paid/
to 5. Bill
ts accepted
exporter’s Presented
and paid
s account

Remitting 4. Documents Collecting

Bank Bank

7. Proceeds

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Import Procedure:

1. Registered importer is required to open foreign exchange account at

a Bank in order to apply for an import license from the Directorate of
2. In applying for an import license, the application shall have attached
the sales contract and/or preformed invoice mentioning detailed
specifications, mode of packing, and delivery phasing.
3. Import license fees payable on the C.l.F. (Yangon) value of the
4. An irrevocable letter of credit (L/C) has to be opened by the importer
at the Bank.
5. If the purchase is made on F.O.B. basis, the importer has to secure
6. After receiving shipment advice from the suppliers, the importer has
to arrange for the clearance of the goods.


There are two banks involved in the Export\Import trade. One is of

importer and one is of exporter in different countries. The importer bank
retains the documents which are sent by the exporter bank and it is kept
by the importer bank until the goods are reached to the port. When the
importer bank receives the payment from the importer, the bank releases
the document to the importer by which he shows it to the custom
authorities and releases his goods. Then importers bank transfer the
money to the exporter bank account.


In foreign trade Non-funded facilities are used, in which actual money is

not given to the customer. Firstly the importer tells his bank that at what
limit he will be doing the transaction with the exporter. There is no
minimum and maximum limit of non-funded facility. The main point of it
is that this facility is given to the importer against some security given by
the importer. The bank holds the security until the importer pays back the
bank money. The facility is given according to the worth of the security.

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There are different types of forms used by the importer and exporter. The
documents are as follows:-

Shipper’s Export Declaration

Commercial invoice

A bill for the goods from the seller to the buyer. These invoices are often
used by governments to determine the true value of goods when
assessing customs duties. Governments that use the commercial invoice
to control imports will often specify its form, content, and number of
copies, language to be used, and other characteristics

Certificate of Origin

The Certificate of Origin is only required by some countries. In many

cases, a statement of origin printed on company letterhead will suffice.

Bill of Lading

A contract between the owner of the goods and the carrier (as with
domestic shipments). For vessels, there are two types: a straight bill of
lading which is non-negotiable and a negotiable or shipper's order bill of
lading. The latter can be bought, sold, or traded while the goods are in
transit. The customer usually needs an original as proof of ownership to
take possession of the goods

Temporary Import Certificate / ATA CARNET

An ATA Carnet (a. k. a. "Merchandise Passport") is a document that

facilitates the temporary importation of products into foreign countries by
eliminating tariffs and value-added taxes (VAT) or the posting of a
security deposit normally required at the time of importation.

Insurance certificate

Used to assure the consignee that insurance will cover the loss of or
damage to the cargo during transit

Export Packing List

Considerably more detailed and informative than a standard domestic

packing list, it itemizes the material in each individual package and

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indicates the type of package, such as a box, crate, drum, or carton. Both
commercial stationers and freight forwarders carry packing list forms.

Import License

Import licenses are the responsibility of the importer. Including a copy

with the rest of your documentation, however, can sometimes help avoid
problems with customs in the destination country

Consular Invoice

Required in some countries, it describes the shipment of goods and shows

information such as the consignor, consignee, and value of the shipment.

Air Way Bills

Air freight shipments are handled by air waybills, which can never be
made in negotiable form

Inspection Certification

Required by some purchasers and countries in order to attest to the

specifications of the goods shipped. This is usually performed by a third
party and often obtained from independent testing organizations.

Dock Receipt and Warehouse Receipt

Used to transfer accountability when the export item is moved by the

domestic carrier to the port of embarkation and left with the ship line for

Destination Control Statement

Appears on the commercial invoice, and ocean or air waybill of lading to

notify the carrier and all foreign parties that the item can be exported
only to certain destinations.

Everybody cannot be importer. To deal with the bank the importer should
have a proved licensed from the government.

The Import License Regulations in Pakistan

There are good numbers of commodities which are on the open general
license. A large number of commodities other than placed on the open
general license are imported by obtaining import license from the import
trade controller. When an import license is sanctioned to a trader the
foreign exchange is automatically released on the production of relevant
documents. The import licenses issued by the import trade controller are
required to be registered with the State Bank of Pakistan. Import license
is issued in sets of two; one copy is marked for exchange control
purposes and second is for custom purpose. The bank will open a letter of
credit only if the buyer of goods has an import license. The authorized
dealer in foreign exchange will release the foreign exchange formalities.

C & F basis: when goods are imported on C & F basis the cost of freight
are included in the price of goods.

C.I.F: The letters C.I.F stand for cost, insurance and freight. In case the
goods are exported on C.I.F basis it includes cost, insurance and freight.

C.I.F & C.I: These letters stand for cost, insurance and freight and
commission and interest. When the goods are shipped on C.I.F and C.I
basis it means the price quoted includes the cost, insurance, freight plus
commission and interest.