Export Import Procedures and Documentation

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Export Import Procedures
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and Documentation
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Export Import Procedures and Documentation
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COURSE DESIGN COMMITTEE
TOC Reviewer Content Reviewer

Mr. R Vijayan Mr. R Vijayan
Visiting Faculty, NMIMS Global Visiting Faculty, NMIMS Global
Access - School for Continuing Education Access - School for Continuing Education
Specialization: Operations, Specialization: Operations,
Supply Chain Management Supply Chain Management
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Author : Ajay Singh

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Reviewed By: R Vijayan
Copyright:
2015 Publisher
ISBN:
978-93-5119-494-1
Address:
4435/7, Ansari Road, Daryaganj, New Delhi–110002
Only for
NMIMS Global Access - School for Continuing Education School Address
V. L. Mehta Road, Vile Parle (W), Mumbai – 400 056, India.
NMIMS Global Access - School for Continuing Education

CONT E NTS
CHAPTER NO. CHAPTER NAME PAGE NO.
1 International Trade 1
2 Regulatory Framework of Export-Import 23
3 Export Documentation 47
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4 Documents Related to Invoice 71
5 Documentation Related to Shipment 89

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6 Documentation Related to Payment 105
7 Documents Related to Inspection and Special Documents 121

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8 Export Procedure 137

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9 Shipment and Export Assistance in India 149
10 Import Procedure 171
11 Case Studies 199

c u r r i c u l u m
International Trade: International Trade, Theories of International Trade, International trade

barriers, Trends in International Trade
Regulatory Framework of Export-Import: Export-Import Policy 2002-2007 , New Export-Import

Policy 2004-09: New Foreign Trade Policy, Foreign Trade (Development and Regulation) Act
1992, Foreign Exchange Management Act 1999, Customs act 1962, Export (Quality Control and
Inspection) Act 1963, Customs Tariff Act 1975, Central Excise Tariff Act 1985
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Chapter 3: Export Documentation: Factors on which Export Documentation is based, Essential
Documentation, Registration of Exporters, Registration with Export Promotion Councils, EDI
Registration, IEC certificate, Export Assistance in India
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Documentation Related to Goods Invoiced: Invoices, Packing Note and List , Certificate of Origin
Documentation Related to Shipment: Shipping Bill , Cart Ticket, Certificate of Measurement,

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Bill of Lading , Airway Bill, Mate Receipt, Export Promotion copy of Shipping Bill, G.R. Forms,
Form ‘C’, Form A.R.E1
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Documentation Related to Payment: Letter of Credit, Bill of Exchange, Trust Receipts, Letter of
Hypothecation, Bank Certificate of payment
Documentation Related to Inspection and Special Documents: Certificate of Inspection,

Certificates, Special documents
Export Procedure: Before Receiving Export Order, Export License, Producing of Goods, Excise
Duty Rebate, Export Under Bond
Shipment and Export Assistance in India: Shipment, Quality Control and Pre-Shipment Inspection,
Custom Formalities, Exchange Control Formalities, Negotiation of Documents, Insurance, Export
Incentive

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Import Procedure: Principal Law for Import, How to Start Import, Select the commodity/Product you
wish to import, Registration with Regional Licensing Authority, Selecting the Overseas Supplier, Import
Documentation , How to make payment against imports, Imports where some exemptions are available
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Ch a
1 p t e r
INTERNATIONAL TRADE
CONTENTS
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1.1 Introduction
1.2 International Trade
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1.2.1 Need for International Trade
1.2.2 Reasons for International Trade
1.2.3 Methods of International Trade
Self Assessment Questions
Activity
1.3 Theories of International Trade
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1.3.1 Theory of Absolute Advantage

1.3.2 Theory of Comparative Advantage
1.3.3 Product Life Cycle Theory
1.3.4 Theory of Market Imperfection
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1.3.5 Heckscher and Ohlin Theory: Modern Theory of International Trade

1.3.6 Theory of Imitation
Activity
1.4 International Trade Barriers
Activity
1.5 Trends in International Trade
Activity
1.6 Summary
1.7 Descriptive Questions
1.8 Answers and Hints
1.9 Suggested Reading for Reference

2 Export Import Procedures and Documentation
Introductory Caselet
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trade TARIFFS: the next generation
The authorities in Washington, D.C. have been on high alert for

the public safety. The dark shadow of last year’s Seattle’s protest
and vandalism is still fresh in people’s mind. The reason behind
this protest was the fear of “Globalisation”.
However, now Congress is planning to vote for the legislation to

make trade relationship normal with China, which would certainly
bring positive changes in the state’s economy. When trading with
China, tariffs would be levied on telecommunications equipment.
The American consumer only pays for the equipment, whereas if
a Chinese buy made in America telecommunication equipment
then he or she has to pay tariff along with the price of the product.
This causes unnecessary burden on Chinese consumers’ pocket.
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As a result it becomes difficult for the American manufacturers to
sell their products in China. Critics say that China will eliminate
tariffs on American products once they will find a better alterna-
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tive for them.
It is expected that the normal trade relations would work together

to eliminate the tariffs and trade barriers. For selling their latest
products and ideas, America needs a market and who could be
better than China to play the role of consumer. The congress will
try to work out a solution to resolve the barriers related to trade
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and tariffs on American-made high-tech products.
Let’s hope that Members of Congress understand that it is the

time to eliminate the barriers to trade and tariffs on American
high-tech products.
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INTERNATIONAL TRADE 3
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learning objectives
After studying this chapter, you will be able to:

>> Explain the significance of international trade
>> Discuss the theories of international trade
>> Describe the barriers in international trade
>> State the recent developments in international trade
1.1 INTRODUCTION
Have you ever thought how the basmati rice grown in the paddy field
of India, reaches the supermarket of New York or how you can sip the
Brazilian coffee in India? International trade has made it all possible
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by providing the platform to the world to interact and exchange the
resources for their own benefit. International trade has opened the
doors for new opportunities for all the countries whether big or small.
Strong global presence not only helps in the economic development
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of the country but it also contributes significantly in the prosperity of
the whole world.
If you trace the history of international trade, you will be surprised to

know that the concept of international trade is centuries old and came
into existence in 2500 B.C. Since then many changes have occurred
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in the nature and process of international trade and still it remains

an important part of the global economy. Modern global trade can be
traced back from 340 BC in Greece. Crete civilisation which is an old
Greek civilisation, used to import oils, fragrance, and make up items
from Egypt during the ancient days.
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With colonial expansion and industrial revolution, the global trade

started taking shape in a more concrete way and the last two decades
were revolutionary for the international trade. For many organisa-
tions, international trade has now become a means to avert risk as it
helps in testing a product’s acceptance in the market before investing
in local production facilities.
In the past decade service industry has seen a growth of about 18 per-
cent annually as compared to the nine percent for merchandise trade.
Exports in service industry have also grown substantially in the last
decade and it includes various sectors, such as transportation, mass
communication, banking, tours and travels, and public relations.
This chapter discusses about the concept of international trade, need

for international trade, reasons for international trade and methods of
international trade. Theories of international trade are also discussed
in detail. International trade barriers and trends in international trade
are discussed in detail.

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1.2 INTERNATIONAL TRADE

International trade allows different countries to exchange products
and services that are not accessible in their home country. There are
several factors that have contributed in the growth of international
trade, such as liberalisation, transportation, technology, comparison
of prices, and so on. Introduction of debit, credit, and master cards
have made transactions faster and easier. Millions of dollars are ex-
changed every day virtually at no cost. Liberalisation and change in
political environment has also played a major role in making global
trade popular.
International trade includes commercial transactions that comprises

of sales, investments, and shipment. These transactions are carried
out between two or more different countries for political and profit
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motives. All the transactions that are executed across border forms
the part of international trade or business. There are various reasons
that have given rise to international trade which are as follows:
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Technological expansion
Free cross-border trade and movement of resources
Advancement of services that facilitates international business
Increased pressure from customers
Growing competition
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Continuously changing political scenarios
In this chapter, we will study about international trade and its impor-
tance and various theories of international trade. We will also cover
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the trade barriers that exist in international trade as well as new

trends in global trade.
1.2.1 NEED FOR INTERNATIONAL TRADE
In this highly competitive world, the role of international trade is very

crucial in the economic development of a country and its people. It al-
lows the countries involved in international trade to enjoy the mutual
benefits and comparative advantages offered. The need for interna-
tional trade is explained in the following points:
It acts as a platform for manufacturers and distributors to seek out
products, services, and components produced in foreign countries.
It is an important part of development strategy and can be an ef-
fective tool of economic growth, employment generation, and pov-
erty alleviation.
It provides the opportunity to companies for learning new tech-
nologies that further helps in increasing production as well as pro-
ductivity, reducing cost, and increasing quality.

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Itenables firms to acquire resources that are not available within

the country.
It gives customers an increased number of options to select from.
1.2.2 REASONS FOR INTERNATIONAL TRADE
Export and import play a crucial role not only in the growth of a na-
tion’s economy, but also in improving global economy as well. Ev-
ery country irrespective of its economic and social development has
something unique to offer. Thus, it creates a demand for products or
services that are offered to the host country by the home country. Let
us now discuss in details the reasons behind international trade:
Cheap Resources: It can be considered as the primary reason for
the promotion of international trade. The country that has sur-
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plus of certain commodity of product can offer it internationally
at cheaper prices. It provides mutual benefit to both the countries
trading in balancing their demand and supply graph. Moreover,
it helps the exporting country in obtaining foreign currency that
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further helps in strengthening its economy.
Access to New Technology: International trade helps in bridging
the gap for inaccessible or limited skills and technology needed.
For example, let us assume that country X is unable to produce
a particular raw material A because of lack of resources and the
country Y has surplus amount of raw material A. In this case, in-
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ternational trade helps in solving the problem as country X can

import the raw material A from country Y.
Diversification of Risk: Global trade facilitates in export and im-
port of products and services. Thus, it helps in boosting the confi-
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dence of domestic market by making it independent and not rely-

ing on the only sources available for certain products and services.
Hence proved, that it helps in limiting the scope of risk for the do-
mestic market and providing it with competitive edge over others.
Government Regulations: The rules and regulations imposed by
the government also boost the confidence of traders. These regu-
lations help to protect the interests of the marketers and impose
strict restrictions on import and export of certain products.
Non-availability in Domestic Market: International trade also
helps in overcoming scarcity of certain products and services. This
further helps the nation to fulfil its need for the given commodity
at cheaper price.
1.2.3 METHODS OF INTERNATIONAL TRADE
International Trade can be defined as a process in which exchange of

goods and services take place across the borders.

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There are various methods for carrying out trade internationally,

which are mentioned below:
Exporting: It refers to the process in which goods and services are
sold and shipped from one country to another. It is of two types
namely direct exporting and indirect exporting. Direct exporting
is the basic form of export that is most suitable for small compa-
nies while indirect exporting is done through intermediaries and
has no control over the goods exported in the international market.
Licensing: It refers to an agreement that allows foreign organisa-
tions to manufacture owner’s product either exclusively or non-
exclusively for a specified time period in a particular market. In
this process, the licensee is given limited rights and resources for
his or her home country by the licensor. It can be of various types,
such as managerial skills, trademarks, technology, patents and so
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on. Licensing offers various benefits, which are enlisted below:
Helps in gaining additional income for developing technology.
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Facilitates in reaching new unexplored markets that show po-
tential for export.
Allows quick expansion plan by eliminating risk and need for
large capital investment.
Opens the market for future investment.
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Retains the interests of established domestic market by impos-

ing trade restriction on new entrants from international mar-
ket.
However, it has some disadvantages also that are given below:
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Results in loss of control of the licensee manufacture and mar-

keting operating and practices that further cause loss of qual-
ity.
Incompetent partner can risk and ruin the trademark and
brand reputation.
Foreign partner might end up becoming the competitor of the
parent company by selling its own production.
Franchising: According to T.W. Zimmerer “A system in which
semi-independent business owners (franchisees) pay fees and roy-
alties to a parent company (franchiser) in return for the right to be-
come identified with its trademark, to sell its products or services,
and often to use its business format and system.”
In comparison to licensing, these agreements are for longer period
of time and wide number of rights and resources are provided to
the franchisee by the franchisor.

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It offers various advantages that are enlisted below:

Minimises political risk.
Allows continuous and simultaneous expansion globally.
Encourages partners to bring financial investments and de-
velop managerial capabilities.
Disadvantages of franchising are given below:
Franchisees may end up becoming future competitors.
Leads in selection of wrong franchisor as there is rare demand
of franchisor after starting franchising for the company.
Selectionof wrong franchisee may result in loss of company’s
name, reputation, and brand image in the market.
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Requires larger investment when compared with other meth-
ods of international trade, such as export or licensing.
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Turnkey Projects: A project in which contractor is paid by the cli-
ent for designing and constructing new facilities as well as training
personnel is called turnkey project. It is basically constructed by
the client for selling it the buyer as a complete and finished prod-
uct. This is a method being frequently used by foreign companies
for exporting their technology and process in other countries. It is
done by designing and establishing their plant in the host country.
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It is generally used by those companies that specialises in complex

production technology and are in entry stage. The main benefit
offered by turnkey project is that it requires only limited Foreign
Direct Investment (FDI) but still can earn profits from the plant
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established in the foreign country.

Wholly Owned Subsidiaries: These are of two types, namely
Greenfield Investment and Acquisitions, which are explained in
detail below:
Greenfield Investment: It refers to the establishment of wholly
owned new subsidiary and generally it is considered to be a
complex and costly process. It helps in providing total control
to the organisation as well as provides above average returns.
When physical and capital intensive plants are designed then
it is preferred option. The main issue with this method is that it
is highly expensive and time consuming process. In this, a third
party such as a consultant or business partner is roped in for ac-
quiring knowledge and expertise. Thus, it becomes really time
consuming process as it requires time in learning and imple-
menting marketing strategies.
Brownfield Investment or Acquisition: It refers to a popular
method for entering global market as it provides quick access
of the market. Under this type of investment the organisation

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acquires (i.e. it purchases) an already established production

facility or business in the foreign country. It also helps in in-
creasing the market share of the organisation; so many MNCs
are interested in applying acquisition strategy to increase their
market share and power. It provides competitive edge to an
organisation as it acquires the technical know-how, financial
capabilities, and management capabilities of the acquired or-
ganisation.
Joint Venture: It can be arranged as a partnership firm, corpora-
tion, or any other form of business organisation as selected by the
participating firms. Under the Indian Companies Act, 1956, a joint
venture can be incorporated or established as a private or public
company. It has five common objectives that are explained as fol-
lows:
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Entry in new market
Sharing of risk and reward
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Sharing technological know-how
Joint Product Development
Adherence to government regulations
It also helps in gaining political connections and accessing new
distribution channels. This strategy is suitable only when below
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mentioned conditions are met:

1. When the strategic goals of the partners are same and united,
while their competitive goals diversify
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2. The size, market power, and resources of the partner are

smaller in comparison to the competitor.
3. Partners are ready to learn from each other while providing
limited access to their own propriety skills.
There are certain factors that need to be taken care of in joint ven-
ture, namely ownership, control, length of agreement, pricing, ac-
cess to technology, local firm capabilities and resources, and gov-
ernment intentions.
Problems that can be faced in joint venture are mentioned hereunder:
Conflicts relating to new investments
Mistrust over sharing of propriety knowledge
Performance ambiguity
Lack of support from parent firm
Cultural diversification may lead to clashes

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Strategic Alliance: It refers to a cooperative agreement that is

signed between different firms for the purpose of shared research,
formal joint ventures, or minority equity participation. The advan-
tages of this alliance are technological exchange, healthy global
competition, industry convergence, economies of scale, and alli-
ance becoming an alternative to merger.
self assessment Questions
1.
International trade includes __________________that
comprises of sales, investments, and shipment.
2. International trade helps in bridging the gap for inaccessible
or limited skills and technology needed. (True/False)
3. Which of the following is not a method of international trade?
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a. Exporting b. Collective Bargaining
c. Licensing d. Strategic Alliance
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4. ___________refers to a cooperative agreement that is signed
between different firms for the purpose of shared research,
formal joint ventures, or minority equity participation.
5. International trade includes commercial transactions that
comprises of sales, investments, and shipment. (True/False)
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Activity
Find out how ancient civilisation used barter system for interna-
tional trade.
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1.3 theories of INTERNATIONAL TRADE

International trade theories help in understanding its importance and
concept. Trade has seen big change from barter system to international
trade. In barter system, goods and services are directly exchanged for
other goods and services instead of cash. While in international trade,
goods and services are exchanged for cash across international bor-
der. Now let us discuss different theories of international trade.
1.3.1 theory of absolute advantage
The Theory of Absolute Advantage was propounded by Adam Smith

in 1776. According to this theory, any country can be more efficient in
producing a certain kind of product in comparison to other countries.
This condition will be beneficial for all countries to engage in trade.
The other countries can benefit from their respective specialisations
and consequently increase productivity. The Theory of Absolute Ad-
vantage is subjective in nature.

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An example can be used to prove this theory. Suppose there are two
countries A and B, which produce tea and coffee with equal amount
of resources that is 200 labourers. Country A uses 10 labourers to pro-
duce 1 ton of tea and 20 labourers to produce 1 ton of coffee. Country
B uses 25 units of labourers to produce tea and 5 units of labourers to
produce 1 ton of coffee. This is shown in Table 1.1:
Table 1.1: Resources used to produce a ton of Tea

and Coffee without Trading
Country A Country B
Tea 10 25
Coffee 20 5
It can be seen from Table 1.1 that country A has absolute advantage
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in producing tea as it can produce 1 ton of tea by using less labourers
as compared to country B. On the other hand, country B has absolute
advantage in producing coffee as it can produce 1 ton of coffee by em-
ploying less labourers in comparison to country A.
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Now, if there is no trade between these countries and resources (in
this case there are total 200 labourers) are being used equally to pro-
duce tea and coffee, country A would produce 10 tons of tea and 5 tons
of coffee and country B would produce 4 tons of tea and 20 tons of cof-
fee. Thus, total production without trade is 39 tons (14 tons of tea and
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25 tons of coffee). Table 1.2 shows the production without the trade
between country A and country B:
Table 1.2: Production without Trade

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Country A (in tons) Country B (in tons)

Tea 10 4
Coffee 5 20
If both the countries trade with each other and specialise in goods in
which they have absolute advantage, the total production would be
higher. Country A would produce 20 tons of tea with 200 units of la-
bourers; whereas, country B would produce 40 tons of coffee with 200
units of labourers. Thus, total production would be 60 units (20 tons of
tea and 40 tons of coffee).The production of tea and coffee after trade
is shown in Table 1.3:
Table 1.3: Production with Trade

Country A (in tons) Country B (in tons)
Tea 20 0
Coffee 0 40

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Without specialisation, total production of countries was 39 tons,

which becomes 60 tons after specialisation. Therefore, the theory of
absolute advantages shows that trade would be beneficial for both the
countries.
1.3.2 theory of comparative advantage
This theory states that two countries can engage in mutual trade, even
if one country possesses an absolute advantage in producing all com-
modities. This theory considers the concept of opportunity cost and
states that one country has a greater opportunity cost of manufactur-
ing particular goods while the other country has a greater opportunity
cost of manufacturing other goods; even if the first country has an
absolute advantage in manufacturing both kinds of goods, they can
still involve in trade. Corresponding to theory of absolute advantage,
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this theory too has practical limitations due to inherent assumptions.
Trade does not work precisely the way the theory of comparative ad-
vantage might suggest, for a number of reasons:
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No country specialises exclusively in the production and export
of a single product or service.
Allcountries produce at least some goods and services that other
countries can produce more efficiently.
According to this theory, a third world country can produce any prod-
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uct more efficiently than a developed country. However, they cannot

identify their end customers residing in developed countries or trans-
port their inexpensive products to them. As a result, developed na-
tions continue with the manufacturing of products.
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1.3.3 product life cycle theory
Product Life Cycle (PLC) theory was given by Raymond Vermon,

which is an economic theory. It takes into consideration two important
factors that were ignored by the other theories:
New products are developed as a result of technological innova-
tions.
Trade patterns depend on the market structure and the phase in a
new product’s life.
According to this theory, rich and developed countries can carry for-
ward the Research and Development (R&D) for producing new prod-
ucts as they have stable patent protection system and people have
money to buy or at least try new products. Figure 1.1 helps in under-
standing the different stage in PLC

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Figure 1.1: Stages in PLC

1. Introduction: Any new product is first innovated, produced, and
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sold in the domestic (innovating) country. Generally in the first
stage standardisation of the products is not done, which requires
more labour oriented production processes. Since, the product is
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new so the introductory prices are higher in the initial stage.
2. Growth: As the demand of the product or service grows,
competition also increases in the market. This further leads to
a steep rise in foreign demand for the product, competition, and
exports.
3. Maturity: The global demand of the product start reaching to
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peak, the manufacturer follows standardised production process

and due to tough global price competition, production site is
relocated to lower cost developing countries.
4. Decline: With the increase in competition, cost issues, and
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other market factors all production processes are relocated to

developing countries.
1.3.4 theory of market imperfection
The previous theories consider market in ideal situations, which does

not exist in reality. The deviations from perfect condition are known as
market imperfection. This imperfect competition results in high volume
of intra industry trade between similarly endowed countries. It results
in emergence of cross-country technology gaps and helps to identify
the determinants of dynamic comparative advantage. The explorations
of trade with imperfect competition have also deepened substantially
our understanding of the costs and benefits of trade policy.
1.3.5 heckscher and ohlin theory: modern theory

of international trade
In contrast to absolute advantage and comparative advantage theo-

ries that are based on the differences existing between two nations, in

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the relative efficiencies of manufacturing goods. This theory assumes

similar levels of efficiency but classifies goods into two kinds, namely
labour intensive and capital intensive.
A labour rich country could lead in producing labour intensive goods

where as a capital rich country can take lead in capital intensive goods.
When these two types of countries engage in mutual trade, they can
then reap the benefits of international trade.
Heckscher and Ohlin theory, given by Swedish Economists Eli Heck-

sher and Bertil Ohlin, is an extension of theory of comparative advan-
tage. This theory introduces a second factor of production that is cap-
ital. Heckscher and Ohlin theory states that comparative advantage
occurs from differences in factor endowments between the countries.
Factor endowment refers to the amount of resources, such as land,
labour, and capital available to a country. Every country has different
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factor endowments, thus the costs of these factors differ depending
upon their availability. For example, if a country has abundant labour,
then the cost of labour would be low in that country.
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According to Heckscher and Ohlin theory, a country would export
products, which it produces by using the abundant factor of produc-
tion. However, it would import goods, which require use of scarce re-
sources. Countries trade with each other because they have different
factor endowments. For instance, some countries may have more la-
bour and less machinery and some may have more machinery and
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less labour. In such a case, the country with more labour would spe-
cialise in labour-intensive products and export those products to other
country.
The assumptions of Heckscher and Ohlin theory are as follows:

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Needs of citizens of the two countries are same.

Transportation cost between the countries is zero.
Factors of production in both the countries are immobile.
Factorsof production in both the countries are not available in
same proportion.
The Heckscher and Ohlin theory shows relationship among various

variables. The prices of the factors are determined by their availabil-
ity, which further determines the price of the product. Cost advantage
and specialisation occurs as a result of difference of factor prices and
product price.
1.3.6 theory of imitation
This theory states that international trade can take place between two
countries having similar factor endowments and consumer tastes.

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Trade starts between two countries as a result of gap between innova-

tion of products and their imitations present in other countries. There
are two limitations in this theory:
Demand lag is the time gap that exists between the introduction of
a new product in one country and the demand for the product by
the consumer living in different country.
Trade occurs between the two countries when demand lag is
shorter than imitation lag.
6. ___________ states that two countries can engage in mutual

trade, even if one country possesses an absolute advantage in
producing all commodities.
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7. How many stages are there in product life cycle?
8. Theory of absolute advantage was proposed by Adam Smith.
(True/False)
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9. Trade occurs between the two countries when demand lag is
shorter than imitation lag. (True/False)
10. In which stage, the global demand of the product start reaches
to its peak.
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Activity
Take any product of your interest and see its development cycle in
trading countries.
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1.4 INTERNATIONAL TRADE BARRIERS

Trade barriers can be explained as the restrictions or limitations that
are imposed by the government on exchange of goods and services
among countries. Government has introduced various trade barriers
that include tariffs, foreign exchange restrictions, trade agreements,
and trading blocs to name a few. Trade barriers have two broad cate-
gories, which are tariff barriers or fiscal controls and non-tariff barri-
ers or quantitative restrictions.
Trade barriers are imposed with different objectives under different

situations as under:
1. To protect home industries from foreign competition: In most
of the developing countries, a major part of basic and heavy
industries are still in the initial stage. They have high cost of
production and low quality of output. Therefore, such industries
need protection from outside competitors.

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2. To promote new industries and R&D: Developed countries are

enriched with technologies that developing countries are still
researching and innovating. Thus, it becomes really important
to protect these potential developments from any kind of foreign
competition.
3. To conserve foreign exchange reserves: When a country
indulges in surplus import then it impacts the foreign currency
of the nation, hence government uses certain measures, such
as quotas and tariffs for ensuring the proper balance of foreign
exchange reserve.
4. To maintain favourable balance of payments: As the name
suggests the Balance of Payment (BOP) denotes the gap between
inflow and outflow of foreign currency in the economy. When a
country has favourable amount of BOP, then it attracts goodwill
and more foreign investment for its economic development.
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Trade barriers imposed by the government plays an important
role in import reduction and improving BOP of the nation.
5. To protect national economy from dumping: When an MNC sells
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its products at price, which is lower than its production cost then it
is known as dumping. As an outcome, the domestic manufacturers
fail to beat the competition and they withdraw their products
and presence from the market. For controlling such situations
government may increase tariffs on the dumped goods.
6. To make economy self-reliant: During the beginning stage,
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budding industries need protection from government. Slowly

these protected industries gain strength and stands against the
foreign competitors by continuously improving their quality.
Let us now discuss different types of trade barriers.

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TYPES OF TRADE BARRIERS

Tariffs: Tariffs can be explained as customs duty or tax levied on
products that cross the border of a country. It is one of the most
effective trade barriers. Tariffs’ are imposed by the government
in the form of custom duties and taxes for reducing the imports of
certain commodities. Tariffs are basically imposed for maintain-
ing BOP and discouraging the consumption of imported goods. All
this is done by increasing the prices of the goods. Tariff can be
classified in several ways based on direction, purpose, length, rate,
and distribution point, which are explained as follows:
Direction: Tariffs are levied on the basis of the direction of prod-
uct movement; it could be import or export. The export tariffs are
mostly applied to an exporting country’s resources or raw materials.
Purpose: Tariffs can be classified as protective tariffs and rev-
enue tariffs. As the name suggests, protective tariffs are levied
to protect home industry, agriculture, and labour against for-
eign competitors, its main purpose is to keep foreign goods out

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of the country. For instance, the South American markets have

high import duties to curb the import of fully built cars. On
other hand, revenue tariffs are imposed to generate revenues
for the government rather than protecting the interests of the
domestic industry.
Distribution Point: There are few taxes that are collected at a
particular point of distribution or during the time of purchases
and consumption. Such indirect taxes are of four kinds, namely
single-stage, value-added, cascade, and excise. Single-stage
sales tax is collected at one point in the manufacturing and
distribution chain. The single-stage sales tax is collected only
after selling the product to the final consumers. A value-added
tax (VAT) is a multistage tax that is charged on consumption of
goods. In simple words, it is a tax levied when a product moves
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from one hand to another. Excise tax is a one-time charge lev-
ied on the sales of specified products. Alcoholic beverages and
cigarettes are good examples.
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Countervailing Duties: These duties are levied on the subsidised
goods that are imported by the home country. Its main purpose
is to reduce the advantage that the exporting country enjoys on
trading the subsidised goods. A government can provide export
subsidy by rebating certain taxes on exported goods.

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11. Which are the two major classifications of trade barriers?

12. Countervailing Duties are levied on the subsidised goods that
are imported by the home country. (True/False)
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Activity
Using the Internet, find out any three international trade barriers
imposed by Indian government. Prepare a report on the advan-
tages and limitations of each of them.
1.5 trends in international trade

International trade plays a vital role in the economic development of
any nation. Statistics reveal that the year 2004 saw historic growth
in the world of merchandise trade. It touched the milestone of 21%,
which has been one of the highest growth rates in 25 years, amounting
to nearly USD 8.9 trillion. The merchandise world expanded 9% in
2004 and the growth rate of merchandise trade is moving rapidly than
global Gross Domestic Product (GDP) rate.

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For example, the growth rate of world trade was 6% on an average in

1994-2004, whereas global GDP at market exchange rates grew less
than 3% in the same period. Some of the major trends are enlisted as
follows:
Trade in Agricultural and Manufactured Goods: In the past two
decades, world merchandise trade has observed above average
growth rate in the manufactured goods sector, which does not
include mining products. As a result, they accounted for around
three-quarters of world merchandise trade in 2003. In contrast,
the share of agricultural goods trade remained at around 9% in the
three preceding years, which represented approximately 2% be-
low the average level in the 1990s. Now the demand of processed
agriculture goods is high in demand among agriculture goods over
the past decade. One can notice this changing trend across the
countries.
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Trade between partners of Regional Trade Agreements (RTAs):
Due to increase in the registration of new RTAs, the trade between
them has witnessed a quantum jump. It is predicted that the num-
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bers will increase over a period of time because of present negoti-
ations.
Developing Countries’ Trade: The merchandise trade pertaining
to developing countries has increased significantly over the past
years with shares jumping to 31%. More and more products are
being exported to developed nations with predictions that it will
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continue to increase in the near future.

South-South Trade: The countries in southern hemisphere are
accounting for about 13% of the world merchandise trade with an
annual increase of 11%. Lion’s share of export of the developing
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countries is channelised to the other developing countries. The

trade among Asian countries has increased in present time since
the growth of East Asian economies.
Air or Express Cargo: Although the share of the air or cargo in
world trade is miniscule but still it is growing at a healthy 10%
growth rate annually and it is expected to rise in near future.
Globalisation accompanied by real time supply and distribution
is a primary reason for the explosive growth. The air cargo is con-
sidered to be the fastest mode of transfer of goods. However, the
rising fuel price has impacted the cost of the product by making it
expensive.
Global Production Network: Global production of manufactured
goods has increased in recent times, followed by the trade between
different countries located across the globe. All the exported goods
comprise of the import of intermediate goods. It has helped to en-
hance the quality of the product by many notches.

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Intra-Firm Trade: Intra- firm trade comprise of 30% of the total

world trade. Trading in developed countries consists of supply of
goods from the manufacturing units to the distributors. Subsidi-
ary of the parent companies located in the middle income nations
often produce goods destined for the developed countries. It has
gone a long way in providing impeccable results to the organisa-
tions so that they can boost their efficiency by many notches.
E-commerce: Electronic commerce is an electronic form of busi-
ness that has proved to be a vital component of the international
trade and business unlike the conventional trade that is still popu-
lar all over the world. Internet has been a dominant factor in bring-
ing the suppliers and customers together so that transactions of
goods can take place in an effective manner. Rather than straining
oneself to visit the neighbourhood store, people can shop online
for products offering fabulous deals. It has reduced the cost of the
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business in a significant manner.
Just-in-Time System: Just-in time system has been immensely
successful in meeting the demands of the consumers because
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there is negligible time lag between the manufactured goods and
their eventual delivery to the intended destination. Supply chain
is an important tool that helps to eliminate the discrepancy in en-
suring the supply of materials, components, and the distribution of
manufactured goods to the customers who would be delighted by
the offered quality.
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13. RTAs stand for _____________

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14. __________is an important tool that helps to eliminate the

discrepancy in ensuring the supply of material.
Activity
Using the Internet, prepare a draft on significance of Just in time in

international trend.
1.6 SUMMARY
International trade refers to a trade between two or more nations.
The origin of the international trade can be traced back to 2500
B.C. from the ancient times.
There are various methods of payment for international trade to
ensure transaction happens safely.

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The major theories which explain the need for international trade
are theory of absolute advantage, theory of comparative advan-
tage, product life cycle theory, theory of market imperfection,
modern theory of international trade, and theory of imitation.
The accessibility of internet and plastic money has contributed in
easy transactions of trade.
Trade barriers are artificial restrictions practiced by governments
to protect industries of their own country. There are two major
types of trade barriers namely the tariff and non-tariff barriers.
Various new trends are narrowing the gap between developed and
developing countries.
key words
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International Trade: It refers to the transaction of goods or ser-
vices between two or more countries.
Cash in Advance: It refers to payment of cash in advance by
importers before shipment.
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Letter of Credit: It refers to the document given by bank to im-
porter on the behalf of exporter.
Product Life Cycle: It refers to different phases of a particular
product and its impact on the sale of that product.
Just in Time: It is a Japanese philosophy that aims to improve
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work practices and the efficiencies of processes with zero wait-

ing time.
1.7 DESCRIPTIVE QUESTIONS

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1. What are the different methods in international trade? Explain.

2. Write a short note on product life cycle theory.
3. Discuss the emerging trends of international trade.
4. Explain various trade barriers and why governments impose
them?
5. Explain the reasons for international trade.
6. Elaborate on the theory of Absolute Advantage
1.8 Answers and hints

answers for Self Assessment Questions
Topic Q. No. Answers

International Trade 1. Commercial transactions

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2. True
3. b. Collective bargaining
4. Strategic alliance
5. True
Theories of International 6. Theory of Comparative Ad-
Trade vantage
7. There are four stages in
PLC namely introduction,
growth, maturity, and de-
cline
8. True
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9. True
10. Maturity
International Trade 11. Tariffs and countervailing
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Barriers duties
12. True
Trends in 13. Regional Trade Agreements
International Trade
14. Supply chain
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hints for Descriptive Questions

1. International Trade can be defined as a process in which
exchange of goods and services take place across the borders.
Refer to Section 1.2 International Trade.
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2. Product Life Cycle (PLC) theory was given by Raymond Vermon,

which is an economic theory. Refer to Section 1.3 Theories of
International Trade.
3. International trade plays a vital role in the economic development
of any nation. Statistics reveal that the year 2004 saw historic
growth in the world of merchandise trade. Refer to Section
1.5 Trends in International Trade.
4. Trade barriers can be explained as the restrictions or limitations
that are imposed by the government on exchange of goods and
services among countries. Refer to Section 1.4 International
Trade Barriers.
5. International trade helps in getting cheap resources, access
to new technology and diversification of risk. Refer to Section
1.2 International Trade.
6. According to absolute advantage theory, any country can be more
efficient in producing a certain kind of product in comparison to
other countries. Refer to Section 1.3 Theories of International
Trade.

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1.9 SUGGESTED READING FOR REFERENCE
Suggested readings
Johnson,T. (2002). Export/import procedures and documentation.
New York: AMACOM.
Rai, U. (2007). Export-import and logistics management. New
Delhi: Prentice-Hall of India.
e-References
Econlib.org,. (2014). Benefit-Cost Analysis: The Concise Encyclopae-
dia of Economics | Library of Economics and Liberty. Retrieved 7
November 2014, from http://www.econlib.org/library/Enc/Benefit-
CostAnalysis.html
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Export.gov,.(2014). Export.gov - Chapter 1: Methods of Payment.
Retrieved 7 November 2014, from http://www.export.gov/tradefi-
nanceguide/eg_main_043221.asp
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Prasad, P. (1977). Foreign trade and commerce in ancient India. New
Delhi: Abhinav Publications.
www.mizudesign.com, M. (2014). International Trade. Internation-
altrade.co.uk. Retrieved 7 November 2014, from http://www.inter-
nationaltrade.co.uk/
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Ch a
2 p t e r
Regulatory Framework of export-import
CONTENTS
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2.1 Introduction
2.2 Export-Import Policy
2.2.1
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Salient Features of Export-Import Policy
2.2.2 Evaluation of Export-Import Policy
Activity
2.3 Highlights of Export-Import Policy 2009-2014
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Activity
2.4 Foreign Trade (Development and Regulation) Act 1992
Activity
2.5 Foreign Exchange Management Act 1999
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Activity
2.6 Customs Act 1962
Activity
2.7 Export (Quality Control and Inspection) Act 1963
Activity
2.8 Customs Tariff Act 1975
Activity
2.9 Central Excise Tariff Act 1985
Activity
2.10 Summary

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INDIA’S FREE TRADE AGREEMENTS - A CASE STUDY

OF THE LEATHER INDUSTRY
This case study tries to put forward how a well-defined frame-

work for foreign trade policies helps in improving the services as
well as in accelerating the nation’s economy.
Free Trade Agreements or FTAs are the trade agreements be-

tween two countries or blocs of countries. The objective of these
is to give each other access to markets by lowering or removing
the trade barriers which include the tariff and non-tariff barri-
ers. FTAs include the trade of goods and services both. It can also
cover trade of intellectual property rights (IPRs), investment, gov-
ernment procurement and competition policy.
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The FTAs cover a lot of goods, services, IPRs. Therefore it can
severely impact domestic production system specially the Micro,
Small and Medium Enterprises (MSME) sector of which leather
industry is a part.
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In this case we will study as to how these provisions have an im-
pact on the growth prospects of the leather and leather products
industry. Leather is an export oriented product.
There are various provisions in FTAs which are pertinent to

leather industry. Nearly 70% of leather sector is run in form of
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small scale industries. The rest industry is run by medium and

large scale organisations. The work in leather industry can be di-
vided into 6 segments namely (i) tanning and finishing; (ii) leather
footwear; (iii) footwear components; (iv); leather garments; (v)
leather goods; and (vi) saddlery and harness. The leather goods are
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produced mainly in 8 locations across India. They are Tamil Nadu

(Chennai, Ambur, Ranipet, Vaniyambadi, Trichy and Dindigul),
West Bengal (Kolkata), Uttar Pradesh (Kanpur and Agra), Pun-
jab (Jalandhar), Delhi, Andhra Pradesh (Hyderabad), Karnataka
(Bangalore) and Maharashtra (Mumbai).
In order to develop the domestic leather industry there has been

an emphasis on value added products since 1973. In 1972, Seetha-
ramiah Committee recommended that there should be a ban on
raw hides and skins and there should be restriction on the quan-
tity of semi-finished leather and increased incentives for export of
leather in form of finished product. An export duty of 25% was lev-
ied on the export of semi-finished leather. In addition, cash com-
pensatory support, airfreight subsidies and duty drawback was
provided to leather exports. In 1979, on the recommendations of
Kaul Committee the import duty on tanning, finishing, footwear
and leather goods machinery was reduced to a uniform rate of
25%. In 1985, Pande Committee recommended measures to aug-
ment raw material availability, strengthen the modernisation pro-

Regulatory Framework of export-import 25
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cess and promote footwear as the most important item of export.

In 1992, a Committee set up exclusively for the leather industry in
its report stated that employment generation is a major objective
for an industry like leather. This can be achieved provided India
is a major player in this industry. This committee gave 5 major
recommendations for promoting exports:
1. Abolition of reservation for specific products for production
in the small-scale sector;
2. Licensing requirements for the industry should be removed;
3. Foreign collaborations should be cleared quickly and routinely
and that Indian firms should be permitted to enter into joint
ventures in order to gain access to raw material abroad;
4. Setting up a variety of educational institutions and training
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centres to train manpower for the industry;
5. A technological package to modernise the industry were
identified.
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The recommendations of this committee took the leather industry
into a totally different zone which was characterised by de-licens-
ing, de-reservation and import liberalisation.
Currently, there are various trade policy schemes for the leather
industry to help facilitate the trade of leather and they include
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duty free import facility for leather product manufacturers in-

cluding footwear, duty drawback facility and service tax exemp-
tion on transport of certain goods, etc.
The policy reforms for the leather sector date back to 1972-73. The
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objectives of promotion of leather exports have been fulfilled to a

large extent as the share of the value-added finished products in
the total exports from the leather sector has gone up considerably
from 20% in 1970s to 80%. The table below shows the exports of
leather and leather products from India to rest of world.
Table: Exports of Leather and Leather Products

(Value in Million $)
2007-08 2008-09 2009-10 2010-11 2011-12
Finished Leather 807.19 673.37 627.95 841.13 1023.21
Footwear 1489.35 1534.32 1507.59 1758.67 2077.27
Leather Garments 345.34 426.17 428.62 425.04 572.54
Leather Goods 800.46 873.44 757.02 855.78 1088.09
Saddlery & Harness 106.18 92.15 83.39 87.92 107.60
Total 3548.51 3599.46 3404.57 3968.54 4868.71
% Growth 15.99% 1.44% -5.41% 16.57% 22.68%
Source: DGCI&S

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From the table above, it can be observed that the exports have
gone up consistently except in the year 2009-10.
This trend of increasing exports can be attributed to various for-

eign trade reforms of which the most noteworthy are FTAs be-
cause they help open up trade because the border duties near
zero. Indian exports can be routed to the countries with whom
FTA is signed and vice versa. It has been observed that the coun-
tries with which India signed FTAs the share of exports and im-
ports of leather are maximum. India has offered up to 90% of
products for zero duty in the currently signed FTAs. India also
imposed export taxes on raw leather and abolished import duties
on finished leather. Currently India levies export taxes between
10% and 25% on tanned and non-tanned hides, skins and leathers
including vegetable-dyed leather used by the saddlery industry.
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learning objectives

>> Discuss export-import policy
>> Explain new export-import policy
>> Define Foreign Exchange Management Act 1999
>> State Customs Act 1962
>> Explain Export (Quality Control and Inspection) Act 1963
>> Outline Customs Tariff Act 1975
>> Discuss Central Excise Tariff Act 1985
2.1 INTRODUCTION
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The previous chapter discussed about the concept of international
trade. There are various rules and regulations that should be followed
by the organisations which are indulged in exports and imports.
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For attaining growth and prosperity in any sector, we need to follow
an institutional framework, same holds true for external trade as well.
A proper institutional framework and supportive environment, facil-
itates and supports in the development and growth of external trade.
The growth index of export determines the GDP growth rate of a de-
veloping country and India is not an exception. In global trade, there
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is a requirement for supportive regulatory framework. The rules and

regulations are laid in this framework by the authorities and the gov-
erning body to protect the interest of the people involved in trade. The
present EXIM regulatory framework in India is designed to facilitate
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the growth of trade. The positive and supportive government policies

help in fostering the trade. The main purpose of the rules and regula-
tions is to remove the obstacles from the way and create a supportive
path for the traders.
In this chapter, we will study about EXIM policies, Foreign Trade Act,
Customs Act, and other related acts and policies.
2.2 Export-Import Policy

The EXIM policy (export-import policy) aims at regulating and man-
aging imports and promoting and maintaining exports. It does not al-
low exporting the goods that are scarce and are required within the
country. The EXIM policy was first announced in 1992 to bring stabil-
ity and continuity in the Indian economy. Its main objectives are as
follows:
Deriving maximum benefits from expanding opportunities in the
global market.

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Stimulating economic growth by providing essential raw materi-

als, components, and capital goods for production.
Enhancing the efficiency of agriculture and service sector and im-
proving their competitiveness.
Generating new employment.
Encouraging the attainment of internationally accepted standards
of quality.
Providing quality products at reasonable prices.
The Export-Import (EXIM) Policy was formulated to follow all the

commitments made by India under the World Trade Organisation
(WTO) in April 2002. The main focus of the EXIM Policy 2002 - 2007
was on the export and import of merchandise and services. In Exim
Policy 1997 – 2002, the status of exporter was transformed into the
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business firm exporting services with effect from 1.4.1999 and these
business firms are now known as Service Providers.
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Some more principal objectives of this policy are as follows:
Support the export and help to attain a share of at least one per-
cent of global merchandise trade.
To advance the prolonged economic growth by providing access
to essential resources, such as intermediates, consumables, and
capital goods.
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Providing access to these resources further helps in improving the

production of goods and services.
Support and improve technological strength and efficiency of In-
dian agriculture, industry, and services. This will further help in
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improving the competitive strength of the nation and generating

new employment opportunities. It will also support and motivate
in development of internationally accepted standards of quality.
Offer high quality goods and services to the consumers at interna-
tionally competitive prices.
2.2.1 SALIENT FEATURES OF EXPORT-IMPORT POLICY
The salient features of Export-Import Policy are as follows:

It introduced the removal of quantitative packaging restrictions
on agriculture export.
It started providing transport assistance for agriculture based
goods.
Export thrust on items identified in Medium Term Export Strategy.

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The EXIM policy favoured the continuation of existing duty neu-

tralisation schemes, until Value Added Tax (VAT) became fully op-
erational.
Itadvocated the increase of time period from 8 to 12 years for ex-
ecuting export obligation under Export Promotion Capital Goods
(EPCG) scheme.
Special Economic Zones (SEZs) were allowed to establish offshore
banking units and they were free from statutory requirements like
CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio).
This policy simplified the external commercial borrowing norms
by allowing less than three years tenure loans.
EXIM policy provided a provision that allowed to repatriate ex-
port earnings within 360 days rather than 180 days.
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Ithelped in retention of entire export earnings in Export Earners
Foreigners Currency Account (EEFCA).
EXIM Policy provided tax benefits of sales from domestic tariffs
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to SEZ.
Italso helped in reduction of processing fees and made provisions
for receiving license in the same day of application from all the
offices of DGFT (Director General of Foreign Trade).
This policy also helped in eliminating all the disputes related to
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classification by introducing common classification for DGFT and

custom department.
No license was needed for relocation of overseas industrial plants
in India.
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Introduced Market Access Initiative (MAI) funds, which were

given for the development of infrastructure in the industrial areas,
such as Zirakpur, Panipat and Ludhiana.
Allocation of fund of Rs. 350 crore Assistance to States for Infra-
structure Development (ASIDE) funds linked to their export per-
formance.
Permission for captive power generation and duty free import of
fuel for power generation.
Reduction in the eligibility for getting export house status from
fifteen crore to five crore.
2.2.2 EVALUATION OF EXPORT-IMPORT POLICY
The EXIM policy was very significant for the Indian trade world es-
pecially for the foreign trade. It won’t be wrong to consider that the
EXIM policy favoured export activity. The objective of this policy was
to make export easier and rewarding and the policy was successful in
its objective to some extent.

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The following benefits can be seen if we evaluate the export import

policy:
Comprehensive: The policy focuses on almost all the sectors in-
cluding agriculture, cotton, handicraft, and cottage industry. It
was developed in such a way to offer revenues and protection to
rural people as well.
Supportive to Small, Cottage, and Handicraft Industry: These
industries were once the backbone of the Indian economy, how-
ever now they need support to survive. Various incentives have
been introduced for the survival and growth of small and cottage
industries.
Growth oriented: The policy aims to reduce the India’s trade def-
icit by its progressive and export friendly policies.
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Boost to agriculture export: The Indian economy is based on ag-
riculture and supporting the export of agriculture is the need of
the time.
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Setting up agri-export zones: The government has agreed to set-
up 32 export sector zone that would be totally dedicated to agri-
culture.
Exploring new export market: It has been decided that now the
export activity will take place in new countries, such as Latin and
South America as well as Africa. The country is seeking to develop
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new market apart from USA and EU nations as these countries

can be a promising market for the Indian products.
Overseas Banking Units: The EXIM policy also makes the way
for the overseas bank to open their branches in SEZs. It will fa-
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cilitate the export transaction as well. It helps Indian exporter to

obtain loan for the trade at low interest rate.
Encouragement to Hardware Industry: The EXIM policy pro-
moted the export of the computer hardware helping the market to
grab a booming market.
Encouragement to Jewellery Industry: Elimination of duty on
rough diamonds, concession to gems and jewellery industry, and
reduction of value addition rates from 10 to seven percent on ex-
port of plain jewellery has encouraged and boosted the market.
Boost to Industrial Growth: Concession on the duty levied on the
import of raw material capital goods and technology for the pro-
motion of industrial growth.
Setting of a Business Center: Helping the exporter to learn about
the intricacies of the foreign trade.
EXIM Policy was designed to bring vitality and growth in the coun-
try’s trade especially in export business. The policy was successful in
its objective to a great extent.

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1. The main focus of EXIM Policy was on the export and import
of merchandise and services. (True/False)
2. SEZs stand for _____________.
Activity
Compare features of EXIM Policy 2014-19 with 2009-14.
HIGHLIGHTS OF EXPORT-IMPORT
2.3
POLICY 2009-2014
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The highlights of recent EXIM policy 2009-2014 are given as follows:
Higher Support for Market and Product Diversification
Incentive
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schemes have been expanded by way of addition of
new products and markets.
26 new markets have been added under Focus Market Scheme.
These include 16 new markets in Latin America and 10 in Asia
Oceania.
The incentive available under Focus Market Scheme (FMS)
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has been raised from 2.5% to 3%.

The incentive available under Focus Product Scheme (FPS)
has been raised from 1.25% to 2%.
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A large number of products from various sectors have been

included for benefits under FPS. These include Engineering
products (agricultural machinery, parts of trailers, sewing ma-
chines, hand tools, garden tools, musical instruments, clocks
and watches, railway locomotives etc.), Plastic (value added
products), Jute and Sisal products, Technical Textiles, Green
Technology products (wind mills, wind turbines, electric oper-
ated vehicles etc.), Project goods, vegetable textiles and certain
Electronic items.
Market Linked Focus Product Scheme (MLFPS) has been
greatly expanded by inclusion of products classified under as
many as 153 ITC (HS) Codes at 4 digit level. Some major prod-
ucts include; Pharmaceuticals, Synthetic textile fabrics, value
added rubber products, value added plastic goods, textile
made-ups, knitted and crocheted fabrics, glass products, cer-
tain iron and steel products and certain articles of aluminium
among others. Benefits to these products will be provided, if ex-
ports are made to 13 identified markets (Algeria, Egypt, Kenya,
Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Viet-
nam, Cambodia, Australia and New Zealand).

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MLFPS benefits also extended for export to additional new

markets for certain products. These products include auto
components, motor cars, bicycle and its parts, and apparels
among others.
A common simplified application form has been introduced for
taking benefits under FPS, FMS, MLFPS and VKGUY.
Higher allocation for Market Development Assistance (MDA)
and Market Access Initiative (MAI) schemes is being provided.
Technological Upgradation
To aid technological upgradation of our export sector many initiatives

have been taken. These include:
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EPCG Scheme at zero duty for certain engineering products, elec-
tronic products, basic chemicals and pharmaceuticals, apparel
and textiles, plastics, handicrafts, chemicals and allied products
and leather and leather products.
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The 3% EPCG scheme has been simplified for the convenience of
exporters.
A minimum 15% value addition for imported inputs under ad-
vanced authorisation scheme has been stipulated to give boost to
the added manufacture export.
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A number of products including automobiles, engineering prod-

ucts have been included for incentives under the focus product
and market linked focus product schemes.
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EPCG Scheme Relaxations

To increase the life of existing plant and machinery, export obli-
gation on import of spares, moulds etc. under EPCG Scheme has
been reduced to 50% of the normal specific export obligation.
Taking into account the decline in exports, the facility of Re-fixa-
tion of Annual Average Export Obligation for a particular finan-
cial year in which there is decline in exports from the country, has
been extended for the 5 year Policy period 2009-14.
Support for Green products and products from

Northeast
Focus Product Scheme benefit extended for export of ‘green
products’; and for exports of some products originating from the
North East.

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Status Holders
To accelerate exports and encourage technological upgradation,
additional Duty Credit Scrips shall be given to Status Holders @
1% of the FOB value of past exports. The duty credit scrips can be
used for procurement of capital goods with Actual User condition.
This facility shall be available for sectors of leather (excluding fin-
ished leather), textiles and jute, handicrafts, engineering (exclud-
ing Iron & steel & non-ferrous metals in primary and intermediate
form, automobiles & two wheelers, nuclear reactors & parts, and
ships, boats and floating structures), plastics and basic chemicals
(excluding pharma products) [subject to exclusions of current
beneficiaries under Technological Upgradation Fund Schemes
(TUFS)]. This facility was available upto 31.3.2011. Now, Regional
Authority shall allow limited transferability of Status holder in-
centive scheme (SHIS) scrip within Group Company of the status
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holder provided the group company is a manufacturer.
Transferabilityfor the Duty Credit scrips being issued to Status
Holders under paragraph 3.8.6 of FTP under VKGUY Scheme
IM
has been permitted. This is subject to the condition that transfer
would be only to Status Holders and Scrips would be utilised for
the procurement of Cold Chain equipment(s) only.
Stability/ continuity of the Foreign Trade Policy

To impart stability to the Policy regime, Duty Entitlement Passbook
M
(DEPB) Scheme was extended beyond 31-12- 2009 till 31.12.2010

and then discontinued.
Interest subvention of 2% for pre-shipment credit for 7 specified
sectors was extended till 31.3.2010 in the Budget 2009-10.
N
Income Tax exemption to 100% EOUs and to STPI units under

Section 10B and 10A of Income Tax Act, were been extended for
the financial year 2010-11 in the Budget 2009-10.
The adjustment assistance scheme initiated in December, 2008 to
provide enhanced ECGC cover at 95%, to the adversely affected
sectors, continued till March, 2010.
Marine sector
Fisheries have been included in the sectors which are exempted
from maintenance of average EO under EPCG Scheme, subject to
the condition that Fishing Trawlers, boats, ships and other similar
items shall not be allowed to be imported under this provision.
This would provide a fillip to the marine sector which has been
affected by the present downturn in exports.

n o t e s
Additional flexibility under Target plus Scheme (TPS) / Duty Free

Certificate of Entitlement (DFCE) Scheme for Status Holders has
been given to Marine sector.
Gems & Jewellery Sector

To neutralise duty incidence on gold Jewellery exports, it has now
been decided to allow Duty Drawback on such exports.
In an endeavour to make India a diamond international trading
hub, it is planned to establish “Diamond Bourse(s).”
A new facility to allow import on consignment basis of cut & pol-
ished diamonds for the purpose of grading/ certification purposes
has been introduced.
To promote export of Gems & Jewellery products, the value limits
S
of personal carriage have been increased from US$ 2 million to
US$ 5 million in case of participation in overseas exhibitions. The
limit in case of personal carriage, as samples, for export promo-
tion tours, has also been increased from US$ 0.1 million to US$ 1
IM
million.
Agriculture Sector
To reduce transaction and handling costs, a single window system

to facilitate export of perishable agricultural produce has been in-
M
troduced. The system will involve creation of multi-functional nodal

agencies to be accredited by APEDA.
Leather Sector
N
Leather sector shall be allowed re-export of unsold imported raw

hides and skins and semi-finished leather from public bonded ware
houses, subject to payment of 50% of the applicable export duty.
Enhancement of FPS rate to 2% would also significantly benefit
the leather sector.
Tea
Minimum value addition under advance authorisation scheme for
export of tea has been reduced from the existing 100% to 50%
DTA sale limit of instant tea by EOU units has been increased from
the existing 30% to 50%.
Export of tea has been covered under VKGUY Scheme benefits.
Pharmaceutical Sector
Export Obligation Period for advance authorisations issued with

6-APA as input has been increased from the existing 6 months to 36
months, as is available for other products.

n o t e s
Pharma Sector extensively covered under MLFPS for countries in Af-

rica and Latin America; some countries in Oceania and Far East.
Handloom Sector
To simplify claims under FPS, requirement of ‘Handloom Mark’ for

availing benefits under FPS has been removed.
EOUs
EOUs have been allowed to sell products manufactured by them in
DTA upto a limit of 90% instead of existing 75%, without changing
the criteria of ‘similar goods’, within the overall entitlement of 50%
for DTA sale.
To provide clarity to the customs field formations, DOR shall is-
S
sue a clarification to enable procurement of spares beyond 5% by
granite sector EOUs.
EOUs will now be allowed to procure finished goods for consolida-
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tion along with their manufactured goods, subject to certain safe-
guards.
During this period of downturn, Board of Approvals (BOA) to con-
sider, extension of block period by one year for calculation of Net
Foreign Exchange earning of EOUs.
EOUs will now be allowed CENVAT Credit facility for the compo-
M
nent of SAD and Education Cess on DTA sale.
Thrust to Value Added Manufacturing

To encourage Value Added Manufactured export, a minimum 15%
N
value addition on imported inputs under Advance Authorisation

Scheme has now been prescribed.
Coverage of Project Exports and a large number of manufactured
goods under Focus Product Scheme (FPS) and Market Linked Fo-
cus Products Scheme (MLFPS).
Duty Entitlement Pass Book (DEPB)

DEPB rate shall also include factoring of custom duty component on
fuel where fuel is allowed as a consumable in Standard Input-Out-
put Norms. Now, the passbook scheme has been discontinued.
Flexibility provided to exporters

Payment of customs duty for Export Obligation (EO) shortfall
under Advance Authorisation/ Duty Free Import Authorisation
(DFIA)/Export Promotion Capital Goods (EPCG) Authorisation
has been allowed by way of debit of Duty Credit scrips. Earlier the
payment was allowed in cash only.

n o t e s
Import of restricted items, as replenishment, shall now be allowed

against transferred Duty Free Import Authorisations (DFIAs),
in line with the erstwhile Duty Free Replenishment Certificate
(DFRC) scheme.
Time limit of 60 days for re-import of exported gems and jewellery
items, for participation in exhibitions has been extended to 90 days
in case of USA.
Transit loss claims received from private approved insurance com-
panies in India will now be allowed for the purpose of EO fulfilment
under Export Promotion schemes. At present, the facility has been
limited to public sector general insurance companies only.
Waiver of Incentives Recovery, On RBI Specific Write off

In cases, where RBI specifically writes off the export proceeds re-
S
alisation, the incentives under the FTP shall now not be recovered
from the exporters subject to certain conditions.
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Simplification of Procedures
To facilitate duty free import of samples by exporters, number
of samples/pieces has been increased from the existing 15 to 50.
Customs clearance of such samples shall be based on declarations
given by the importers with regard to the limit of value and quan-
tity of samples.
M
To allow exemption for up to two stages from payment of excise

duty in lieu of refund, in case of supply to an advance authorisa-
tion holder (against invalidation letter) by the domestic intermedi-
ate manufacturer. It would allow exemption for supplies made to a
N
manufacturer, if such manufacturer in turn supplies the products

to an ultimate exporter. At present, exemption is allowed upto one
stage only.
Greater flexibility has been permitted to allow conversion of Ship-
ping Bills from one Export Promotion scheme to other scheme.
Customs shall now permit this conversion within three months,
instead of the present limited period of only one month.
To reduce transaction costs, dispatch of imported goods directly
from the Port to the site has been allowed under Advance Autho-
risation scheme for deemed supplies. At present, the duty free im-
ported goods could be taken only to the manufacturing unit of the
authorisation holder or its supporting manufacturer.
Disposal of manufacturing wastes / scrap will now be allowed after
payment of applicable excise duty, even before fulfilment of export
obligation under Advance Authorisation and EPCG Scheme.

n o t e s
Regional Authorities have now been authorised to issue licenses

for import of sports weapons by ‘renowned shooters’, on the basis
of NOC from the Ministry of Sports & Youth Affairs. Therefore,
there will be no need to approach DGFT now.
The procedure for issue of Free Sale Certificate has been simpli-
fied and the validity of the Certificate has been increased from 1
year to 2 years. This will solve the problems faced by the medical
devices industry.
Automobile industry, having their own R&D establishment, would
be allowed free import of reference fuels (petrol and diesel), upto a
maximum of 5 KL per annum, which are not manufactured in India.
Acceding to the demand of trade & industry, the application and
redemption forms under EPCG scheme have been simplified.
S
Reduction of Transaction Costs
No fee shall now be charged for grant of incentives under the
Schemes in Chapter 3 of FTP. Further, for all other Authorisations/
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license applications, maximum applicable fee is being reduced to
Rs. 100,000 from the existing Rs. 1,50,000 (for manual applications)
and Rs. 50,000 from the existing Rs.75,000 (for EDI applications).
To further the EDI initiatives, exporters can now file Export Obli-
gation Discharge Certificate (EODC) applications online as trans-
mission of two key documents (shipping bill from Customs and
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e-BRC from Banks) relating to Advance Authorisation and EPCG

Authorisations in secured electronic format to DGFT has been es-
tablished. With online EODC, exporter can complete the formali-
ties at DGFT online and may get quick clearances at the Customs
on account of e-transmission of EODC from DGFT to Customs.
N
System for Online issuance of Registration Certificate for export

of Cotton, Cotton Yarn, Non-Basmati Rice, Wheat and Sugar has
been introduced.
For EDI ports, with effect from December ’09, double verification
of shipping bills by customs for any of the DGFT schemes has been
dispensed with.
In cases, where the earlier authorisation has been cancelled and
a new authorisation has been issued in lieu of the earlier authori-
sation, application fee paid already for the cancelled authorisation
will now be adjusted against the application fee for the new autho-
risation subject to payment of minimum fee of Rs. 200.
An Inter-Ministerial Committee will be formed to redress/ resolve
problems/issues of exporters.
An updated compilation of Standard Input Output Norms (SION)
and ITC (HS) Classification of Export and Import Items has been
published.

n o t e s
Directorate of Trade Remedy Measures
To enable support to Indian industry and exporters, especially the

MSMEs, in availing their rights through trade remedy instruments, a
Directorate of Trade Remedy Measures shall be set up.
Activity
From the Internet, learn more about salient features of 2009-14

EXIM policy.
FOREIGN TRADE (DEVELOPMENT AND

2.4
REGULATION) ACT 1992
Foreign trade is constituted of two important components namely
S
import and export. Exchanging goods and services between the two
countries is foreign trade. The term “Import” stands for arrival of
goods into the country in a legal way by crossing the international
IM
border. Countries seek import for those goods and services that are
not produced or the production falls short of meeting the domestic
need of the market.
Whereas, “Export” is a legal transportation of goods out of a country to

meet the domestic requirements of other countries. Country exports
those items that are produced in abundance and can be exported to
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other countries to cater the need of the foreign customers. In short, we

can say that for foreign trade, the whole world is like a local market.
Importing countries are those which indulge in buying goods from
another country while the country which is involved in selling activity
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is known as exporting country. The traders involved in such transac-

tions are importers and exporters respectively.
Foreign Trade (Development and Regulation) Act, 1992 regulates the

import and export activity in India. Earlier to foreign trade act, 1992
the Imports and Exports (Control) Act, 1947 was exercised. The old
act was replaced by this new act offering immense power in the hand
of government for the growth and development of foreign trade. The
salient features of the Act are as follows:
According to this new act, the Central Government is given power
for creating arrangements that ensures development and regula-
tion of foreign trade. It also helps in supporting imports and ex-
panding exports from India.
The Central Government is given the power to restrain, hinder,
and regulate the goods for the purpose of export or imports. The
government can also exempt duty and taxes on certain goods.

n o t e s
The act authorises the Central Government to formulate EXIM

Policy and amend it for the betterment of the country from time
to time.
This act also gives the power to Central Government for appoint-
ing a Director General of Foreign Trade. He/she is appointed by
the Central Government for advising in the formulation and im-
plementation of the policy.
According to this act the Act, every importer and exporter should
have an ‘Importer-Exporter Code Number (IEC) assigned by Di-
rector General of Foreign Trade or from the authorised office.
The Director General has the authority to suspend or cancel a license
issued for export or import of goods in accordance with the Act.
S
3. What are the two important components of Foreign trade?

4. Foreign Trade (Development and Regulation) Act, 1992
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regulates the import and export activity in India. (True/False)
5. Foreign Trade (Development and Regulation) Act was passed
in the year:
a. 1991 b. 1992
c. 1993 d. 1994
M
Activity
Explain the role of EXIM policy 2004-09 in foreign trade develop-

N
ment.
FOREIGN EXCHANGE MANAGEMENT

2.5
ACT 1999
The Foreign Exchange Management Act (1999), also known as FEMA
was implemented to replace earlier Foreign Exchange Regulation Act
(FERA). FEMA became active on the 1st day of June, 2000.
The objective of introducing Foreign Exchange Management Act (1999)

was to consolidate and amend foreign exchange law with objective of
facilitating external trade and payments. The act also focuses on the
promotion of the orderly development and maintenance of foreign ex-
change market in India. FEMA is accepted and followed all over India.
The act is also applicable to all branches, offices, and agencies outside
India owned or controlled by a person who is a resident of India.

n o t e s
6. FEMA stands for ________________.

7. FEMA was passed in the year 1999. (True/False)
8. FEMA replaced which of the following?
a. FERA b. MEESA
c. EERA d. EXIM
Activity
Discuss the role of FEMA in Indian economy.
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2.6 CUSTOMS ACT 1962
The Central Board of Excise and Customs is the nodal national agency,
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which is designed to manage the Customs, Central Excise, Service
Tax, & Narcotics in India. It was established in the year 1855 by the
then British Governor General of India. It is one of the oldest govern-
ment departments of India. The department is responsible for imple-
menting and exercising customs laws in India and also for the collec-
tion of import duties or land revenue.
M
This department comes under the Department of Revenue, Ministry of

Finance. The department is headed by IRS officers. These officers are
first appointed as Assistant Commissioners and later they are promoted
to the post of Chief Commissioners. Only few of the senior most officers
become Members of CBEC / CESTAT / Settlement Commission as well.
N
9. Customs Act is one of the oldest departments and was

established in the year 1855. (True/False)
10. The Central Board of Excise and Customs comes under which
of the following?
a. Department of Revenue
b. Department of Trade Commerce
c. Factory Act
d. None of the Above
Activity
Using the Internet, study about the eligibility criteria for being a
member of CBEC.

n o t e s
EXPORT (QUALITY CONTROL AND

2.7
INSPECTION) ACT 1963
The Export (Quality Control and Inspection) Act, 1963 was launched
to augment overseas trade of India by focusing on quality manage-
ment and assessment. The Act is applicable and in exercise all across
the India. Powers under this act are discussed below:
Its task is to notify commodities that need to pass quality control or
inspection or both before the export procedure.
This act also helps in identifying that what inspection procedure
or quality control a specific commodity has to follow.
Underthis act, one or more standard specification for a notified
commodity are established, adopted, or recognised.
S
The act has the power to prohibit the export of notified commodi-
ties that has not received a certificate issued under section seven,
supporting that the commodity matches the conditions relating to
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quality control, or it has applied to it a mark or seal recognised by
the Central Government confirming that commodity abides to the
standard specifications applicable to it under clause (c).
The act is designed and implemented to help the Indian foreign
trade to make as well as maintain its position in the global market
with its quality and standard.
M
11. The Export (Quality Control and Inspection) Act was launched
in the year ________________.
N
12. __________________ was designed to maintain Quality Control

and Commodity Inspection.
Activity
Search on the Internet for the Export (Quality Control and Inspec-
tion) Act, 1963.
2.8 CUSTOMS TARIFF ACT 1975

Customs Tariff Act 1975, defines the duty or taxes that would be levied
on goods imported into India and goods exported out of India. The
main purpose of this act is to decide the rate of customs duty. The act
has the power to consolidate and amend the law of customs duties.
a. This Act may be called as the Customs Tariff Act, 1975.
b. It is active and implemented all over India.

n o t e s
c. In the first and second schedule of this act, the rates are specified
for charging or collecting customs duty.
13. __________defines the duty or taxes that would be levied on

imported and exported goods in India.
Activity
Meet any exporter and find out how Customs Tariff Act affect his/
her sales.
2.9 CENTRAL EXCISE TARIFF ACT 1985
S
The Central Excise Act, 1985 deals with various goods on which cen-
tral excise duty is surcharged. The act also decides the surcharge rate
IM
on which taxes are levied. The basic duty of central excise tax is levied
at rate set in the first schedule of Central Excise Tariff Act, 1985. Com-
modities such as Pan Masala, fall under the specific duty of excise and
its tax structure is covered in Schedule II of the Central Excise Tariff.
Central Excise is levied based on the following which can be classified
as 4 Ms:
M
Manufactured in India: It implies that central excise tariff is lev-

ied on the goods that are manufactured in India.
Moveable: It implies that central excise tariff is levied on the goods
that can be easily transferred from one location to another.
N
Marketable: It implies that central excise tariff is levied on the

goods that can be sold both in domestic market and to other coun-
tries and do not come in the list of restricted items.
Mentioned in the Tariff Act: It implies that duty should be levied
on the goods that are mentioned in the Central Excise Tariff Act.
The Central Excise Duty is charged on the basis of following:

Specific Duty: It is calculated on the basis of the physical feature
of a product.
Tariff Value: The government can decide the base for charging
central excise on the products or services. The duty is charged on
the value declared by the government and on the actual value of
the goods.
Maximum Retail Price: It was introduced to control the malprac-
tice of manufacturers. A new valuation method was introduced
based on the MRP of the product.

n o t e s
Ad-Valorem Basis: The first three methods are applicable on lim-

ited goods. However in the case of large number of goods, the cen-
tral excise duty is calculated on the basis of the value of the goods,
known as assessable value.
14. The Central Excise Act, 1985 cannot decide the surcharge rate
on which taxes are levied. (True/False)
Activity
From the various sources such as the Internet, find out the features
of Central Excise Act, 2013-2014.
S
2.10 SUMMARY
The main aim of Exim policy is to support international trade and
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boost the economic development of the country.
New Exim policy was designed with the main focus on develop-
ment of export and generation of job opportunities.
Foreign trade (development and regulation) act also ensures devel-
opment of trade but gives more power to the central government.
M
Foreign Exchange Management Act was implemented to replace

FERA.
Customs act 1962 is the oldest act that implements customs law in
India.
N
Export (Quality Control and Inspection) act, 1963 focuses on the

quality of the product being traded.
Customs tariff act, 1975 decides the rate at which custom duty
should be charged on commodities being traded.
Central Excise Duty is charged on the basis of specific duty, tariff
value, maximum retail price, and ad-valorem basis.
key words
Custom Duty: It is a type of indirect tax levied on imported

goods.
International Trade: It refers to trade by the organisations
across the national borders.
Tariff: It implies a tax imposed on imported or exported goods.

n o t e s

1. Discuss Salient Features of Export-Import Policy.
2. Discuss Foreign Trade (Development and Regulation) Act 1992
3. Discuss role of FEMA in trade and commerce
4. Write a short note on Export (Quality Control and Inspection)
Act 1963.
5. Explain Central Excise Tariff Act 1985.
6. What is export import policy? Give its objectives.
S

IM
Export-Import Policy 1. True
2. Special Economic Zones
Foreign Trade (Develop- 3. Export and import
ment and Regulation)
Act 1992
M
4. True
5. b. 1992
Foreign Exchange Man- 6. Foreign Exchange Management
agement Act 1999 Act
N
7. True
8. a. FERA
Customs Act 1962 9. True
10. a. Department of Revenue
Export (Quality Control 11. 1963
And Inspection) Act 1963
12. The Export (Quality Control and
Inspection) Act, 1963
Customs Tariff Act 1975 13. Customs Act
Central Excise Tariff 14. False
Act 1985

1. The Export-Import (EXIM) Policy was formulated to follow
all the commitments made by India under the World Trade
Organisation (WTO) in April 2002. Refer to Section 2.2 Export-
Import Policy.

n o t e s
2. Foreign trade is constituted of two important components;

import and export. Exchanging goods and services between the
two countries is foreign trade. Refer to Section 2.4 Foreign Trade
(Development and Regulation) Act 1992.
3. The Foreign Exchange Management Act (1999), also known as
FEMA was implemented to replace earlier Foreign Exchange
Regulation Act (FERA). Refer to Section 2.5 Foreign Exchange
Management Act 1999.
4. The Export (Quality Control and Inspection) Act, 1963 focus on
quality management and assessment. Refer to Section 2.7 Export
(Quality Control and Inspection) Act 1963.
5. Central Excise Tariff Act also decides the surcharge rate on which
taxes are levied. Refer to Section 2.9 Central Excise Tariff Act 1985.
6. The EXIM policy aims at regulating and managing imports and
S
promoting and maintaining exports. Refer to Section 2.2 Export-
Import Policy.
IM
SUGGESTED READINGS
New York: AMACOM.
M

Garg, N. (2014). Export What-Where-How. Anupam Publication.
E-REFERENCES
N
Business.gov.in,. (2014). Business Portal of India : Growing a Busi-

ness : Regulatory Requirements : Imports and Exports : EXIM Pol-
icy. Retrieved 7 November 2014, from http://business.gov.in/grow-
ing_business/exim_policys.php
Dgft.gov.in,. (2014). Directorate General of Foreign Trade. Retrieved
7 November 2014, from http://dgft.gov.in/
Econlib.org,.(2014). Benefit-Cost Analysis: The Concise Encyclope-
dia of Economics | Library of Economics and Liberty. Retrieved 7
November 2014, from http://www.econlib.org/library/Enc/Benefit-
CostAnalysis.html
Exim-policy.com,. (2014). India Exim Policy - Foreign Trade Pol-
icy. | Exim Policy. Retrieved 7 November 2014, from http://www.
exim-policy.com/Ajms.co.in,. (2014). Retrieved 18 November 2014,
from http://www.ajms.co.in/sites/ajms/index.php/ajms/article/
download/6/23
(2014). Retrieved 18 November 2014, from http://www.twnside.org.
sg/title2/FTAs/General/MSMES/FTAs_MSME_India_Leather_
vol_III.pdf

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M
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S
Ch a
3 p t e r
eXport documentation
CONTENTS
S
3.1 Introduction
3.2 Factors on which Export Documentation is Based
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Activity
3.3 Essential Documentation
Activity
3.4 Registration of Exporters
M

Activity
3.5 Registration with Export Promotion Councils
N
Activity
3.6 EDI Registration
Activity
3.7 IEC Certificate
Activity
3.8 Export Assistance in India
3.8.1 Export Credit Guarantee Corporation (ECGC)
3.8.2 Bureau of Indian Standards
3.8.3 Export Inspection Council (EIC)
3.8.4 Indian Council of Arbitration
3.8.5 Export Promotion Councils
3.8.6 India Trade Promotion Organisation (ITPO)

CONTENTS

Activity
3.9 Summary
S
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M
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eXport documentation 49
n o t e s
Ambition international customer service
Ambition International’s Customer Service is an Australian

Agency, which is represented by Reeta Jedd, who manages the
company’s Certificates of Origin. She explained that many of
company’s business partners are interested in knowing whether
it has a certificate of origin or not, making it absolutely necessary
to obtain one.
With the formulation of free trade agreement with Thailand, now

the Thai companies ask for a Certificate of Origin to ensure that
the goods are product of Australia. It helps them to claim the duty
back from the Thai Government. If the company fails to deliver
the Certificate of Origin, then importing company has to pay duty
on imports, which naturally increases the cost of the product.
S
Obtaining the Certificate of Origin is a simple process and the main
advantage offered by the certificate is that it covers a whole ship-
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ment, even when varied number of products are being shipped.
It shows how an export document could help in keeping the trade

affairs more organised, smooth, and beneficial for both the parties
involved in the business.
M
N

n o t e s
learning objectives

>> Explain the factors on which export documentation is based
>> Discuss the essential documents required for export
>> State the process for registration of exporters
>> Define the process for registration of export promotion
councils
>> Describe EDI registration
>> Explain the meaning of IEC certificate
>> Explain the procedure for export assistance in India
S
3.1 INTRODUCTION
The previous chapter discussed about the regulatory framework of
export and import. Export and import documentation forms an im-
IM
portant part of the regulatory framework.
Earlier, trade and business were done in less organised and unstruc-
tured way. However, with the development of structured economy in
the nations, the international trade has also become more organised
and structured. Different countries have different rules and regu-
lations and documentation makes it easier for the exporter to carry
M
forward the business affair. The exporter and importer has to fill up
number of forms for obtaining different documents and certificates to
carry forward the business.
Thus, documentation for the purpose of trade is a complex process

N
wherein the exporter is required to complete and submit an array of

documents. These documents may include bills of entry, export per-
mits, bill of lading, commercial invoices, and so on. In this chapter, we
have discussed about different export documents that are required for
carrying out trade. Each topic is explained in a simple way to make
the complex topic of export documentation easy and comprehensive.
FACTORS ON WHICH EXPORT

3.2
DOCUMENTATION IS BASED
The process of export is systematic, thus it is essential to have all the
important documents before entering into the export business world.
There are consultancies, legal firms, and business advisors who help
people in understanding the process of export.
In international trade, the commercial party has to agree on a price

rate that is fixed and agreed by both seller and buyer. The buyer ac-
cepts the price for purchasing goods from the supplier’s or seller’s
warehouse or on delivery to his or her warehouse. The purpose is to

n o t e s
simplify the process of business as it is easier for the buyer or seller

to deal with the formalities including insurance of the goods from one
place to another in the same country.
The scenario of international trade is little complex and it includes

three separate contract for carriage of goods, which are explained as
follows:
First, for moving the goods within the seller’s country from his/her
warehouse
Second, for shipping the goods internationally within the buyer’s
country
Third and last, sending the goods to final destination that is buy-
er’s warehouse within his or her country
S
Now let us discuss, the basic export documents that would be required
for shipping the goods from seller to the buyer.
Basic Export Documents

IM
Financial Times defined export documents as “Documents sent by an
exporter’s bank to a bank or other organisation in the importer’s coun-
try, who delivers them to the importer when the importer pays for the
goods or accepts bills of exchange. These documents are needed by
the importer to get permission for the goods to come through customs
M
and to make insurance claims if the goods are lost or damaged.”
Basic export documents are the common or general documents that

need to be submitted by both exporter and importer to ensure proper
shipment of the goods. The list of basic documents needed for export
N
trade is given below:

Invitation to quote
Quote
Pro-forma Invoice
Order confirmation or acknowledgement
Bill of lading (B/L)
Ocean Bill of lading (Ocean B/L)
Airway bill
Marine (other) insurance policy
Commercial invoice
Consular invoice
Certified invoice
Certificate of origin (C/O)
Packing list or weight note

n o t e s
Specification sheet
Manufacturer's analysis certificate
Health, sanitary, phytosanitary, and veterinary certificates
Quality inspection certificate or certificate of value
Independent third party inspection certificate
Dispatch advice note
Dangerous goods declaration
Shipping or export consignment notes
Documentary credit of payment drafts
Export licenses
Import licenses
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Exporter's commission advices to the agent
Customs and Excise export entry forms
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EU Movement documents EUR 1 Form
Shipping Bill
Mate Receipt
Other specifically requested documents
M
The requirement for documents vary from developed to third world

countries, thus not all documents are relevant for every country. For
controlling the quantity and variation in the export document many
exporters prefer to design a file folder, which includes the following:
Entire control procedure required for documentation
N
Production of goods
Payment details
Shipping instructions
Each separate transaction is then allocated to a numbered filed folder.

The importer requires these documents in his or her home country
for fulfilling the requirements of trade control authorities and also for
implementing the documentary trade transactions. Trade control au-
thorities requires these documents to ensure that goods prohibited
should not be imported in the country. The importer also ensures that
these requirements should be confirmed by the exporter in the docu-
mentary letter of credit operations for getting the payment.

n o t e s
1. Pro-forma Invoice is one of the basic documents of export.

(True/False)
2. Which one is not the type of invoice?
a. Commercial b. Proforma
c. Consular d. Bill of Lading
Activity
Meet the exporters and importers and discuss the significance of

export documents.
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3.3 ESSENTIAL DOCUMENTATION
Import and export is a complicated task as it requires a plethora of
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documentation and paperwork before taking the initial step in the
foreign trade world. However, utmost importance should be given to
documentation as it’s the key for international trade. Exporters need
to be very careful with documentation requirement as it varies with
country, commodity, and situation. In this topic we will discuss essen-
tial documents that are required for export. Export Documentation
M
Framework comprises of 16 commercial documents of which 14 doc-

uments have been regulated and aligned with each other. These 14
documents are:
1. Pro-forma invoice
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2. Commercial invoice
3. Packing list or weight note
4. Shipping instructions
5. Intimation for inspection
6. Certificate of inspection and quality control
7. Insurance declaration
8. Certificate of insurance
9. Mate’s receipt
10. Bill of lading (B/L) or combined transport documentation
11. Application for certificate origin

n o t e s
12. Certificate of origin (C/O)

13. Shipping or export consignment notes
14. Letter to bank for collection or negotiation of documents
The two documents which could not be standardised and aligned are:
1. Shipping order
2. Bill of exchange
The important documents are explained below:

Commercial Invoice: It is also called the ‘Document of Contents’
because it contains all the information required for preparing all
the other documents. Exporter prepares this document in the
name of the importer or buyer based on the contract of sale and
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the agreed terms between them. This document defines the terms
on which sale and shipping of the goods would be carried out.
Packing List: This list is prepared by the shipper and it consists of
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itemised classification of all the items that would be shipped. The
quantities and items written on commercial invoice should align
with that on packing list.
Certificate of Inspection: Its pre-shipment inspection that is
done to confirm that all requirements and regulations are fulfilled.
These specifications and regulations are mentioned by the govern-
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ment and industry.

Bill of Lading: It is a legal document that is issued by the carrier
of the goods to the shipper of the goods for the receipt of goods. It
is a contract that is agreed upon by the seller (owner) of the goods
and the carrier of the goods (who will deliver the goods) to deliver
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the goods.
Certificate of Origin: It is a document that is prepared by the
manufacturer of the goods and a certified by quasi-official author-
ity. This document basically defines the items’ country of origin.
Insurance Certificate: This is an important document which cov-
ers the items against loss or damage that may occur during its
shipment.
Bill of Exchange: It is a negotiable instrument, which the shipper
or seller issues for the buyer when the goods are shipped It is an
instrument by which the payment is received. The exporter draws
the bill of exchange on the importer or on the bank acting on be-
half of the importer. After the exporter gets his payment or after
the importer has made arrangements for the payment, the bill of
landing is issued to the importer.

n o t e s
3. Bill of Lading is prepared by the manufacturer of the good

and certified by quasi-official authority. (True/False)
4. Which of the following is a principal export document?
a. Bill of Exchange b. Packing List
c. Commercial Invoice d. All of the Above
Activity
Discuss various principal export documents and their significance.
S
3.4 REGISTRATION OF EXPORTERS
An organisation needs to register itself with various government au-
thorities before it can start the export of its product in the international
IM
markets. First and foremost every organisation needs to get registered
under the Company’s Act 1956. The registration depends upon the
type of organisation i.e., whether the organisation is a proprietary firm
or a private limited organisation or a shop or an establishment. Once
the organisation has been registered under the Companies Act 1956,
registrations with other government organisations, which are neces-
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sary for acquiring an exporter status becomes easier. The aspiring

exporter needs to register the organisation with 5 government organ-
isations, namely the Reserve Bank of India (RBI), Director General
of Foreign Trade (DGFT), Commodity Boards, Income Tax Authori-
ties, and Export Promotion Council (EPC). Out of these the first four
N
are explained here and the registration with the EPC is explained in
the next section. Let us discuss the registration of exporter briefly as
given below:
Registration with Reserve Bank of India (RBI): Before 1997,
it was mandatory for the first time exporter to get IEC number
from RBI before undertaking any an export operation. Now, this
responsibility is handed over to the DGFT.
Registration with Director General of Foreign Trade (DGFT):
Registering an export firm with DGFT, Ministry of Commerce,
and Government of India is the main requirement that every
firm needs to follow. The agency generates unique IEC number,
for each of the registered exporters. This 10-digit IEC number is
must for traders who wish to take lead in export or import busi-
ness. The exporter cannot export the goods in the absence of IEC
number. Traders who export items to Nepal or Myanmar through
Indo-Myanmar border or to China through Gunji, Namgaya, Ship-
kila, or Nathula need not to obtain IEC number.

n o t e s
However, to trade with the rest of the world, one must obtain IEC
number and submit an application to the nearest regional author-
ity of DGFT for IEC number. The exporter needs to fill “Aayaat
Niryaat Form - ANF2A” that is submitted online at the DGFT
website.
The applicant needs to submit PAN number, amount of Rs 1000/-
as the application fee along with the application form. Here, PAN
number works as a unique key that means single IEC number is
generated for a single PAN number. The applicant needs to submit
his Current Bank Account number and Bankers Certificate apart
from the PAN number. Application fee needs to be submitted ei-
ther by way of demand draft orit can be done through Electronic
Fund Transfer (EFT).
Registration with Commodity Boards: Commodity Board is a
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registered agency designated by the Ministry of Commerce, Gov-
ernment of India. The boards are established for promoting export
business. The commodity boards have their offices in India as well
as abroad. Currently, there are five statutory Commodity Boards
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working under the Department of Commerce set up for tea, coffee,
rubber, spices, and tobacco. These boards are responsible for pro-
duction, development, and export.
Registration with Income Tax Authorities: The government has
exempted the goods that are exported out of the country from Value
Added Tax (VAT) and Central Sales Tax (CST) both. Therefore, to
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avail the benefits of VAT and CST tax exemption it is necessary for
an exporter to get registered with the income tax authorities.
Central Excise registration/declaration wherever applicable.
N
5. An organisation has to register itself with various governmental

agencies before starting export of its product internationally.
(True/False)
6. It is a pre-requisite to register your export firm with the
___________.
7. What does EFT stand for?
a. Electronic Fund Transfer
b. Emergency Fund Transfer
c. Emergency Finance Transfer
d. None of the above

n o t e s
Activity
Know more about relevance of exporter registration from the In-

ternet.
REGISTRATION WITH EXPORT

3.5
PROMOTION COUNCILS
Export Promotion Councils (EPC) are registered as non-profit organ-
isations under the Indian Companies Act or the Societies Registration
Act. The purpose of this body is to promote various goods exported
from India in international market.
EPC works in collaboration with the Ministry of Commerce and Indus-
S
try, Government of India. EPC is more like a platform or a connecting
link between the exporting community and the government. EPCs are
established for encouraging exporters to earn foreign exchange and
boosting international trade for the country manufactured products.
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For the importer, it becomes important to obtain a Registration Cum
Membership Certificate (RCMC) from the EPC. To get membership,
the interested candidate should send application for registration,
along with a self certified copy of the IEC number. The applicant has
to pay a membership fee in the form of cheque or draft after confirm-
ing the amount from the concerned EPC.
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The RCMC certificate is valid from 1st April of the licensing year, till
five years, ending 31st March of the licensing year, unless otherwise
specified.
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RCMC is issued by various departments that are as follows:

Agriculture and Processed Food Products Export Development
Authority (APEDA)
Apparel Export Promotion Council
Chemicals Pharmaceuticals and Cosmetics Export Promotion
Council (CHEMEXIL)
Carpet Export Promotion Council
Cashew Export Promotion Council of India
Chemical and Allied Products Export Promotion Council
Cotton Textile Export Promotion Council
Engineering Export Promotion Council

n o t e s
Gems and Jewellery Export Promotion Council

Export Promotion Council for Handicrafts
Handloom Export Promotion Council
Handicrafts and Handloom Export Corporation
Office of the Development Commissioner for Handlooms
Development Commissioner for Iron Steel
Indian Silk Export Promotion Council
Council for Leather Export
Marine Products Exports Development Authority (MPEDA)
Overseas Construction Council of India
Powerloom Development and Export Promotion Council
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Sports Goods Export Promotion Council
Synthetic and Rayon Textiles Export Promotion Council
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Wool and Woolens Export Promotion Council
8. What does EPC stands for _________________ ?

9. EPC works in collaboration with Ministry of Commerce and
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Industry. (True/False)
10. The RCMC certificate is valid for:
a. Five years b. One year
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c. 10 years d. Lifetime
Activity
List down the features of gems and jewellery export promotion

council.
3.6 EDI REGISTRATION

Indian Customs EDI System (ICES) is the beginning of a new era in
the country. It marked the beginning of paperless trade as well as
trade facilitation rather than control. It is the result of joint efforts
made by ICES along with officers of Central Board of Excise and Cus-
toms (CBEC) and National Informatics Centre (NIC).

n o t e s
The main objectives set for an Indian Customs EDI System by the
Customs were:
Fast action to the needs of the trade.
Digitalisation of import/export, ex-bond clearance of stored goods,
goods imported with regard to export promotion schemes, and
regulation and monitoring of export promotion schemes.
Lessen the interaction of the trade with government agencies.
Easy access to information. It means that one can retrieve infor-
mation from other custom locations to have uniformity in assess-
ment and valuation.
Beneficialfor policy making as it generates accurate information
on import/export statistics which it provides to Director General of
Commercial Intelligence and Statistics.
S
The introduction of Pilot EDI Project has been decided and it would
be established in DGFT headquarters. The project shall relate to the
following:
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Itwill be responsible for issuing Advance license under Duty Ex-
emption Scheme and will submit an application on its letterhead
enclosing a copy of Appendix 1B of Handbook of Procedures (Vol.1)
The applicant should submit the application through EDI in the
EDI compatible application form as well.
M
The file number will be generated by the EDI Division; the same
shall be electronically transmitted to the applicant.
In case of any deficiency, the applicant will be informed through EDI
and replies to such deficiency will also be received through EDI.
N
Message regarding the delivery will be sent to the applicant

through EDI.
The applicant should visit EDI counter at the DGFT headquarter
along with a complete set of application as given in Appendix -11B
of Handbook of Procedures (Vol.1), duly signed, and the prescribed
documents including proof of the deposition of the application fee
that is required for the collection of license.
The license will be issued at the EDI counter after verifying valid
identity card issued by the licensing authority. The license is issued
after getting the approval of Director General of Foreign Trade.
11. Indian Customs EDI System aims at _______________.

n o t e s
Activity
Learn about Indian Customs EDI System from the following web-
site:
http://ices.nic.in/ices/aboutices.aspx
Note down the important features.
3.7 IEC CERTIFICATE

IEC certificate is a unique 10 digit code issued by Director General of
Foreign Trade (DGFT), Ministry of Commerce and Government of In-
dia to Indian Companies. It stands for “Importer Exporter Code”. IEC
certificate is mandatory to carry out export and/or import business
in India.
S
The applicant is required to submit an application to Registered/Head
Office to the nearest Regional Authority of Directorate General For-
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eign Trade, along with the prescribed documents.
The details relating to the procedure for getting an IEC certificate, its
validity, method of payment are given below:
IEC Code certificate Online Application Form: As mentioned ear-
lier, the applicant can download application Form called “Aayaat
Niryaat Form - ANF2A” from the website of DGFT.
M
Validity of IEC Code No: The IEC number will be valid for all
the branches, divisions, units and factories of the applicant till the
time it is revoked by the officials or surrendered by the holder it-
self. The importers/exporters must give the complete addresses of
N
their offices/factories/warehouses to incorporate the same in IEC.

Duplicate copy of IEC certificate: In case IEC Number is lost or
misplaced, the applicant can request for duplicate IEC certificate
by sending request for grant of a duplicate copy of IEC number.
Surrender of IEC Number: An IEC number holder can surrender
the IEC number by informing the issuing authority. By receiving
such request, the issuing authority will immediately cancel the
IEC number and it will be electronically transmitted to DGFT for
onward transmission to the Customs and Regional Authorities.
Application Fee for IEC Code Number ` 250.00
Mode of Payment: The applicant can pay the fee through Demand
Draft/ Pay Order from any designated bank in favour of Zonal
Joint Director General of Foreign Trade or Payment through EFT
by any nominated bank by DGFT. Another way to make the fee
payment is by means of a TR6 Challan with Duplicate Copy in any
branch of Central Bank of India and TR6 Challan need to be sub-
mitted along with IEC Code Application.

n o t e s
Territorial Jurisdiction of Regional Authorities: Every applica-

tion needs to be submitted to the Regional Authority of Director-
ate General Foreign Trade, according to the territorial jurisdiction
of the Regional authorities indicated in Policy and Handbook of
Procedure, Volume-I.
Filing of Application: One can fill up the Application form online
in DGFT website; details of online links are given below. An in-
complete application will be rejected. If an applicant is submitting
a soft copy, he has to fill the application in MS Word format.
Profile of Importer/Exporter: Each importer/exporter is sup-
posed to file importer/exporter profile once with the Regional Au-
thority in Part 1 of ‘Aayaat Niryaat Form - ANF2A’. Here the role of
Regional Authority is to enter the information provided in Part 1
of ‘Aayaat Niryaat Form ANF-2A’ in their database.
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Self-Addressed Stamped Envelope: The applicant shall furnish a
self-addressed envelope of 40 x 15 cm with postal stamp affixed on
the envelope. IEC No: Exempted Categories.
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The following categories of importers or exporters are exempted from
obtaining Importer - Exporter Code (IEC) number:
Importers covered by clause 3 (1) [except sub-clauses (e) and (l)]
and exporters covered by clause 3(2) [except sub-clauses (i) and
(k)] of the Foreign Trade (Exemption from application of Rules in
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certain cases) Order, 1993.

Ministries/Departments of the Central or State Government.
Persons importing or exporting goods for personal use not con-
nected with trade or manufacture or agriculture.
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Persons importing/exporting goods from/to Nepal provided the

CIF value of a single consignment does not exceed Indian ` 25,000.
Personsimporting/exporting goods from/to Myanmar through In-
do-Myanmar border areas provided the CIF value of a single con-
signment does not exceed Indian ` 25,000.
However, the exemption from obtaining Importer-Exporter Code

(IEC) number shall not be applicable for the export of Special Chemi-
cals, Organisms, Materials, Equipments and Technologies (SCOMET)
as listed in Appendix- 3, Schedule 2 of the ITC (HS) except in the case
of exports by category (ii) above.
The following permanent IEC numbers shall be used by non-com-

mercial PSUs and the categories of importers/exporters mentioned
against them for import/ export purposes:
1. IEC- 0100000011- All Ministries/Departments of Central
Government and agencies wholly or partially owned by them.

n o t e s
2. IEC- 0100000029 - All Ministries/Departments of any State

Government and agencies wholly or partially owned by them.
3. IEC- 0100000037- Diplomatic personnel, Counsellor Officers in
India and officials of UNO and its specialised agencies.
4. IEC- 0100000045- Indians returning from/going abroad and
claiming benefit under Baggage Rules.
5. IEC- 0100000053- Persons/Institutions/Hospitals importing or
exporting goods for personnel use, not connected with trade or
manufacture or agriculture.
6. IEC- 0100000061- Persons importing/exporting goods from/to
Nepal
7. IEC- 0100000070- Persons importing/exporting goods from/to
Myanmar through Indo-Myanmar border areas
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8. IEC- 0100000088- Ford Foundation
9. IEC- 0100000096- Importers importing goods for display or use
IMin fairs / exhibitions or similar events under provisions of ATA
carnet. This IEC number can also be used by importers importing
for exhibitions/fairs as per Para 2.29 of HBPv1.
10. IEC- 0100000100- Director, National Blood Group Reference
Laboratory, Bombay or their authorised offices.
11. IEC- 0100000126- Individuals / Charitable Institution / Registered
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NGOs importing goods, which have been exempted from

Customs duty under Notification issued by Ministry of Finance
for bonafide use by victims affected by natural calamity.
12. IEC- 0100000134- Persons importing / exporting permissible
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goods as notified from time to time, from / to China through

Gunji, Namgaya Shipkila and Nathula ports, subject to value
ceilings of single consignment as given in Para 2.8(iv) above.
13. IEC- 0100000169- Non-commercial imports and exports by
entities which have been authorised by Reserve Bank of India.
MANDATORY REQUIREMENTS TO
APPLY FOR IEC CERTIFICATE
1. Covering letter
2. Fill Part A, B & D of the application form.
3. Application must be accompanied by documents as per details
given below:
A. Bank Certificate from the bank on Bank letter head as per
pro-forma (Part B) given in the application.
a. In case of Proprietorship firms, please furnish:
i. Date of Birth of individual

n o t e s
ii. Number of IECs held along with their details

b. In case of Companies, please furnish:
i. Extract of Board of Resolution.
ii. MOA with Form 32 and ROC in case of change in Di-

rectors.
c. In case of others:
i. Notarised Partnership Deed showing date of forma-

tion.
ii. No Objection Certificate from other partners/HUF.

B. Self certified copy of Permanent Account Number (PAN)
issued by income Tax Authorities.
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C. Two copies of passport size photographs of the applicant. The
photograph pasted on the banker’s certificate must be attested
by the banker with Seal and Signature of the applicant.
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4. The application must be submitted in Duplicate.
5. Each individual page of the application must be signed by the
applicant.
6. Self-addressed envelope stamped with ` 25 (Local Address) & for
others `30/-. These documents may be kept secured in a file cover.
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CHECK LIST OF DOCUMENTS TO APPLY FOR IEC CERTIFICATE

1. Covering Letter on your company’s letter head for issue of new
IEC Number.
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2. Two copies of the application in prescribed format (Hayat

Narayan Form ANF 2A) must be submitted to your regional Jt.
DGFT Office.
3. Each individual page of the application has to be signed by the
applicant.
4. Part 1 & Part 4 has to be filled in by all applicants. In case of
applications submitted electronically.
5. No hard copies of Part 1 may be submitted. However in cases
where applications are submitted otherwise the hard copy of
Part 1has to be submitted.
6. Only relevant portions of Part 2 need to be filled in.
7. ` 250.00 Bank Receipt (in duplicate)/Demand Draft/EFT details
evidencing payment of application fee in terms of Appendix 21B.
8. Certificate from the Banker of the applicant firm in the format
given in Appendix 18A.

n o t e s
9. Self-certified copy of PAN issuing letter or PAN (Permanent

Account Number) Card issued by Income Tax Authority.
10. Two copies of passport size photographs of the applicant duly
attested by the Banker of the applicant.
11. Self-addressed envelope with `25/- postal stamp for delivery
of IEC certificate by registered post or challan/DD of `100/- for
speed post.
12. Application can be submitted in person or by an Authorised
Employee of the Company at the R & I counters in the office or
it can be sent by post or courier.
PROCESSING OF IEC APPLICATION
Submit the fully filled form at the counter in person at the office or use
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Post/Courier service. The application sender will receive a receipt as
an acknowledgement after receiving the form. This receipt has a file
number and this file number can be used for correspondence/query
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regarding the IEC application. The application is sent to IEC for fur-
ther processing. If the form is correct and accepted, the IEC number
will be generated. Or else the applicant is informed about the rejection
of the form.
ISSUE AND DISPATCH OF IEC CERTIFICATE

M
IEC allotment letter is mailed through post at the registered office.

Similarly deficiency letters are sent to applicant by post.
About IEC Application Status

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File No for IEC application: The applicant can check the status
of their application online as well. Just enter the PAN number and
the file number will be generated. Applicants who have sent their
application through post/courier can know their file number using
option “File No for IEC application”
Status of IEC Application: The applicant can know the status of
the IEC application using option “Status of IEC Application” on
the website of CLA.
IEC Issued Day Wise: IEC’s issued daily can be viewed on the
website using option “IEC issued day wise”
IEC Code Number Related links

DGFT Online IEC Number Application Form -ANF-2A
View Your IEC Status : http://dgft.delhi.nic.in:8100/dgft/iecprint
IEC Status at Custom(BIN) : http://164.100.9.176/iecstatus.html

n o t e s
http://www.dgft.gov.in/dgftcla
http://www.dgft.gov.in
http://www.icegate.gov.in
12. IEC stands for __________________.

13. IEC allotment letter is mailed through post at the registered
office. (True/False)
Activity
Learn the importance of IEC.
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3.8 EXPORT ASSISTANCE IN INDIA
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EXIM Policy 1992-97 accompanied with globalisation has opened
doors for India to participate in international trade. This has been a
positive breaking point in the economic development of the country.
It allowed financial assistance from external sources such as World
Bank. For assisting global trade many regulations have been intro-
duced by the Government of India (GOI), which are discussed in the
M
sections given below.
3.8.1 EXPORT CREDIT GUARANTEE CORPORATION (ECGC)
Export Credit Guarantee Corporation, a central government under-

N
taking body is designed to save the interest of the exporter. The cor-
poration offers a credit guarantee on the default of payments by the
buyer. This body works as an insurance firm that guarantees export
payment in case the buyer fails in making the payment.
3.8.2 BUREAU OF INDIAN STANDARDS
The Bureau of Indian Standards (BIS) is the National Standards Body

of India. This body is governed and guided by the Ministry of Consumer
Affairs, Food & Public Distribution, Government of India. It was estab-
lished in 1986.However,it came into effect on 23 December, 1986 only.
Earlier it was known as Indian Standards Institution (ISI) and was

registered under the Societies Registration Act, 1860.
3.8.3 EXPORT INSPECTION COUNCIL (EIC)
The Export Inspection Council (EIC) was formulated and established

by the Government of India under Section 3 of the Export (Quality

n o t e s
Control and Inspection) Act, 1963. The main objective of this council is
to confirm that quality standards are met for the goods to be exported
for ensuring sound export development.
3.8.4 INDIAN COUNCIL OF ARBITRATION
The Council helps in settling all international commercial disputes by

using the process of arbitration. According to Arbitration and Concil-
iation Act, 1996, the rules of arbitration have been amended in recent
times.
This council is established with primary focus on settling industrial

and trade disputes quickly and peacefully with the help of arbitration.
The members of this council include
Government of India (GOI)
S
The Federation of Indian Chambers of Commerce and Industry
(FICCI).
Other important Chambers of Commerce and trade associations
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in India
Export Promotion Councils (EPCs)
Public Sector Undertakings (PSUs)
3.8.5 EXPORT PROMOTION COUNCILS

M
Export Promotion Councils (EPC), are registered under the Indian

Company Act or the the Societies Registration Act. It is a non-profit
organisation and the purpose of this body is to promote various goods
exported from India in international market.
N
As explained earlier in this chapter, EPC works in collaboration with

the Ministry of Commerce and Industry, Government of India. The
EPC is a connecting link between the exporting community and the
government.
3.8.6 INDIA TRADE PROMOTION ORGANISATION (ITPO)
India Trade Promotion Organisation (ITPO), is a nodal agency, that is

regulated and guided by Ministry of Commerce and Industry (India).
The main head office of this organisation is located in Pragati Maidan,
New Delhi. The main purpose of this agency is the promotion of and
providing assistance in country’s external trade.

n o t e s
ITPO is controlled by Government of India as they have 100 percent

shareholding in it. Moreover, it is a Schedule-B Miniratna Central
Public Sector Enterprise (CPSE).
14. Export Credit Guarantee Corporation, a __________________

undertaking body is designed to save the interest of the
exporter.
15. Bureau of India Standards was earlier known as ISI. (True/False)
16. Indian Council of Arbitration was designed under which of
the following:
a. Arbitration and Conciliation Act, 1996
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b. Arbitration and Conciliation Act, 1994
c. Arbitration and Conciliation Act, 1998
d. Arbitration and Conciliation Act, 1991
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Activity
Learn how India Trade Promotion Organisation (ITPO) organises

fairs.
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3.9 Summary
Export documents are the basic documents that are submitted by
both importer and exporter for shipping the goods.
N
Essential documents include commercial invoice, packing list, cer-

tificate of inspection, bill of lading, certificate of origin, insurance
certificate, and bill of exchange.
Before starting export process, a firm has to register with RBI, DGFT,
commodity boards, central excise, and income tax authorities.
As per Indian Companies Act, it is important for a firm to register
with Export Promotion Council (EPC) also whose main purpose is
to promote Indian goods in international market.
Government of India provides export assistance with the help of
ECGC, BIS, EIC, Indian Council of Arbitration, EPC, and ITPO.

n o t e s
key words
Arbitration: It refers to the process of negotiation that is gener-

ally done to resolve industrial and trade disputes.
BIS: Bureau of Indian Standards is a National Standards Body
of India, which is governed and guided by the Ministry of Con-
sumer Affairs, GOI.
Commercial Party: It refers to the party involved in the ar-
rangement of Letter of Credit (LC).
Commodity Boards: Refers to those boards that are established
by GOI for stimulation of certain traditional commodities that
have high market potential.
ECGC: Export Credit Guarantee Corporation is the central gov-
S
ernment undertaking, which offers credit guarantee on the de-
fault of payments by the buyer.
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1. Discuss various types of export documents.
2. Discuss the concept of export registration.
3. How export assistance is provided in India.
4. Discuss about EDI Registration.
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5. What is IEC certificate? Explain in detail.

6. Write a short note on Export Promotion Councils.
7. Explain Export Credit Guarantee Corporation.
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8. Which departments can issue Registration Cum Membership

Certificate (RCMC).

Factors on Which Export 1. True
Documentation is Based
2. d. Bill of Lading
Essential Documentation 3. False
4. d. All of the Above
Registration of Exporters 5. True

n o t e s

6. Director General of Foreign
Trade (DGFT)
7. a. Electronic Fund
Transfer
Registration with Export 8. Export Promotion Council
Promotion Councils
9. True
10. a. Five Years
EDI Registration 11. Paperless trade
IEC Certificate 12. Importer exporter code
13. True
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Export Assistance in India 14. Central government
15. True
16. a. Arbitration and Concili-
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ation Act, 1996

1. The process of export is systematic, thus it is essential to have
all the important documents before entering into the export
business world. Refer to Section 3.2 Factors on which Export
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Documentation is Based.
2. An organisation has to register itself for before starting export of
its product internationally. Refer to Section 3.4 Registration of
Exporters.
N
3. EXIM Policy 1992-97 accompanied with globalisation has opened

doors for India to participate in international trade. Refer to
Section 3.8 Export Assistance in India.
4. Indian Customs EDI System (ICES) marked the beginning of
paperless trade as well as trade facilitation rather than control.
Refer to Section 3.6 EDI Registration.
5. IEC Code is unique 10 digit code issued by DGFT – Director
General of Foreign Trade, Ministry of Commerce, Government of
India to Indian Companies. Refer to Section 3.7 IEC Certificate.
6. Export Promotion Councils (EPC) is a non-profit organisation
and the purpose of this body is to promote various goods exported
from India in international market. Refer to Section 3.8 Export
Assistance in India.
7. Export Credit Guarantee Corporation, a central government
undertaking body is designed to save the interest of the exporter.
Refer to Section 3.8 Export Assistance in India.

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8. RCMC is issued by various departments such as Agriculture

and Processed Food Products Export Development Authority
(APEDA) and Apparel Export Promotion Council. Refer to
section 3.5 Registration with Export Promotion Councils.
SUGGESTED READINGS
Johnson, T. (2002). Export/import procedures and documentation.
New York: AMACOM.
Ram, P. (1977). Export: What, Where, how (3rd ed.). Anupam publi-
S
cation.
E-REFERENCES
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Ices.nic.in,. (2014). AboutICES. Retrieved 7 November 2014, from
http://ices.nic.in/ices/aboutices.aspx
Tradegoods.com,. (2014). Welcome to TRADEGOODS.COM. Re-
trieved 7 November 2014, from http://www.tradegoods.com/help-
er/05eximport/eximport_27.html
(2014). Retrieved 19 November 2014, from http://jdgftcochin.gov.
M
in/iecfaq.pdf
Dgft.org,. (2014). Importer Exporter Code Number or IEC Code No
in India. | DGFT. Retrieved 19 November 2014, from http://www.
dgft.org/iec_code.html
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Ices.nic.in,. (2014). AboutICES. Retrieved 19 November 2014, from

http://ices.nic.in/ICES/AboutIces.aspx#objectives

Ch a
4 p t e r
documents related to invoice
CONTENTS
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4.1 Introduction
4.2 Invoices
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4.2.1 Pro-forma Invoice
4.2.2 Commercial Invoice
4.2.3 Consular Invoice
4.2.4 Legalised Invoice
4.2.5 Custom Invoice
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Activity
4.3 Packing Note and List
Activity
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4.4 Certificate of Origin

Activity
4.5 Summary

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E-INvoicing Trends in Business
The trend of e-invoicing is getting popular among small and big

size business firms and organisations as it makes whole process
more organised and significant. Electronic invoicing or e-invoic-
ing is an electronic billing method used by both exporters and
importers for managing the transactional documents as well as
ensuring that all trade terms are met.
XYZ is a global food company and it is planning to start its chain

in other countries. The food company is aiming to establish B2B
E-commerce program around the world, including Australia,
Hong Kong, Sweden, and the UK. It means that the company
would be exchanging over three million invoices a year among
internal company entities.
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The objective of this case study is to ensure that invoices ex-
changed between internal entities are designed following the
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rules and regulations of each country in Europe to avoid any pit-
fall during its transaction.
First, for ensuring the success of the process, the organisation
needs to find a vendor who has expertise with varying Euro-
pean e-invoicing regulations and could be capable of manag-
ing the process to its level best.
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Second, it is crucial to select a vendor who has significant

scale and presence in Europe to support over 1.5 million inter-
nal invoices per year in Austria, Belgium, Denmark, Finland,
France, Germany, Ireland, Italy, Sweden, Switzerland, Neth-
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erlands, Norway, and UK.
The food company implemented a compliant program ahead of

schedule in order to manage its business across the globe effi-
ciently.

documents related to invoice 73
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learning objectives

>> Explain the concept of invoice
>> Describe packing notes and list
>> Define certificate of origin
4.1 INTRODUCTION
The previous chapter discussed about export documentation process
wherein both the exporter and the importer are involved. For this pro-
cess, the trading parties have to prepare some essential documents as
well as they have to undergo certain registration process.
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Invoice is a commercial document wherein both the parties involved
in trading process issue a document that states the terms related to the
trade. These terms include commodity of the product being traded,
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quantity, and payment or agreed prices.
Invoice or billing is a very old concept and it forms an important as-

pect of business and purchasing. Even if you buy a five rupee pen you
can ask for the bill, in the same way business firms and organisations
that order large amount of products need a proper billing and invoice
system to maintain the flow of cash as well as to keep a track of the
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earning and expenditure of the organisation.
Generating invoice is simple yet highly important aspect of any busi-

ness. In this chapter, you will learn about various documents needed
for generating invoice. Let us find out how to generate the invoice and
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what are the essential documents needed for preparing the invoice.
4.2 Invoices
Invoice is a commercial non-negotiable instrument that contains in-
formation regarding the transaction between a buyer (importer) and a
seller (exporter). Invoice provides information relating to the quantity,
price, date, parties involved, unique invoice number, and tax informa-
tion. It helps in identifying that whether it’s a credit or cash purchase.
The invoice contains the terms of the deal, and provides information
on the available methods of payment. Invoice is also referred to as bill/
statement/sales invoice. The format of an export invoice is shown in
Figure 4.1:

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Figure 4.1: Format of an Invoice

Source: http://www.gopixpic.com/
Invoices are used for various purposes but they play a crucial role in
tracking the sale of a product, managing books for accounting and
tax purposes. Now-a-days many companies are relying on e-invoice
in which invoices are transmitted through electronic medium rather
than using conventional paper based invoice. One of the main advan-
tage of e-invoice is that in case one of the trading party misplaces the
invoice then they can request for the copy of the invoice. In many
companies, the products are shipped before getting the payment and
in such cases invoice are created. When these companies ship the
product without getting the payment at the same time then the total
amount due becomes an account payable for the buyer and an ac-
count receivable for the seller.

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When an invoice is issued for rental industry then it has to include

time duration of the bill and price or discount provided on the invoic-
ing amount. Any type of rental invoice is billed on the basis of actual
hours, days, weeks, months, or years.
For seller the invoice is a sales invoice (export invoice for exporter)
whereas for buyer the same invoice is purchase invoice (import in-
voice for the importer).
An invoice typically consists of the following:

Name, address, telephone number, fax number, and email address
of the seller/exporter
A unique reference number (for correspondence of the invoice)
Date of the invoice
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Name and address of the buyer/importer
Credit terms
Purchase Order (PO) number (or similar tracking numbers re-
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quested by the buyer to be mentioned on the invoice)
Tax payments if relevant (VAT)
Date that the goods or service was sent or delivered
Quantity of the goods or services delivered
Description of the product(s)
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Unit price(s) of the product(s) (if relevant)

Total amount charged
Payment terms (including method of payment, date of payment,
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and details about charges for late payment)
4.2.1 PRO-FORMA INVOICE
It is the first and initial step before entering the export contract. The
exporter has to submit pro-forma invoice at the time of trade inquiry
to the importer. It is a detailed document which consists of following
information:
Name and address of the seller or exporter
Name and address of the buyer or importer
Types of goods
Shipping mode
Rates charged as per the internationally accepted quotation
Name of the country of origin of goods
Name of the country of final destination

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Period required for executing the contract after receipt of con-

firmed order
Signatures of the exporter
Figure 4.2 shows the sample of pro-forma invoice:
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Figure 4.2: Sample of Pro-forma Invoice

Source: http://cstools.org/CAConnect/Help/Pro-Forma_Invoice__New_
Application_for_Non-Boiler_Program.htm
Importance and significance of pro-forma invoice are two fold:

1. Pro-forma invoice is the base of all trade transactions and further
negotiation are carried out on the basis of this invoice.
2. Importer can obtain licence through pro-forma invoice and
later can request for foreign exchange after fulfilling all the
requirements of the contract.
4.2.2 COMMERCIAL INVOICE
Commercial Invoice refers to seller’s bill and it shows the information

of the merchandise or goods sold by him or her. This document con-
sists of following details:
Name and address of seller (exporter)
Name and address of buyer (importer)
Date

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Exporter’s reference number

Importer’s reference number
Description of goods
Price per unit at particular location
Quantity
Total value
Packing specifications
Terms of sale (FOB, CIF etc.)
Identification marks of the package
Total number of packages
Place and country of destination
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Country of origin of goods
Reference to letter of credit, if opened
Terms of payment
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Signature of the exporter
The format of commercial invoice is shown in Figure 4.3 below:
Date of Export: Export References (i.e. order no., invoice no., etc.):
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Shipper/Exporter (complete name and Recipient (complete name and address):

address):
Country of export: Importer - if other than recipient
(complete name and address):
Country of manufacture:
Country of ultimate destination:

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Federal Express International Air Way- Currency:

bill Number:
Marks/ No. of Type Full De- Qty Units of Weight Unit Total
No’s kgs of pack- scrip- mea- value Value
aging tion sure
of goods

Total Total Total

No. of Weight Invoice
kgs Value

I declare all the information contained in this invoice to be true and correct Top of
Form
__________________________________________
Bottom
Date: ___________
of Form
Figure 4.3: The Format of Commercial Invoice

Source: www.parcelforce.com/sites/default/files/Blank_Commercial_Invoice.doc

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It is one of the most relevant and significant export document which is

also known as ‘Document Of Contents’ as it contains all the important
information needed for the preparation of other export documents.
In many countries, there are no specifications regarding the invoice
forms. In such cases, exporters use normal invoices for any interna-
tional exports and include all the terms of the contract.
Significance of Commercial Invoice

It is one of the most important document of sale and purchase of
goods. All the other documents needed for the export are designed
on the basis of the information contained in this document.
Commercial invoice provides the basis for various export formali-
ties such as inspection before the delivery, quality, excise and cus-
toms procedures.
This document serves accounting purposes of both the parties that
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includes exporter and importer.
Commercial invoice is needed during the time of collection or ne-
gotiation of documents through the bank.
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This document is needed for claiming incentives as well.
4.2.3 CONSULAR INVOICE
The invoices that are signed by the consular of the importing coun-
try who are based in the exporter’s country are known as Consular
Invoices. Most of the countries that are involved in import business
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have the requirement for this invoice. For getting this certificate or
invoice duly signed by the authority, the exporter has to pay a fee,
which differs from country to country. The consular invoice ensures
the authentication of information given in the invoice. This document
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improves importer’s credibility in the exporting country and helps

the importer in making their way into exporting country. Once the
authenticity of the information is provided, it becomes easier for the
importer to carry forward the business related activities.
The consular invoice plays a crucial role when any issue related to
the trading of goods or services arises. In case the custom authori-
ties doubt the authenticity of the goods arrived or there is any other
issue related to consignment then custom officer has the authority to
open the packages of the imported goods. However, this might cause
delays. In this case, the importer needs to obtain the consular invoice
for resolving all these trivial matters quickly. Mostly, three copies of
consulate invoice are created. First copy is retained by the consulate
office, the second copy is sent to the customs of the importing country,
and the third copy is given to the exporter.
Importance to the Exporter

Once the invoice is signed by the consulate of the importing coun-
try, the exporter can be assured that there will be no big hurdles or
restrictions and it would be easy to carry forward the export and
to get foreign exchange.

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This document also helps in getting clearance from the customs of

exporter’s country for shipping the goods.
Importance to the Importer

Normally custom department of the importer’s country do not
open the packages. The invoice also helps importer to get speedy
delivery of goods.
The invoice also helps in eliminating lots of unnecessary hardship
that could raise its head for the importer once the packages are
opened.
Importance to the Customs

This invoice helps the custom department of the exporting coun-
try to clear the goods in less time.
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This invoice also helps importing country’s customs department
as it saves their time of opening the packages for calculating the
import duties.
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4.2.4 LEGALISED INVOICE
Only a few Latin American countries such as Mexico, and a few in

middle east have a requirement of legalised invoice. These invoices
need to be both certified, authorised, and legalised by the consulate.
In this, the invoices are to presented to the embassy for getting them
stamped so that they become legal.
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Legalised invoices are similar to consular invoice, in this consulate

or authorised mission, stationed in the exporter’s country has to give
authentication or certification for the invoices.
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4.2.5 CUSTOM INVOICE
Custom invoice is an extension of commercial invoice where the ex-

porter has to specify the following:
Description
Quantity as well as the price

Freight
Insurance
Packing costs
Delivery terms
Payment terms
Weight or volume of the products
Commercial invoice follows the format as specified by the customs

authorities of the importing country, and this format is called Customs
Invoice. In international trade, certain countries namely U.S.A., Can-
ada, and Australia require custom invoice.

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1. Pro-forma invoice is the first and initial step in entering the

export contract. (True/False)
2. ______________ is an important document for sale and
purchase of goods. All the other documents needed for the
export are designed on the basis of the information offered in
this document.
3. Commercial invoice follows the format as specified by the
customs authorities of the importing country. (True/False)
4. Commercial invoice refers to_____________.
5. Legalised invoices are different from consular invoice.
(True/False)
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Activity
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Design a rental invoice for forklift machine.
4.3 PACKING NOTE AND LIST

A packing note arrives with the delivery package and it is a shipping
document mostly attached inside the shipping pouch or package it-
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self. It is also known as bill of parcels, packing slip, or unpacking note.
This information provided on packing slip helps sender as well as

receiver to manage the package accordingly. Each shipping package
consists of itemised list of articles that includes quantity, description,
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and the weight of the contents. The list is created by the shipper and
sent to the consignee, so that at the time of delivery, the consignees
could match the details of the goods being delivered.
Packing List
Packing list is a shipping document that arrives with delivery pack-

ages. It is mostly attached to pouch or within the package itself. A
packing list is a document that holds the information about the con-
tents of a package.
The packing list is created to allow transport agencies, government

authorities, and customers to learn about the contents of the package.
On packing list, you can find the following details:
a. Date of packing
b. Number of packing list
c. Number of case to which it relates to
d. Contents of case in terms of quantity and weight

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e. Marking numbers
f. Name of the exporter
g. Name of the importer
h. Importer’s order number
These details help each of the parties to handle the package accord-
ingly. Figure 4.4 shows the packing list format:
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Note: Dimensions are calculated as: Length *Breadth* Height
Figure 4.4: Format of Packing List

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Itemised details of the contents of a package are given in the packing

list and it comprises of the quantity, description, and weight of the
shipped contents. However, it does not provide the details about the
pricing of the items.
A packing list is designed by the seller and it is used to match the goods
dispatched with the goods ordered. After matching and packaging the
goods, the packing list is sent along with them to their destination.
Packing note and packing list should not be confused as being same
because both of them are different. Packing note is used to define the
particulars of contents of shipped individual pack; whereas packing
list includes details of contents of the total number of cases or packs.
Both packing note and packing list are sent to the importer along with
other documents. In case of any shortage in the consignment, the im-
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porter can contact exporter and discuss the differences in the goods
being delivered with the help of packing note and list.
There is no particular form prescribed for both packing note or list.

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Normally, 10 copies of both the documents are prepared. Two copies
are sent to the buyer, one copy along with the documents, one to the
shipping agent and the rest are kept by the exporter. Special precau-
tions are made for confirming quantities mentioned in the packing
note or list with those stated in the Invoice and Bill of Lading or Air-
way Bill.
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6. Select which one of the following is the other name of packing

note:
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a. Bill of Parcels b. Packing Slip

c. Unpacking Notes d. All of the above
7. Packing list is a shipping document that arrives with delivery
packages. It is mostly attached to pouch or within the package
itself. (True/False)
8. A packing list is designed by the _________.
Activity
Meet any exporter and learn about the packing list.
4.4 CERTIFICATE OF ORIGIN

Certificate of Origin can be defined as a document which declares
the manufacturing country of a particular commodity or goods. It in-
cludes information about the destination of product and country of

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export; many treaty agreements demand this certificate before being

accepted in another nation.
Figure 4.5 shows the format of the Certificate of Origin:
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Figure 4.5: Certificate of Origin

Source: http://www.wordstemplates.org/tag/free-certificate-of-origin-template/
The exporter can get Certificate of Origin from International Cham-

ber of Commerce (ICC). The organisation is authorised by the Direc-
torate General of Foreign Trade (DGFT) and Ministry of Commerce,
Govt. of India for issuing non-preferential Certificate of Origin to the
exporters. Nominal fee is charged by ICC on the issuance of certifi-
cate and special discounts are provided to ICC members on the fee.
The exporter needs to execute an indemnity bond in order to seek
Certificate of Origin for the first time and after that exporter can get
pre-printed Certificate of Origin from the ICC office.

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The authorised signatory of ICC attests the Certificate of Origin and

other allied documents issued by the ICC after the payment of neces-
sary service charges.
The Certificate of Origin ensures that the shipped goods are completely
obtained, produced, manufactured, or processed in a particular coun-
try. Certificate of Origin also holds a declaration by the exporter as
well. All the countries need a certificate of origin for imported goods.
There are two types of certificate of origin, which are explained below:
Non-Preferential Certificate of Origin: These are also known as
Ordinary Certificate of Origin. The main purpose of this Certifi-
cate of Origin is to declare the country of a particular origin trad-
ing specific products or services. Here, the goods are not eligible
for any preferential treatment.
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Preferential Certificates of Origin: With this certificate, the prod-
ucts become eligible for tariff reduction or exemption during the
time of export. This is done in case of trading countries who have
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signed some kind of bilateral or multilateral agreements such as
FTA agreements under which the tariffs applicable are at con-
cessional rates. The exporter needs to have Certificates of Origin
along with the Letters of Credit, foreign Customs requirements,
or a buyer’s request. In most of the countries, Chambers of Com-
merce is responsible for issuing the Certificates of Origin. How-
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ever, there are exceptions and in some countries the Certificates of

Origin are issued by the ministries or customs authorities.
Significance of Certificate of Origin

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Concessions are provided after obtaining Certificate of Origin

under Commonwealth Preferences (CWP) as well as Generalised
System of Preferences (GSP).
The Certificate of Origin also motivates the importer to adhere to
the rules and regulations of his or her country.
By producing this certificate to the Customs in the importer’s
country one can enjoy concessional tariff
The certificate also helps the importing country to check and en-
sure that the goods from banned countries are not entering into
their jurisdiction.
Exporting country could request to obtain the certificate in order
to ensure that goods imported are not reshipped again.

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9. ___________can be defined as a document which declares the

manufacturing country of a particular commodity or goods.
10. Certificate of Origin also holds a declaration by the exporter
as well. (True/False)
11. ______________are also known as ordinary certificate of origin.
Activity
Using the Internet, search for a Certificate of Origin of a manufac-

turing company and analyse it.
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4.5 SUMMARY
Invoiceis a commercial non-negotiable instrument that contains
information regarding the transaction between a buyer and a seller.
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Pro-forma invoice is the base of all trade transactions and further
negotiations are carried out on the basis of this invoice.
Commercial Invoice refers to seller’s bill and it shows the informa-
tion of the merchandise or goods sold by him or her.
The invoices that are signed by the consular of the importing coun-
M
try based in the exporter’s country are known as Consular Invoices.

A packing note arrives with the delivery package and it is a ship-
ping document mostly attached inside the shipping pouch or pack-
ages itself.
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Packing list is a shipping document that arrives with delivery

packages.
The Certificate of Origin ensures that the shipped goods are com-
pletely obtained, produced, manufactured, or processed in a par-
ticular country.
key words
Certificate of Origin: This refers to a document used in inter-

national trade and abbreviated as CO
Invoice: It refers to a list of goods sent or services provided,
with a statement of the sum due for these.
Packing List: It refers to the list, which is intended to let trans-
port agencies, government authorities, and customers know the
contents of the package.

n o t e s

1. Explain the concept of invoice. Discuss commercial invoice.
2. What do you understand by certificate of origin, its significance
and how it is obtained?
3. Explain the concept of packing note and list.
4. What is custom invoice?
5. Discuss consular invoice.
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Invoices 1. True
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2. Commercial document
3. True
4. Seller’s bill
5. False
Packing Note and List 6. d. All of the above
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7. True
8. Seller
Certificate of Origin 9. Certificate of origin
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10. True
11. Non-preferential certificate of
origin

1. Invoice is a commercial non-negotiable instrument that contains
information regarding the transaction between a buyer and
a seller. Commercial Invoice refers to seller’s bill and it shows
the information of the merchandise or goods sold by him or her.
Refer to Section 4 .2 Invoices.
2. The certificate of origin ensures that the shipped goods are
completely obtained, produced, manufactured, or processed in a
particular country. Refer to Section 4.4 Certificate of Origin.
3. A packing note arrives with the delivery package and it is a
shipping document mostly attached inside the shipping pouch
or packages itself. Refer to Section 4.3 Packing Note and List.

n o t e s
4. Custom invoice is an extension of commercial invoice. Refer to

Section 4.2 Invoices.
5. The invoices that are signed by the consular of the importing
country based in the exporter’s country are known as Consular
Invoices. Refer to Section 4 .2 Invoices.
4.8 Suggested Reading FOR REFERENCE
SUGGESTED READINGS
New York: AMACOM.
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E-REFERENCES
Fieo.org,.(2014). FIEO : Indian Exporter, Indian Export, Indian
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Exporter Directory. Retrieved 7 November 2014, from http://www.
fieo.org/
Iccwbo.org,. (2014). What is a Certificate of Origin? | Certificates
of Origin | Trade Facilitation | Chamber Services | ICC - Interna-
tional Chamber of Commerce. Retrieved 7 November 2014, from
http://www.iccwbo.org/chamber-services/trade-facilitation/certifi-
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cates-of-origin/what-is-a-certificate-of-origin-/
Ups.com,. (2014). Commercial Invoice: UPS. Retrieved 7 November
2014, from http://www.ups.com/content/us/en/shipping/interna-
tional/documents/intl_forms/comm_invoice.html
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Ch a
5 p t e r
DOCUMENTATION RELATED TO SHIPMENT
CONTENTS
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5.1 Introduction
5.2 Shipping Bill / Bill of Export

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Activity
5.3 Cart Ticket
Activity
5.4 Certificate of Measurement
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Activity
5.5 Bill of Lading
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Activity
5.6 Airway Bill (AWB)
Activity
5.7 Mate’s Receipt
Activity
5.8 Export Promotion Copy of Shipping Bill
Activity
5.9 GR Form
Activity
5.10 Form C
Activity

CONTENTS
5.11 Form A.R.E1

Activity
5.12 Summary
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DOCUMENTATION RELATED TO SHIPMENT 91
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SHIPPING INNOVATIONS AT HERMES LOGISTIK GRUPPE
One of the largest companies of Germany, Hermes Logistik

Gruppe (HLG) offers services such as deliveries to private cus-
tomers, and logistic services. In addition, it has the ability and
expertise to transport almost everything. It has around more than
14000 parcel shops across Germany. Personal contacts and healthy
relationships with customers are the strengths of the company.
It claims to deliver every three parcel in business to consumers
segments. The company has become a prominent player in pri-
vate front-door deliveries with a record of one million customer
contacts every day. The accuracy level of delivering parcels safely
and on time is 99 per cent. It has achieved this success through va-
riety of customer-oriented services. These services include three-
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hour delivery time slots, text messages for direct deliveries to a
parcel-shop, Saturday deliveries, deliveries left with neighbours,
holiday storage etc.
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The Hermes delivery system allows up to four deliveries without
applying any surcharges. It has an integrated electronic informa-
tion system to track the complete shipment history, help clients
and customers in tracking their shipments via the Internet and
retrieve all the important information at all times.
On account of the changing and increasing requirements of cus-

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tomers, IT-based applications are being used as a reliable solution

for parcel labeling and data exchange. Due to this, Hermes LG
Deutschland GmbH decided to use the services of the most mod-
ern available solution, the XLogics Shipping Center. The XLogics
Shipping Center is also a supplement to an existing HTML solu-
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tion that is currently available for smaller customers. The objec-

tive of the company has been very clear and it is to create an eas-
ily implementable and multifunctional application that would not
require an individual for the maintenance and offline solutions.
Therefore, it designed an IT tool that enabled the company to con-

nect to the customers of different segments directly. The centra-
lised XLogics Shipping system is now run on an integrated server
that makes the data transfer very easy. Consequently, the parcel
volume started increasing steadily.

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learning objectives

>> Explain shipping bill
>> Describe cart ticket
>> Discuss certificate of measurement
>> Explain bill of lading
>> Describe an airway bill
>> Discuss a mate’s receipt
>> Describe an export promotion copy of shipping bill
>> Explain GR form, form C and form ARE1
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5.1 INTRODUCTION
The major part of the goods are exported and imported through ships
as it is the most convenient, cost effective, and probably the best way
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of export-import. Export, though a single process, is the amalgama-
tion of various activities. Shipment or delivery of a consignment is one
of the most important aspects of export. Shipping documents include
all those documents which are important and required from the per-
spective of export. Shipping documents makes the trade convenient
and easy for the both the parties.The shipping documents are majorly
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associated with legal procedures and and responsibility of both the

parties while importing and exporting goods. Since, sea trade has al-
ways been popular in the world, today, most of the countries trade
through ocean. Therefore, the need of knowing and understanding
the documents related to shipment becomes very important. Shipping
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documents are very important when it comes to dealing with foreign

countries. Therefore, the terms and conditions, and responsibilities,
and proper documentation must be discussed and maintained.
This chapter starts with explaining shipping bill, further it explains

cart ticket, certificate of measurement, bill of lading, and airway bill.
This chapter also tells you about the mate’s receipt, export promotion
copy of shipping bill. At the end of chapter, it gives you a basic under-
standing of G.R. form, Form C, and Form A.RE1.
5.2 SHIPPING BILL / BILL OF EXPORT

The document that provides the permission required for customs and
export is called the shipping bill. There are four types of shipping bills
as follows:
Dutiable shipping bill.
Duty free shipping bill.
Shipping Bill under Duty draw back.

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Ex-bond shipping bills, for goods imported for re-export.

The different types of shipping bills were identified using different
colours when the electronic filling of shipping bill was not intro-
duced.
Duty free shipping bill - White color
Dutiable shipping bill - Yellow color
Shipping bill for drawback - Green color
Ex-bond shipping bill - Pink color.
There still exist some custom locations where electronic filing of ship-
ping bills is not available and the shipping bills are filed manually us-
ing colour to differentiate among different types of shipping bills.
Re-export of imported goods
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The various documents essential for processing a shipping bill are the
following:
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GR forms or duplicates of their shipment across various countries.
Four separate copies of the packing list that contains the details
such as quantity and weight within every package.
Four copies of the invoice that mention the quantity, unit rate, total
number of packages, complete details of the goods, etc.
The L/C purchase and the contract of the overseas buyer.
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AR4 (original and a copy) and invoice.

Examination or inspection certificate.
The shipping bill has to be presented in the following format:

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Three copies of white shipping bill for exporting duty-free goods

Fourcopies of green shipping bill for exporting goods (that come
under duty drawback.)
Three copies of yellow shipping bill for exporting dutiable goods
Seven copies of the blue shipping bill for the exports under DEPB
scheme which is an export incentive scheme of the Government of
India. However Duty Entitlement Passbook scheme (DEPB) has
been discontinued.
DOCUMENTS REQUIRED FOR POST PARCEL

CUSTOMS CLEARANCE
When a post parcel is made, one does not require a shipping bill. The
importance and the requirement of relevant documents are men-
tioned below:
Customs Declaration Form: The use of a custom declaration form
is as per the norms of the Universal Post Union. It is also defined
as an authorisation form by the international apex body that co-

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ordinates the activities of national post administrations. It is rec-

ognised by the code number CP2/CP3 and is signed by the sender
after being created in quadruplicate.
Dispatch Note: The dispatch note is better known to people as
CP2 and is filled and sent by the sender. This is supposed to indi-
cate to the postal department the action to be performed, provided
the address is not traced or the parcel is not accepted.
PRESCRIPTIONS FOR THE MINIMUM AND MAXIMUM SIZE

AND MAXIMUM WEIGHT OF A PARCEL:
Minimum Size: The area covered by the surface of a parcel must
be greater than 140 mm X 90 mm.
Maximum Size: The length of a parcel must not be more than
1.05 metres. Measurement of any other side of circumference 0.9
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M./2.00 M.
Maximum Weight: The prescribed weight is usually 10 kg. But it
may be 20 kg for some specific destinations.
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Dock (Warehouse) receipt: The receipt at the dock, also known as
the warehouse receipts issued by the supervisor of a warehouse or
the port officer. This is to certify that the goods have been received
by the shipping company. It is also used to transfer the account-
ability of the goods when they are moved by the local carrier to the
port of embarkation and left with an international carrier.
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1. The document that grants permission for customs and export

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is called Bill of Lading. (True/False)

2. The use of a custom declaration form is as per the norms of
the ___________.
Activity
Design a PowerPoint presentation naming the different documents

needed for shipment.
5.3 CART TICKET

The cart ticket is popularly known as vehicle ticket or lorry ticket.
After it is prepared by the exporter and it is provided with all the de-
tails of the export cargo such as the number of packages, the shipper’s
name and shipping bill number. The other details that it might contain
include the details of the drivers, the vehicle carrier, the gate pass and
the time at which the vehicle will arrive at its destination.

n o t e s
This is to be presented to the gatekeeper when the parcel arrives along

with the necessary documents and it will be allowed passage when the
information has been verified along with the goods.
3. The cart ticket is known as_________.
Activity
Using the Internet, do a detailed search for cart ticket to gain a

deeper understanding.
5.4 CERTIFICATE OF MEASUREMENT
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The Indian Chamber of Commerce can issue a certificate of measure-
ment to a shipping company for calculating freight charges. The certifi-
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cate contains information regarding the length and breadth of the pack-
age, description of the goods, the quantity and other relevant details.
4. The Indian Chamber of Commerce issues a certificate of

measurement. (True/False)
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Activity
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Visit the website of ‘The Indian Chamber of Commerce’ and try and
understand the procedure of issuing a ‘Certificate of Measurement’.
5.5 BILL OF LADING (B/L)

A bill of lading is a shipping document that is issued by a carrier or
its agent to the shipper. It serves as a contract of carriage of goods
between the owner of goods and the carrier of goods. It also acts as a
receipt for cargo accepted for transportation and must be presented
for taking the delivery at the destination.
The B/L occasionally acts as a title to the goods and an original B/L is
usually issued in a set of three. It can be negotiable or non-negotiable.
The one who presents the original B/L can take the possession of the
goods.
The reasons for using a B/L are the following:

a. It acts as the document of the goods shipped.

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b. It is the receipt of the goods received by a steamship company is

a B/L.
c. It also has the complete details of the terms of the contract
between the company and the shipper.
It can be a qualified bill of lading when it contains special remarks,

such as insufficient goods or box damaged, or it can be a clean bill of
lading when it is issued to complete all the requirements in a set of
letters of credit.
Straight or non-negotiable B/L:
This bill indicates that the shipper is going to deliver the goods to the
buyer and mentions the title of the goods not transferred to the ship-
per. This is used most frequently when the payment has been made
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in advance.
Shipper’s order or negotiable B/L:

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This bill is supposed to serve as a title of the goods created by the
party which is the shipper. The bill has to be approved by the ship-
per for the process of negotiation. The shipper’s order can be issued
by the order of the importer’s bank acting as a part of documentary
credit or letter of credit. This should be done in such a manner that
when a buyer/buyers bank receives the original lading bill, the same
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can be endorsed by the importer when the payment is to be made

while clearing the goods at the customs. While in transit, the shipper’s
order (negotiable B/L) can be bought or traded but not the straight
B/L (non-negotiable), which is consigned to the importer directly.
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It is generated mostly electronically by the company completing the

information of the shipping company or an agent. There is also a no-
tification within the bill of lading, which helps in notifying the time
at which the ship arrives at the dock or its intended destination and
allows the carrier to inform the concerned party easily that the goods
are available for collection and cleared by the customs. The goods are
collected once the customs are cleared and the duties are paid. Freight
Collect is related to the charges of freight paid by the consignee (im-
porter). Freight Prepaid is the charge of freight paid by theshipper.
The advance charges are often added if the payment is due to an ex-
porter before the importer even receives the goods, which make the
importer pay the same along with several other charges.
Inland Bill of Lading
The inland bill of lading is issued by the trucking company or the rail-
road line for the transportation of the goods from the seller’s facility to
the embarkation port or some other facility.

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Ocean Bill of Lading (OBL)
The Ocean Bill of Lading is the invoice that is issued as a clean bill of
lading, which means the ocean carrier certifies that the goods are re-
ceived without any possible visible damage. The on-board Ocean Bill
of Lading is supposed to be issued when the consignment is received
at the facility of the carrier port to ensure that the cargo will be trans-
ported.
5. A _______________ is the receipt issued to the carrier for the

goods upon their arrival.
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Activity
Design a PowerPoint presentation explaining Bill of Lading.

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5.6 AIRWAY BILL (AWB)
An Airway Bill (AWB) is used for air transport of goods. AWBs are
non-negotiable owing to the very short time within which they are in
transit. An AWB is used so that a buyer can show a valid proof of own-
ership of the goods.
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If a freight forwarder or consolidator is involved in a shipment, such

forwarder issues a document of receipt of goods to the final shipper
which is called House Airway Bill (HAWB). In turn the said freight
forwarder delivers goods to main air carrier and receives a Master
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Airway Bill (MAWB).
6. What is a newer form of Bill of Lading, which is used for air

transport of goods?
Activity
Explain the role of an Airway Bill in export.
5.7 MATE’S RECEIPT

It is a receipt issued by the mate (assistant to the captain of the ship)
once the cargo is loaded on the ship. The receipt acknowledges that
the goods have been received on the ship.

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CONTENTS OF A MATE’S RECEIPT

1. Name of the vessel
2. Date of shipment
3. Berth
4. Marks
5. Numbers
6. Description and condition of goods during the time of shipping
and port of loading
7. Name and address of the shipper
8. Name and address of the importer (consignee)
9. Other required details.
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10. A Mate’s Receipt can be clean or qualified.
Significance of a Mate’s Receipt

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1. A Mate’s Receipt is an acknowledgment of goods. It is different
from document of title.
2. The receipt empowers the exporter or his agent to secure the Bill
of Lading from the shipping company.
3. A Mate’s Receipt is the basis for preparing bill of Lading.
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4. Port Trust Authorities are enabled to collect their dues as Mate’s

Receipt is handed over to the port authorities and the exporter
has to collect this from them after paying all dues/payments to
the port authorities
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7. A ____________ is an acknowledgment of goods which is

different from document of title.
Activity
Using the Internet, study the concept of Mate’s receipt in detail.
EXPORT PROMOTION COPY OF

5.8
SHIPPING BILL
After the completion of export customs procedures, the exporter can
receive back an exporter copy and exchange control copy of the ship-
ping bill. The customs can issue export promotion only after ‘export’
takes place. This means that the export promotion copy of the ship-
ping bill can be issued once the goods are moved out of the coun-

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try. The exporters can obtain exchange control copy and exporter’s
copy of the shipping bill signed by customs authorities. The export
copy of shipping bill is retained with the exporter and has to submit
the exchange control copy with their dealer bank. The dealer bank
in turn sends the exchange control copy to the Reserve Bank so as to
monitor and control the inward and outward foreign remittances. The
exchange control copy and the exporter’s copy cannot be treated as a
proof of export.
Exporter gets all benefits under exports from different government

export promotion agencies only on the basis of export promotion ship-
ping bills and other proof of export. In other words, among shipping
bills, Government agencies accept only the EP copy of shipping bill as
a proof of export.
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8. The exporters can obtain exchange control copy and exporter’s

copy of the shipping bill signed by ____________.
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Activity
Design a PowerPoint presentation explaining a shipping bill.

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5.9 GR FORM
A GR form is an exchange-control document. The Reserve Bank of
India (RBI) requires this document. An exporter has to fill a dupli-
cate copy of the form. The exporter is required to submit the GR form
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along with the shipping bill to the customs. Customs provide running
serial numbers on both the copies. Once the customs shipping bill is
submitted, customs verify and certify the value of goods declared by
the exporter in the space earmarked and also record their assessment
of the value of the goods. The original copy remains with the customs
and they return the duplicate copy to the exporter. The original copy
is dispatched to the RBI.
The original GR Form is retained by customs authorities and the du-

plicate copy is returned to the exporter. The original GR Form is sent
to the RBI by customs, indicating that the goods are ready to be ex-
ported. The exporter submits the duplicate of the GR Form to the au-
thorised dealer along with other shipping documents within 21 days of
shipment. This is necessary for the purpose of negotiation.
After the bill is negotiated, the authorised dealer sends the reports on
the negotiation and transaction processes to the RBI. Once the autho-
rised dealer receives all the export proceeds, it forwards the duplicate
copy of the GR Form,along witha copy of the invoice, to RBI. Export

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proceeds are realised when RBI recognises that the export transac-
tion has been concluded. The GR Form has been replaced by an SDF
(Statutory Declaration Form) with the advent of computerised ship-
ping bills.
9. The original GR Form is sent to the RBI by customs, indicating

that the goods are ready to be exported. (True/False)
Activity
Design a PowerPoint presentation explaining the role of a GR Form

in export.
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5.10 FORM C
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A Form C should not be confused with the C Form. By submitting a
Form C, an exporter can avail rebate of duty on excisable goods (other
than vegetables, non-essential oils and tea) exported by sea. It is to be
submitted, in triplicate, to the Collector of Central Excise.

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10. By submitting a Form C, an exporter can avail rebate of duty

on ______________.
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Activity
Describe the features of Form C with a PowerPoint presentation.
5.11 FORM A.R.E 1

Form A.R.E1 is a regulatory pre-shipment export document. Regula-
tory documentsare those that have been prescribed by different gov-
ernment departments and bodies regarding export. The purpose of
these documents is to ensure compliance with the various rules and
regulations under relevant laws governing export trade such as export
inspection, foreign exchange regulations and export trade control.
A.R.E 1 is a Central Excise form. It has replaced A.R4 and A.R5 forms.
11. Form A.R.E 1 is a regulatory pre-shipment export document.

(True/False)

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Activity
Initiate a class discussion on the different regulatory documents

related to export.
5.12 SUMMARY
Export consists of various activities among which, shipment of
consignments is the most important aspect.
A shipping bill provides permission related to customs and is of
four types. The shipping bill has to be presented in a prescribed
format, and there is a set of necessary documents for processing a
shipping bill.
A Bill of Export is used instead of a shipping bill for clearance from
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the land customs authority.
A cart ticket also known as vehicle ticket contains relevant details
about the cargo. It is presented when the cargo arrives at a port.
The information in the cart ticket is verified before the cargo is
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allowed passage.
A certificate of measurement contains information about the
length and breadth of a package, description and quality of the
goods.
A Bill of lading is the receipt issued by the carrier to the shipper
for the goods receipted by the liner. It can be negotiable or non-
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negotiable.
An Airway Bill is used for transporting goods by air; it is non-ne-
gotiable.
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A Mate’s Receipt is issued by the mate when cargo is loaded on

the ship.
A GR Form is an export-control document required by the RBI. An
exporter is required to submit this form along with the shipping
bill to the customs authority.
By submitting a Form C, an exporter can avail rebate of duty on
excisable goods exported by sea.
key words
Bill: It may refer to a shipping bill, a Bill of Lading or an Airway Bill.
Certificate of Measurement: It contains information about the

length and breadth of a package, description and quality of the goods.
Documentation: It refers to a set of documents provided on pa-
per or online.
Shipment: It refers to the quantity of goods shipped i.e., a con-
signment.

n o t e s

1. What is shipping bill? Explain.
2. Explain cart ticket.
3. Explain bill of lading (B/L).
4. What is a mate’s receipt?
5. Explain GR form.
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Shipping Bill / Bill 1. False
of Export
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2. Universal Post Union
Cart Ticket 3. Vehicle Ticket
Certificate of Measurement 4. True
Bill of Lading (B/L) 5. Bill of Lading (B/L)
Airway Bill (AWB) 6. Airway Bill (AWB)
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Mate’s Receipt 7. Mate’s Receipt

Export Promotion Copy 8. Customs authorities
of Shipping Bill
True
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GR Form 9.
Form C 10. Excisable goods
Form A.R.E 1 11. True

1. The document that provides related permission for customs and
export is called the shipping bill. Refer to section 5.2 Shipping
Bill / Bill of Export.
2. The cart ticket is popularly known as vehicle ticket. After it is
prepared by the seeker, it is provided with all the details of the
export cargo such as the number of packages, the shipper’s name
and shipping bill number. Refer to section 5.3 Cart Ticket.
3. A Bill of Lading is the receipt issued to the carrier for the goods
upon their arrival. The B/L occasionally acts as a title to the
goods and an original B/L is usually issued in a set of three. Refer
to section 5.5 Bill of Lading.

n o t e s
4. It is a receipt issued by the mate (assistant to the captain of

the ship) once the cargo is loaded on the ship. Refer to section
5.7 Mate’s Receipt.
5. A GR form is an exchange-control document. The Reserve Bank
of India (RBI) requires this document. An exporter has to fill a
duplicate copy of the form. Refer to section 5.9 GR Form.
SUGGESTED READINGS
Cook,T., Alston, R., &Raia, K. (2012). Mastering import & export
management. New York: American Management Association.
Dunford,C. (1991). The handbook of international trade finance.
S
New York: Woodhead-Faulkner.
Paul,J., &Aserkar, R. (2008). Export import management. Oxford:
Oxford University Press.
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E-REFERENCES
(2014). Retrieved 7 November 2014, from http://metro-nat-
shar-31-71.brain.net.pk/articles/_dgXjJUwy9.pdf
(2014). Retrieved 7 November 2014, from http://www.banrepcul-
tural.org/sites/default/files/taking_a_snapshot_of_the_goods_on_
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shipment_which_is_the_safest_document.pdf
Export.gov,.
(2014). Export.gov - Common Export Documents. Re-
trieved 7 November 2014, from http://www.export.gov/logistics/
eg_main_018121.asp
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Ch a
6 p t e r
documentation related to payment
CONTENTS
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6.1 Introduction
6.2 Letter of Credit
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Activity
6.3 Bill of Exchange
6.3.1 Foreign Bill of Exchange
Activity
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6.4 Trust Receipts

Activity
6.5 Letter of Hypothecation
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Activity
6.6 Bank Certificate of Payment
Activity
6.7 Summary

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Burton’s biscuit company
Burton’s Biscuit Company has been in the business for more than
seven decades with its strong international presence. The brand
has marked its presence in France, Ireland, Canada, USA and
Russia. In 2009, company planned to adopt transformational cor-
porate strategy whose primary focus was on developing internal
capabilities and expanding the business on international level.
Before expanding its business globally, the company focused on
developing its distribution capabilities and checking its market-
ing presence in international markets.
Burton’s distribution joined hands with Walmart, in order to ex-

pand its market. It developed new marketing formats and vari-
S
ants to capture and satisfy the tastes of consumers, for example
a nougatine variant of the Cadbury cookie has been launched ex-
clusively for the France market.
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The company has seen a growth rate of 23% in 2009 and its reve-
nue from international market has reached a mark of 14% since
2013. Burton’s have plans for accelerating and stimulating their
growth in the coming years.
According to Steve Newiss, Chief Customer Officer at Burton’s

Biscuit Company“International markets continue to deliver con-
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sistent growth for Burton’s. The global appetite for quality Brit-
ish products is still strong, with events such as the Olympics and
Diamond Jubilee only reinforcing it. Burton’s is now focused on
solidifying the foundations of its international footprint, and en-
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suring its network and partners can meet increasing demand so

that its international strategy will continue to support growth well
into the future.”
As the companies are entering into the foreign market, the need
of proper payment procedure is felt. Following the proper doc-
umentation of the payment makes the business easy, legal and
beneficial for importers as well as for exporters.

documentation related to payment 107
n o t e s
learning objectives

> Explain the concept of the letter of credit
> Describe the bill of exchange
> Define the trust receipt
> Explain the concept of the letter of hypothecation
> Discuss the bank certificate of payment
6.1 INTRODUCTION
The previous chapter discussed about the various documentation
that both exporter and importer have to fulfill for ensuring proper
S
shipment of the goods or services ordered. The documents that are
required for shipment include shipping bill, cart ticket, certificate
of measurement, bill of lading, mate receipt, export promotion, GR
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forms, Form C, and Form A.R.E 1.
For winning sales and building brand image among customers global-
ly, it is very important for the exporters to provide attractive sales and
payment terms to the customers. The payment system is the backbone
of international trade and it is not only confined to quality, price, and
delivery schedule. The major characteristics of international trade are
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that it is not only highly competitive but equally sensitive as well.

The international trade payment is highly organised and there are
various steps to make the business safe for both the parties. In this
chapter, we have discussed about various payment documents that
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the exporter and importer may need for the problem free and safe
business dealing.
There are various documents related to payment terms. Let’s take
these documents one by one to explain the payment procedure and
methods.
6.2 Letter of Credit

According to Justice Cameron of Lava Systems, “A letter of credit is
a specialised form of commercial credit. It is an autonomous contract
between an issuer, normally a bank, and the beneficiary, normally a
supplier, customer with a possible warranty claim, or creditor of the
bank’s customer. The issuer’s customer is not a party to the letter of
credit. The letter of credit is independent of any agreement or the eq-
uities between the beneficiary and the issuer’s customer or the issuer
and its customer. Subject to fraud, the letter of credit is payable by the
issuer in accordance with its terms, independent of the performance
of the underlying contract for which the credit was issued. The funds
paid are those of the issuer, not its customer.”

n o t e s
It is one of the most popular payment methods in recent times. The

method eliminates the exporter’s fear of credit and payment risks.
In the Letter of Credit system, the exporter is not worried about the
creditworthiness of the borrower or importer while entering into the
contract because bank gives the credit guarantee of importer. There is
no payment risk as the bank is liable to make payment to the exporter
once the stipulated conditions are met. One of the main advantages
offered to the exporter is that he/she can collect the payment from the
bank located in his/her home country.
The letter of credit works in the following way:

The buyer and seller form an agreement of sale. The agreement
states that the letter of credit will be used for the payment trans-
actions.
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The buyer fills the application for a letter of credit and forwards it
to bank. The letter of credit will be issued by a bank.
The buyer’s bank will forward the letter of credit to the seller’s
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bank in the seller’s country.
The seller’s bank gives the letter of credit to the seller.
After receiving the payment, seller makes the shipping arrange-
ments for the buyer.
According to Article 3 of Uniform Customs and Practices relating to

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Documentary credits, Documentary Letter of Credit has been defined

as “any arrangement whereby a bank acting at the request and in accor-
dance with the instructions of a customer (the importer) undertakes to
make payment to or to the order of a third party (the exporter) against
stipulated documents and compliance with stipulated terms and condi-
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tions”.
On the request of the importer, bank commits to the exporter for mak-
ing a payment, under certain special circumstances and up to a limit.
However, the bank only decides to make payment when all the re-
quired letter of credit documents as requested by the importer, are
presented in orderly manner. Documents that need to be submitted
usually include bill of lading, invoice, and marine insurance policy.
There are various types of letters of credit that are explained as fol-
lows:
Documentary Letter of Credit: In this, the exporter has to collect
all the documents that he/she has to submit to the importer. It in-
cludes following documents:
Sight or Usance Bill of Exchange
Commercial Invoice/Customs Invoice
Consular invoice
Packing List

n o t e s
Fullset clean-on-board Bill of Lading/Airway Bill/Combined

Transport Document
Inspection Certificate
Marine Insurance Policy/Certificate
Certificate of Origin
Any other document as required by the buyer, mentioned in
letter of credit
Revocable and Irrevocable Credit: According to a revocable let-
ter of credit, the opening bank holds the right of cancellation or
modification of the credit, at any time. Revocable letters of credit
cause apprehension to the exporter as importer may instruct the
banker to revoke the credit when the contract is in stage of execu-
S
tion or even after shipment.
In case of irrevocable letter of credit, the bank cannot change the
terms of credit, without taking the consent of the beneficiary. The
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bank is liable to make the payment, if the documents are in accor-
dance to the credit terms specified in the letter of credit. In the ab-
sence of any mentioned terms, it is deemed that the letter of credit
is irrevocable with due effect from 1stJanuary 1994.
With Recourse or Without Recourse Letter of Credit: In ‘With
Recourse” letter of credit, the bank can make the exporter liable
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in case of default in payment. Under “Without Recourse” letter of

credit, the negotiating bank has no recourse to the exporter. How-
ever, if the confirming bank and negotiating bank are same then
confirming bank have no option of exercising recourse to the ex-
porter. In case, a confirmed letter of credit is issued then it comes
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without recourse to the beneficiary. While, in case unconfirmed

or negotiable letter of credit is issued then it always comes with
recourse to the beneficiary.
Commercial Letters of Credit: This is one of the most crucial
methods of payment. These letters of credit are based on the latest
version of Uniform Customs and Practice for Documentary Cred-
its (UCP).
Standby Letters of Credit: It refers to the guarantee that bank
offers for the payment because of the client. This is considered as
the payment of last resort, which means if the client fails to make
the payment as per the contract then bank will do it.
Unconfirmed Letters of Credit: It refers to those letters of credit
that have not earned guarantee or confirmation by any bank other
than the bank that opened it.
Confirmed Letter Of Credit: When a second bank guarantees the
payment of letter of credit then it is known as confirmed letter of
credit.

n o t e s
Clean Letters of Credit: These letters are best suited for differ-
ent commercial situations where goods movement is not expected.
Clean letters of credit are issued only on request.
Transferable Letters of Credit: These are also known as docu-
mentary credit, which means it has the option to allow a trader
to transfer its rights and obligations to the supplier. During doc-
umentation, it should be clearly stated that the credit is transfer-
able otherwise no credit can be transferred regardless of any other
terms mentioned.
Back-to-Back Letters of Credit: As the name suggests, in this one
irrevocable letter of credit becomes the collateral for other one. In
this, two letters of credit are issued that can be used together by
the seller for financing the purchase of goods and services.
Advance Payment (Red Clause) Letters of Credit: The main fea-
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ture of this letter of credit is that it is generally written in red ink. It
is an arrangement in which the seller is allowed to withdraw some
fixed amount from the advising or paying bank.
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1. The method of letter of credit eliminates the exporter’s fear of

credit and payment risks. (True/False)
2. ________________ includes various documents that the
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exporter submits to the importer.

3. The commercial letters of credit are issued subject to the latest
version of which of the following:
a. UCP
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b. EOC
c. IEC
Activity
Design a PowerPoint presentation explaining different types of Let-

ters of Credit.
6.3 Bill of Exchange

Bill of exchange is a negotiable instrument that includes an uncondi-
tional order that is signed by the maker who agrees to pay a certain
amount of money to the bearer of the instrument. This document is
very crucial in international trade as it binds one party to pay agreed
amount to another party on a specified time.

n o t e s
Bill of exchange can be drawn by individuals or banks and are gener-

ally transferable by endorsements. When the bill of exchange is issued
by the bank, it is known as bank draft, whereas, when issued by indi-
viduals, it is known as trade draft.
It is one of the most important methods of payment where the docu-

ment is prepared by the exporter and sent to the importer along with
the documents through a commercial bank. Figure 6.1 shows the for-
mat of Bill of Exchange:
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Figure 6.1: Format of Bill of Exchange

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6.3.1 Foreign Bill of Exchange
Bills of exchange that are drawn from one country for another country
is known as foreign bill of exchange. These bills of exchange are of two
types:
1. Ordinary Foreign Bill: This bill is issued only when exporter
has full trust in the credit-worthiness of the importer. It is also
referred as Clean Foreign Bill of Exchange.
2. Documentary Bill: In this bill, documents to the title of the goods
are sent along with the foreign bill of exchange. This bill can be
further categorised as:
a. Documents against Payment: In this, documents are de-
livered to the importer after making the full payment. The
exporter provides clear export-import procedures, documen-
tation, and logistics instruction to the bank including the in-
struction to clear the full payment.
b. Documents against Acceptance: In this method, the export-
er instructs the bank to deliver the documents to the import-

n o t e s
er only when he or she accepts the enclosed bill of exchange.

Both exporter and importer have to affix stamps while send-
ing the bill and accepting the bill respectively according to
their country’s respective policies.
4. Bill of exchange can be drawn by ________________ and are

generally transferable by endorsements.
5. Bill of Exchange is a negotiable instrument that includes
an unconditional order that is signed by the maker and
agreeing to pay a certain amount of money to the bearer of
the instrument. (True/False)
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Activity
From the Internet, learn about foreign bills of exchange.

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6.4 Trust Receipts
Trust receipt can be defined as the notification given to the buyer by
the bank on the release of merchandise, where the bank retains the
ownership title for the assets released. It can be defined as a legal doc-
ument that is made between the bank and person borrowing from the
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bank. Figure 6.2 shows the specimen of Trust Receipt:

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Figure 6.2: Specimen of Trust Receipt

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In this, the importer has to clear the payment in order to take delivery
of goods. In case, the importer fails to clear the payment, on arrival
of goods, the importer can execute a trust receipt to take delivery of
goods later.
The importer can sell the goods and could act as an agent for the bank.
In this, the importer informs the bank regarding the sale and deposits
the sale proceeds with the bank. Until importer makes the final set-
tlement, the bank retains ownership for the goods and importer work
as an agent of the bank. This arrangement is designed to help the
importer to take delivery of goods in case of lack of fund. This method
offers flexibility to the importer and protects bank’s interests.
Exhibit
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Trust Reciepts for Bank of China
Introduction
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Trust Receipts is a common financing provided by the Bank of Chi-
na to the importer. The customer is granted with a revolving trust
receipts facility after its credit standing is assessed by the bank.
Trust receipt limit has a fixed tenor and usually used together
with import letter of credit limit. In most scenarios, the importers
submit Trust Receipt application to the bank after transport docu-
ments are sent to the bank under letter of credit or import collec-
M
tion. Bank provides financing by paying the supplier directly and

effectively owns title to the goods. The importers sell the goods on
the behalf of the bank, subsequently, the proceeds are used to pay
off the loan.
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Product Features
1. Bank provides financing to the importers, the proceeds from
the sale of the goods will subsequently be used to pay off the
loan.
Eligible Applicants
Importer with financing need from the bank
Application Requirements
1. Legally registered in Singapore
2. Maintain current account with bank
3. Granted Trust receipt facility by bank
Application Procedure
1. Bank grants Trust Receipt facility to the importer
2. Customers to sign a copy of “Master Trust Receipt Agreement”

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3. Applying trust receipts financing, customer is to submit

Trust Receipt application from transaction by transaction,
listing clearly the financing amount and relevant transaction
information.
4. Bank releasing relevant transport document (including Bill of
Lading) to the customer.
5. Customer pays off the loan when trust receipt falls due.
Source: Bank of China
6. Trust receipts can be defined as a _____________ that is made

between the bank and person borrowing from the bank.
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7. Trust receipt is designed to help, which of the following:
a. Exporter
IM b. Importer
c. Bank
Activity
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Visit any bank and learn the procedure of Trust receipts.
6.5 Letter of Hypothecation

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Letter of Hypothecation is a written agreement that authorises

a bank or lender to repossess and sell the pledged item in case of a de-
fault. Letter of hypothecation plays an important role in international
trade as it gives authority to the bank to sell the shipment if buyer fails
to give acceptance or make payment on time. An example of hypothe-
cation is car loans. in this case, the car is hypothecated to the bank and
if the borrower defaults on the loan the bank has a right to recover the
amount by disposing the vehicle. In case of export and import, import-
ers may take a loan from bank to pay for goods and in exchange offer
the asset/financial instruments to bank as a pledge.
The practice and rules regarding the hypothecation vary depending

on the country.

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Exhibit
Sample Letter of Hypothecation

Hypothecation Letter
Lender Name: ___________________
Address: ________________________________________
To Whomsoever It May Concern
In order to induce ___________________________ (“Lender”) to ex-

tend credit or other financial accommodation to _________________
___________________________ (the “Obligor”, whether one or more),
for value received, the receipt and sufficiency of which is hereby ac-
knowledged, the undersigned Trustee(s) do each, jointly and sever-
S
ally, consent and agree that the hereinafter described the property,
solely owned by the undersigned in Trust, may be pledged or en-
cumbered in favour of the Lender as collateral security for the pay-
ment of each and every obligation or liability of the Obligor to the
IM
Lender whether now existing or hereinafter acquired, whether ma-
tured or not, whether liquidated or unliquidated, whether secured
or by other collateral or not, whether original, renewed, or extend-
ed, or whether originally contracted with the Lender or acquired
by the Lender from another or others, or whether represented or
evidenced by negotiable instruments or their writings (collectively
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the “Obligation”), said property being described as follows:
Street Address:
The undersigned further agree(s) that the Property so pledged or
encumbered shall be subject to the provisions of this instrument
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and also to the provisions of all security agreements, mortgages,

deeds of trust, or writings at any time or items evidencing or relat-
ing to any Obligation of the Obligor to the Lender to the same ex-
tent as if the undersigned had no interest whatsoever herein; that
the Lender shall not be in any way obligated to notify or produce
the consent of the undersigned as to any matter, event, or any con-
tingency relating in any way to the making, renewing, or extending
of any Obligation of the Obligor, such notification or consent being
hereby expressly waived.
Witness the following signatures and seals this ________________

day of ___________________, ___________________________.
_________________________ ___________________________
Name of Trust By: (Name of Trustee), Trustee
___________________________________
By: (Name of Trustee), Trustee

Source: COR 0008 (08/14) Hypothecation Letter

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8. _______is a written agreement that authorises a bank or lender

to repossess and sell the pledged item in case of a default.
Activity
Visit a manager of any bank and discuss documents required for

hypothecation.
6.6 Bank Certificate of payment

Bank Certificate of Payment is a certificate issued by the negotiat-
ing bank to the exporter that the bill covering the shipment has been
S
negotiated through it and export proceeds have been received from
the importer. The certificate indicates the details of the merchandise
exported. Certificate of payment is a document that exporter has to
IM
submit stating that all the export transactions have been concluded
by him or her only. For releasing from all the export obligations, it is
required to submit this certificate. Figure 6.3 shows the specimen of
Bank Certificate of Payment:
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Figure 6.3: Bank Certificate of Payment

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9. ________of Payment is a certificate issued by the negotiating

bank to the exporter that the bill covering the shipment has
been negotiated through it and export proceed have been
received from the importer.
10. Certificate of payment is a document that exporter has to
submit stating that all the export transactions have been
concluded by him or her only. (True/False)
Activity
Make a group of your friends and discuss bank certificate of pay-

ment.
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6.7 Summary
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Letter of Credit is a specialised form of commercial credit that
eliminates the fear of exporter related to the credit worthiness of
the buyer.
There are various types of letter of credit that are documentary let-
ter of credit, revocable or irrevocable letter of credit, with recourse
or without recourse letter of credit, commercial letters of credit,
M
standby letters of credit, unconfirmed letters of credit, confirmed

letter of credit, clean letters of credit, transferable letters of credit,
back to back letters of credit, and advance payment (red clause)
letters of credit.
N
Bill of exchange is a negotiable instrument that is when issued by

bank, it is known as bank draft; while, when issued by individuals
it is known as trade draft.
Trust receipt can be defined as the notification given to the buyer
by the bank on the release of merchandise, where the bank retains
the ownership title for the assets released.
Letter of Hypothecation is a written agreement that authorises a
bank or lender to repossess and sell the pledged item in case of a
default.
Bank Certificate of payment is a document that exporter has to
submit stating that all the export transactions have been conclud-
ed by him or her only.

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key words
Letter of Credit: This refers to negotiable instrument, which is

an autonomous contract between issuer and bank or beneficia-
ry
Clean Letter of Credit: This refers to those letters that are best
suited for different commercial situations where goods move-
ment is not expected.
Bills of Exchange: This refers to an unconditional order that
binds one party to pay agreed amount to another party on a
specified time.
Trust Receipt: This refers to a legal document that is made be-
tween the bank and person borrowing from the bank.
S
IM
1. What do you mean by letter of credit?
2. Describe bill of exchange.
3. Explain the meaning of trust receipt.
4. Discuss letter of hypothecation.
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6.9 ANSWERS and hints

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Topic Q.No. Answers

Letter of Credit 1. True
2. Documentary letter of credit
3. a. UCP
Bill of Exchange 4. Individuals or banks
5. False
Trust Receipts 6. Legal document
7. c.Bank
Letter of Hypothecation 8. Letter of Hypothecation
Bank Certificate of Pay- 9. Bank Certificate
ment
10. True

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1. It is an autonomous contract between an issuer, normally a
bank, and the beneficiary, normally a supplier, customer with
a possible warranty claim, or creditor of the bank’s customer.
Refer to Section 6.2 Letter of Credit.
2. Bill of Exchange is a negotiable instrument that includes an
unconditional order that is signed by the maker and agreeing to
pay a certain amount of money to the bearer of the instrument.
Refer to Section 6.3 Bill of Exchange.
3. Trust receipt can be defined as the notification given to the
buyer by the bank on the release of merchandise, where the
bank retains the ownership title for the assets released. Refer to
Section 6.4 Trust Receipts.
S
4. Letter of Hypothecation is a written agreement that authorises
a bank or lender to repossess and sell the pledged item in case of
a default. Refer to Section 6.5 Letter of Hypothecation.
IM
Suggested Readings
Johnson,t. (2002). Export/import procedures and documentation.
New york: amacom.
M
Rai, u. (2007).Export-import and logistics management. New Del-

hi: Prentice-Hall of India.
E-references
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Howtoexportimport.com, (2014). How does letter of credit work?.

[online] available at: http://www.howtoexportimport.com/how-
does-letter-of-credit-work--36.aspx .
Howtoexportimport.com, (2014). How does Letter of Credit work?.
[online] Available at: http://www.howtoexportimport.com/How-
does-Letter-of-Credit-work--36.aspx.

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Ch a
7 p t e r
documents related to inspection and

special documents
CONTENTS
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7.1 Introduction
7.2 Certificate of Inspection
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Activity
7.3 Certificates
7.3.1 Certificate of Free Sale
7.3.2 Certificate of Authentication (Apostille)
7.3.3 Phytosanitary Certificate
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7.3.4 Black List Certificate

7.3.5 Weight Note
7.3.6 Manufacturer’s Certificate
7.3.7 Certificate of Chemical Analysis
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7.3.8 Certificate of Shipment

7.3.9 Health/Veterinary/Sanitary Certification
7.3.10 Certificate of Conditioning
7.3.11 Antiquity Measurement
Activity
7.4 Special Documents
7.4.1 Dangerous Goods Regulations (DGR)
7.4.2 ATA Carnet
7.4.3 Shipping Bill
Activity
7.5 Summary

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Role of certificate of inspection in international

trade
ABC is a trading company that purchases high-end products from

other countries and sells the same in its home country. ABC has
been constantly facing problems related to product quality, prod-
uct pricing, and payment terms. It has been searching for a solu-
tion for this continuous problem and the only solution that ABC
has come across is Certificate of Inspection.
When shipping goods from the international market, ABC has

the right to ask for a certificate of inspection, which serves as a
proof that the products are the same as ordered by ABC and are
of good quality. It also ensures that true value of the goods is being
S
charged as well as the payment terms are met.
The company has the authority to ask for this certificate of inspec-
tion but it is liable to pay the administrative and inspection fee.
IM
It is important for the importer to recommend an independent
inspection agency for reviewing the quality of the product. Many
countries have agencies that produce inspection certificate to ver-
ify the quantity, quality, and price of shipments imported.
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documents related to inspection and special documents 123
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learning objectives

> Discuss the concept of certificate of inspection
> Explain different types of certificates
> Eescribe the concept of special documents
7.1 INTRODUCTION
The previous chapter discussed about the all the documents that are
required for getting timely payment. For dealing with international is-
sues related to payment, various documents are needed, such as letter
of credit, bills of exchange, trust receipts, letter of hypothecation, and
S
bank certificate of payment.
In international trade, there are array of documents that both the par-
ties need to submit. These include commercial documents, financial
IM
and transport document, insurance documents, and other documents
related to international trade. However, one of the important docu-
ments required in international trade is Pre-Shipment Inspection
Certificate.
Pre-Shipment Inspection Certificate forms a part of supply chain

M
management, which is a fiduciary method of quality control. These in-

spections are generally done by private organisations and importers’
select these organisations. For example, Foreign Exchange Manage-
ment Act (FEMA) is responsible for maintaining foreign exchange reg-
ulation. The exporter is needed to submit the Guaranteed Remittance
N
(GR) form as a guarantee to the RBI for acquiring foreign exchange.

In order to export goods, the exporter needs to obtain an inspection
certificate for the goods to be exported. Various types of export docu-
ments are needed, such as shipping bill, commercial invoice, packing
list, and so on are required for operational reasons.
In this chapter, you have studied about documents related to inspec-

tion and special documents. These documents form an integral part of
foreign trade and an exporter need to obtain these special documents
to run the business.
7.2 Certificate of Inspection

An inspection agency issues the Certificate of Inspection, which veri-
fies that the goods have been inspected before shipment as per the re-
quirements of the Exports (Quality Control and Inspection) Act, 1963.
It satisfies the conditions associated with quality control and inspec-
tion as applicable to it and is certified export worthy.

n o t e s
This certificate confirms that the goods have been inspected before
shipment. Some customers require a pre-shipment inspection, which
is done mainly to satisfy their own requirements, according to the
standards set by industry, government, or carrier. Many private or-
ganisations and agencies specialise in inspecting and issuing a cer-
tificate of inspection. In this, the goods are checked by the inspector
before shipping them and a certificate of inspection is issued after-
wards. There are two methods for inspecting the goods, in the first
one inspector checks the sample and the in the other one inspection is
done while packing the consignment. The certificate of inspection is
mostly demanded while shipping high-valued products.
The certificate confirms that the shipment carry all the goods ordered
by the customer, ensuring the quality and quantity of the goods. The
inspection certificate can be directly sent to the buyer, importer’s gov-
S
ernment, or directly to the importer’s bank.
Inspection can be done by inspection agency appointed by the Gov-

ernment of India that includes Export Inspection Agency, Textile
IM
Committee, Central Silk Board, and so on. Inspection agency can also
be nominated by the government of importing country and sometimes
the buyer hires independent private inspector who inspects the goods.
Exporter is expected to arrange the necessary inspection, if it forms
a part of transaction. Figure 7.1 shows the format of the Certificate of
Inspection:
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Figure 7.1: Format of Certificate of Inspection

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1. Certificate of Inspection confirms that the goods have been

inspected before shipment. (True/False)
2. The certificate of inspection check, which of the following:
a. Quality
b. Quantity
c. Weight
d. All of the Above
3. A _________agency issues the certificate of inspection.
4. The certificate of inspection certifies that the shipment carries
all the goods ordered by the customer, ensuring the quality
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and quantity of the goods. (True/False)
Activity
IM
Discuss the importance of the certificate of inspection.
7.3 Certificates
A certificate can be defined as written and legal document, which is an
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official representation of some action that has or has not been taken,
some incidence that took place, or some legal formality that has to be
complied with. There are various types of certificates that an exporter
may need while dealing with the importer or buyer that are explained
N
further.
7.3.1 Certificate of Free Sale
The Certificate of Free Sale is mostly obtained by exporter dealing

in agriculture, medicinal, and cosmetic products. This certificate en-
sures that the exporter adheres to the domestic requirements for sale
in the United States. The certificate is issued by the Virginia Econom-
ic Development Partnership (VEDP) or United States Food and Drug
Administration (USFDA). Figure 7.2 shows a specimen of the certifi-
cate of free sale:

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Figure 7.2: Certificate of Free Sale
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7.3.2 Certificate of Authentication (Apostille)
For certifying the authenticity of the original document, it is neces-

sary to ensure that the original document has been notarised by the
Secretary of the Commonwealth. Figure 7.3 shows the specimen of
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Certificate of Authentication:
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Figure 7.3: Certificate of Authentication
7.3.3 Phytosanitary Certificate
For importing goods to the US, Phytosanitary Certificate is required.

Phytosanitary certificates are issued to indicate that consignments of
plants, plant products or other regulated articles meet specified phy-
tosanitary import requirements and are in conformity with the certify-
ing statement of the appropriate model certificate. Phytosanitary cer-

n o t e s
tificates should only be issued for this purpose. Figure 7.4 is a sample
of Phytosanitary Certificate:
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Figure 7.4: Phytosanitary Certificate
7.3.4 Black List Certificate

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A Black List Certificate ensures that goods do not reach or touch the
boundary of country(s) with whom they have strained relationship.
This affect overall foreign trade transaction with those blacklisted
countries by the home country.
7.3.5 Weight Note
A weight note confirms that the packets/bales or other forms weigh to

the specified weight. It is also known as a certificate of weight and it
is a document that the customs department of the exporting country
issues for certifying or attesting the exact gross weight of the goods
being shipped.
7.3.6 Manufacturer’s Certificate
Manufacturer’s Certificate is also known as Manufacturer’s State-

ment of Origin (MSO), which is a particular document that confirms
the country of origin of the manufacturer. This certificate is required
in a few countries, which is an extension to the Certificate of Origin

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for a few countries to show that the goods shipped has actually been
manufactured and are available. Figure 7.5 shows the sample of Man-
ufacturer’s Certificate:
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Figure 7.5: Manufacturer’s Certificate
7.3.7 Certificate of Chemical Analysis
The main purpose of the certificate of chemical analysis is to confirm

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that the quality of specific items, such as metallic ores and pigments,
should correspond with its actual standard.
7.3.8 Certificate of Shipment
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A Certificate of Shipment is also known as Authority to Load Endorse-

ment, which is written document with official stamp. This states all
the details of products that are shipped. When shipping hazardous
goods, such as chemically reactive goods, it is very important to pro-
vide certain details that include the name, adherence to packaging
and labelling requirements, which vary in different countries.
7.3.9 Health/ Veterinary/ Sanitary Certification
This certificate is issued by the exporting country that export food-

stuffs, hides, livestock, and marine products. This certificate ensures
that the goods are inspected before shipping and are suitable for hu-
man consumption. Figure 7.6 shows the sample of Health/ Veterinary/
Sanitary Certification:

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Figure 7.6: Health/ Veterinary/ Sanitary Certification
7.3.10 Certificate of Conditioning
It is issued by the competent office who is responsible for inspect-

ing the goods and certifying the compliance of humidity factor, dry
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weight, and so on.
7.3.11 Antiquity Measurement
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It is issued by the Archaeological Survey of India in the case of an-

tiques being exported. This certificate state all the details such as val-
ue, weight, and types of antiques.
5. Certificate can be defined as written and legal document,

which is an official representation of some action that has or
has not been taken, some incidence that took place, or some
legal formality that has to be complied with. (True/False)
6. Which of the following ensures that goods do not reach
or touch the boundary of country(s) with whom they have
strained relationship?
a. Black List Certificate
b. Certificate of Free Scale

n o t e s
c. Certificate of Shipment
d. Antiquity Measurement
7. ______________ is also known as the Authority to Load
Endorsement, which is written document that consists of
official stamp after identifying all the goods sent by the
exporter correctly.
8. The Certificate of ______is mostly obtained by exporter dealing
in agriculture, medicinal, and cosmetic products.
9. A ______Certificate ensures that goods do not reach or touch
the boundary of the country(s) with whom they have strained
relationship.
10. Manufacturer’s Certificate is also known as Manufacturer’s
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Statement of Origin (MSO). (True/False)
Activity
IM
Meet any exporter or importer and learn about the certificates they
deal with.
7.4 Special Documents

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Exporter may need special documents depending on the type of prod-

uct or destination they are dealing with. Some products require qual-
ity control inspection certificate from the Export Inspection Agency,
whereas some food and pharmaceutical products may require a health
N
or sanitary certificate for export.
7.4.1 Dangerous Goods regulations (DGR)
A Declaration of Dangerous Goods certificate is needed to declare the

quality and quantity of hazardous materials. The certificate has the
proper classification for each item.
7.4.2 ATA Carnet
ATA Carnet is also known as merchandise passport, which allows

countries to ship duty-free goods only on temporary basis.
7.4.3 Shipping Bill
Shipping Bill, which is also known as Bill of Export is the main docu-
ment that needs to be submitted to the Customs Department for ship-
ment of products. Shipping Bill is of four types and it can be differen-
tiated on the basis of goods being subject to certain conditions, which
are mentioned below:

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Export duty/cess
Free of duty/cess
Entitlement of duty drawback
Re-export of imported goods
The following are the export documents required for the processing
of the shipping bill:
Guaranteed Remittance (GR) forms (in duplicate)
Four copies of the packing list
Four copies of invoices
Contract, Letter of Credit, Purchase Order of the overseas buyer
AR4 (both original and duplicate) and invoice
S
Inspection/ Examination Certificate
The formats presented for the Shipping Bill are as given below:
IM
White Shipping Bill in Triplicate: This format is followed for ex-
porting duty free of goods.
Green Shipping Bill in Quadruplicate: This format is adhered for
exporting goods that can be claimed for duty drawback.
Yellow Shipping Bill in Triplicate: This arrangement is used for
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the export of dutiable goods.
Documents Required for Post Parcel Customs

Clearance
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There is no requirement of shipping bill when considering the case

of Post Parcel. The documents required in this are mentioned below:
Customs Declaration Form: This is recommended by the Univer-
sal Postal Union (UPU) and international apex body and its main
aim is to coordinate and integrate all the activities of the National
Postal Administration. It is also known by its code number that is
CP2/CP3 and it is mostly prepared in quadruplicate, which is final-
ly signed by the sender.
Dispatch Note: This is also known as CP2 and is filled by the send-
er specifying the action performed by the postal department at the
destination, in case the address is non-traceable or the parcel is
refused to be accepted.
Commercial Invoice: It is issued by the seller for the full reliable
amount of goods as per the trade terms.
Consular Invoice: In this type of invoice, the counsel located in
exporting country signs and certifies the invoice.

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Customs Invoice: This invoice is made in adherence with the re-

quirements set by the customs department and this helps in entry
of goods in the importing country at the preferential tariff rate.
Legalised Invoice: This invoice confirms and certifies the credit
and trustworthiness of the seller before the appropriate consulate,
Chamber of Commerce, and embassy.
Certified Invoice: This certificate confirms that goods were man-
ufactured and packed at a certain place and in accordance with a
specific contract.
Packing List: This includes the itemised detail of goods packed in
each parcel/ shipment.
Certificate of Inspection: This certifies that goods have been
properly inspected for their quality and quantity before shipment.
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Transhipment Bill: This bill is for goods imported into a customs
port/ airport that are intended for transhipment.
Shipping Order: It is issued by the Shipping (Conference) Line
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to inform the exporter of the reservation of space of shipment of
cargo through the specific vessel from a specified port and on a
specified date.
Cart/Lorry Ticket: The lorry ticket is an entry pass of the cargo
through the port gate and it has information namely shipper’s
name, cart/ lorry numbers, marks on packages, quantity, and so
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on.
Short Shipment Form: It is a claiming application which is sub-
mitted to the customs authorities at the port seeking short ship-
ment of goods. This is required for claiming the return.
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Shipping Advice: This aligned document is prepared to inform

the overseas customer about the shipment of goods.
11. A Declaration of Dangerous Goods certificate is needed to

declare the quality and quantity of hazardous materials.
(True/ False).
12. Shipping Bill, which is also known as______________.
13. __________ is recommended by the Universal Postal Union
(UPU) and international apex body and its main aim is to
coordinate and integrate all the activities of National Postal
Administration.
14. In _________the counsel located in exporting country signs
and certifies the invoice.

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Activity
From the Internet, learn more about shipping bills.
7.5 SUMMARY
Inspection agency issues Certificate of Inspection, which certifies
that the goods have been inspected before shipment as per the
requirements of the Exports (Quality Control and Inspection) Act,
1963.
Certificate can be defined as written and legal document, which is
an official representation of some action that has or has not been
taken, some incidence that took place, or some legal formality that
has to be complied with.
S
There are various types of Certificates, namely Certificate of Free
Sale, Certificate of Authentication, Phytosanitary Certificate,
Black List Certificate, Weight Note, Manufacturer’s Certificate,
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Certificate of Chemical Analysis, Certificate of Shipment, Health
Certificate, Certificate of Conditioning, Antiquity Measurement
Exporter may need Special Documents depending on the type of
product or destination they are dealing with.
Specialdocuments are of various types, namely Declaration of
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Dangerous Goods, ATA Carnet, Shipping Bill
key words
Pre-Shipment Inspection: It refers to that certificate that is

N
mainly issued to satisfy customer’s own requirements, accord-

ing to the standards set by industry, government, or carrier.
Certificate: It refers to a written and legal document, which
is an official representation of some action that has or has not
been taken, some incidence that took place, or some legal for-
mality that has to be complied with.
Weight Note: It refers to a document that the customs depart-
ment of the exporting country issues for certifying or attesting
the exact gross weight of the goods being shipped.
ATA Carnet: It refers to a merchandise passport, which allows
countries to ship duty-free goods only on temporary basis.

1. What do you know about the certificate of inspection?
2. What do you mean by the certificate of free sale?
3. Discuss certificate of authentication.

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4. Explain black list certificate.

5. What do you know about the manufacturer’s certificate?
6. Describe various special documents used in imports and exports
of goods.
Topic Q.No. Answers

Certificate of Inspection 1. True
2. d. All of the Above
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3. Inspection
4. True
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Certificates 5. True
6. a. Black List Certificate
7. Certificate of Shipment
8. Free Sale
9. Black List
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10. True
Special Documents 11. True
12. Bill of Export
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13. Customs declaration form

14. Consular invoice

1. An inspection agency issues Certificate of Inspection, which
certifies that the goods have been inspected before shipment
as per the requirements of the Exports (Quality Control and
Inspection) Act, 1963. Refer to Section 7.2 Certificate of
Inspection.
2. The Certificate of Free Sale is mostly obtained by exporter
dealing in agriculture, medicinal, and cosmetic products. Refer
to Section 7.3 Certificates.
3. For certifying the authenticity of the original document, it
is necessary to ensure that the original document has been
notarised by the Secretary of the Commonwealth. Refer to
Section 7.3 Certificates.

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4. A Black List Certificate ensures that goods do not reach or

touch the boundary of country(s) with whom they have strained
relationship. Refer to Section 7.3 Certificates.
5. Manufacturer’s Certificate is also known as Manufacturer’s
Statement of Origin (MSO). Refer to Section 7.3 Certificates.
6. Exporter may need special documents depending on the type of
product or destination they are dealing with. Refer to Section 7.4
Special Documents.
Suggested Readings
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New York: AMACOM.
Rai, U. (2007). Export-import and logistics management. New Del-
IM
E-references
&Lt;http://www.exim.org/>, t. (2014). Documentation for exim.
[online] exim.org. Available at: http://www.exim.org/docs.html#
Delaney, l. (2014). Inspection certification: what is an inspection
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certificate?. [online] about. Available at: http://importexport.

about.com/od/internationaldocumentation/a/inspection-certifica-
tion-what-is-an-inspection-certificate.htm
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Ch a
8 p t e r
EXPORT PROCEDURE
CONTENTS
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8.1 Introduction
8.2 Procedure Followed before Executing Export Order
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8.2.1 Code Number
8.2.2 Membership
8.2.3 Registration
8.2.4 Bank Account
8.2.5 Enquiry and Offer
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Activity
8.3 Export License
Activity
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8.4 Production of Goods

Activity
8.5 Excise Duty Rebate
Activity
8.6 Exports under Bond
Activity
8.7 Summary

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The case of Shaw Moisture Meters
Shaw Moisture Meters, a manufacturer of dewpoint meters and

moisture analysers has a great export record in India. The com-
pany has earned a special place in the Indian market for its ul-
tra-precision instruments for their quality. The export relation-
ship between Shaw Moisture Meters and India is 30-year old and
India is one of its top six worldwide markets.
The company’s dew point meters are measured in parts per bil-
lion. The meters measure moisture in gases and compressed air.
The company’s products have found applications in numerous in-
dustries, including those involved in compressed air, electronics
manufacture and power-generation applications.
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The managing director of the company, Mr Peters, stresses on the
importance of keeping employees updated about recent develop-
ments in the market and maintaining close ties with customers.
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“It’s a growth market and we are seeing increasing levels of busi-
ness,” Mr Peter says. “We have a strong presence there and it’s
improving. We have a massive plus in India because of our ped-
igree. Our history of being an established British manufacturing
company stands us in good stead. Our reputation for a quality
product and excellent levels of service is complemented by being
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in business for 60 years.”
According to Mr Peters, the negative aspect of doing business in

India is the need to negotiate through various levels of bureau-
cracy.
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He further adds, “We do more Letters of Credit for India than

anywhere else and it is the preferred option for most of the na-
tionalised industries. It creates a lot of additional work with the
order processing and payments procedures. In India, paperwork
is done in triplicate and the purchasing process involves many
stages. But if you provide satisfactory service, Indian companies
are happy to work with you again in the future.”

EXPORT PROCEDURE 139
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learning objectives

> Discuss the various aspects of export order
> Explain the important aspects of import license
> Describe excise duty rebate
> Explain exports under bond
8.1 INTRODUCTION
The previous chapter discussed about the various inspection docu-
ments necessary in foreign trade. This chapter focuses on the export
procedures in detail.
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Export is a function of international trade whereby goods produced in
one country are shipped to another country for future sale or trade.
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Various governmental procedures and banking and other regulations
are involved in export and are very crucial to the entire business. It
is essential to understand that an exporter must concentrate on the
purpose or principle behind the various formalities.
When an exporter receives an export order, the procedures starting

from the receipt of a confirmed order until the realisation of export
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proceeds and their benefits require proper documentation.
In this chapter, you will study various aspects of export orders and
export license. In addition, the chapter discusses excise duty rebate,
and exports under bond.
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Procedure followed BEFORE

8.2
EXECUTING EXPORT ORDER
Thereare various steps that need to be completed before an export
order is executed. Here, we have discussed some preliminary steps.
8.2.1 CODE NUMBER
As per the Foreign Exchange Regulation Act, 1974, exporters need to

obtain a code number from the Reserve Bank of India(RBI). To ob-
tain this code number,an exporter has to fillup a prescribed proform
a CNX form that can be obtained from the Exchange Control Depart-
ment of the RBI. This code is used in the various export documents
that an exporter needs to submit.

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8.2.2 MEMBERSHIP
An exporter must be a member of certain bodies such as the Export
Promotion Council and Productivity Council. These bodies work in
collaboration and offer various services. An exporter may need the
guidance and help of these bodies for obtaining the ‘Certificate of Or-
igin’, which is one of the most essential documents needed for export.
An exporter may also take an advantage from membership of other
institutions such as India Trade Promotion Organisation.
8.2.3 REGISTRATION
To run an export business, an exporter may need grants and benefits
from the government and authorised institutions from time to time.
To avail the benefits of the import policy of the government, it is es-
sential for an exporter to get the status of a registered exporter. An
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exporter should be registered with the concerned registering author-
ity. An exporter can earn the membership of the Export Promotion
Council based on his past export performance, good payment record
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and experience.
8.2.4 BANK ACCOUNT

An exporter must have a bank account with a reputed commercial
bank to deal in foreign exchange. This makes it easier to receive pay-
ment for export. The exporter can avail other export-supportive ser-
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vices from a good bank.
8.2.5 ENQUIRY AND OFFER

An importer makes an enquiry to the exporter for knowing the details
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of the goods, description, catalogue numbers or grades, sizes, weights

or other characteristic features and the time and method of delivery.
This kind of enquiry can be made by the importer using regular mail
or e-mail.
An offer is submitted by an exporter as a quotation or proposal. An

accepted quotation or offer becomes an order. The exporter usually
makes the offer in the form of a proforma invoice that usually address-
es the prospective buyer. Once the proforma invoice is accepted, it
becomes a confirmed order. Generally, the proforma invoice is duly
signed by the buyer in triplicate copy, and he is required to return two
copies duly signed by him.
1. As per the Foreign Exchange Regulation Act, every exporter

needs a code number from the _______.
2. An exporter must have a bank account with a ________to deal
in foreign exchange.

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Activity
Meet an exporter and ask for a sample of a proforma invoice.
8.3 Export License

Trade activities like exports are regulated by licenses. An export li-
cense is issued by a licensing agency which helps exporters to ship
products in a foreign market. Goods of the description specified in
Schedule 1 of the Export (Control) Order, made under the Import and
Export (Control) Act, 1947, may be exported only under and in agree-
ment with a license approved by the Central Government. The export-
er must ensure that the goods sought to be exported do not fall in the
banned list of Import and Export (Control) Act, 1947. If the goods to be
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exported require a license, it is compulsory to obtain it before finalis-
ing a contract. The list contains names of the licensing authorities and
items whose export is banned, items regulated by the export license
and items that may be freely exported.
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3. Trade activities like export are regulated by _________.

4. An exporter can start exporting goods even if a license is not
received. (True/False)
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Activity
With the help of the Internet, search and list down the licensing
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authorities for exports.
8.4 Production of Goods

After an export order is confirmed, the order is processed, so that the
goods/services can be delivered at a specified time without compro-
mising on quality.
An exporter takes the necessary steps for the production of the goods.
The goods can be produced at a factory or can be obtained from a
supplier. If the exporter cannot support the production,he must find
a supplier, who can ensure timely availability of the goods. When the
goods are purchased from the domestic market, sales tax is charged.
However, exports are free from sales tax, provided that suitable evi-
dence of export is made available against such purchases.
Some of the important objectives of production for exporter include:

Producing high quality output in the right quantity at the right
time and cost: Producing output at the right time is the important

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parameter to judge the effectiveness of an organisation. Similarly,

producing the output in right quantity and at minimised cost leads
to an increase in the profitability of an organisation.
Providing excellent service: Every exporter should strive to pro-
duce a product that satisfies the needs of importer in terms of the
quality, cost, and timely delivery of the product.
5. When the goods are purchased from the domestic market,

____ tax is charged.
Activity
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Explain the process of production.
8.5 Excise Duty Rebate

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In India, export products are exempted from excise duty, which is a

tax that the government imposes on all manufactured items. The ex-
cise duty is collected at source, i.e. the area where the products are
manufactured. Excisable goods can be exported either under a claim
of rebate of duty paid or under a bond without paying duty.
For claiming the rebate on the paid excise duty, following documents
are needed (as per http://www.dcmsme.gov.in/policies/central/t-ed.
htm):
1. A request on the letterhead of the exporter containing claim
of rebate, ARE-1 numbers and dates, corresponding invoice
numbers and dates, amount of rebate on each ARE-1 and its
calculations
2. Original copy of ARE-1
3. Invoice issued under Rule 11 of CER, 2002

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4. Self attested copy of Shipping Bill (EP copy) and Bill of lading/
Airway Bill
5. Proof of duty payment
6. Disclaimer certificate (in case the claimant is other than the
exporter)
7. Any other document in support of the refund claims
Exhibit
Goods Exempted from whole of the Duty of Excise/

The Additional Duty of Excise
Following is a list of the goods exempted from the whole of the duty
of excise:
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Specified goods produced without the aid of power. All capital
goods, intermediate goods and inputs if captively consumed
within the factory of their production or used in the manufac-
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ture of specified final products in the manufacturer or specified
goods.
Specified goods if manufactured on job work basis/cleared for
job work/manufactured as a job work and used in the manufac-
ture of final products.
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Genuine specified products of village industry/certain specified

goods manufactured in the rural areas by Co-operatives/K.V.I.C.,
etc.
Goods meant for repairing, reconditioning and reengineering.
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Goods sent abroad as exhibits for exhibition in International

Trade Fairs or for demonstration or carrying out tests or trials.
Certain goods if cleared for display in any fair or exhibition in
India.
Goods produced in a technical, educational and research insti-
tute during the course of technical training or an academic or
vocational nature or carrying out experiments or research.
Goods supplied to specified research institutions.
Goods produced in Government Factories, Mines, Mints, pris-
ons Defense Production etc.
Goods manufactured by specified units/Institutions for use by
government departments or defense purposes.
Goods supplied for defense or other specified purposes.
Specified goods manufactured in a state government factory
and intended for use in any of its department.

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Duty in excess of 10% is exempted on goods for supply to the

Gas Authority of India Limited, Oil and Natural Gas Corpora-
tion Ltd., or the Oil India Limited.
Certain specified goods connected with solar and natural ener-
gy.
Improved Chulhas (including smokeless Chulhas) capable of
burning wood, agro-waste, cow-dung, briquettes and coal.
Good required for Nuclear Fuel Complex.
Duty in excess of 5% ad valorem on pollution control equipment.
Goods manufactured by institution for handicapped persons.

Good produced or manufactured in a Free Trade Zone.
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Specified goods used by units in Export Processing Zones/Free
Trade Zones.
Goods brought to any gem and jewellery manufacturing units set
IMup in Santa Cruz Electronics Export Processing Zone (SEEPZ).
Goods produced in 100% Export Oriented undertakings but not
sold within India.
Source:http://www.dcmsme.gov.in/policies/central/t-ed.htm
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6. In India, export products are exempted from _____ duty, which

is a tax that the government imposes on all excisable items.
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Activity
Make a list of all the important excisable goods/items that are ex-
ported from India.
8.6 EXPORTS under Bond

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According to section 65 of the Customs Act and under Rule 151A of

Central Excise Act, an exporter can take the imported material into a
bonded warehouse without paying the customs duty and indigenous
excisable goods without paying the central excise duty on goods. To
gain this benefit, the exporter has to submit a bond to the excise au-
thorities. Such bonds are usually backed by a bank guarantee for a
specific amount. The main aim for execution of bond is that in case of
its non-fulfilment of obligation, the excise duty can be claimed from
the exporter. The value of the bond is equivalent to the duty amount
payable on the goods that the exporter is planning to export.
The bond is supported by the bank guarantee for protecting the finan-
cial interests of the excise department. The following exporters are
allowed to use a bond with surety and do not have to furnish any cash
security:
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Super star trading house
Star trading house
Export house
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Registered exporters
Exporters registered with central excise department

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7. According to section ____ of the Customs Act and under Rule

151A of Central Excise Act, an exporter can take the imported
material into a bonded warehouse without clearing the
customs duty.
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Activity
Discuss exports under bond with an exporter.
8.7 Summary
The first step of export starts with searching for a potential over-
seas market.
An exporter needs to apply for a code number, membership of the
Export Promotion Council and other bodies and acquire a regis-
tration certificate to become a registered exporter.
Once an inquiry containing complete details of goods required
from a prospective importer is received, the exporter sends a pro-
posal to the importer. Once the proposal is accepted by the import-
er, it becomes an ‘order’.
The exporter needs to obtain an export license and complete the
legal formalities of the Exim Policy.

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key words
Certificate of Inspection: It is a document in which certifica-

tion is provided regarding the good condition of the merchan-
dise, immediately prior to shipment
Drawback (import):The repayment, up to 99%, of customs du-
ties paid on merchandise that is later exported, as part of a fin-
ished product, is known as a drawback.
Excise Tax: It is a domestic tax that is assessed on the manufac-
ture, sale or use of a commodity within a country. It is usually
refundable if the product is exported.
Proforma Invoice: It is an invoice forwarded by the seller of
goods, prior to the shipment, to inform the buyer regarding the
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weight and value of the goods.

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1. What is the code number? Elaborate.
2. What do you know about export license?
3. Elaborate on excise duty rebate.
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Topic Q.No. Answers

Procedure Followed before 1. RBI
Executing Export Order
2. Commercial Bank
Export License 3. Licenses
4. False
Production of Goods 5. Sales
Excise Duty Rebate 6. Excise
Exports under Bond 7. 65

1. As per the Foreign Exchange Regulation Act, 1974, exporters
need to obtain a code number from the Reserve Bank of India
(RBI). Refer to Section 8.2 Procedure Followed before Executing
Export Order.

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2. Trade activities like export are regulated by licenses. Refer to

Section 8.3 Export License.
3. In India, export products are exempted from excise duty, which
is a tax that the government imposes on all excisable items. Refer
to Section 8.5 Excise Duty Rebate.
Suggested Readings
New York: AMACOM.
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E-references
Business.gov.in, (2014). Business Portal of India : Importers and
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Exporters : Information for Exporters : Export Procedures. [on-
line] Available at: http://business.gov.in/importexport/procedure-
export.php.
Howtoexportimport.com, (2014). Export customs clearance pro-
cedures and formalities in India. [online] Available at: http://
www.howtoexportimport.com/Export-customs-clearance-proce-
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dures-and-formalitie-146.aspx.
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Ch a
9 p t e r
shipment and export assistance in india
CONTENTS
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9.1 Introduction
9.2 Shipment
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Activity
9.3 Quality Control and Pre-Shipment Inspection
Activity
9.4 Custom Formalities
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Activity
9.5 Exchange Control Formalities
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Activity
9.6 Negotiation of Documents
9.7 Insurance
9.7.1 Marine Insurance
9.7.2 Cargo Insurance
9.7.3 Export Credit Insurance
9.8 Export Incentive
9.8.1 Cash Compensatory Support
9.8.2 Import Replenishment
9.8.3 Duty Drawback /Excise Duty Refund
Activity
9.9 Summary

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Fedex corporation
FedEx Corporation is a leading American company that special-

ises in global courier services and its headquarters are located in
Memphis, Tennessee. The company has its expertise in providing
transportation, e-commerce, and business services to its custom-
ers as well as businesses worldwide.
FedEx emphasises on completion and submission of proper docu-

mentation before beginning the process of international shipping.
Accurate paperwork helps the shipment in reaching its final des-
tination properly and eliminating the risk of being seized at the
customs.
The most important document that needs to be submitted to Fe-
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dEx is International Airway Bill. Other basic documents that are
required include Commercial invoice, Certificate of Origin, Ex-
port Declaration (B13A Form) and Free Trade Experiment.
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The customer is required to provide accurate details of the de-
scription, quantity, and value of the products and services to be
shipped. FedEx is not obliged to open and inspect the items of the
parcel at the time of shipment.
Customers have to pay FedEx for the services provided in accor-

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dance with the tariffs, surcharges, and other fee standards set by
FedEx. Payment can be made through electronic fund transfer,
cash, or credit card.
The limits of liability of FedEx are as follows:

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13. Limits of Liability
13.1 – Notwithstanding anything to the contrary in these Conditions

the Carrier’s liability for death or personal injury caused by its neg-
ligence or for fraud is not limited.
13.2 – Except as otherwise provided in these Conditions the liability

of the Carrier in respect of claims for loss, mis-delivery, late deliv-
ery, non delivery of or damage to goods comprising the Shipment
howsoever sustained shall in all circumstances be limited to the less-
er of:
13.2.1 – the value of the Shipment or part Shipment actually lost,

mis-delivered, not delivered, delivered late or damaged which in re-
spect of new goods shall be the cost to the owner and in respect of
all other goods the reasonable second-hand value of the Shipment
(taking into account fair wear and tear and reasonable deprecia-
tion applicable to the Shipment but, in any event, not less than 25%
(twenty five percent) annual depreciation);

shipment and export assistance in india 151
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13.2.2 – the cost of repairing any damage or of re-conditioning the

goods; or
13.2.3 – £12 (twelve pounds) per kilo calculated on the actual gross
weight of the Shipment (or where part of the Shipment only is lost,
mis-delivered, not delivered, delivered late or damaged calculated
on the gross weight of that part) or such higher amount if the Ship-
per has agreed in advance to pay for Enhanced Transit Liability in
accordance with Condition 14 PROVIDED THAT:
a) the Carrier has no liability if the charges are not overdue in
accordance with Condition 10.1 and/or Condition 10.2;
b) notwithstanding Conditions 13.2.1 to 13.2.3 above in the case
of an International Shipment the liability of the Carrier shall
not exceed US$100;
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c) the Carrier has no liability where the sum calculated under
Condition 13.2.1 to 13.2.3 is less than the sum of £20 (twenty
pounds);
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d) the Carrier shall be entitled to require proof of the cost of the
whole of the Shipment and of any part thereof lost or damaged
including but not limited to copy invoices;
e) notwithstanding Conditions 10.5 and 10.6 the Carrier shall be
entitled to require proof of the gross weight of the whole of the
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Shipment or of any part thereof lost or damaged;

f) the Carrier shall be entitled to require proof in respect of any
claim that the goods were undamaged and in full working
order when Transit commenced;
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g) the Shipper is not itself in the business of carrying or arranging

to carry goods for reward.
13.3 – FedEx UK Pak Liability – Except as otherwise provided in

these Conditions the liability of the Carrier in respect of claims for
loss, mis-delivery, non delivery of or damage to goods comprising
the Shipment sent using FedEx UK Paks how howsoever sustained
shall in all circumstances be limited to the lesser of:
13.3.1 – the value of the Shipment or part Shipment actually lost,

mis-delivered, not delivered, or damaged which in respect of new
goods shall be the cost to the owner and in respect of all other goods
the reasonable second-hand value of the Shipment (taking into ac-
count fair wear and tear and reasonable depreciation applicable to
the Shipment but, in any event, not less than 25% (twenty five per-
cent) annual depreciation); or

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13.3.2 – £250 (two hundred and fifty pounds) per FedEx UK Pak
PROVIDED THAT:
FedEx UK Paks may be used with the service option selected, that
such Shipments are sent using
FedEx UK Paks and are manifested and consigned as FedEx UK

Paks.
Source: http://images.fedex.com/downloads/ukservices/FedEx_UK_Conditions_of_Car-
riage.pdf
All these conditions mentioned form a whole agreement between

the customer and FedEx. If any provisions of these given condi-
tions are found to be invalid, unlawful, or unenforceable, such
provision will be severable from the remaining terms and condi-
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tions, which will continue to be valid and enforceable.
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learning objectives

> Discuss the concept of shipment
> Explain quality control and pre-shipment instructions
> Define custom formalities
> Describe exchange control formalities
> State negotiation of documents
> Explain the concept of insurance
> Illustrate export incentive
9.1 INTRODUCTION
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The previous chapter discussed about the points to be taken care of
before receiving the export order, such as code number, membership,
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registration, bank account, and inquiry and offer. It also discussed the
concept of the export license and production of goods. It illustrated
that how to get excise duty rebate and export in case of bond.
While exporting or importing the product, shipping forms an import-

ant component of the activity. An exporter should be aware of pack-
aging, labelling, documentation, and insurance requirements. When
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shipping the consignment, one of the most important requisites is the

packing of consignment, so that it arrives in excellent conditions with-
out damages. If the shipping activity is conducted in an easy and has-
sle free manner, it would go a long way in reducing the expenditure by
many notches.
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Generally shipping can be accomplished by air, road, or water for the

cargo to reach from the origin to its intended destination. A trading
term used in shipping is FOB known as Free on Board, meaning that
the goods have to be delivered at a specified port as selected by the
importer.
The total cost incurred by the exporter includes loading, storing the
cargo, and protecting the goods from all likely damages. Once cargo
leaves the port, it’s the responsibility of the buyer to take care of the
goods and manage all the expenditure from thereon.
Insurance is another aspect which has to be taken care of, if the prod-
ucts shipped are to be protected from damages. One of the most im-
portant advantages of insurance is that it hedges against possible loss-
es occurring from damages, pilferage, and delay.
In this chapter, you will study about shipment and quality control and
pre-shipment inspection. Next, you will study custom formalities, ex-
change control formalities, negotiation of documents, insurance, and
export incentive.

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9.2 SHIPMENT
Shipment implies the act of shipping goods. In other words, shipment
is the cargo transported from one destination to another. Shipment is
also called as consignment.
Once an order is confirmed, an exporter has to book a shipping com-

pany to deliver the goods. The exporter must contact shipping com-
panies that are bound for the port of destination of the goods. Export-
ers prefer shipping over airways for dispatching goods. A shipment
depends upon the physical size of the products. The word ‘shipment’
is extensive and covers all the procedural aspects from the time a
product leaves an export warehouse till it is loaded in a ship. An ex-
porter’s clearing-and-forwarding agent is responsible for forwarding
the consignment/shipment. The agent establishes a constant network
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with the shipping companies and helps the exporter in managing the
shipment of the ordered goods.
When a shipping agency receives an exporter’s application for book-

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ing space, the agency evaluates the available space and accepts the
application if there is space for allotment.
There are two types of acceptance: shipping advice and shipping or-
der. A shipping advice informs an exporter that the goods are accept-
ed on the ship. But in case of a shipping order, a shipping company is
liable to accept the cargo, and in case of failure, the shipping agency
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can be sued for loss or damages. The commanding officer of a ship

is instructed about receiving the exporter’s goods. The original copy
of the acceptance is given to the exporter, while the duplicate copy is
sent to the commanding officer.
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When the goods are ready for dispatch, they are marked according
to the instructions provided by the buyer, if any. The consignment
should follow the shipping marks of the consignee, the port of destina-
tion, measurements, the country of origin and other instructions given
by the buyer. The International Trade Forum has issued the following
important rules in this respect:
a. An exporter should follow the markings and they should
appear in a specific order. The important information should be
displayed in oblong frames, with lines 1.5 centimetres thick. The
subsidiary data must be put in a different kind of frame.
b. On a large package, the declaration must be placed on two
contiguous sides, and for consignments bound together, on a
pallet on the top. The handling instructions are needed to be
placed on all four sides.
c. The letters should be at least 7.5 centimetres high for essential
data and at least 3.5 centimetres for subsidiary data.

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d. The size of the symbols should be proportionate.

e. All important data are written in black and secondary data in a
less prominent colour. Red and orange-coloured letterings are
used for hazardous objects. Food packets are marked with non-
toxic dyes.
f. Labels should only be used on individual packages or parcels.
g. The markings must be made by a stencil or by branding or by
pencil or brush without a stencil.
h. The surface to be marked should be smooth and clean.
i. The figures should indicate the total number of packages in the
consignment.
j. The name of the ship and the number of the Bill of Lading should
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be shown whenever possible.
Most exporters deploy services of the international freight forwarders

to accomplish the task of shipment in an impeccable manner. Freight
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forwarder agents are intermediary experts that help to move the prod-
ucts across different countries and cities. They are quite familiar with
the import rules and regulations of the foreign countries. Freight for-
warders prepare, reviews and process customs and other documenta-
tion such as commercial invoice, shipper’s export declaration, bill of
lading.
M
When the order is confirmed, the freight forwarder takes extra care
to ensure that the documents are ready especially in cases when the
letter of credit is involved.
Packaging is a crucial aspect of shipping as exporters should under-

N
stand that packaged goods have to be transferred safely over long

distances. During the journey, there may be transit damages due to
shocks, jerks, loading , unloading and mishandling. Cargo is carried in
containers and break bulk depending on the volume and size of cargo.
With regard to packaging, buyers impose the following requirements

on sellers:
The packaging should be done in strong containers so that there
are no problems in the long run.
The weight needs to be properly distributed in the container with-
out any hassles.
All the packaging must be done with the help of moisture resistant
material.
In order to prevent theft or pilferage, one should not write the
brand name on the packages. Straps, seals, or shrink wrapping
are some of the steps that can be taken to protect the products
from losses.

n o t e s
Weather conditions, careless handling by carriers and other hazards

create lots of problems for the exporters. Consignments must be in-
sured either by the importer or by exporter to protect the losses due
to damages, theft, pilferage etc. All the shipments by sea are covered
under the marine cargo insurance. Carrier liability is controlled by
the international agreement between various countries. Apart from
that, insurance arrangement is the responsibility of the buyer or seller
based on the Incoterms agreed.
note
Free on Board implies that the price of goods include the delivery (
on board of ship/ on board of airlines) at seller’s expense till a spec-
ified point. The expenses of transfering the goods at the buyer’s
place are met by the buyer.
S
1. ____________ is the delivery of the goods to the intended

IM
destination.
2. Freight forwarder agents are intermediary experts that help
to move the products across different countries and cities.
(True/False)
M
Activity
Meet any exporter or importer and learn the process of shipment.

N
Quality Control and Pre-

9.3
Shipment Inspection
World Trade Organisation (WTO) came into being in the year 1995,
which provided a framework for negotiation and formulation of trade
agreements. As per the provision of WTO, all the countries should im-
pose strict quality regulations as far as the imported food was con-
cerned.
Under Section 3 of the Export Act (Quality and Inspection), 1963, Gov-
ernment of India established Export Inspection Council of India (EIC),
which was an apex body. It was set up to facilitate the rapid develop-
ment of the export trade by stressing on quality control and pre-ship-
ment inspection. This act gives authority to Central Government for
reporting the commodities and their minimum standards for exports,
which are generally international standards of importing country for
quality country.

n o t e s
EIC works in the following sectors:

Fish & fishery products
Egg products & honey
Milk products
Raw (chilled/frozen) Meat, Processed Meat and Animal Casings
Prominent functions of the EIC are as follows:

Suggest remedies to the Central Government so that quality con-
trol and inspection can be strictly enforced.
Draw an advance programs for quality control, for inspection of
the commodities for exports.
S
Exhibit
Export Inspection Council of India (Eic)

IM
The functions of the Export Inspection Council of India (EIC) are
as follows:
The functions of the Council shall generally be to advise the
Central Government regarding measures for the enforcement
of quality control and inspection in relation to commodities
intended for export and to draw up programmes therefor, to
M
make, with the concurrence of the Central Government, grants-

in-aid to the agencies established or recognised under section 7
and to perform such other functions as may be assigned to it by
or under this Act.
N
For the purpose of performing its functions, the Council may

co-opt as members such number of persons as it thinks fit who
have special knowledge and practical experience in matters re-
lating to any commodity or trade therein and any such person
shall have the right to take part in the discussions of the Council
but shall not have the right to vote and shall not be a member
for any other purpose.
The Council may also constitute specialist committees for con-
ducting investigations on special problems connected with its
functions.
Inthe performance of its functions under this Act, the Council
shall be bounded by such directions as the Central Government
may give to it in writing from time to time.

n o t e s
Powers of the Central Government in regard to quality control

and inspection
If the Central Government, after consulting the Council, is of opinion

that it is necessary or expedient so to do for the development of the ex-
port trade of India, it may, by order published in the Official Gazette -
a) notify commodities which shall be subject to quality control or
inspection or both prior to export;
b) specify the type of quality control or inspection which will be
applied to a notified commodity;
c) establish, adopt or recognise one or more standard
specifications for a notified commodity;
d) prohibit the export in the course of international trade of a
S
notified commodity unless it is accompanied by a certificate
issued under section 7 that the commodity satisfies the
conditions relating to quality control or inspection, or it has
affixed or applied to it a mark or seal recognised by the Central
IM
Government as indicating that it conforms to the standard
specifications applicable to it under clause(c).
Source:http://commerce.nic.in/export_quality_control.htm
Following are the systems that are followed by EIC:

M
Consignment wise inspection (CWI)

In-process quality control (IPQC)
Self-certification (SC)
Food Safety Management Systems based Certification (FSMSC)
N
These systems are applied in the areas of fish & fishery products, egg
products, milk products, poultry products and honey. In CWI, a sam-
ple is drawn and inspected against the set standards. On the other
hand, the other three schemes IPQC, SC and FSMSC follow a systems
approach, which involves approval of the items followed by periodic
surveillance.
3. EIC act gives authority to ________________ for reporting the

commodities and their minimum standards for exports, which
are generally international standards of importing country for
quality country.
4. The World Trade Organisation (WTO) came into being in the
year 1998, which provided a framework for negotiation and
formulation of trade agreements. (True/False)

n o t e s
Activity
From the Internet and help of exporter/ importers learn how

pre-shipment inspection and quality control is carried out.
9.4 Custom Formalities

India has liberalised its export and import regime and with the advent
of e-commerce, any bill or file can be applied electronically so that the
tasks are accomplished quickly and effectively. Various custom for-
malities include the following:
Applying for the Shipping Bill: Shipping bill is prepared by the
exporter to move to the shipment for export. This can be prepared
online through customs website or manually as the case may be.
S
The shipping bill number is issued by the customs. The goods are
moved to airport, sea port, etc. where the export custom procedure
and formalities are completed with custom officials. The three cop-
IM
ies of shipping bill are printed namely Exporter’s copy, Exchange
control copy submitted to the Reserve Bank of India (RBI) and
shipping carrier to transfer the cargo to the intended destination.
These copies are signed by the custom officials.
Filing Export General Manifest (EGM): After the movement of
goods from the country, Export General Manifest, a legal docu-
M
ment is filed by carrier of goods with customs department. This

document is used by government authorities as proof of export and
help exporters to claim export benefits based on such document,
along with other documents like bill of lading as proof of exports.
N
For obtaining customs clearance, an exporter or clearing (or forward-

ing) agent has to produce the following documents:
Invoice
Packing list
Contract with the overseas buyer
Copy of the letter of credit, if required
Export Inspection Certificate, if any
AR-4/AR-4A form
Gr-1/EP form
Shipping Bill with the necessary documents
Incase of deferred payment scheme, a copy of approval from the
Reserve Bank of India
Other such documents of declaration as may be required by the
concerned authorities

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The customs authorities review and cross-check the shipping bill

and other documents. The consignment is passed after thorough
examination by the officer at the dock or the air staff. Next,the
shipping bill is presented to the cargo supervisor for permission
to export.
Factory Stuffing permission: Customers can opt for Factory
Stuffing permission for full container loads. A prescribed applica-
tion will be submitted to the customs through which the export is
carried out. The customs will give necessary permission and the
local Central Excise Department will carry out the inspection and
certify the documents for factory stuffing. The customs will check
the seal of the containers once they reach the customs port and
permit the export.
S
5. _______________ can be defined as a form that is issued

by Customs and Excise Department, so that goods can be
IM exported and removed from the bonded warehouse.
6. Export General Manifest (EGM) is a legal document that
shipper has to mandatory file with Customs Department,
which serves as a Proof for Export (EP). (True/False)
Activity
M
Discuss customs formalities in case of gold items from the jewellery

exporters/importers.
N
9.5 Exchange Control Formalities

The foreign exchange market is controlled in India by FEMA, 1999
(managed by RBI). This act replaced the old act, the Foreign Exchange
Regulation Act (FERA), which was introduced in 1972. FERA was
amended in 1993. However, this act was not successful, and therefore,
was replaced by FEMA, which became operational in 2000. The main
objective of FEMA is to promote the development and maintenance of
the FOREX market in India. It also endeavours to promote external
trade and payments. FEMA is applicable to the whole of India. This
act is also applicable to individuals and their offices that are outside
India.
There are various facets of exchange control formalities and they are
as follows:
1. Office of the Directorate General of Foreign Trade (DGFT) plays
a very important role in the regulation of physical export of
commodities. Export of certain commodities might be subjected
to certain restrictions from the RBI. The exporter should comply

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with the law, according to the requirements and specifications of

the concerned department.
2. Foreign Exchange Rules of 1974 provide range of export
declaration forms called VP/COD forms. The GR form is suitable
for the export to all the countries except the ones by post.
3. PP form has to be filled in the company when goods are exported
to other countries by the parcel post. The only exception is when
export is marked as value payable or Cash on Delivery (COD).
4. For exporting in different countries, COD forms are considered
very important. It can be posted with the help of parcel post for
generating revenues through the postal modes that are value
payable basis or cash and delivery basis.
S
Foreign Exchange (FOREX) Control in India
The regulation and management of FOREX involve the following:

Dealing in Forex: Any FOREX deal has to be done with the gen-
IM
eral or the special permission of RBI. This means that no person
can make any payment outside India, or receive any payment from
outside India, or acquire any asset outside India.
Holdings in Forex: These are the restriction that no person shall
hold, own, possess or transfer FOREX. A person shall also not own
any immovable property outside India without the prior permis-
M
sion of RBI.
Dealings in export-import: Exporters and importers are bound to
provide the fair details of the export or import.
Contravention: In case of any contravention amounting up to `2
N
lakhs, a penalty of three times the amount involved in the transac-

tion is applicable. A penalty of `500 is applicable if the contraven-
tion continues. If the penalty is not deposited within 90 days, the
person is liable for civil imprisonment of six months in case the
amount is less than `1 crore. If the amount is more than `1 crore,
then imprisonment can be for up to 3 years.
7. FOREX stands for ______________

8. The main objective of FEMA is to promote the development
and maintenance of the FOREX market in India. (True/False)

n o t e s
Activity
Learn more about exchange control formalities.
9.6 Negotiation of Documents

When the seller has conducted the shipping of cargo in the buyer’s
country, it is important to consolidate all the documents under the
Letter of Credit (LC) scheme. After this, the seller submits the docu-
ments to the bank that analyses them and claims benefits including
advance or discounts in the transaction. With the help of export LC
negotiation , export enterprises speed up their capital turnover and
expand export volume There are three principles that help to create
the LC:
S
Banks deal with the documents and not with the export of the
goods.
Rules have to be strictly complied with while issuing LC.
IM
LC is exclusive of the sales of contract or other agreements be-
tween different parties.
The negotiable documents are the following:

Letter of Credit
M
Commercial Invoice
GR-1 Form
Certificate of Origin
N
Marine Insurance Policy

Bill of Lading
According to the foreign exchange rules, an exporter has to submit the

negotiated shipping documents to the bank within 20 days from the
date of shipment of goods. Then, the bank forwards the documents to
the buyer bank for further action.
Following discrepancies may occur in case of document negotiation,

which leads to delay in payment:
Presenting documents after LC expiry date
Presenting documents after specified time period
Drawing bill of exchange on the wrong party
Giving wrong information of goods and shipping term in LC
Presenting incomplete documents

n o t e s
An exporter before presenting the documents should check the terms

and conditions, description of goods, amount stated in the LC corre-
spond to the agreed sales contract.
9. When the seller has conducted the shipping of cargo in the

buyer’s country, it is important to consolidate all the documents
under the _________ scheme.
10. The exporter should be the client of the bank issuing LC.
(True/False)
Activity
Visit any bank manager and note down the problems faced in the
S
case of negotiation of export documents.
IM
9.7 Insurance
Insurance is a mechanism to reduce the effect of loss caused by a va-
riety of risks. The underlying principle of insurance is pooling funds
from a large number of people and compensating for losses incurred
by some people within the pool. Insurance does not guarantee preven-
tion of a loss but it is a method to compensate for that loss.
M
Exported goods are exposed to many risks. To nullify these risks, a

consignment is covered under various types of insurance. The risk
cover depends on the cost of goods being exported, cost of insurance
and terms of sale. The insurance coverage is done either by the im-
N
porter or exporter based on the INCOTERMS (international commer-

cial terms) agreed between the buyer and seller.
There are three types of insurances namely marine insurance, cargo

insurance and export credit insurance, which are explained in detail
in the next sections.
9.7.1 MARINE INSURANCE
Marine insurance is a contract or an agreement between the insurer and

the assured wherein the insurer undertakes in writing to indemnify the
assured against the losses incidental to marine adventure. It covers the
loss or damage of ships, cargo, terminals, and any transport or cargo used
for transferring, or keeping products between the points of origin and
final destination. There are four types of marine insurance as shown in
Figure 9.1:

n o t e s
Figure 9.1: Types of Marine Insurance
Let us discuss these types in detail.

Hull Insurance: It includes insurance of the vessel and all its
equipment such as furniture and fittings, machinery, tools, fuel,
S
etc. The owner of the ship has a huge responsibility in hull insur-
ance and is under immense impact.
Cargo Insurance: It includes the insurance of the cargo or goods
IM
that are loaded in the ship and also include the personal belong-
ings of the crew and passengers. (This will be discussed in detail in
the next sub section)
Freight Insurance: It is protection against the loss of freight. In
most cases, under the terms of the contract, it is the owner of goods
who is bound to pay freight once the goods are safely delivered at
M
the port of destination. The shipping company loses the freight

when the ship is lost on the way or the cargo is damaged or stolen.
Liability Insurance: It refers to the marine insurance wherein
the insurer undertakes to indemnify against the loss which the in-
N
sured may suffer on account of liability to a third party caused by

collision of the ship and other similar hazards.
9.7.2 CARGO INSURANCE
The cargo insurance is taken as a risk cover to protect cargos from

any unforeseen dangers. Insurance cover provided under cargo insur-
ance depends on various conditions, such as basic conditions and full
conditions. Basic conditions during transportation are fire, explosion,
traffic accident, washing overboard, and losses. Sometimes, basic con-
ditions also comprise other loss events, such as breakage, theft and
wetting. Full conditions insurance, on the other hand, covers abrupt
external and unforeseeable losses. Following are the perils that can be
covered under cargo insurance:
Maritime Perils: These perils are the creation of god or man. For
example, events earthquake, collision, storm, lightning, and entry
of sea water into the vessel, volcanic eruption, rain water damage
and washing overboard of cargo can be termed as god’ created
peril. On the other hand events such as fire, smoke, piracy, fraud,

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sabotage, vandalism etc. are man-made perils.

Extraneous Perils: These can be termed as incidental perils as
they are caused due to faults in loading, carrying and unloading.
For example rough handling, leakage, breakage, and pilferage are
extraneous perils.
War Perils: These perils are associated to losses that may occur
due to events like civil war, revolution, rebellion and detainment
of the carrier, etc.
Strike Perils: These perils occur as a result of damage or loss due
to lockouts, strikes, labour disturbances, riots, civil commotion
and by any terrorist acting from a political motive.
9.7.3 EXPORT CREDIT INSURANCE
S
Export credit insurance protects the exporters of products and ser-
vices against the risk of non – payment by importers. These are
provided by the private commercial risk insurance companies, Ex-
port-Import Bank of the United States and the government agency.
IM
There are many advantages that an exporter accrues after purchasing
the insurance that are as follows:
Lowering the risk: The bank offering insurance is responsible for
covering the risk of the sellers in the case of bankruptcy of the buy-
ers or political risk, such as war.
M
Providing credit to the buyers: It helps to provide a list of interna-

tional buyers with line of credit assisting them to make outstand-
ing payments. By using the open account feature, it is possible to
increase the sales effectively.
N
Accessing the working capital: Insurance is used to improve the

quality of the balance sheet by converting the export related ac-
counts into the receivables that are insured by the government.
Lenders can provide money against the guarantee to enhance the
flow of the working capital.
Support for environmentally beneficial exports: Support is pro-
vided to exports that are environmentally beneficial and use green
technologies. For instance, exports of renewable energy sources
are encouraged by the export important banks. Short term and
long term credits are provided to the industries.
11. ____________includes insurance of the vessel and all its

equipment such as furniture and fittings, machinery, tools,
fuel, etc.
12. Export credit insurance protects the exporters of products
and services against the risk of non – payment by importers.
(True/False)

n o t e s
Activity
From the Internet, learn about the scope of export credit insurance.
9.8 Export Incentive

Indian exporters enjoy various export incentives. These make exports
more attractive for an individual or organisation. Export incentives
are the concessions provided to the exporters because they help to
earn valuable foreign exchange. Nevertheless, the companies face
bottlenecks in realising them to a greater extent. There are multiple
organisations from which an exporter has to take permissions before
qualifying for the incentives. Although incentives are available after
shipment, the company should provide accurate documentation of the
S
materials being exported.
9.8.1 CASH COMPENSATORY SUPPORT

IM
The Government of India runs a scheme of cash compensatory sup-
port for certain products to help exporters meet the global competi-
tion in the export market. It is calculated on a specified product on the
basis of the percentage of the FOB value.The amount of cash compen-
sation applicable to various products is declared through the respec-
tive export promotion council or commodity board.
M
As per this scheme, 95% of the amount claimed is payable on initial

scrutiny of the application by the licensing authority and the rest 5%
is payable after thorough scrutiny.
N
9.8.2 IMPORT REPLENISHMENT
As per this scheme, the quantum of import is calculated on the basis

of a percentage of the net Free On Board (FOB) value of export. The
exporter has to submit an application for replenishment along with
the Certified Customs Specialist(CCS) application or separately in the
prescribed proforma on the basis of quality to the export licensing
authority. To simplify this procedure, the government now allows the
processing of application for import replenishment license against ex-
port. An exporter registered under this scheme is issued a license for
100% of the amount claimed.
Any deficit or excess amount is adjusted in the next application. The

scheme is available for import of components, packing and raw ma-
terials and consumables. The application for cash assistance and im-
port replenishment should be submitted along with the following doc-
uments:
a. A copy of the shipping bill duly stamped and endorsed on the
reverse and signed by the customs authorities

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b. A commercial invoice duly certified by the negotiating bank

c. Form 1/bank certificate in original
d. A statement of export for which an import replenishment licence
is claimed, as well as the statement of export for the period for
which cash compensation is claimed
All these documents need to be checked and verified by a professional
chartered accountant (CA). The CA should check the particulars giv-
en in the statement of export regarding cash compensatory assistance
and Import Replenishment Concession. The CA must issue a separate
certificate for both types of assistance.
9.8.3 DUTY DRAWBACK/EXCESS DUTY REFUND

Duty drawback is the rebate on custom duty and central excise duty
S
that is payable on all raw materials, components and consumable
items used in manufacturing goods (as per Custom Act,1962). To avail
duty drawback, an exporter should submit an application to the Assis-
tant Controller of Drawbacks for an examination of the goods under
IM
drawback.
The goods are inspected by the customs at the factory on payment of

extra charges or at the dock, as the case may be. An application with
the full details of shipment needs to be submitted for this purpose.
Exporters are entitled to a refund of drawback of excise duty on the
products they export.
M
13. Duty drawback is the rebate on custom duty and

N
_______________
14. As per import replenishment scheme, the quantum of import
is calculated on the basis of a percentage of the net Free On
Board (FOB) value of export. (True/False)
Activity
Meet any exporter and learn about export incentives enjoyed by

exporters.
9.9 Summary
Shipment is the delivery of the goods to the intended destination.
Majority of the exporters deploy the services of the international
freight forwarders to accomplish the task in an impeccable man-
ner.
Under Section 3 of the Export (Quality and Inspection), 1963, Gov-
ernment of India established Export Inspection Council of India

n o t e s
(EIC), which was an apex body. It was set up to facilitate the rapid
development of the export trade by stressing on quality control
and pre-shipment inspection.
Custom Formalities include applying for the shipping bill, export-
er order under export customs clearance procedure, and export
general manifest.
According to the RBI under the FERA Act, 1973 it has been made
mandatory for the individual to acquire foreign exchange only for
the designated purpose and not for any other reason because it
would be then reported as money laundering.
When the seller has conducted the shipping of cargo in the buyer’s
country, it is important to consolidate all the documents under the
Letter of Credit (LC) scheme
S
While trading, it is important for the sellers to ensure against the
risk of damages when transporting goods to the buyers. There
might be delay at the port or other factors that cause overhead
expenses to the sellers from long term perspective. In such scenar-
IM
ios, insurance can be a protective cover that will limit the liabilities
of the sellers.
key words
Duty Drawback: It pertains to the refund with the Central Ex-

M
cise and Custom duties paid to avail the raw materials and other
types of inputs used to manufacture the products.
Import Replenishment: An exporter is entitled to import re-
plenishment license for duty free imports of consumables or
one percent of the FOB in the previous year.
N
Cash Compensatory Support: Cash Compensatory Support

(CCS) is an export incentive that was introduced in 1966 for as-
sisting the exporter. The principle aims were to help the export-
ers for competing in the foreign market without any hassles and
overriding the disadvantages due to the nature of the economy.
Export Incentive: Export incentives are the concessions pro-
vided to exporters from India because they help to earn valu-
able foreign exchange
Export Credit Insurance: The exporters opt for the export
credit insurance as they want to cover up the losses in case of
untoward incidents, which also include the situation wherein
the importer defaults on payments.

n o t e s

1. What do you know about the process of shipment?
2. Discuss quality control and pre-shipment inspection.
3. Elaborate on various custom formalities.
4. Describe various exchange control formalities.
5. Explain the concept of insurance
6. Illustrate in detail export incentive
S
Topic Q.No. Answers
Shipment 1. Shipment
IM
2. True
Quality Control and 3. Central Government
Pre-Shipment Inspection
4. False
Custom Formalities 5. Shipping bill
M
6. True
Exchange Control Formal- 7. Foreign exchange
ities
N
8. True
Negotiation of Documents 9. Letter of Credit
10. True
Insurance 11. Hull insurance
12. True
Export Incentive 13. Central excise duty
14. True

1. Shipment is the delivery of the goods to the intended destination.
Refer to Section 9.2 Shipment.
2. As per the provision of WTO all the countries started imposing
strict quality regulations as far as the imported food was
concerned. Refer to Section 9.3 Quality Control and Pre-
Shipment Inspection.

n o t e s
3. Export clearance formalities are being simplified to a great extent

as compared to the past because India became a member of
GATT in the year 1992. Refer to Section 9.4 Custom Formalities.
4. According to the RBI under the FERA Act, 1973 it has been made
mandatory for the individual to acquire foreign exchange only
for the designated purpose and not for any other reason because
it would be then reported as money laundering. Refer to Section
9.5 Exchange Control Formalities.
5. While trading, it is important for the sellers to ensure against the
risk of damages when transporting goods to the buyers. Refer to
Section 9.7 Insurance.
6. Export incentives are the concessions provided to the exporters
from India because they help to earn valuable foreign exchange.
Refer to Section 9.8 Export Incentive.
S
IM
Suggested Readings
Johnson, T. (2002). Export/import procedures and documentation.
New York: AMACOM.
M
E-references
Commerce.nic.in, (2014). Quality control & pre-shipment inspec-
tion. [online] available at: http://commerce.nic.in/annual2003_04/
N
html/lesson-6.htm.
Ppqs.gov.in, (2014). Import Export Procedure. [online] Available
at: http://ppqs.gov.in/IpmImport_Cont.htm.

10
IMPORT PROCEDURE
CONTENTS
S
10.1 Introduction
10.2 Principal Law for Import
IM
Activity
10.3 How to Start Import
10.3.1 Selecting the Commodity/Product to be Imported
10.3.2 Registration with Regional Licensing Authority
10.3.3 Selecting an Overseas Supplier
M

Activity
10.4 Import Documentation
10.4.1 Various Types of Bill of Entry
N
10.4.2 Documents Required for Import Clearance

10.4.3 Advance Bill of Entry
10.4.4 Duty Payments
10.4.5 Stamp Duty
10.4.6 Customs Clearance Procedure
10.4.7 Noting a Bill of Entry
10.4.8 Processing of Bill of Entry
10.4.9 First Check
10.4.10 Physical Examination of Goods
10.4.11 Out of Charge
10.4.12 Customs Clearance under Various Schemes
10.4.13 INCOTERMS
Activity

CONTENTS
10.5 How to Make Payment against Imports

Activity
10.6 Imports where Some Exemptions are Available
Activity
10.7 Summary
S
IM
M
N

IMPORT PROCEDURE 173
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IMPORTING GOODS
Importing goods is essential to make up for the essential mate-

rials and finished products that are not available in a country.
Paying for imports requires opening a provisional account in a
bank and also payment by draft or cheque. The Reserve Bank of
India (RBI) has issued new guidelines pertaining to import and
an importer should have a comprehensive understanding of the
various facets of import.
When an imported consignment is received in a designated coun-

try, it is accompanied by a bill of entry. This bill is a documentation
that describes the goods and their quantity. An import house must
be aware of all the formalities before it decides to import goods
S
on a huge scale. There are different types of bills and clearances
such as bills of entry for human consumption, warehouses and
ex-bond clearance. Moreover, a green channel facility is provid-
ed to importers for the speedier facilitation of the entry of goods
IM
without any red tape. An importer needs to make a declaration at
the time of the filing of the entry mentioning the type and amount
of material being imported into the country. A bill of entry for ex-
bond clearance is also provided to importers.
To avail the green channel facility, an importer has to be approved

by customs authorities. Companies with an unblemished record
M
can request the customs for the green channel facility. Dumping is
a widespread practice that involves a country selling its products
in another country (say India) at prices lower than those in the
latter’s market. In such cases, anti-dumping duties are imposed to
N
protect the local manufacturing industries. Anti-dumping guide-

lines issued by the Government of India must be understood and
complied with while importing goods.V arious documents re-
quired for import customs clearance procedure and related for-
malities are required for carrying out the procedure of import and
the organisation must be well versed with the rules and regula-
tions, the documentation process etc. so that the entire process of
the import goes on smoothly and any discrepancies or errors can
be avoided.

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learning objectives

> Explain the principal law for import
> Discuss how to start import
> Explain the import documentation
> Discuss how to make payment against imports
> Explain imports where some exemptions are available
10.1 INTRODUCTION
In the previous unit, you have studied about the shipment and export
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assistance in India. In addition to export, import also plays an import-
ant role in the Indian economy. So, let us study the import procedure
of India in detail in this unit.
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Procuring goods from India is a hassle-free job compared to sourc-
ing them from abroad. According to the Foreign Trade (Development
&Regulation) Act, 1992, imports are allowed into the country; how-
ever the Act has been modified periodically. Globalisation of the In-
dian economy has liberalised imports and eliminated most controls,
with only a few products being barred from import. Before importing
goods, the importer should know the creditworthiness of suppliers in
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advance so that problems can be avoided. In this context, the role of

suppliers’ agents in India is also very important.
Physical examination of goods is conducted according to the require-

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ments and the specifications of importers. An importer should be

aware of the bonded warehouse formalities. Customs clearance under
the ECG (Electronic Customs Group) and EPG (Export Performance
Guarantee) schemes is essential to understand the various facets of
the import of goods. Once the import of commodities is decided, it is
necessary to get introduced to the required documents and clearance
of bills, so that payments can be routed when the goods are received.
In this chapter, you will study the principal law for import. In addition,
you will also study how to start import of goods. This chapter also
discusses the import documentation. Moreover, the chapter explains
how to make payment against imports. Towards the end, the chapter
discusses the imports where some exemptions are available.
10.2 PRINCIPAL LAW FOR IMPORT

The import rules have been framed keeping in view the Foreign Trade
(Development &Regulation) Act, 1992. Therefore, the principal law
for imports in India is the Foreign Trade (Development & Regulation)
Act, 1992. The Indian government introduced special licenses in 1993,

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under the Foreign Trade (Regulation) Rules, 1993, which permit im-
port at a fee along with conditions for issuing license including refusal,
amendment, suspension or cancellation. Also, under the Act, goods to
be imported are declared in terms of value, specifications and quali-
ty and importexport code number, followed by utilisation of import
goods.
Laws have also been passed to govern the provision of making or sign-
ing any import-related documents, power to visit the premises of the
importer for inspection, search and seizure of goods, documents, con-
veyance for import, redemption, confiscation and the redemption of
conveyance.
1. The principal rules for import were framed under the____.
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2. To avail the green channel facility, an importer has to be
approved by customs. (True/False)
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Activity
Prepare a presentation about the laws for import with the use of
Internet.
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10.3 HOW TO START IMPORT

India’s import policy has been formulated by the Foreign Trade Reg-
ulation Act, 1992 and the EXIM rules designed by the government.
Generally, most of the goods are freely importable; however, there are
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certain products that require special permission to be imported be-

cause laws are in place to prohibit the entry of such goods. The IEC
certificate is mandatory to carry out import export business in India.
Apart from goods that are freely importable in India, there are three
categories of goods for import namely restricted goods, canalised goods
and prohibited goods. The 3 categories of the imports are shown in
Figure 10.1:
Figure 10.1: Categories of the Imports

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Restricted Goods: These goods can be imported only when a li-

cence is obtained from the relevant authority. A list of restricted
goods is present in the Indian Trade Clarification (ITC). Some of
these goods include horses, asses, sheep including lamb for breed-
ing purpose, reptiles (including snakes and turtles) chicory plants
and roots, fresh or chilled potatoes, fresh or chilled, seed stone
boulders, aluminium dross, electrical energy, etc. An import li-
cence is only valid for 24 months for capital goods and 18 months
for other goods.
Canalised Goods: These goods can only be imported by following
specific methods and procedures of transport. Canalised goods in-
clude petroleum, agricultural products, grains, vegetable oils and
some pharmaceutical products.
Prohibited Goods: These goods are listed under the ITC and strict-
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ly prohibited from being brought to India. Wild exotic animals are
part of the prohibited goods list.
The steps to be taken to start import are:

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1. Selecting the commodity/product to be imported.
2. Registration with the regional licensing authority.
3. Selecting the overseas supplier.
Let us discuss all these steps in detail in the next sections.

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10.3.1 Selecting the commodity/product to be

imported
While selecting goods to be imported, certain rules that should be ad-
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hered to are given below:

1. The product to be imported should have a market in the country
and it must be commercially viable.
2. The item to be imported must not be listed under the restricted
items list present in the ITC classification of exports and imports.
3. Prohibited items cannot be imported under any circumstances.
For instance, tallow, fat or oils of animal origin are not permitted.
Likewise, animal rennet and wild animals or their parts cannot be
imported. Such activities are treated as crime by the Government
of India. In addition, products like ivory cannot be imported into
India.
There is another category of products that comes under the canalised

list of items that are imported through similar agencies. It is important
to acquire an import licenseto accomplish the task. ITC classification
of exports has listed about 99 items, including the EXIM code, de-
scription, policy and also the type of restriction. Further information
can be extracted from the Government of India website under the cus-
toms duty calculator schedule provisions.

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10.3.2 REGISTRATION WITH REGIONAL LICENSING

AUTHORITY
It is important to register with licensing authority for the facilitation of

imports. Customs will not permit the imports of the goods unless the
IEC code is issued to an organisation. To import from Nepal or from
Myanmar through Indo-Myanmar border, no registration is required
if the total value of imports is less than `25000.
10.3.3 SELECTING AN OVERSEAS SUPPLIER
After deciding the product that an importer wants to import, and reg-
istering with the regional licensing authority, it is important for the
importer to select an appropriate supplier. It is so because if a supplier
is unreliable it will result in the loss of clients in addition to financial
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losses. There are a lot of factors that need to be considered before
selecting a supplier, such as language differences, differences in pay-
ment methods and increased paperwork requirements. In addition to
this, there are legal considerations for finding the supplier located in
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another country because local rules apply as far as import and export
restrictions are concerned. Moreover, the technical standards of the
suppliers should meet the requirements and the specifications of the
customers. Imported goods must not violate the intellectual copyright
laws of a country. Also, it is important to identify the bearer of the in-
surance cost at different stages of transit of the goods.
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SOURCES OF INFORMATION
All the information related to the overseas supplier can be found using
various resources. Some of them are mentioned hereunder.
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International Trade Promotions Organisation (ITPO)

Trade Directories and Yellow pages
Consulate Generals
Trade representative of various countries in India and abroad
Chambers of Commerce
Directorates of Industries
Agents of Foreign Suppliers in India
Personal sources of the importer in other countries, like friends
and relatives
LEGAL CONSIDERATIONS
Before starting dealing with an overseas supplier the importer must

take into consideration the following:
Isthe trade restricted to any of the ends of the export-import pro-
cess?

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The technical standards in the exporting country must meet the

Indian requirements for import.
Who would be held liable in case the imported product causes any
harm
It must be ascertained if the imported goods cause a breach of any
intellectual property rights or not.
Insurance costs at each stage of the export-import would be borne
by which party.
To avoid disputes and disagreements it is important to have a well
drafted contract that must contain all the major as well as minute
details related to the import-export contract.
CAPABILITY AND CREDITWORTHINESS OF OVERSEAS SUPPLIER
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Successful completion of import transactions is dependent on the ca-
pabilities of an overseas supplier to abide by the commitment of the
contract. The creditworthiness of the supplier is determined by the
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funds available at the disposal of the business entity. Hence, it is im-
portant to verify documents in an impeccable manner before award-
ing an import contract. Secret reports about the companies can be
accessed from the banks and the Indian embassies located in the
country from which the goods are to be imported.
If the supplier is reputed and credit worthy, its indenting agent will
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have its offices located in India. The contracts can, therefore, be easily
completed by initiating consultations with them. An importer can also
avail services offered by the credit information agencies for obtaining
data pertaining to the commercial aspects of the supplier. Accurate
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addresses are available with the trade representatives of other coun-

tries stationed in India.
ROLE OF OVERSEAS SUPPLIERS’ AGENTS IN INDIA
Many overseas suppliers have appointed their agents in India to look

for importers that want to source the materials or finished goods from
abroad. The agents procure orders from the various Indian parties
and arrange for the supply of these goods from the exporting country.
One of the advantages of having agents in the country is that they can
be easily contacted in case of emergencies or damages to the goods,
in case of unsatisfactory quality of goods, hassles in payment or doc-
umentation.
OTHER FACTORS
Language differences may lead to misunderstanding in commu-
nication. The language has to be taken care of in case of making
contracts, every printed material or product or document must be
checked to ensure they are free from any language based on dis-
crepancies.

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For the payment of imports, the importer has a wide choice. There-
fore, the importer must select a method of payment which may be
a letter of credit (documentary credit, or LC), documentary collec-
tion, advance payment receipt etc.
Appreciate, comprehend and understand the business and social
practices of the exporting country.
The importer must check where the exporter raises his supplies
from because same raw material can be available at preferential or
non-preferential rates of duty which may directly affect the rate of
duty importer needs to pay.
FINALISING THE TERMS OF TRADE

The final terms of the contract can be finalised only after the samples
of the product are that are to be imported have been analysed and
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verified that they meet the stated requirements and the creditworthi-
ness of the exporter has been ascertained. Import contracts should
be drafted carefully so that all the terms and conditions can be in-
cluded in it. Ambiguity regarding the specifications of the goods and
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exact terms of purchase, including the import price, mode of payment,
port arrival, delivery schedule and replacement of defective products
should be eliminated. The import contract should precisely include
each and every major and minor detail of the contract so as to avoid
any discrepancies at any stage of the import process.
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3. The product to be imported should have a market in the

country and it must be ___________.
4. The ITC classification of exports has listed about 99 items.
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(True/False)
5. Canalised goods include:
a. Petroleum b. Grains
c. Vegetable oils d. Horses
6. Prohibited goods are listed under the ITC and cannot be
brought to India. (True/False)
7. An importer is required to submit all the import documents to
the authorities before the imported goods are removed from
the bonded warehouses. (True/False)
8. Antecedents of the buyer are required for import. (True/False)
9. To import from Nepal, no registration is required if the total
value of imports is not more than ___________.
10. If a supplier is credit worthy, its__________ agent will have an
office in India.
11. The agent of an overseas supplier has no role to play. (True/
False)

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Activity
Identify the role of a supplier in the retail industry. You can take the
help of Internet.
10.4 IMPORT DOCUMENTATION

While engaging in import, it is important to have all the necessary
documents, so that the process is accomplished in a seamless manner.
Availability of the required documents and accuracy of the documents
help to obtain import clearance. If there is a delay in producing the
documents, the import process can be delayed. As a result, import car-
go can suffer demurrage to a great extent, leading to financial losses.
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Custom authorities require an importer to submit of the necessary
documents, whether the product is arriving by air, water or land. The
freight forwarding agent also needs to furnish the customs documen-
tation for approval of import.
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Upon arrival of the cargo, the importer has two options. One, he may
take away his cargo immediately after paying the applicable duties. Or
two, he may let it be stored under bond and clear later. In this, the car-
go is stored under bonded warehouse and charges are levied for the
period of storage. The importer may take his cargo from the bonded
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warehouse after paying the applicable duties.
Now, let us briefly list and describe the documents that are required
for the import procedure as under:
Bill of Lading if imported by sea /Airway bill if imported by air
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Invoice
Packing list
Chemical analysis report if applicable
Insurance certificate if the incoterms are FOB
Bills related to the freight charges
Certificate of origin
Declaration of origin mentioned on the invoice.
Import license documents, special treatment request and support-
ing documents
Invoice contains the name and address of the consignee, antecedents

of the buyer, date of sale transaction, information about the product
(quantity, make, the type of goods, rate, value, and currency), the
terms of payment, conditions of delivery, discounts and any deduc-
tions if applicable.

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10.4.1 VARIOUS TYPES OF BILL OF ENTRY
Whenever goods are imported into India they have to pass through
customs before entering the domestic market. It is necessary to com-
plete the customs clearance procedures. To accomplish the task, an
importer has to file the bill of entry online or manually, depending on
the facilities available to the customs authorities. The legal document
is created in the specific format mentioning the details of the prod-
ucts, importer information and other data. There are three types of
bill of entry:
Bill of Entry For Home Consumption
This bill is white in colour and is used to file an entry manually. It is

used in facilities where electronic entry of bills is not possible. This
type of bill is used by the importer when he wants to get the goods
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cleared (on payment of duty for dutiable goods or without duty for
duty free goods) to his premises immediately. Section 46 of the Cus-
toms Act, 1962, mentions the information about this bill in a detailed
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manner.
Warehousing Bill of Entry
This bill is also called Into Bond Bill Of Entry and it is buff in colour
and was used prior to the introduction of electronic filing. If the im-
porter is not willing to pay duty on arrival, he signs a contract to keep
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the goods in the customs bonded warehouse by following the formal-

ities under the different provisions. When the duty is paid, the goods
are released by the customs authorities. Or the importer may also pay
duty for some quantity of the consignment and take that quantity. He
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may take the required quantity as and when he requires by paying the
requisite duty. Sections 46 and 60 of the Customs Act 1962, describe
this bill.
Ex-Bond Bill of Entry
Ex bond bill of entry is prepared when bonded goods are cleared from
Bonded warehouse for home consumption. Generally, the colour of
the bond certificate is green. Details of procedures are mentioned in
section 68 of the Indian Customs Act. Besides the 3 types of bill of en-
try described here, there is also a bill of entry which is pink in colour
and it is used for clearing the goods imported for the defence estab-
lishments. Imported goods for defence are cleared by a pink-coloured
bill.
If any consignment is exported from bonded warehouse there is no

need to file a ex bond bill of entry. It can be exported under shipping
bill.

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10.4.2 DOCUMENTS REQUIRED FOR IMPORT CLEARANCE

The documents needed for import clearance are the following:
1. Commercial Invoice: It certifies the sale of goods describes the
items and enumerates the price of the cargo. The concerned
customs officer who appraises the invoice can verify the rates
mentioned in the commercial invoice and compare them with
the actual rates in the international market to find the difference.
In this way, any discrepancies or any unjust practice in the form
of over invoicing or under invoicing can be found,
2. Packing List: Shipping marks have to be placed on the cargo
covering belonging to a range of products. For instance, the
name of the consignment, quantity of the material, dimension
of the parcel, gross and net weight and number of units must be
mentioned in a detailed manner. Packing list is the packing list
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that is originally issued by the first exporter.
3. Certificate of Origin: certificate of origin is a document which
certifies the origin of a country where the goods were originally
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manufactured. Generally the importer requires a certificate of
origin issued by the local chamber of commerce but in some cases
the importer may require a generalised system of preference
issued by the export council agencies of the respective county
which comes along an attested copy of a commercial invoice.
Bilateral and multi-lateral agreements incorporate favourable
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tariffs to reduce the import duties. There are also cases when the
government imposes certain duties or reduces them depending
on the availability of a certain commodity or products to control
their import. Governments may also increase or decrease the
duties for the goods of certain countries depending on the
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political relations of these countries. When the consignments

are exported from the intended countries, the export agency
provides a certificate of origin to the customs. Therefore, the
customs authorities can give discount by verifying the certificate.
4. Bill of Lading (B/L): A bill of lading can be understood as a
receipt from the cargo handler or shipping line as a proof that it
carries your goods. The B/L is signed by the captain of the ship
or any other agent of the transporter and it serves as evidence
that the consignment has been shipped. Or in other words, it
is a negotiable document that is provided by a shipping line
certifying that the cargo belongs to a certain invoice on behalf
of the said exporter as well as an importer. There are various
categories of the B/L. A Clean On Board or CleanB/Lstates that
the transport company has not observed any irregularities in the
packing or condition of the goods in the cargo, and it has been
loaded on the ship. An airway bill is the negotiating document
when the goods are transported by air. It is considered as one of
the documents required for the negotiations, indicating that the
cargo has been loaded on the ship. A B/Lis marked as “foul” if

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the transport company notes or observes something which is not

usual in the cargo. The irregularity may be improper packaging
or damaged products. It is not good to present a “foul” marked
container to any importer. So, the exporter must replace the foul
container with a clean one.
An On Board B/L is the one that states that the cargo has been posi-
tioned on the board. An On Deck B/L is used in case if the goods being
traded fall into the category of livestock.
10.4.3 ADVANCE BILL OF ENTRY

Advance bill of entry is also known as prior bill of entry. Goods that
are imported into India attract import duty from the government and
they should also conform to the legal requirements. Imported goods
must be accompanied by relevant documents In other cases, import-
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ers should follow the rules laid down in sections 52 and the 56 of the
Indian Customs Act, 1962.
Usually, the bill of entry is filed when the importer receives the cargo.
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But the importer may also file the bill of entry before the arrival of the
shipment for faster clearance of goods. This bill of entry is valid only if
the cargo arrives within 30 days of the filling of the bill. The details of
filing the advance bill of entry have been mentioned in Section 46(3)
of the Indian Customs Act, 1962. Here, since the bill of entry is filed
before the cargo arrives, the rate of duty applicable will be the one on
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the date of arrival of cargo.

The importer needs to file 5 copies of bill of entry and the fifth copy
is the Advance Noting Copy. The importer needs to declare that the
vessel or aircraft is due to arrive within 30 days. The importer needs
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to file the bill of entry for final noting as soon as the Import General
Manifest (IGM) is filed. The advance noting facility is available for all
imports except the “Into Bond Bill Of Entry”
While filing the advance bill of entry the importer may not know as
to which vessel would bring his consignment because large container
ships often transfer the cargo to smaller feeder vessels at intermediate
ports. Or we can say that transhipment of the goods can also occur af-
ter unloading at a port inside India. The goods that are offloaded at an
airport or a port can avail customs clearance for home consumption.
Importers should pay the duty beforehand to accomplish the task. Un-
der the Customs Act, 1962, an importer is required to file the terms
according to section 46 of the Act.
When the goods are cleared by customs with help of Electronic Data
Interchange (EDI) procedure, the bill of entry is not filed manually.
In manual filing of the bill of entry four copies of the bill of entry are
required. The first and second copies are for customs, the third copy
is for the importer and the fourth copy is for Reserve Bank sent by
authorised bank of importer. In the filing of bill of entry through EDI,
only three copies are required.

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10.4.4 DUTY PAYMENTS
The duty can be paid to the concerned banks under the TR-challan
that has to be submitted to the customs. Banks generally prefer pay-
ments through challan; however, it is important to check the branch
and the name of the bank before proceeding. The government has de-
cided to reduce the transaction cost; therefore, e-payments are made
mandatory in the form of duty. This facility has been made available
to importers since 2007. An importer paying more than `100,000 in a
transaction should notify the customs authorities.
10.4.5 STAMP DUTY
The stamp duty in Maharashtra is governed by Article 36 of schedule 1

of the Bombay Stamp Act, 1958. Under this act, stamp duty is levied at
the prescribed rates on the instruments that entitle any person to de-
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livery of goods that are lying in the port or any warehouse where the
goods are stored. Stamp duty is paid online through the bank. As per
the Indian Stamp Act, 1899, the export bills beyond 90 days were sub-
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jected to Stamp Duty which was implemented by the Public Sector
Banks, uniformly in all parts of the country. In 2004, the government
remitted the whole amount of stamp duty chargeable on usance bills
of exchange for exporters.
10.4.6 CUSTOMS CLEARANCE PROCEDURE

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The customs clearance procedure in India is as follows:

Bill of entry: Imported cargo are moved to the respective Contain-
er Freight Station or Inland Container Depot (ICD) if imported by
sea or to the customs Shed if imported by air.
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Customs clearance formalities need to be completed by the im-

porter once the goods are in a custom port area. The necessary
formalities and the list of documents are given below:
Goods for home consumption can be released after the pay-
ment of duty.
Filling the bill of entry either manually or electronic mode is
necessary. When the bill of entry is filled through EDI system,
no formal bill of entry is required but the importer is required
to file a cargo declaration.
Signed invoice should be provided.
Packing list
Bill of lading
Importer’s declaration
License, where necessary

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Letter of credit/ bank draft

GATT declaration form filled with information
Insurance document
Import license
Industrial license
Certificate of Origin, if preferential rate of duty is claimed
Test report in case of chemicals
Ad hoc exemption order
Catalogue technical write-up
When the bill is being filed, it is important to mention the particulars
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in great detail, and the accuracy of the information has to be certified/
declared by the importer. This declaration, if found to be incorrect
may attract legal consequences.
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10.4.7 NOTING A BILL OF ENTRY
A bill of entry has to be filed in the respective customs house for the
clearance document within 30 days of the arrival of the goods. The
customs house or an agent can file the bill of entry according to the
requirements and the specifications of the users.
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Under the EDI system, the Customs House Agent (CHA), renamed as
Customs Broker (CB)downloads the ICE GATE software wherein the
CHA can enter the import details of the importer. The first stage of the
bill of entry is its noting with regard to the IGM filed by the shipper. A
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Check list is filed by the importer or his agent with the customs who
give a bill of entry number after verifying the details in the check list.
The noting aspect of the bill is checked by the system and the bill of
entry number is also generated by the system. After entering infor-
mation, a detailed check list is created, which is then cross-verified
with the imported goods. When the order is fulfilled, the entry form is
uploaded electronically. The check list is also forwarded to the CHA to
complete the process of verification.
In the non-electronic system, the information pertaining to a bill must

be noted in the concerned unit that checks the consignment which the
importer intends to have cleared. A bill of entry number is generated
and indicated on all copies. After the bill of entry number is noted the
bill of entry is sent to the appraising section of the custom house for
assessment function, duty payment, import permissibility etc.
10.4.8 PROCESSING A BILL OF ENTRY
The customs officer determines the duty liability, taking note of the
exemptions claimed under different schemes. It is also necessary to

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verify if the goods that are being imported are prohibited from en-
tering the country. The assessing officer also takes into account the
value of the import, invoice declaration along with the bill of entry
and also verifies whether the transaction value method is acceptable
in the long run.
When the customs officer does not have any clarity on the description
of goods, a detailed examination is conducted to evaluate the nature of
the goods and appropriate action is taken to measure the duty. Some-
times a sample of the items is also taken to evaluate if the sample con-
forms to the stated requirements. The customs officer then appraises
the bill of entry. He specifies the final classification, valuation of goods
in the bill of entry, various duties that may be applicable. After this,
the bill of entry is forwarded to the assistant commissioner or the dep-
uty commissioner for confirmation. Again, the bill of entry is sent to
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the comptist, who is an expert on comptometer. Please note that in
the EDI system no comptist is required, the calculations are done by
the system only. He calculates the duty payable taking into account
the rate of exchange at the date applicable. After going through the
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assessment procedure and the calculation of the duty liability, the im-
porter needs to pay the requisite amount that was calculated by the
comptist with the treasury or the nominated bank. After paying the
duty he can go and collect his consignment. In cases where the con-
signment/goods have been examined already for final classification
and valuation, no other check is done by the customs staff at the time
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of giving delivery. Delivery can be taken after showing the orders and
paying the dues if any.
After the assessment, a “assessed bill of entry” is printed in the service

centre of the customs house. The final bill of entry is printed after the
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customs officer gives “out of charge”.
10.4.9 FIRST CHECK
Imported products are examined to verify the correctness of a bill of

entry. The consignment is selected on a random sample basis and is
examined in great detail. When the assessment officer doesn’t have
complete information about the goods, he might require to examine
the goods to evaluate the custom duty correctly. It is known as the
first check. It is requested at the time of filing of bill of entry; however,
reasons should be given to the importer for the first assessment. The
importer can also opt for first check in case of any doubt on duty struc-
ture. But customs always prefers second check. In the second check,
the dock examiner examines the products as per the documents and
records his findings.
10.4.10 PHYSICAL EXAMINATION OF GOODS
Physical examination of goods is done under the second check. The

goods are examined after the assessment and payment of duty. Most of

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the consignments are cleared after the second assessment. Sampling

is a very important aspect that helps to check the quality of the goods.
The quality, quantity and value are matched by the figures provided
in the documents. A declaration regarding the correctness of the doc-
uments must be made after the verification is completed. Two copies
of the bill entry are to be returned to the CHA/ importer after the ap-
praiser has duly signed them.
10.4.11 OUT OF CHARGE
After the examination of the goods, if no discrepancies are found, the

“out of charge” orders are given to clear the consignment. If the goods
are not cleared, port dues, demurrage, and other charges become ap-
plicable. Demurrage is applicable if the goods are not cleared within
three days from the out of Charge orders. If the goods are not cleared
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within 30 days of out of charge, they may be disposed off.
10.4.12 CUSTOMS CLEARANCE UNDER VARIOUS SCHEMES

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The capital goods under the export promotion capital goods (EPCG)
scheme can be imported at 0% customs duty. This is subject to an ex-
port obligation of 6 times the duty saved on capital goods, and must be
fulfilled within 6 years from the date of authorisation. Import of goods
under the specialised schemes can be cleared if the importers execute
bonds with the customs authorities. The holder of EPCG authorisa-
tion has to file a bond (with or without) the bank guarantee with the
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customs before initiating the process of import of goods. The purpose

of the bond is to ensure that the export obligation is fulfilled.
10.4.13 INCOTERMS
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INCOTERMS is an abbreviation for International Commercial Terms

published by International Chamber of Commerce. These terms are
used in global trade transactions or the import transactions. These
are three letter terms. The reason to have a standard and common
terminology for the global trade is to lower or eliminate the discrep-
ancies which may occur due to different language being used in differ-
ent countries. According to the revised rules, there are 11 terms now
(Earlier, there were 13 terms). DAS, DES, DEQ and DDU designations
have been eliminated and two terms, DAT and DAP, called Delivered
At Terminal and Delivered At Place respectively, have been added.
The following is a list of INCOTERMS:

EXW: Ex Works
“Ex Works” refers to works, factory, warehouse, etc. The importer
will have to collect the goods from the exporters’ place i.e. factory,
warehouse, etc. The importer has to make arrangement for mov-
ing the goods from exporter’s location. Importer has to organise
the freight forwarding operations.

n o t e s
FCA: Free Carrier

“Free Carrier” implies that the exporter should give the delivery
of the goods to the carrier or to another person as nominated by
the exporter at a decided place. Both the importing and exporting
parties should clearly specify the named place of delivery.
CPT: Carriage Paid To
“Carriage Paid To” implies that the exporter delivers the goods to
the carrier or to another person as nominated by the exporter at a
decided place. Also, the exporter should pay for the carriage costs.
CIP: Carriage and Insurance Paid To
“Carriage and Insurance Paid to” implies that the exporter deliv-
ers the goods to the carrier or another person as nominated by
the exporter at decided place. The cost of the carriage required to
S
deliver the goods to the specified destination must be contracted
for and paid by the exporter. The seller receives only the minimum
cover for insurance. If the buyer wants to enhance the insurance
IM
cover, he may do it in an agreed manner with the exporter or pur-
sue it himself.
DAT: Delivered At Terminal
“Delivered at Terminal” implies that the exporter gets the goods
delivered when the goods, which have been unloaded from the ar-
riving means of transport are placed at the disposal of the importer
M
at a named terminal/warehouse/port/destination. The risks related

to the delivery of goods to the destination and their unloading at
the terminal are borne by the exporter.
DAP: Delivered At Place
N
“Delivered at Place” implies that the exporter pays for the car-
riage to the named place apart from the import clearance costs.
The risks associated with the delivery of goods to the destination
are borne by the exporter to the point that the goods are ready for
unloading by the importer.
DDP: Delivered Duty Paid
“Delivered Duty Paid” implies that the exporter is the authority
to deal with the tasks included in getting the goods delivered from
its origin to the importers destination. It is the responsibility of the
exporter to get insurance for the goods and all the duties and fees
are also borne by the exporter.
FAS: Free Alongside Ship
“Free Alongside Ship” implies that the exporter delivers the goods
when they are placed alongside the vessel as nominated by the
importer at the named port. The importer bears the risk of loss or
damage to the goods when the goods are alongside the ship.

n o t e s
FOB: Free On Board

“Free On Board” implies that the exporter moves the consignment
to the freight forwarder of the importer or port or the point of or-
igin as designated by the importer. This is generally used when
talking of ocean or transport by way of water. Delivery is said to
be accomplished when the exporter passes the consignment to the
importer’s freight forwarder and the risk of loss/damage is trans-
ferred to the importer and he is also responsible for the insurance
of this instance onwards.
CFR: Cost and Freight
“Cost and Freight” refers to two items namely cost of consignment
and the freight charges to a predetermined destination. It implies
that the exporter delivers the consignment to the point of delivery
as nominated by the importer and at this instance the delivery is
S
said to be accomplished. The risk of loss/damage is passed on to
the importer when the consignment is on board the vessel or pre-
determined port. It is the responsibility of t5he exporter to con-
IM
tract for and to pay for the cost and freight. The insurance costs
are borne by the importer.
CIF: Cost, Insurance and Freight
“Cost, Insurance and Freight” implies that the exporter delivers
the goods on board the vessel or procures the goods already so
delivered. The risk of loss/damage to the consignment is passed to
M
the importer when the consignment is on board the vessel. Here

the cost of insurance is borne by the exporter. The freight forward-
er is generally chosen by the exporter.
N
12. The stamp duty in Maharashtra is governed by Article 36 of

schedule 1 of the Bombay Stamp Act, 1958. (True/False)
13. An importer can avail duty-free assessment by executing
bonds or ___.
Activity
Using the Internet, identify the significance of import documenta-

tion and the verification of imported goods.
HOW TO MAKE PAYMENT AGAINST

10.5
IMPORTS
The following are the methods for payment against imports:
Consignment Purchase: Consignment purchase terms can be the
most beneficial method of payment for an importer. In this meth-
od, an importer makes the payment after the goods are sold to the

n o t e s
end user. If the goods are not sold, they are returned to the foreign
supplier. Consignment purchase is considered the most risky and
time-consuming method for an exporter.
Cash-in-Advance (Pre-Payment): As per this method, an import-
er pays for the items prior to their shipment. The importer must
trust that the supplier will ship the goods on time and that the
goods will be as advertised. This method is very risky for import-
ers. The importer is left with little course of actions he may resort
to in case exporter provides poor quality goods or incomplete doc-
umentation. There may be cases when the exporter does not deliv-
er the consignment even after receiving the payment in full from
the importer. This method generally is beneficial for the exporter
but it can put the exporter at a competitive disadvantage. Howev-
er, it is an inexpensive method, as it involves direct importer-ex-
porter contact without the involvement of a commercial bank.
S
In international trade, Cash-in-Advance method of payment is
used under the following circumstances:
IM
The importer is relatively new to the trade.
The importer’s credit status is doubtful or unsatisfactory.
The political risks are very high in the importer’s country.
The demand for the product is quite high and the seller does not have
to accommodate an importer’s financing request in order to sell the
M
merchandise.
Down Payment: In this method, an importer pays a fraction of the
total import bill for the consignment in advance. The advantage of
this system is that the exporter begins exporting without the im-
N
porter or buyer paying the full price in advance. The disadvantage

is that the exporter might not deliver the goods, even though the
importer has paid the full amount.
Open Account: This method is used when there are several sourc-
es from which the products which are being sold by the exporter
can be obtained. It may also be used when this method is prevalent
in the importer’s country or when the importer has a strong credit
rating. Under this method, the importer can make a payment at a
specified date in future without even issuing a negotiable instru-
ment to the exporter. It is a risky method of payment from the per-
spective of the exporter. But the exporter may make arrangements
like reducing the repayment period or retaining the owner title
of the goods till the time payment is made to minimise his risk.
There are disadvantages of this method but an open account with
extended dating is becoming common place. The exporters that
accept payments through open account are now obtaining credit
insurance to minimise their risk of non-payment. This method is
the most expensive method for the exporter and is used in cases
when there has been a long standing trade relation between the

n o t e s
importer and exporter and they have already acquired a level of

mutual trust where they think they qualify for such a risky method
of transaction.
Documentary Collections: The terms and conditions and the ob-
ligations of the parties to a trade transaction (importer and ex-
porter) have been illustrated in the “Uniform Rules for Collection”
(URC) which was drafted by the Paris-based International Cham-
ber of Commerce. Under this method, the bank acts as an interme-
diary for the importer and exporter alike and it is a useful meth-
od for both. Here the bank settles the sale transaction through an
exchange of documents which leads to the payment and simulta-
neously with the transfer of title. The importer pays for the con-
signment when he receives his goods and similarly the exporter
also retains the title of consignment until he receives his payment.
There may be a case when the importer does not pay immediately
S
and agrees to pay at a later date and time.
Letter of Credit: Letter of credit is a formal bank letter issued by
the bank for its customer. This letter of credit enables the custom-
IM
er, which may be a person or an organisation, to draw drafts on
the bank. Letter of credit is a very effective method for the banks
to transact and finance the export and import trade. It helps in
the trade only through the documentation process. The Uniform
Commercial Code and the Uniform Customs and Practices for
Documentary Credits published by the United States Council of
M
the International Chamber of Commerce has put forward the cov-

enants that govern the matters related to the issuance and the ne-
gotiability of the letter of credit. According to these covenants, the
letter of credit must be issued in favour of a specific beneficiary,
for a specific amount clearly stating how the payment to the ben-
N
eficiary is to be made and under what conditions and it must have

a specific expiry date.
14. Cash-in-Advance Payment Method is used if:

a. an importer is relatively new to the trade
b. an importer’s credit status is not satisfactory
c. the political risks are high in the importer’s country
d. All of the above
15. What is consignment purchase?
16. Consignment purchase is the most risky and time-consuming
method for an exporter. (True/False)
17. In ___________method, an importer pays a fraction of the total
bill in advance.
18. What is the disadvantage of down payment method?

n o t e s
Activity
Using the Internet, discuss the various methods of payment for im-
porting goods.
IMPORTS WHERE SOME EXEMPTIONS

10.6
ARE AVAILABLE
There are certain goods that are either not at all imported or there
are certain restrictions on their import. Some of these exemptions are
discussed as follows:
Import for Personal Use: It includes the following:
Importers under this category do not need any IEC number.
S
Import of goods by any person as passenger baggage is permit-
ted to the extent admissible under the Baggage Rules 1994. But
quinine of more than 500 tablets or = pounds powder or 100
IM
ampules is not permissible.
For any tourist, articles whose re-export is obligatory under
the Baggage Rules shall be re-exported on his leaving India.
Otherwise, those goods shall be deemed to be regarded as pro-
hibited goods under the Customs Act, 1962.
M
Any type of goods can also be imported through the post for
personal use provided its c.i.f. value shall not exceed `2000.
The goods should not be vegetable seeds exceeding 1 pound
in weight, bees, tea, books and periodicals, alcoholic beverag-
es, consumer electronic items (save hearing aids and lifesav-
N
ing equipment and items for which import is canalised under

EXIM Policy).
However, the customs duty as applicable shall have to be paid.
As far as the procedure for personal imports is concerned it
may involve sending of advance remittance if required by the
overseas supplier, opening of letter of credit, retirement of doc-
uments and remittance of foreign exchange, customs clearance
of the goods and payment of customs duty.
Import of Samples: Technical and trade samples of bona fide
items, even those in the restricted in ITC (HS) Classifications of
Export and Import items is allowed without a license provided the
c.i.f. value does not exceed `1 lakh in one consignment save veg-
etable seeds, bees and new drugs by any importer. Tea samples
above `2000 (CIF) in one consignment are not allowed without a
license by any person connected with Tea industry.
Prototype Import: Prototype may be imported without license by
paying requisite duty, by an actual user, industrial engaged in the
production of or having industrial license or research, as the case

n o t e s
may be, provided the number of items imported does not exceed
10 in number in a year.
Import of Computer/Computer Software: Computers including
personal computers, Keyboards or monitor valued up to `1.50
lakh and `7000/- respectively can be imported freely without any
license. Computer software can also be imported freely without li-
cense despite the fact computer software is regarded as consumer
goods.
Passenger Baggage: Under the established rules, various kinds
of articles can be imported up to a certain value limit depending
upon the duration of stay of the passenger abroad and on the basis
of Resident and Non-Resident Status of the passenger.
S
19. Tea samples not above `2000 (CIF) in one consignment is
allowed without a license by any person connected with Tea
industry. (True/False)
IM
20. What is the exemption related to prototype import?
21. Computer software can only be imported if the importer has
the license. (True/False)
Activity
M
Make a list of goods which cannot be imported in India and discuss

the reasons for restrictions on these goods.
N
10.7 SUMMARY
Importing goods from abroad is governed by the various rules and
regulations. It is not as easy as buying goods within the country.
When the prospective importer wants to buy some goods from
abroad, in the first instance he/she has to select the commodity or
product which he wants to import, and see whether the goods are
in the list of prohibited goods or not.
After deciding the goods or commodity the importer should get
him registered as an importer. For registering, he must obtain IEC
Code Number for which an application with the prescribed docu-
ment is to be submitted.
Whileengaging in import, it is important to have all the necessary
documents, so that the process is accomplished in a seamless man-
ner.
The methods for payment against imports consignment purchase,
cash-in-advance (pre-payment), down payment, open account, let-
ter of credit and documentary collections.

n o t e s
There are certain goods that are either not at all imported or there
are certain restrictions on their import.
key words
Advance Bill of Entry: Goods that are imported into the coun-
try attract import duty from the government and they should
also conform to the legal requirements.
Bill of Entry for Home Consumption: It is a white-coloured bill
used for manual entry. This bill is used in facilities where elec-
tronic mode of filing the bill of entry is not available.
Duty Payments: Duty is paid to the concerned banks under the
TR-challan system that has to be submitted to the customs.
Out of Charge: It is related to mistakes in goods noticed after
S
the submission of the documents.
Packing List: Shipping marks have to be placed on the cargo
covering belonging to a range of products.
IM
1. Explain the principal law for import
2. How export items are categorised?
M
3. Discuss the selection of the commodity/product to be imported

4. Explain the registration with regional licensing authority.
5. Discuss the selection of the overseas supplier.
N
6. Explain import documentation.

7. Discuss duty payments.
8. What are the different methods of payment against imports?
9. Discuss imports where some exemptions are available.
Topic Q.No. Answers

Principal Law for Import 1. Foreign Trade Regulation Act,
1992
2. True
How to Start Import 3. Commercially viable

n o t e s
Topic Q.No. Answers

4. True
5. d. horses
6. True
7. True
8. True
9. `25,000
10. Indenting
11. False
Import Documentation 12. True
13. Concessional assessments
S
How to Make Payment 14. d. All of the above
against Imports
15. Consignment purchase terms can
IM
be the most beneficial method of
payment for an importer.
16. True
17. Down payment
18. The disadvantage of down pay-
ment is that the exporter might not
M
deliver the goods, even though the

importer has paid the full amount.
Imports where Some Ex- 19. True
emptions are Available
N
20. Prototype import is allowed on

payment of duty without a license
to an actual user, industrial en-
gaged in the production of or hav-
ing industrial license or research,
as the case may be, provided the
number of items imported does
not exceed 10 in number in a year.
21. False

1. The import rules have been framed keeping in view the Foreign
Trade Regulation Act, 1992. Refer to Section 10.2 Principal Law
for Import.
2. There are three categories of goods for import, namely, restricted,
canalised and prohibited. Refer to Section 10.3 How to Start
Import.

n o t e s
3. The product to be imported should have a market in the country

and it must be commercially viable. Refer to Section 10.3 How to
Start Import.
4. It is important to register with licensing authority for the
facilitation of imports. Refer to Section 10.3 How to Start Import.
5. It is important to select an appropriate supplier prior to importing
goods because if the supplier is unreliable it will result in the loss
of the client and also financial losses. Refer to Section 10.5 How
to Start Import.
6. While engaging in import, it is important to have all the necessary
documents, so that the process is accomplished in a seamless
manner. Refer to Section 10.4 Import Documentation.
7. The duty can be paid to the concerned banks under the TR-
S
challan that has to be submitted to the customs. Refer to Section
10.4 Import Documentation.
8. Consignment purchase terms can be the most beneficial method
IMof payment for an importer. Refer to section 10.5 How to Make
Payment against Imports.
9. There are certain goods that are either not at all imported or
there are certain restriction regarding their import. Refer to
Section 10.6 Imports where Some Exemptions are Available.
M
SUGGESTED READING FOR

10.10
REFERENCE
Suggested Readings
N
Rai, U. K. (2010). Export - Import and Logistics Management.

Daryaganj, New Delhi: PHI
E-References
Import Procedures. Retrieved from http://business.gov.in/import-
export/procedureimport.php.
Methods of Payments in Import. Retrieved from http://www.ex-
imguru.com/exim/guides/how-to-import/ch_13_methods_of_pay-
ment_in_import_trade.aspx

Ch
11 a p t e r
CASE STUDIES
CONTENTS
S
Case Study 1 Emerging Trends in the Indian auto Components Industry
Case Study 2 New Exim Policy for the Promotion of Exports & Imports
Substitution
Case Study 3 Global Bank Vs. the American Bank
IM
Case Study 4 Export Documentation at Taneja Exports
Case Study 5 International Consumers may soon be able to Track Farm Origin
of Indian Mangoes
Case Study 6 India Slips 4 Places in World Bank’s 2015 Foreign Trade Rankings
Case Study 7 Hsbc’s Edi (Hexagon) for Import-Export Payments
Case Study 8 Certificate of Inspection by Akashdeep Watches
M
Case Study 9 India’s Food Processing Industry

Case Study 10 Indian Government to Introduce Reforms in Shipping
Case Study 11 Honey Export Policy of India
Case Study 12 Import Procedure of Flying King Exports and Imports Company
N
Case study 1
n o t e s
EMERGING TRENDS IN THE INDIAN AUTO

COMPONENTS INDUSTRY
This Case Study discusses the emerging trends in the Indian auto
components industry owing to globalisation of the industry. It dis-
cusses the main points of the ACMA and MCKinsey report titled,
‘Capturing The Global Opportunity: The Next Imperative For The
Indian Auto Component Industry’. It is with respect to Chapter 1 of
the book.
The Indian automotive industry is witnessing rapid transforma-

tion and phase of growth driven by globalisation, stable econo-
mies and infrastructure development. It has emerged as the sev-
enth largest in the world, and the auto components industry is
gearing up to compliment the industry’s growth.
S
Indian Automobile component manufacturers are well positioned
to benefit from globalisation of the sector. According to a report by
the Automotive Component Manufacturers Association of India
IM
(ACMA) and McKinsey, globalisation would lead to increase in the
export potential to approximately USD 40 billion by 2020. As per
the report, globalisation in the auto components industry is an in-
evitable trend and is likely to increase in future. Indian auto parts
manufacturers are well positioned to benefit from these global
trends for accelerating their global presence in the coming years.
M
Based on market comparisons, supplier and Original Equipment

Manufacturer (OEM) surveys, the Indian suppliers can foster a
three-split 2020 aspiration. These are as follows:
i. Increase in exports from the existing USD 10 billion to USD
N
35-40 billion
ii. Increase in revenue from overseas assets from the existing
USD 6 billion to USD 20-22 billion
iii. Increase in count of Indian suppliers in global top 100 from
one at present to five by 2020.
According to the report, globalisation of the auto parts indus-

try would follow certain macro-trends, including globalisation
by OEMs, suppliers following OEMs, and budding of low-cost
countries (LCC) as export centers. Other factors that would drive
globalisation of auto component industry are as follows:
Consolidation and shift towards global suppliers
Increased ambition of emerging market suppliers to access
new markets and technologies
Market diversification for margin resiliency

Case study 1: EMERGING TRENDS IN THE INDIAN AUTO COMPONENTS INDUSTRY 199
Case study 1
n o t e s
The ACMA and McKinsey also recognised that Indian manufac-

turers could considerably accelerate their international presence
in the next few years. As per the report, 2013 was one of the most
challenging years in the history of automotive industry in India.
During the testing times, each manufacturer has had to suffer
losses, revisit strategies, restructure organisations, streamline
processes and regeneratethe organisations for gearing up and
dealing with the challenges.
In return, this has proved to be helpful to component manufac-

turers in evolving into stronger bodies with better competences
for global competition. The challenging times has made the auto
component manufacturers to eye the international markets in a
planned way. The manufacturers are aware of the importance of
joining the global auto supply chain.
S
questions
IM
1. Name the driving forces behind globalisation of the Indian
auto components industry.
(Hint: Globalisation by OEMs, suppliers following OEMs,
and budding of low-cost countries (LCC) as export
centers, etc.)
2. What were the main challenges faced by the auto
M
components industry in the year 2013?

(Hint: Weak sales, high capital costs, high interest rates,
exchange fluctuations, low investments in manufacturing,
etc.)
N

N
M
IM
S
Case study 2
n o t e s
NEW EXIM POLICY FOR THE PROMOTION OF EXPORTS

& IMPORTS SUBSTITUTION
This Case Study discusses the latest provisions intended in the

EXIM policy of India. It is with respect to Chapter 2 of the book.
In the view of Mr. Sumeet Jerath, Additional Directorate General

of Foreign Trade, (DGFT), Centre Licensing Area (CLA), the In-
dian government’s foreign trade policy document will focus on
promoting both export and import substitution along with em-
phasis on foreign nationals with Indian pharma, engineering, and
other such products.
As India is an important member of WTO, the country cannot

be solely dependent on its export promotion. Therefore, the new
S
government would suggest in its new policy various ways for han-
dling various issues associated with higher transaction cost. This
would enable exporters in reaching the desired level of exports. It
was also reported by Mr. Jerath that initiatives would be taken to
IM
deepen the country’s external engagement to explore potential
markets. Moreover, the new policy would make sure that the do-
mestic pharma industry gets a fair deal. The Government of India
through its new EXIM policy intends to exceed to an extent of
thousands of crores.
M
The government also intends to trim traditional procedures and

regulations and convert them to suit the exports requirements of
the modern times. This would help in setting realistic targets for
exports from time to time and enhance the contribution of Indian
exports to its GDP. The measures in the new EXIM policy would
N
be the attempt to enhance India›s share in global trade to over

5% from current level of 2% in the next five year period for which
the new government will unveil its foreign trade policy after the
constitution of 16th Lok Sabha.
Source: http://www.business-standard.com/article/news-cm/new-exim-policy-to-pro-
mote-exports-imports-substitution-addl-dgft-114050201104_1.html#

Case study 2
n o t e s
questions
1. Discuss the benefits that the Government of India intends

to make through its new EXIM policy.
(Hint: The new government aims at handling various
issues associated with higher transaction cost to enable
exporters in reaching the desired level of exports.)
2. Discuss what other provisions can be made in the new
EXIM policy.
(Hint: The government can eliminate excess formalities
and simplify the documentation procedure to promote
exports and imports in the country.)
S
IM
M
N

Case study 3
n o t e s
GLOBAL BANK VS. THE AMERICAN BANK
This case discusses the failure of Global Bank, Pune Branch to ver-
ify the documentation of an import letter of credit and demand the
American Bank for a return of funds. It is with respect to Chapter
3 of the book.
M/S Auto India is a public limited company engaged in the man-

ufacture of SUVs (sports utility vehicle) in technical collaboration
with General Motors, USA. M/S Auto India is based at Ranjan-
gaon, Pune on a total area of 250 acres. The total project cost is
estimated at `1500 crores. As per the projections, M/S Auto India
is estimated to gain 25% of market share in India within a period
of two years. Of the total project cost, 49% is funded by General
Motors and the remaining had to be arranged from financial in-
S
stitutions, Indian and International banks. The working capital is
financed by a group of banks led by Global Bank, Pune branch.
M/S Auto India imports several automobile parts in a CKD (com-
IM
pletely knocked down) condition from General Motors, USA after
issuing import letters of credit from Global Bank, Pune Branch.
The company approached Global Bank, Pune for issuing the im-
port letter of credit for USD 100,000 in favour of General Motors,
Detroit. The chronology of the events is as follows:
Global Bank, Pune issued its irrevocable negotiable credit
M
through its head office since all its accounting and communi-
cation functions are co-ordinated at its head office. The head
office transferred the credit as instructed by the bank’s Pune
branch to General Motors through The American Bank, New
York.
N
The American Bank (advising bank) directed the credit to

General Motors, Detroit on receipt of the transmission.
Along with other conditions, the credit clearly stated that the
negotiating bank was to forward the documents directly to
Global Bank’s head office at Pune.
Afterexporting the consignment, General Motors, USA pre-
sented the documents under the credit to The American Bank,
New York.
Later, the American Bank, New York examined the documents
presented by General Motors and assessed if they complied
with the terms and conditions of the credit. Playing the role of
a negotiator, the American Bank forwarded the documents, as
per the credit terms, to the head office, Global Bank in Pune
and claimed reimbursement from International Bank, New
York.
The reimbursing bank, International Bank, New York hon-
oured the reimbursement claim by crediting the current ac-

Case study 3
n o t e s
count of the American Bank, New York and debiting the ac-
count of Global Bank, Pune, in its books.
Global Bank’s Head Office, Pune, received the documents and
forwarded the documents to its Pune Branch after internal
registration of the documents.
On receipt of the documents, Global Bank examined the doc-
uments and determined that they were discrepant with UCP
600 - Article 14. Standard for Examination of Documents.
There was a shipment of 60 units instead of 50 units, as stated,
resulting in overdraw of credit value by USD 2000. In addition,
the Inspection certificate by Auto Inspection Council, USA
was not submitted, as per credit terms. Global Bank contacted
Auto India for waiver of the discrepancies.
S
Auto India requested for copies of the documents and refused
to waive the discrepancies.
Global Bank, Pune Branch instructed its HO to transmit an
IM
authenticated swift to The American Bank, New York stating
that Global Bank had rejected the documents for the noted
discrepancies demanding a refund of the funds reimbursed.
On receipt of the swift notification advising that Global Bank
had rejected the documents, the American Bank informed
Global Bank that it did not accept the rejection of the drawing
M
since Global Bank did not comply by standard examination of

documents.
Global Bank responded by stating UCP 600 - Article 14. Stan-
dard for Examination of Documents had pointed out all the
N
discrepancies in the documentation and had informed Ameri-

can Bank, New York that they were holding the documents at
the latter’s disposal.
The American Bank, New York replied as follows, “We dis-
agree with your position that you acted in accordance with
UCP 600 - Article 14, Standard for Examination of Documents.
Documents were delivered by courier to your HO as per the
terms of the credit, on Monday, January 7, 2008. Your swift no-
tifying rejection of the documents was not sent until Wednes-
day, Jan 16, 2008 that is, on the eighth banking day after re-
ceipt of the documents by your bank.”
Global Bank responded that even though its HO received the
documents on January 7, 2008, the branch did not receive the
documents until the following Thursday, January 10, 2008,
and the swift advice rejecting the documents was sent within
the time period permitted in UCP article 14.
Later, American Bank stated that in accordance with the
credit terms and conditions, documents were negotiated by

Case study 3: GLOBAL BANK VS. THE AMERICAN BANK 205
Case study 3
n o t e s
them and forwarded to Global Bank’s HO by courier. The doc-

uments were received by Global Bank on Jan 7, 2008, and any
notice of rejection of the documents should have been given
within the close of the fifth banking day following the receipt
of documents. Global Bank’s Pune Branch failed to do so.
Therefore, the American Bank, New York’s position was firm
relative to UCP 600 article 14 and they would not refund the
reimbursed funds.
questions
1. Was Global Bank, Pune Branch correct in its argument,

as the credit issuing bank?
(Hint: Global Bank, Pune was incorrect in its interpretation
S
of UCP 600 article 14. It had a duty to determine the
number of days remaining in the five banking day period
after the presentation of documents at their head office in
IM
order to comply with article 14 of UCP 600.)
2. Was the stand taken by The American Bank, New York
correct, as the negotiating bank?
(Hint: The American bank, New York should have
received the notice of rejection of the documents within
five banking days following the day of receipt of the
M
documents. The stand of The American Bank, New York

is in concurrence with the article 14 of UCP 600.)
N

N
M
IM
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Case study 4
n o t e s
Export Documentation at Taneja Exports
This Case Study shows how insufficient knowledge of export docu-

ments leads to financial loss. It is with respect to Chapter 3 of the book.
Mr. Gurmeet Taneja and Mr. Rahul Khatri had opened a partner-
ship firm, named M/S Taneja Exports. Mr. Gurmeet had a share
of 60% in the total profit of the firm while Mr. Rahul Khatri had
a share of only 40%. The owners of the firm had conducted an
extensive study of the demand of women’s apparel in cotton and
hosiery in domestic as well as international market. For this re-
search study, they had taken assistance from Apparel Export Pro-
motion Council and the marketing agencies in different countries
of European Union. The findings of this study reveal that the
Indian exporters were not able to penetrate into a huge part of
S
European apparel market due to ineffective marketing, improper
quality control, and non-adherence to the shipping schedules.
This was found as an opportunity by the Taneja Exports. To grab
IM
this opportunity, Mr. Gurmeet had focused on the strategy of mar-
keting the cotton and hosiery apparels abroad and Mr. Rahul con-
centrated on the procurement of raw materials and shipping the
products on time to the buyers.
The office of Taneja Exports was located at Mangal Das market,

Lower Parel, Mumbai. The place was taken on rent by the owners
M
of the firm at the cost of `35000 per month. The godown of the
firm, where the garments were kept, was also taken on rent at an
amount of `15000 per month in the same area. The raw materials
for the firm were sourced from the towns of Tripura and Coimbat-
N
ore, and the manufacturing or production of apparel along with

rigorous quality checks took place in Mumbai. The export sales
of the Taneja Exports had achieved a steady improvement as a
result of the quality measures and timely delivery of shipments.
The firm was getting the credit facility from M/S International
Bank of India, Mumbai. This facility was provided to the firm
against the security of a residential house of Mr. Gurmeet Tane-
ja’s father, Mr. Vikram Taneja, which costs around `85 lakhs and
shares of `15 lakhs.
The export packing credit facility availed by M/S Taneja Exports

from International Bank of India was adjusted from the purchase
or negotiation of the export bills drawn by their European buyers.
These bills contain a tenure period of 60 days. Based on the con-
firmed purchase order of buyers, most of these bills were drawn
and sent for collection from International Bank of India to the
foreign buyer’s bankers. These bills were paid on their respective
due dates and the bankers were also happy with the bank account
of the firm. Based on this and the growth potential of Taneja Ex-

Case study 4
n o t e s
ports, bank had increased the credit limits from `7 lakhs in 2003
to `17 lakhs in 2005.
Taneja Exports had submitted the export document for Euro

53000.00 to International Bank of India, which needs to be drawn
by M/S St Laurn Fashions, Paris on 60 days. In this contract, the
merchandise included was ladies apparels in cotton and hosiery.
Taneja Exports had mentioned in the covering letter of the export
contract that the International Bank of India needs to present the
documents to St Laurn, Paris, through their bankers, Credit Ly-
onnais, Paris. Taneja Exports had submitted all the export related
documents, which are:
Bills of exchange
Bills of lading
S
Commercial invoice
Packing list
IM
Inspection certificate
Certificate of origin
In the bill of exchange, Taneja Exports has mentioned, ‘to be

co-accepted by credit Lyonnais’. All these documents were taken
by the International Bank of India and further sent to Credit Ly-
M
onnais, Paris for collection purpose. After that, the International

Bank of India had got a message from Credit Lyonnais that the
documents are accepted by St Laurn and the due date is August
25, 2005. The same was communicated to Taneja Exports. How-
ever, the payment was not received till August 30, 2005; thus,
N
Taneja Exports informed the bankers regarding the non-receiv-

ing of payments. International Bank of India had sent a swift
message enquiring about the same. After two days, Credit Lyon-
nais had communicated the International Bank of India that St
Laurn was bankrupted and unable to pay the bill. The same was
further communicated to Taneja Exports. They argued with the
International Bank of India that they had mentioned in the bills
of exchange that the documents need to be released against the
co-acceptance of the French bank.
As a result, International Bank of India sent the message of Taneja

Exports to the Credit Lyonnais on an immediate basis. Interna-
tional Bank of India said that as the bill of exchange include the
co-acceptance clause by the French bank, Credit Lyonnais bank,
needs to pay the bill even if the importer, St Laurn, is bankrupt.
The French bank had refused to pay the money and intimated
that there was no clause of co-acceptance in the bills of exchange
and they are acting as per the provisions of the uniform rules for
collection mentioned in the ICC publication No 522.

Case study 4: Export Documentation at Taneja Exports 209
Case study 4
n o t e s
As the payments were not made by the French bank, Taneja Ex-
ports filed a suit against the deficiency of services by Interna-
tional Bank of India with the National Consumer Forum, New
Delhi. The firm argued that the bank had not mentioned about
the co-acceptance clause in the covering letter submitted to the
French bank. As if they have mentioned the clause and the French
bank has refused to take the documents, then they could have
looked for another buyer of the merchandise. Due to this negli-
gence of bank, they were suffering huge financial loss.
The National Consumer Forum had given the judgment that In-
ternational Bank of India was deficient and negligent in their ser-
vices and thus, they need to compensate the export bill of Euro
53000.00 with an interest of 15% till the payment date, i.e., Au-
gust 25, 2005. On this judgment, International Bank of India filed
S
an appeal in the Supreme Court. After hearing the arguments of
both sides, Supreme Court had given the judgment that as the
co-acceptance clause is not mentioned in the contract between
IM
the exporter and importer, this clause cannot bind either French
bank or International Bank of India to pay the bill. Thus, the
bankruptcy of the importer was the reason for the financial loss
suffered by Taneja Exports and not the deficiency of bank.
questions
M
1. What are the precautions that should have been taken by

Taneja Exporters to avoid such financial loss?
(Hint: Taneja Exports should be aware of the fact that
while including any clause in the export documents it
N
should be mentioned in the original agreement between

the exporter and importer and they should agree on this
mutually.)
2. What should International Bank of India have done to
avoid such situations in future?
(Hint: The sales personnel in the International Bank of
India should have proper knowledge about the export
procedures and documentation and should have conveyed
the same to their customers in order to avoid problems in
future.)

N
M
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Case study 5
n o t e s
International Consumers May Soon be able to

Track Farm Origin of Indian Mangoes
This Case Study discusses the recent measures taken by Indian

government to enable customers track the farm of origin of Indian
mangoes exported to the European Union (EU). It is with respect to
Chapter 4 of the book.
S
IM
Indian government is planning to introduce a formal system that
would enable consumers of Indian mangoes in the international
market to track the farm of origin of the mangoes through the
M
Internet. This movement is a part of the effort of the government

to persuade the European Union (EU) to lift the ban imposed on
Indian mangoes.
The government is planning to develop a website named ‘Man-

N
gonet’ that would enlist the mango farms and exporters. This
will help importers in the EU to trace the farm of origin of the
mangoes. This was previously tried successfully in case of grape
exports from India. According to Sudhanshu, deputy general
manager of Agricultural and Processed Food Products Export De-
velopment Authority, “The success of Grapenet has encouraged
us to replicate the system in mangoes”.
EU imposed a temporary ban on import of Alphonso mangoes and

four other vegetables from India from May 1. The ban has major
impact on Indian exports to United Kingdom (UK), the second
largest export market of Indian mangoes. Because of the ban, Ma-
harashtra, the largest mango exporting state in India, deployed
HortiSAP, an Information Technology (IT) tool developed for the
pest surveillance of agricultural products.
In October 2014, an EU committee visited the export facilities in

India to review the ban. According to Sudhanshu, “The EU audit
committee has seen the sea change in our set up”. Around 80 ag-

Case study 5
n o t e s
ricultural graduates have been hired by the horticulture depart-

ment of Maharashtra to detect pest in eight major mango produc-
ing districts. This team is supervised by the National Centre for
Integrated Pest Management in New Delhi. The staffs working in
the fields use modern IT tools, such as iPads and Skype for regu-
larly communicating with the government officials regarding pest
control, crop, and registration of mango farms.
Mr. Govind Hande, chief inspecting authority for phytosanitary

certification in Maharashtra, says “We have provided a list of pes-
ticides with label claim to the mango growers. They will get ‘fit
for export’ certificate only if their samples pass all the tests. If
the samples have a problem, the exporters will get alert notice.”
Mango exporters are optimistic about the new system. According
to Kaushal Khakar, CEO at Mumbai based KB Exports, “Mango
S
exporters are hopeful that the online system will help boost their
business.” The Grapenet system gave very good results. As Man-
gonet will be on similar lines, it will be good for mango exports”.
IM
questions
1. Do you think this is an effective measure to restore

confidence in Indian agricultural exports to EU?
(Hint: Importers have more confidence in products for
M
which the origin can be easily identified.)

2. On the basis of the case, discuss the importance of country
of origin in case of exports.
(Hint: The certificate ensures that the customers make
N
an informed buying decision.)

Case study 6
n o t e s
India Slips 4 Places in World Bank’s 2015

Foreign Trade Rankings
This Case Study discusses the complexity involved in import-ex-

port documentation in India because of which India slips 4 places
in World Bank`s 2015 Foreign Trade Ranking. It is with respect to
S
IM
There is significant level of complexity in export-import documen-
tation in India. At present, the number of documents required for
exports and imports are 7 and 10, respectively. In addition, the
trading costs have also escalated significantly since 2006. Because
of these factors, India`s ranking slipped four points to the 126th
position in the World Bank`s “Trading Across Borders” indica-
tor in the 2015 ease-of-doing-business report. The first three po-
M
sitions are occupied by Singapore, Hong Kong, and South Korea,

respectively. World Bank started the Doing Business (DB) project
in 2002 in order to measure the extent of business regulations in
189 economies in the world. The three main parameters taken
N
into account by the “Trading Across Borders” indicator of DB are

documentation procedure, time, and cost per container.
Available data shows that since 2006, the number of policy docu-
ments have remained unchanged at 7 and 10, respectively. Even
though the time required in export and import have come down;
the overall trading cost has increased significantly. The data also
reveals that the time required for the completion of export of an
item has come down to 18 days in May 31, 2014 from 27 days in
2006. Similarly, the number of days required for the completion
of import of an item came down to 22 days from 41 days in the
same period of time. In spite of the improvement in the required
time to export and import, these figures are still much higher than
international standards. For example, in case of Singapore, the
number of documents required for import and export are 3 each.
In addition, the number of days required for the completion of ex-
port and import in Singapore are 6 days and 3 days, respectively.
World Bank has observed that the 7 export documents and 10 im-
port documents to be filled in India increases the time and costs

Case study 6
n o t e s
involved in international trading. Currently, the following export

documents are required in India:
Bill of Lading
Commercial Invoice
Foreign Currency Exchange Form
Packing List
Shipping Bill
Technical Standard Certificate
Terminal Handling Receipts
Following is the list of import documents:
S
Bill of Entry
Bill of Lading
Cargo Release Order
IM
Certified Engineer`s Report
Commercial Invoice
Inspection Report
Packing List
M
Product Manual
Technical Standard Certificate
Terminal Handling Receipts
N
The time and cost involved in various stages of import and export
are shown in the following tables:
Source: Doing Business database October, 2015

Case study 6: India Slips 4 Places in World Bank’s 2015 Foreign Trade Rankings 215
Case study 6
n o t e s
The tables clearly show that documentation cost is a very signifi-

cant constituent of the overall import and export costs. The doc-
umentation costs are around USD 365 and USD 400 for export
and import, respectively. The overall cost of export of an item has
increased to around USD 1520 per container in May 2014 from
USD 814 per container in 2006. At the same period of time, the
cost of import has escalated from USD 1324 to USD 1650. On the
other hand, the cost of export and import in Singapore stands for
USD 460 and USD 440 per container, respectively. According to
the DB report, “Research shows that exporters in developing coun-
tries gain more from a 10% drop in their trading costs than from a
similar reduction in the tariffs applied to their products in global
markets.”
S
questions
1. On the basis of the case, discuss how complexities in

documentation can raise the total cost of import and
IM
export.
(Hint: In India, the documentation costs are around USD
365 and USD 400 for export and import, respectively.)
2. Suggest how the number of documents involved in import
and exports can be reduced.
M
(Hint: By comparing with other high ranking trading

economies, such as Singapore, Hong Kong and South
Korea and evaluating the requirements of the additional
documents.)
N

N
M
IM
S
Case study 7
n o t e s
HSBC’S EDI (HEXAGON) FOR IMPORT-EXPORT

PAYMENTS
This case study discusses the payment system used by HSBC for
streamlining the payment between exporters and importers and
using EDI for exchanging related documents. It is with respect to
A payment system that offers satisfaction to both importers and

exporters is challenging for banks. Exporters prefer payments in
advance of shipping goods; whereas, importers would like to de-
lay payments until goods are received. Hong Kong and Shang-
hai Banking Corporation Limited, India, HSBC assists both im-
porters and exporters by playing the role of a trusted third party.
There are two methods of dealing with the transfer of finance by
S
the bank: collection and documentary credit.
Collection method: In this method, the exporter would ship
the goods to the importer and send documents associated with
IM
the transaction to the exporter’s bank. The exporter’s bank
would later transmit the documents to the importer’s bank
with instructions to collect payment from the importer. Once
the importer pays or promises to pay, the documents are re-
leased to the importer, so he can collect the goods. Finally, the
importer’s bank pays the exporter’s bank, which in turn, pays
M
to the exporter.
Documentary Credit: After the documentary credit is issued,
the exporter prepares to ship goods. Once the exporter dis-
patches goods, he forwards the documents relating to the
N
shipment of goods to his/her bank. The importer requires

these documents to collect goods; until then, the goods re-
main under the control of the exporter’s bank. The exporter’s
bank pays the exporter and sends the documents to the im-
porter’s bank to be reimbursed. Documents also move along
this chain. After the importer has paid to his/her bank, the
documents are released for collection of goods. The exporter’s
bank is referred to as the advising bank and the importer’s
bank is referred to as the issuing bank.

Case study 7
n o t e s
S
IM
M
N
HSBC used the Electronic Data Interface (EDI) to help its cus-
tomers to manage the complex import export payments proce-
dure. Two or more companies in the supply chain exchange in-
formation in agreed formats through EDI. The electronic banking
services system within the HSBC Group is referred to as the
Hexagon. Hexagon comprises trade services, cash management,
payments and information reporting.
Hexagon has a specifically designed unit for the transfer of elec-

tronic commercial documents. The documents related to import/
exports such as letters of credit, bills of exchange, trust receipts,
etc. could be transferred from a computer in one company to a
computer in another company. This eliminates the problem of du-
plicating documents avoiding the possibility of errors. Hexagon
links both importers and exporters, bringing additional benefits

Case study 7: HSBC’S EDI (HEXAGON) FOR IMPORT-EXPORT PAYMENTS 219
Case study 7
n o t e s
to HSBC’s customer supply chain system. For instance, importers

can place an order for goods using HSBC’s system and send it to
an exporter electronically.
questions
1. What are the issues in the payment process between

exporters and importers?
(Hint: Payment risks in case of advance payments,
uncertainty in payment timings, exporters want payments
in advance while importers intend to pay after an order is
received)
2. What are the benefits of a documentary collection system
S
as used by HSBC?
(Hint: The exporter entrusts the collection of payments
to the exporter’s bank, which sends documents to the
IM
importer’s bank along with instructions for payment.)
M
N

N
M
IM
S
Case study 8
n o t e s
CERTIFICATE OF INSPECTION BY AKASHDEEP

WATCHES
This case study focusses on the need of the Certificate of Inspection

by Akashdeep Watches for its global trading purposes. It is with re-
spect to Chapter 7 of the book.
Akashdeep Watches is an esteemed Indian watch company that

acquires high-valued products from around the world and sells
them within the country. The company has been in this business
for many years and has established itself as one of the leading
watch companies in India. Since last two to three years, the senior
management team at Akashdeep Watches has been trying to ex-
pand its business globally.
S
However, in order to have a global acceptance, Akashdeep Watches
needs to have a proper license, i.e. a Certificate of Inspection.
Without this license, the company cannot operate globally. The
Certificate of Inspection will help the company to verify that the
IM
products received are same, in good condition and at the right
cost during the shipping process. This certificate will also help the
company to ensure that the true value of watches is charged and
all billing is done according to the agreed terms and conditions.
Therefore, the company ensured that it obtained the Certificate

M
of Inspection just-in-time to avoid delays in its trading business,

prevent losses and avoid any legal problems. Akashdeep Watches
also ensured that all the administration, inspection and other
custom duties are paid in time. Moreover, to avoid problems
and strengthen its stronghold in the global market, Akashdeep
N
Watches took the help and advice of an independent inspection

agency. Due to the bulk of goods and limited time, the help of the
inspection agency proved extremely useful in reviewing and veri-
fying not only the quantity and quality of shipments imported but
also the cost related to it.
questions
1. Do you think that the Certificate of Inspection is needed

by Akashdeep Watches? Discuss.
(Hint: Yes, the Certificate of Inspection should be used
by Akashdeep Watches as it contains written verification
details of the packaged product.)
2. What types of invoice documents do you think are needed
by Akashdeep Watches? Discuss.
(Hint: One of the invoice documents that is needed by
Akashdeep Watches is the Customs Invoice Document.)

N
M
IM
S
Case study 9
n o t e s
INDIA’S FOOD PROCESSING INDUSTRY
This case study discusses the present condition of India’s Food Pro-
cessing industry in terms of the import and export of food products.
It is with respect to Chapter 8 of the book.
India’s Micro, Small and Medium Enterprises (MSME) sector

plays an important role in the economic and social development
of the country. India’s Food Processing (FP) industry is one of the
largest industries in the country owing to India’s strong agricul-
tural base. India’s Food Processing industry stands fifth in terms
of production, consumption, export and projected growth. As per
Annual Report, 2010-11, MOFPI, GOI, the FP Industry also em-
ploys about 13 million people directly and about 35 million peo-
ple indirectly (unorganised sector). The unorganised sector alone
S
contributes about 70% of production. India’s share in the export
of processed food in international trade is above 1.5%. The sub-
sector analysis of FP Industry in India is as follows:
IM
Dairy: India occupies an important position in the global dairy
industry. Some of the corporates focusing on the dairy sector
include MNCs, such as Nestle, Britannia and ITC. This sector
is attracting huge foreign investment indicating that there are
enormous business opportunities in this sector in future.
Fruit and Vegetable Processing: Production of foods such as
M
ready-to-serve beverages, fruit juices and pulps, dehydrated

and frozen fruits, pickles, etc. are expected to grow up to 25%
by 2025.
Grains: India produces about 200 million tonnes of food
N
grains including rice, wheat, maize, barley, etc. that are both
consumed domestically and exported to other countries.
Fish Processing: India stands third in the production of fish
in the world and second in inland fish production. This sector
contributes USD 4.4 billion to the national income, which is
about 1.4% of the total GDP.
Alcoholic Beverages: India stands third in the production and
consumption of alcoholic beverages in the world. India’s de-
mand for alcoholic beverages is around 400 million cases per
annum and is expected to grow at a rate of around 25 per cent
per annum in the next five years.
Consumer Foods or Packaged Foods: This sector includes
packaged foods, aerated soft drinks, packaged drinking wa-
ter and alcoholic beverages. It also includes bakery products,
ready-to-eat snacks and other processed foods. India’s confec-
tioneries segment is growing at the rate of 5.7% per annum.
Also, biscuits segment is growing at 7.5 %per annum.

Case study 9
n o t e s
In spite of the expectations, the ground reality of India’s Food

Processing industry shows an entirely different picture. India’s
current agricultural trade is very low including both export and
import. This is because globally speaking, agricultural trade is
low compared to industrial trade. Apart from this, India’s export
remains low because the Indian FP industry is not so developed
yet and often faces standard barriers, particularly in developed
countries. In spite of being one of the major producers of oilseeds,
India does not have the required processing capacity and ends
up importing huge quantities of vegetable oil to meet its domestic
needs. This has limited the growth of India’s processing capacity.
Exports of many food items show a decline or only slight increase
while imports are increasing in all segments. Import rate of sugar
and confectionary was a whopping 720.51%. India’s biggest trade
S
is in vegetable oil that has registered a massive import of about
`2669.73 crores.
Export of dairy products also recorded a massive decline of about

IM
40% from that in the previous five years. On the other hand, im-
ports have increased at an alarming rate of 179.48%. Other items
that saw a decline in the export include coffee, tea, spices (by
8.76%), sugar products (by 89.8%) and cereal preparations (by
7.71%).
M
questions
1. What are the key issues in Indian Food Processing

industry?
(Hint: Indian products face non-tariff barriers in
N
developed country markets. India uses temporary export

bans and quantitative restrictions, non-tariff measures
that restrict trade between nations, etc.)
2. According to you, what could Indian government do to
increase the export of its food products?
(Hint: The Indian Government needs to standardise its
trade liberalisation for leaving enough space for its own
food processing industry to grow, the domestic industry
needs to maximise the gains from the FP industry, assess
the FTAs, etc.)

Case study 10
n o t e s
Indian Government to Introduce Reforms in

Shipping
This Case Study discusses the recent reform measures taken in the
Indian shipping sector. It is with respect to Chapter 9 of the book.
S
IM
The new government in India wants to promote more usage of
the sea route by removing custom duties by 25-30 per cent on the
fuels used by Indian ships. In addition, the government is also
planning to eradicate various other logistical difficulties. Prime
Minister Narendra Modi has been promoting the ‘Make in India’
campaign since the new government came to power. To facili-
M
tate the campaign, shipping minister Nitin Gadkari developed an

elaborated plan for developing the shipping sector. According to a
senior official from the Ministry of Finance, “We have managed to
convince the finance ministry’s revenue department to relax the
N
25-30 percent tax on fuels used by trans-shipment ships sporting

the Indian flag when they ferry items to and from Indian ports”.
He also added that, “During a presentation we made recently, the
prime minister apparently was surprised that such a levy was be-
ing imposed. He was in favour of removing such a tax, which is
more of an irritant than any revenue-generating proposition”.
The ministry has estimated that reduction in custom duties will

result in a revenue loss of around `60 crore annually. However,
the move can generate an additional revenue of around 1000 crore
because of the potential increase in the usage of the sea route. Ac-
cording to shipping secretary Vishwapati Tridevi, “Our mission is
to make a sustained effort to help the shipping industry overcome
issues like funding and logistics so that dispatching goods from
India becomes easier”.
The total exports in India topped USD 314 billion in 2013-14. Over
45% of Indian export is made by the sea route. However, the cargos
coming and going from India are trans-shipped to various large
shipping hubs, such as Colombo and Singapore where ‘mother

Case study 10
n o t e s
ships’ are loaded. This happens in spite of the fact that there are
12 major and 187 minor ports in India located around over 7500-
km long coastline. According to Samar Nath, Chief Executive
of DHL Global Forwarding, “There is a strong linkage between
the relaxation of cabotage (or shipping from port-to-port) rules
and developing the Indian ports to become trans-shipment hubs
-- similar to Singapore and Colombo,” He also added that, “This
could lead to larger ships to be brought into India as a trans-ship-
ment hub. These do not operate in India currently”.
The overall shipping cost from India goes up because of trans-

shipment. Therefore, India, in spite of being a cheap industrial
hub, loses in competitive advantage. According to Adil Zaidi, di-
rector, government and transaction advisory services, Ernst and
Young, “An Indian trans-shipment port will be able to capture
S
the market share for containers that are otherwise handled from
competing international ports. This will entail huge cost savings”.
IM
The overall shipping cost and the per unit cost in export and im-
port will drastically come down by a trans-shipment port; thereby
enabling entry of large ships. This will increase the competitive
advantage of the country as a low cost shipping hub. In addition,
customers will also be benefitted as firms would pass on the sav-
ings in shipping cost to the customers.
M
questions
1. Evaluate the decision of the government in terms of the

benefits that would arise to the exporters.
N
(Hint: Indian exporters will gain price advantage as a

result of reduction of export cost.)
2. Do you think the government will have to forego a
significant amount of revenue as a result of the reduction
in the custom duties?
(Hint: The revenue loss will be compensated as the
movement has high potential to significantly improve
shipping activities.)

Case study 11
n o t e s
HONEY EXPORT POLICY OF INDIA
The case study highlights the honey trade policy of India which has
enabled the country to export large quantities of honey and contrib-
ute to its foreign exchange earnings. It is with respect to Chapter 9
of the book.
India has established itself as an exporter of honey in the global

market. India started exporting honey to other countries since
1991-1992 in smaller quantities of around 8,000 tonnes until 1998.
By 2009, honey export in India grew around 15,587 tonnes. In-
dia exports honey to about 62 nations, including Belgium, Ger-
many, Saudi Arabia, the United Kingdom and the United States
of America.
S
Agriculture is the backbone of the Indian economy, therefore agri-
culture and allied industries were developed by the Government
of India. In spite of this, beekeeping was largely neglected by the
government except for the efforts of the Khadi and Village Indus-
IM
tries Commission (KVIC). Later after realising the importance of
honeybees in improving crop productivity through pollination,
the Indian Government set up a National Beekeeping Board in
1994 to promote beekeeping. Agricultural and Processed Food
Products Export Development Authority (APEDA) offers several
incentives to the exporters of agricultural goods, including honey.
M
These incentives include feasibility studies, export promotion

and market development, improvement of packaging, promoting
quality and quality control, and research and development. KVIC
also offers several schemes for the promotion of beekeeping, in-
cluding beekeeping training at various levels.
N
India has plenty of bee flora, cheaper labour, and a large domestic
market for honey. Beekeeping research is carried out by the All
India Coordinated Project on Honeybees and Pollinators in differ-
ent agro-climatic zones. They carry research on different aspects
of beekeeping driving the promotion of sustainable apiculture,
increase in honey production, awareness of scientific beekeeping
among beekeepers.
However, there are certain challenges in honey export in India.

These include seasonal variation in honey production, high cost
of transportation and packing material, and poor awareness about
the use of honey among local dwellers.
Seeing the potential of honey export in India, the government has

developed a strategy to increase the number of bee colonies for
increasing honey production in India. The government is running
several schemes for bee breeding, multiplication of colonies, bee
diseases testing facilities, and other R&D facilities. The govern-

Case study 11
n o t e s
ment also offers for migratory bee keeping, training and develop-
ment of bee keeping and technical manuals.
The Government of India has identified apiculture as an inte-

gral part of the agricultural and horticultural development pro-
grammes in the country. In India, APEDA and the Export In-
spection Council of India (EIC) are responsible for the overall
development of apiculture. These organisations monitor all as-
pects of honey production and set up committees to help India
increase honey production and export. The main function of the
EIC includes:
Advising the Central Government on measures to be taken for
the enforcement of quality control and inspection of honey in-
tended for export
S
Initiating a programme for quality control and inspection of
honey for export
EIC is responsible for the introduction of quality control stan-

IM
dards through all stages of honey collection, processing, testing,
packaging, marketing and quality assurance. Besides, these or-
ganisations provide financial incentives for the development of
the honey export industry.
M
questions
1. What are the incentives for beekeeping in India?

(Hint: Government offers incentives and financial
assistance to honey exporters, feasibility studies and
N
surveys, export promotion and market development,

packaging development, assistance for promoting quality
and quality control, etc.)
2. What are the challenges faced by honey producers/
exporters in India?
(Hint: Seasonal variation in honey production, high
cost of transportation and packing material, and poor
awareness about the use of honey among local dwellers.)

Case study 12
n o t e s
IMPORT PROCEDURE OF FLYING KING EXPORTS AND

IMPORTS COMPANY
This case study focusses on the import procedure of Flying King

Exports and Imports Company. It is with respect to Chapter 10 of
the book.
Flying King Exports and Imports Company, located in Kollam,

Kerala offers a large range of products and services. It imports
and exports food products like frozen fish, frozen meat, dry fruits,
etc. It also trades in general products like rubber, wood, etc. Its
business also involves export and import of metal scraps and ores
like railway line scraps, scraps from abandoned ships, alumin-
ium, copper, iron, steel, zinc scraps, etc.
S
Imports to India are governed by Foreign Trade (Development
and Regulation) Act, 1992. According to this Act, “imports of all
goods are free except for the items regulated by the policy or any
other law in force.” In its initial years, Flying King Exports and
IM
Imports Company did not follow the Exim policy properly, which
led to legal complications and other related import issues. The
company did not follow the required import procedure, pre-
scribed by the law, and imported some oils that were prohibited
under the Exim policy.
M
However, the recent revamp of the management team at Flying

King Exports and Imports Company proved beneficial as the new
leadership team ensured that all goods followed the legal import
procedure, following the principles of the Exim or Foreign Trade
Policy.
N
Thus, while importing delicate, extremely valuable or restricted

products, the company ensured that it secured a valid and rel-
evant import license. This allowed free movement of goods and
ensured that the import procedure was maintained in a contin-
ual form. Further, in its import procedure, the new management
team at Flying King Exports and Imports Company ensured that
pre-registration was done with a regional licensing authority. This
was done to ensure that an Import Export Code (IEC) number
was obtained from this authority so that clearance of goods can be
obtained from the customs officials.

Case study 12
n o t e s
questions
1. What type of import documentation is needed by Flying

King Exports and Imports Company? Discuss.
(Hint: Customs Clearance Documents are required by
Flying King Exports and Imports Company.)
2. How do you think Flying King Exports and Imports
Company makes payments against imports? Discuss.
(Hint: Flying King Exports and Imports Company make
payments against imports by consignment purchase,
cash-in-advance (pre-payment) and down payment.)
S
IM
M
N

Export Import Procedures
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S
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NMIMS Global Access - School for Continuing Education

CHAPTER NO. CHAPTER NAME PAGE NO.

2 Regulatory Framework of Export-Import 23

5 Documentation Related to Shipment 89

7 Documents Related to Inspection and Special Documents 121

8 Export Procedure 137

9 Shipment and Export Assistance in India 149

10 Import Procedure 171

11 Case Studies 199

NMIMS Global Access - School for Continuing Education

International Trade: International Trade, Theories of International Trade, International trade

Regulatory Framework of Export-Import: Export-Import Policy 2002-2007 , New Export-Import

Documentation Related to Shipment: Shipping Bill , Cart Ticket, Certificate of Measurement,

Documentation Related to Inspection and Special Documents: Certificate of Inspection,

NMIMS Global Access - School for Continuing Education

NMIMS Global Access - School for Continuing Education

1.3.1 Theory of Absolute Advantage

1.3.5 Heckscher and Ohlin Theory: Modern Theory of International Trade

NMIMS Global Access - School for Continuing Education

trade TARIFFS: the next generation

The authorities in Washington, D.C. have been on high alert for

However, now Congress is planning to vote for the legislation to

It is expected that the normal trade relations would work together

and tariffs on American-made high-tech products.

Let’s hope that Members of Congress understand that it is the

NMIMS Global Access - School for Continuing Education

After studying this chapter, you will be able to:

If you trace the history of international trade, you will be surprised to

in the nature and process of international trade and still it remains

With colonial expansion and industrial revolution, the global trade

This chapter discusses about the concept of international trade, need

NMIMS Global Access - School for Continuing Education

1.2 INTERNATIONAL TRADE

International trade includes commercial transactions that comprises

 Continuously changing political scenarios

the trade barriers that exist in international trade as well as new

1.2.1 NEED FOR INTERNATIONAL TRADE

In this highly competitive world, the role of international trade is very

NMIMS Global Access - School for Continuing Education

 Itenables firms to acquire resources that are not available within

1.2.2 REASONS FOR INTERNATIONAL TRADE

ternational trade helps in solving the problem as country X can

dence of domestic market by making it independent and not rely-

1.2.3 METHODS OF INTERNATIONAL TRADE

International Trade can be defined as a process in which exchange of

NMIMS Global Access - School for Continuing Education

There are various methods for carrying out trade internationally,

 Retains the interests of established domestic market by impos-

 Results in loss of control of the licensee manufacture and mar-

NMIMS Global Access - School for Continuing Education

It offers various advantages that are enlisted below:

It is generally used by those companies that specialises in complex

established in the foreign country.

NMIMS Global Access - School for Continuing Education

acquires (i.e. it purchases) an already established production

mentioned conditions are met:

2. The size, market power, and resources of the partner are

NMIMS Global Access - School for Continuing Education

 Strategic Alliance: It refers to a cooperative agreement that is

Continuously changing political scenarios

Itenables firms to acquire resources that are not available within

Retains the interests of established domestic market by impos-

Results in loss of control of the licensee manufacture and mar-

Strategic Alliance: It refers to a cooperative agreement that is

1.3.5 heckscher and ohlin theory: modern theory

Needs of citizens of the two countries are same.

Intra-Firm Trade: Intra- firm trade comprise of 30% of the total