PGD-IB EXIM Financing and Documentation UNIT – I INTRODUCTION Preview As your ambition is to become an expert manager in International Busines

s, you must understand the details of export-import (Exim) financing and documentation. You are all aware, that business is impossible without finance, e specially when it is international business, it involves huge amount of finance, including foreign exchange (frex). Let us now have an overview. In order to equ ip you, well in this field, the study material consists of the following units. Unit I Introduction, dealing with export documentation foreign exchange regulation, ISO 9000 series, pre shipment inspection, export trade cont rol and marine insurance. Unit II Export Procedures deals on export polices, pro cedures, credit (short term and long term) and guarantee. Unit III Import proced ure including passbook and related matters. Unit IV Export incentives provides y ou details on various types of incentives (duty as well as tax ) and the procedu res and documentation required. Unit V Trading Houses, Various export promotion measures, setting up EOU/FTZ/EPZ/SEZ and the encouragement by providing the hono ur of stars to export houses according to their performance. different types of licensing, Unit - I 1

PGD-IB EXIM Financing and Documentation With this overview of the subject, let us discuss the salient features of the un it 1, which will be discussed in the form of the following lessons. Lesson 1. In troduction : To Exim financing theories of international Trade, scope and need o f exim finance, finance function, and emerging challenges are discussed. Lesson 2. Export documentation: The need for documentation, various documents required for multifarious export activities are discussed in detail wherever necessary to explain the contents of the documents speciation is also shows. Lesson 3. Forei gn Exchange Regulation: In the present world of momentary economics, different c ountries use different currencies, and foreign exchange becomes pivotal in inter national transactions. Foreign exchange needs continuous and comprehensive contr ol, as otherwise there would be danger of economic crisis. Hence the aspects of forex regulations with special reference to the Foreign Exchange Regulation Act is studied. Lesson 4. ISO 9000 series and other internationally accepted quality : Certificates. Export involves huge sums of money and if once the exported comm odities are returned due to lack of quality, the name of the country will be spo iled, apart from incurring heavy loss, which could be detrimental to the busines s. Hence the need for quality and its standardization how it in done and who con trols it are elaborately discuss, so that when you become the manager you may ta ke steps for such quality implementation. Lesson 5. Quality control and preshipm ent inspection: Following, International Standards as per norms is on aspect and using it for quality control and arranging for preshipment inspection to assure Unit - I 2

PGD-IB EXIM Financing and Documentation quality is another aspect. You would come to kn ow what are quality control measures and how preshipment inspection is made. Lesson 6. Export Trade Control: In a vast country like ours export trade control is a mamm oth task and its need and procedures are explained so that you could adopt them. Lesson 7. Marine Insurance: Foreign Trade / Export and import are mostly carried through s hips and the sea is source of high risk and dangers. Therefore, the need for mar ine insurance, the procedures and modes of marine insurance are explained in thi s lesson. COMMERCIAL PRACTICE: You would be learning the theoretical parts of the subject through the study materials but you should also know the details of commercial p ractices through some practical field visits to the nearly respective spots like the office of the clearing and forwarding agents, Port Trust office, Tax and ex cise department, foreign Trade Organizations, Bank offices dealing with forex ma rine Insurance Agent‘s office Trading and Export houses various licensing, authori ties, nearby EOU / FTZ / EPZ / SEZ units etc. Visit is one aspect; There other m odes of gaining practical knowledge. Among your group of students registered for the course, there may be students who are actually working in such export conne cted fields recognition / promotion / knowledge etc. You could identity such stu dents (Employees) and have individual discussion, group discussion, clarificatio n of certain points of view studied in the material. You can also take up case s tudies of certain aspects of nearby export centre office unit. If retired office rs, employees from export units are available, you can also have discussion and they can share their experience and discuss certain reel case studies which they have experienced. These activities would enhance your knowledge and develop pro found understanding of international trade. Unit - I 3

PGD-IB EXIM Financing and Documentation Lesson -1 INTRODUCTION TO EXIM FINANCING Objectives To understand the concepts of Exim finance, its function and global f inancial market. To study the scope of Exim Finance. To list out the needs of Ex im Finance. To analyse the Exim financial functions. To examine the emerging cha llengers in global financial market. Structure 1.1. Preliminaries 1.2. Scope of Exim Finance 1.3. Need for Exim Finance 1.4. Finance Functions 1.5. Emerging cha llenges in a global financial market 1.6. Summary 1.7. Keywords 1.8. Answers 1.9 . Questions 1.10.Further Reading 1.1 PRELIMINARIES International (Exports / Impo rts) Trade Every country in the globe has to depend on others for some purpose o r other. In the modern world the wants are increasing and they can not be satisf ied within a country. All products/services cannot be provided within a country‘s limit. Crossing the boundaries of countries or even crossing the boundaries of t he world will become the order of the globe, to fulfil its needs and demands. Na ture has distributed the factors of production unequally over different counties and so certain countries are endowed with certain resources abundantly. Countri es differ in terms of climatic conditions, natural resources, mineral resources and mines, labour and capital resources, technological competencies, entrepreneu rial and managerial capabilities and many other variables which are essential fo r producing goods and services. Hence, different countries become Unit - I 4

PGD-IB EXIM Financing and Documentation experts and efficient in certain production / services whereas theory are not so in several others. There fore countries depend on each other and get the goods and services from the countries which are more efficient than themselves. Thus i nternational trade in the form of exports and imports is inevitable for satisfac tion of the people and their survival too. There are several theories of interna tional trade about which you may be already aware. These theories indicate or ex plain why export import is taking place. Just to mention some of them are Absolu te cost advantage theory Comparative cost theory Factor proportion theory Human capital approach Natural resources theory R and D on product life cycle theory S cale economies theory Thus, the international trade is necessitated by so many c omplex variables / factors and it is clear that international trade cannot be ne glected for development of a country. Exim Finance The Export / Import trade can not function smoothly, efficiently and effectively unless new techniques, method s and instruments have been evolved in the field of international finance. Global wants and needs International Trade Export / Import Exim Finance Unit - I 5

PGD-IB EXIM Financing and Documentation The international trade is growing faster than the world output. India is also r ealised the need for international trade and introduced economic liberalization and favourable exim policy etc from 1991-92 onwards. The capital flow and direct investment across the countries have increase enormously in tune with the growt h of international trade. The fast growth of multinational, national corporation s has place at the disposal at the disposal of world large and varied quantum of goods / services. In order to cope with the growth of international trade in le aps and bounds, the international monetary and fiscal systems have also develope d fast and are improving their sophistication. A number of important innovations like. Letter o f Credit, Bill of Exchange have taken place in international payment and credit mechanisms which have facilitated free exchange of goods and services. 1.2.SCOPE OF EXIM FINACE The future for exim finance is bright and brilliant because the export / import trade is catching fire and growing with accelerated pace. Natura lly, the exim finance should also develop faster to match the needs of internati onal trade. Various aspects of export / import trade which will increase the sco pe of exim finance are discussed now. Scope of exim finance Facilitates more int ernational trade / export There is high competition to increase the exports of t he countries and naturally the concerned countries take efforts to provide much credits and facilities in collaboration with national and multinational financia l institutions. Difference in technological development The technological develo pment is not uniformly good in all countries. In less developed countries, techn ological know-how is less and so they have to pay heavy charge for utilizing the services of the experts. Huge finance is required to make such payments and thi s process of transfer of technology is continuous. Unit - I 6

Borrowings f or developmental activities and repayment. To reduce adverse balance of payment In the init ial stages of development there is chain action of adverse economy. this aspect also creates increasing scope for exim finance. they will be selling goods and services on easier terms to the importers. through development projects.PGD-IB EXIM Financing and Documentation One country or other will be advancing in one field or other and the countries w hich have not mastered the technology have to pay for it. Further the export assistance would help to improve their exports and economy also. Thus. The national / international institutions come to help the exporters / importers and such assistance enables the exim traders to utilize more of exim finance. Sourc e of economic development Developing countries need more exim finance to improve their economy. exhibitions. Exim finance as a factor of production Under agreements of in ternational finance. When production improves. Such projects require huge exim fi nance in various forms of goods and services. Sales promotion Activates like. pushes the balance of payment to adve rse conditions. large scale advertisement publicity and other sales promotion measures need adequate interna tional finance and assistance. h eavy duty capital goods on deferred payment and could improve their production. Hence there is a vast scope for fu rther progress of exim finance. Unit . manufacturers can get finance / credit for new materials.I 7 . Even to meet such situation exim finance comes to the rescue of the countries. Easy terms and condition of credit m akes export / import easier When the exporters could get finance in easier terms . organization of trade fair. it will reflect the country‘s better economy also.

distribution. all these activities require exim i nternational financial assistance in some form or other (example: for using tech nical know how in the area). documentation. distribution. they will all be in trouble. after sales service. Source of improving exports Apart for m production. all req uire more and more finance. Un it .I 8 . short. documentation etc. Here again international financ e has a role to play. documentary credits as international finance th rough banks and other institutions make the international payments easier. the exports can be increased only be improving the export promotional activities including sophisticated producti on techniques and improved quality products etc. To meet Increasing costs In spite of all fiscal and monetary measures. manufacturers have to spend more o n product modification. increasing use of products bette r and suitable pricing. To meet. The modern instrum ents like LC. Such c redits help them to devote on export promotion activities without worrying on su ch credits.PGD-IB Better consumer service EXIM Financing and Documentation In the context of awakening of the consumers. and long-term financial needs Manu factures need such finance to improve their business unless the exim finance com es to the help of the exporters / importers. Bills of exchange. medium. International payments made easier Export / Import transactions requ ire funds in different currencies for payment and settlement. the cost of production. International finance helps to overcome this problem and to improve their exports and economy. Thus there is ample scope for the fast growth and development of exim finance because of its involvement in all developmental programmers and international trade. improvement of quality.

These needs are analysed on these two dimensions Needs for Exim Finance Need of short-term finance to exports Since the export activity involves huge in ternational finance. the success of it depends on providing such credit/finance to importers. medium and long-term basi s.I 9 . handling. insurance and warehousing charges Shipment c harges Unit . The exporter gets his export based needs from the banks for the pu rposes of Procuring raw materials Manufacturing process or making advances to ot her producers from whom exportable goods are ordered To meet the expenses of pac king.3 NEED FOR EXIM FINANCE The scope of expansion / growth is based on needs of any country. the exim finan ce is needed in all activities of export/import short.PGD-IB EXIM Financing and Documentation 1. internal transport.

Develo ping countries need long-term finance from the point of manufacturing to the sta ge of sales. 2. 1 1. Mention any three advantages of exim financing 4.I 10 . To provide fin ance on liberal terms to importer To carry out export promotion programmes invol ving huge sums Establishment of new enterprises Capital investment in other coun tries Check your progress. Draw a flow chart indicating needing exim finan cing Unit . an importer may require short-term finance/credit for the following: For payment of advance to the exporter For meeting the shipping char ges. However. State any two theories of international trade 3. insurance etc when he undertakes them To pay duty in obtaining import licen se and other import formalities.PGD-IB EXIM Financing and Documentation Need of short-term finance to importers Mostly the short-term finances are provi ded by the exporter and hence the importers do not require much short-term finan ce generally. Need of long-term finance for exporter/importer The long-term finance is equally essential to the exporter and importer. for various purposes Import-export of capital goods. State any two resources variations of different countries.

I 11 .4. Some of the tasks relating to controller are: o Accounting o Reporting o Internal control S ome of the tasks of the treasurer are o Financial analysis o Planning o Acquisit ion and deployment of funds Unit .3 1) Accounting and control and 2) Treasury management These two are not indep endent of each other. FINANCE FUNCTION As discussed earlier. For example.PGD-IB EXIM Financing and Documentation 1. if the treasurer takes some decision. This leads to the study of functions of exim finance. a number of significant innovations have been introduced in international payment and credit mechanisms which have facilitated the easier exchange of goods and services. These two functions are interlinked and any action in one area will have definite impact on the other area. The finance function has two roles to playas indicated in Fig 1. it will have implication on the controller and so also the efforts of the controller could be reflected in treasury management.

However. They should be shrewd.PGD-IB EXIM Financing and Documentation The core of treasury management is acquisition and allocation of financial resou rce so as to minimise cost and maximise the return consistent with the level of financial risks acceptable to the firm/corporation. In non-financial companies. alert and active in meeting the challenges. Hence global financi al market is emerging with challenges for global financial managers.5. But the treasurer can effectively exploit market imperfections and the firm‘s superior forecasting ability to generate pure ly financial gains. Some of the challenges a re discussed hereunder. Knowledge of up-to-date information There are many varia bles in the global financial management which will be changing over time and the refore it is necessary that up-to-date information is promptly known to the mana ger The areas which may change are o Foreign exchange rates o Credit conditions at home and abroad o Industrial tax Unit . In such concerns. strategies and procedure through innovation. Exim finance control and management functions are quite challeng ing and complex with multiplicity of solutions depending upon the given conditio ns. funding o ptions and investment vehicles which are available for both reactive and pro-act ive management. EMERGING CHALLENGES IN A GLOBAL FINANCIAL MARKET Exim finance being int ernational by nature is a complex system which may further get complicated due t o new methods.I 12 . financial management can be confined to short and long-term flows of funds arisi ng out of operational requirements. 1. there is a complexity and challenge of internationa l exim finance and it is due to wide variety of instruments. products. active efforts to take adv antage of market conditions to generate profits by creating financial flows unre lated to operations need not be taken.

so far not taken up by the firm. the manager should be able to analyse th e inter-relationship among them and the impact of reactions on the corporate bod y and the competitors Adaptation of firms finance function Adaptation to the cha nging needs is a trait to survive because the theory says survival of the fittest " only. It could be in the following areas: o Product-market mix o Opening up of a -sector or an industry. fast and aler t action to remedy the mistakes and failures should be taken to reduce their adv erse impact. may bring in catast rophe and mistakes may also be unavoidable. If time is given. In such circumstances.I 13 . Unit .PGD-IB EXIM Financing and Documentation o Changing foreign trade policies and connected policies relating to industry an d investments o Development of new financial instruments o New modes of communic ation Analysing the complex interrelationship Apart form trying to get latest in formation on the above variables/areas. o Increased Pace of diversification o Adopting changes in operating results o Substantial reorientation in a major competitors strategies measures o Exploration of innovative funding strategies and o Changes in dividend policy Take necessary measures to rectify failures/mistakes In a fa st changing highly competitive world. mistakes and failures.' Catch the opportunities offered' is the maxim to be followed. t hey may adopt a strategy to win over the firm. A tactful manager could tackle such failures in lightning speed so that the competitors may not know such a thing has happened. So the manager should see that their firm is fittest in the field by ado pting proper changes and by absorbing necessary adaptations.

With such brief introduction on the exim finance.I 14 . List out the t asks of the treasurer of a concern 3. The two major functions of finance and (1) -------(2)------2. all information on international trade (exports / imports) are provided in brief so that you cou ld become knowledgeable manager in international trade. scope and ne ed of exim finance is discussed in this first lesson apart from the financial fu nctions which should be well understood by the managers of export organization.7 KEYWORDS Exim finance International Trade Short-term finance : : : Finance required for export / import Export / Import of goods and services Up to 180days (subject to extension by the concerned authority) Medium and long–t erm : The number of years vary. design and implement effective strategies to catch o pportunities in the market. The nature. the different types of export documentation. 1 to 3 years as medium term.PGD-IB EXIM Financing and Documentation In a highly competitive world opportunities are volatile and may be grabbed by t he opponent in no time. 1. Check your progress 2 1. Normally short item finance is for _______ __days 4. Unit . in this lesson. The emerging challenges are indicated so that they should be prepared to face an d tackle them. Some classify 3 to 20 years as medium and longterm Finance functions : It consists o f control and treasury management functions.6 SUMMARY In the subject on exim Financing and Documentation. Write any two areas of change relating to emerging challenges 1. So. Some classify.

Absolute cost advant age theory. 3. 6.9. Discuss the scope of exim finance? What are the needs of exim finance for exporters and importers? What are the fu nctions of exim finance? What are the emerging challenges for the global financi al managers? Globalisation is the only way to survive in the modern market. 8. 6. labour. Capital etc. provides better consumer service.2 (1 ) Accounting and control (2) Treasury management (1) Financial Analyse (2) Plann ing (3) Acquisition and development of fund. 8. 2. 5.8 ANSWER 1. 7. Why International Trade is important for th e development of a country? 2. Foreign exchange rates. 4. 1. 180. reporting and internal contro lling Treasury Management : Analysis.PGD-IB Control function : EXIM Financing and Documentation Keeping accounts. credit conditions. 1. Natural resources. 7. Distinguish a) Control function of finance b) Treasury management function of finance Unit . factor proportion theory Source of economic development. See fig-1. disc uss. What is the relation between International (expor t/import) and exim finance? 3. Planning. 5. Acquisition and Deployment of funds. QUESTIONS 1. 4. serves as a factor of production.I 15 .

New Delhi. Vikas.Varma. 1997 VA. Himalaya Publishing Ho use. M. Jaipur.Avadhani. New D elhi. Management of Export Marketing. 1983. FURTHER READING M.I 16 . RBSA Publishers. 1998. Theory and Practice.J.PGD-IB EXIM Financing and Documentation 1. Unit .10. India. Foreign Trade Management in India.L. International Finance.Mathew.

Summary 2. due to delays in realisation of export pr oceeds and other incentives. invoice. Inspection certificate. cash assistance.Keywords 2.Documents for claiming Export Assistance 2. drawback of shipping bill.8. letter of credit (LC). To identify the documents for claiming export assistance-applic ation for registration.Introduction 2.9. bill of exchange.Further Reading 2. Without prompt money flow.Principal Documents 2. duty drawback. Mates receipt. documentation and proc edures play a significant role.7. import licence. Auxiliary documents.Auxiliary Documents 2. To compare the difference be tween principal and auxiliary documents Structure 2.6. shipping bill .3. packing list. Inadequate understanding of th e various formalities results in delays. AR-4 for m. adversely affecting the business and cash flow. certificate of origin. Full knowledge and accurate compliance of proced ures and documentation formalities are essential.1.I 17 .5.Questions 2.Answers 2. Unit .4. the trade will face tota l blow.2. and prolonged correspondence. transport assistance.1 INTRO DUCTION Significance of documents In international trade.PGD-IB EXIM Financing and Documentation Lesson – 2 EXPORT DOCUMENTATION Objectives To explain uses of principal and auxiliary documents for exportPrinci pal documents.

Fur ther.PGD-IB Peculiar Nature EXIM Financing and Documentation The movement of goods in international trade is associated with a number of docu ments. Central Excise etc. The essentials of documentati on arise primarily due to certain peculiarities of international trade and its t ransactions. Q uality Control and Pre-shipment Inspection. Intermediaries No international tr ade transactions can be completed without the assistance of at least three inter mediaries. The buyers and sellers are separ ated by long distance in overseas trade transactions. In India.I 18 . An insurance company that covers the risks arising out of hazards of long voyage and a banker who collects the sale proceeds from the buyer and hands over the same to the exporter There are other intermediaries involved in foreig n trade Freight forwarders Freight brokers Chambers of commerce Documentation an d connected formalities become necessary to ensure compliance of contract obliga tions of the concerned parties such as the exporter. A carrier who undertakes to deliver the goods to the buyer on behalf of seller. This necessitates entering into a formal contract laying down duties and responsibilities of buyers and se llers respectively. Foreign Exchange Regulations. International trade is regulated everywhere. several documents have been prescribed for proper export trade control. Otherwise. It is not like the domestic trade. some intermediation becomes inevitable. Unit . importer and intermediaries . there will be a lot of confusion and dispute. The number of documents and related procedures have multiplied over time making international trade complex and cumbersome.

PGD-IB Major Documents of Export EXIM Financing and Documentation The export documents can be classified into three major categories: (1) Principa l Documents. There is no standard form for an in voice and it is the exporter's choice to design his own form. The Need An invoice is the basic document which gives full details of the conten ts of the shipment and serves as seller‘s bill of goods and sets out the terms of sale. title and transport ation are called principal documents. An exporter must prepare th is document which will fully identify the overseas shipment and serve as a basis for the preparation of all other documents. (2) Auxiliary Documents. An invoice usually means a Commercial invoice. 2. The documents classified u nder principal documents for exports are explained below. 2. (3) Documents for claiming Export Assistan ce.1 Export Invoice. It may also include certain documents whic h are required under Foreign Exchange Management Act. Unit .I 19 . The invoice is pre pared for the buyer abroad. Any special requirement of the importer must be duly complied with.2. PRINCIPAL DOCUMENTS Definition The documents which are used all over th e world by the exporters and form the essential link in foreign trade between th e exporter and the importer and are used to control payment.2.

I Name and address of the exporter Invoice number and date Buyer' eller's Order numbers Name and address of the overseas customer Name of the vess el and sailing date Unit price and total value Terms of payment Insurance refere nce Customs and consular declaration Shipping marks and number on packages 20 .PGD-IB Components EXIM Financing and Documentation The specimen invoice given below indicates the components of invoice The following are the essential details which should be available in the invoice Unit .

CIC. (iii) Consular Invoice: Sometimes the importer requir es the invoice to be certified by the consulate of his country residing in the e xporter's country. Consular invoice facilitates the clearing of goods through th e customer at the destination and serves as authentication of the particulars in it. It ca n be supplied to the bank when a Letter of Credit is to be opened by the oversea s buyer with the instructions that the letter of credit be opened in accordance with the invoice.) Bill of lading number Letter of credit number and date. (iv) Invoice Certified by a Recognized Chamber of Commerce: If the importer has to pay duty on the current domestic value of the goods. Import licence number and date. provisional. This is require d by Common wealth countries. C&F. Types of Export Invoices The main types of export invoices are as follows (i) Pr oforma Invoice: Proforma Invoice is a preliminary. he would Unit . Such invoices serv e some useful functions.I 2 1 . (ii) Combined Certificate of Origin and Value. The exporter should make inquiries as to the parti cular form which satisfies the requirements of the port of destination as well a s the particular good being exported. FAS. etc.PGD-IB EXIM Financing and Documentation Quantities and description of commodities Net weight and gross weight as well as measurement in metric units Specification of packing Terms of sale (FOB. The overseas buyer is in a position to deal with certai n requirements before placing the order.. temporary invoic e for an anticipated shipment which mayor may not take place. etc.. The statement of the value of the goods ma de by the exporter is of great use in determining the import duty which should b e paid at the destination. obtaining an import licence.

2 Bill of Lading Definition A Bill of Lading is a do cument issued and signed by a shipping company or its agents acknowledging that the goods mentioned in the bill of lading have been duly received for shipment. Purposes A Bill of lading serves the following purposes: It is a receipt for goods received by t he shipping company. It must be signed by the steamship company. Mexico needs a legalized invoice. and undertaking to deliver the goods in the same o rder and condition as received. to the consignee. Unit . invoice is accepta ble for legalization. It contains the terms of the contract between the shipper a nd the shipping company. or shipped on board a vessel. prov ided that freight and other charges specified in the bill of lading have been du ly paid. or his order or assignee.2. Normally. This is needed so that goods could enter at pre ferential tariff rates.I 22 . Thre e copies will be generally sent to the exporter and one copy will be retained by the Mission. 2. It must be endorsed in bla nk by the shipper. Four copies are required along with legalization fee. and It is a certificate of ownership to the goods.PGD-IB EXIM Financing and Documentation require the invoice certified by the recognized chamber of commerce of the expor ter's country. (V) Legalized Invoice: There is no specific form prescribed for l egalized invoice. (vi) Customs Invoice: Countries like Canada and the United States of America need customs invoice. between stated points at a specified charge. The specimen Bill of lading is shown in the next page. The requirements which must be fulfille d to make the bill of lading negotiable: It must be made out to the order of the shipper.

PGD-IB 2. If it is payable „at a fixed or determinable future time‟ it is called ter m draft or Unit . requiring the person to which it is addre ssed to pay on demand or at a fixed or determinable future time a sum of money. to or to the order of a specified person.2.3 Bill of Exchange Definition EXIM Financing and Documentation It is defined as an unconditional order in writing.e. signed by the person giving it. addressed by one person to an other. or to bearer . Types The bill is called a sight draft if it is made out payable at sight i.I 23 . o n demand.

The specimen Bill of Exchange is s hown below the name and the address of the exporter should be given at the top o f the bill. known as the ten or of the bill. Unit . The buyer signifies an agreement to pay on The due date by writi ng an acceptance across the face of the bill. The Payee: The payee is the party who receives payment.PGD-IB EXIM Financing and Documentation usance draft because the buyer is receiving a period of credit. Parties There are three parties to a Bill Exchange. the perso n to whom payment is due. It may be noted that th e words bill and draft are used to mean the Bill of Exchange.I 24 . The Drawee (Importer) (Buyer): The person on whom the bill of exchange is drawn and who is required to meet the terms of the document. They are: The Drawer (Export er) (Seller): The person who executes the Bill of Exchange. therefore.

for collection of proceeds through post office. paid in the prescribed manner. 1 of Exchange Control Manual 1987 states that all exporters othe r than those exporting to Nepal and Bhutan are required to submit a declaration in the prescribed from duly supported by such evidence as may be prescribed or s o specified and true in all material particulars. having (regard to the prevailing market con ditions expects to receive on the sale of goods in the overseas markets. or If the full export value of the goods is not ascertained at the time of e xport.I 25 .2. Value of Goods It should also include the details of the amount representing: The full export value of the goo ds. Section 18 of foreign Exchange Regulations Act.PGD-IB 2. for exports by post parcel PP/COD. the value which the exporter. 1973 and para 11 B. and aff irms in the said declaration that the full export value of the goods (whether as certained at the time of export or not) has been.4 GR/PP/VPP/COD forms Regulations EXIM Financing and Documentation GRJPP/VPP/COD Forms are submitted to the customs authorities according to the ex change control regulations. or will within the prescribed period be. Purposes The specific purpose for whic h the specific forms should be used are as given below GR. for all shipments (ex cept by post) PP. The original copy is meant for the customs authorities a nd the duplicate is lodged with an authorized dealer (AD) along with other docum ents for realisation of export proceeds from the foreign Unit . COD means cash on Delivery. Submission The forms should be submitted in duplicate.

State any two type s of invoice 3.3. Cer tificate of Measurement. Check y our progress. Lette r of Credit Definition A commercial letter of credit is issued by a bank at the request of a buyer of merchandise whereby the bank itself undertakes to honour d rafts drawn upon it by the seller of the merchandise concerned. The copy which is retained by the customs authorities is sent to the Exch ange Control department of the Reserve Bank of India. 2.3 AUXILIARY DOCUMENTS Introduction The documents which are required in any shi pment or for that matter used in the preparation of the principal documents are called auxiliary documents. Packing list.I 26 .1. Unit . etc. before the seller can rec eive payment. State true or false (a) A Bill of lading in another name for bil l of exchange (b) The shipping company acknowledges the goods mentioned in the B ill of lading (BOL) (c) PP form is used for collection of proceeds 2. etc. RBI the duplicate submitte d to the AD. 2.PGD-IB EXIM Financing and Documentation buyer. These include documentary Letter of Credit (LC). A ll the requirements specified in the LC must be met including the furnishing of documents. the letter of credit. Major classes of documents for export are …………. Thus.. product specification. (LC) substitutes the bank‘s promise to pay for that of the importer. Certificate of Origin. delivery dates. 1 1. is also sent to the RBI after the documents are negotiated.

Types of LC There are severa l types of LCs. Required according to the specific requirements in the foreign t rade. Revocable and Irrevocable LC Now-a-days revocable letter of credit is rather rare because it means that the terms of the credit can be cancelled or amended by an overseas buyer through the issuing ban ker without prior notice to the exporter.PGD-IB EXIM Financing and Documentation The three essential parties to commercial letter of credit are: The opener or im porter or the buyer who opens the credit The issuer-the bank that issues the let ter of credit. and The beneficiary-the seller in whose favour the credit is open ed.I 27 . Unit . Even when the buyer becomes a bankrupt it cannot be revoked. Some of them are described below. The specimen LC is shown in the next two pages. only when the seller agrees it can be revoked.

PGD-IB EXIM Financing and Documentation Unit .I 28 .

I 29 .PGD-IB EXIM Financing and Documentation Unit .

LC Sight and Usance Documentary credit may provide for payment at sight or for acceptance of a usance bill of exchange by either issuing bank in a buyer‘s co untry or the correspondent bank in exporter‘s country. An irre vocable LC is never confirmed. Confi rmed and Unconfirmed LC A Confirmed LC carries the confirmation of another bank. Majority of letters of credit are irrevocable which means tha t once the buyer‘s conditions in the letter have been agreed to by an exporter. th ey constitute a definite undertaking by the buyer‘s bank and cannot be revoked wit hout the exporter‘s agreement. it will be a usance LC. If it is not confirmed the LC is unconfirmed. generally. If it provides for the documents and if the draft is accepted for payment within the prescribed time. This type of confirmation binds the confirming banker to negotiate the drafts drawn under the credit provided the te rms and conditions thereof are fulfilled. If the LC is not an at sigh t LC. Transferable LC A transferable LC is one which can be transferred by the beneficiary named therein favour of another party. the issuing banker loses hi s right to revoke.I 30 . in the country of the exporter. the negotiation is without recou rse. Unit . A cred it can be transferred only when it is expressly designated as transferable by th e issuing bank. of course.PGD-IB EXIM Financing and Documentation The issuing banker is at liability to revoke even without giving notice. Without Recourse and with Recourse A wi thout recourse to drawer‘ LC is one under which the negotiating bank cannot have a recourse against the exporter if the draft is subsequently not taken up or reim bursed by the issuing bank provided.

It is signe d in the exporting country by the consul of the importing country or by the expo rter or by the Chamber of Commerce on the basis of required regulation.I 31 . The beneficiary should check for the following: The correct titl e has been used in addressing the beneficiary The correct title of the buyer has been used. or an unco nfirmed credit is enough. The credit is available at the banking instituti on or in the location requested by you.3 Packing List Packing list should contain. the contents of cases or containers of a shi pment.'1\ The credit is confirmed by a domestic bank. 2. item by item. and can such documents be fu rnished The description of the merchandise is correct. point of shipment.3. The spec imen certificate of origin is shown in the next page. The document are required in the credit in accordance with the arrangements with the buyer. (Check unit price trade d efinition. 2. and destination). The letter of credit permit & partial shipments or tra nsshipments if necessary. Unit . The amount is sufficient.2 Certificate Of Origin Certificate of origin serv es as an evidence to show the actual country of origin of the goods. with its weight and description set forth in such a manner as to permit c hecks of the contents by the customs on arrival at the port of destination and b y the recipient.3.PGD-IB Checking the LC EXIM Financing and Documentation Exporters are encouraged to check LC carefully to make that there is no misunder standing and place of expirati on are correctly givt. taking into consideration the terms of the sale and possible addition of any charges. Any special instructions which m ay appear in the credit are agreeable The expiration . The tenor of the drafts is the same as your quotation to the buyer. The packing list must be made in accordance with the instructio ns of the customer.

the exporter has to su bmit an application in the prescribed form in duplicate.I 32 .PGD-IB EXIM Financing and Documentation 2. Inspection Agency and duplicate to the Export Inspection Council.3. sending the original to Export. seven days in advance of the expected date of shipment. The application form contains details of shipment.4 Inspection Certificate As per the Export Act. 1963. including technical requirement including specifications a s stipulated in the Unit .

for claimin g export assistance.' country of destination. The necessary documents required for submission for claimin g export assistance are discussed in the ensuing paragraphs. value. It is first handed over to the p ort trust authorities so that all port dues are paid by the exporter to the port trust. the exporter has to complete certain formalities as per the procedure laid down and furnish required information in various forms and do cuments prescribed by the Government. 2. quantity an d weight.3. master or agent. should be made to the office of the Reserve Bank in w hose jurisdiction the Head Office of the firm. on whose behalf the travel is und ertaken.5 Shipping Bill A Shipping bill is required by the cust oms. It is prepared in duplicate.4 DOCUMENTS FOR CLAIMING EXPORT ASSISTANCE In order to c laim Export Assistance. When the cargo is loaded on the ship. It is onl y after the shipping bill is stamped by the customs that the cargo is allowed to be carted to the docks. etc. There are a number of items such as the name of the ves sel. travelling and entertainment expenses of businessmen proceeding abr oad on ground of business. if found in ord er after inspection.PGD-IB EXIM Financing and Documentation export contract. The goods are inspected and certificate issued.3. There are separate forms of shipping bills for free good. 2.. Export Promotion Council. 2. the merchant or agent will collec t the mate receipt from the port trust. is situated. etc. which are included in this form. 2. Unit . After making payment of all port dues. and goods for whi ch there is a claim for drawback of duty.I 33   .7 Business Travel Application For Fo reign Exchange Applications for grant of foreign exchange allotment to meet the maintenance.3. description of goods.6 Mate’s Receipt The c ommanding officer of the ship will issue a receipt called the "mate s receipt" f or goods.

PGD-IB 2.4.1 Application for Registration EXIM Financing and Documentation Registered exporters are required to register themselves with appropriate regist ering authority such as Export Promotion Councils, Commodity Boards and Chief Co ritroller of imports and Exports for availing the benefit of export assistance. The application for registration should be accompanied by a certificate from the exporter. banker in regard to his financial soundness. If the firm is having br anches, the application for registration should be made only by the Head Offices . The registration authority shall, if satisfied, issue a certificate of registr ation to the exporter. 2.4.2 Import Licence for Raw Materials Intermediates Incl uding Components and Spares Application for import licence should be made only b y the registered exporters whether merchant-exporter or man~facturer-expor1er, i n the prescribed form to the licensing authority under whose jurisdiction the He ad Office of the registered exporter is situated. Application for import licence will be made in respect of the exports made during the preceding period accordi ng to the procedure laid down. The application should reach the licensing author ity within one month after the period to which the exports relate and should be accompanied by the following documents: (i) Treasury challan showing the payment of application fee. (ii) The documents of export in the name of the registered exporter are require as mentioned below: (a) Shipping bill duly authenticated by customs: (b) Bill of Lading: (c) Invoices duly attested by the negotiating bank . (iii) Original with a certified copy of the valid actual user licence on which the items applied for are based. Unit - I 34

PGD-IB EXIM Financing and Documentation 2.4.3 Cash Assistance On Selected Export Products Government gives cash assistan ce to promote exports of certain export products. The purpose of the assistance is to neutralize the disadvantages, which result from prices and high import dut ies, so that they could meet competition in the foreign markets. Application for grant of cash assistance should be made in the prescribed form and sent along w ith shipping bill duly authenticated by customs, bill of lading, and invoices du ly attested by the negotiating bank. 2.4.4 Drawback Of Import And Excise Duties The scheme of drawback of import and excise duties has been formulated by the Go vernment with the object of relieving the Indian exporter of the burden of impor t and excise duties on the products exported, so as to put him on par, in the ma tter of competitive position, with foreign competitors. 2.4.5 General Surety For Executing Bond (Form B-1) The excisable goods can be exported outside India eit her under claim for rebate of excise or under Bond. The difference between these two procedures is that in the case of former the duty is first paid and its ref und claimed after export, and in the latter case, the goods are allowed to be ex ported without payment of duty provided a bond is executed in Form B-1 (General Security). 2.4.6 AR-4 Form Each consignment is required to be presented to the C entral Excise Officer having jurisdiction over the factory together with an appl ication in form AR-4 for claiming rebate of excise duty. On the basis of the end orsement of the collector or concerned officer‘s endorsement the exporter will cla im the rebate of excise duty if he has already paid, or discharged his obligatio n to that extent in case he has executed the bond. 2.4.7 Drawback Shipping Bill Shippers are required to give the details of the goods intended to be exported u nder claim of drawback in a shipping bill which should clearly be marked Unit I 35

PGD-IB EXIM Financing and Documentation Under claim for drawback in order to take advantage of the drawback of import duty on the products exported. Four copies of the drawback-shipping bill are normall y prepared. Exporters should furnish the information under the various columns i n the drawback-shipping bill so that the drawback is allowed early. 2.4.8 Drawba ck Bill Drawback bill is required in addition to the shipping bill. It furnishes information about the date of presentation of original bill of entry, number an d date of the drawback shipping bill, marks and number on the packages, descript ion of goods, weight and quantity of the goods, amount of drawback etc. This has to be certified by the Collector of Customs to the effect that the amount of th e bill does not exceed the amount of import duty paid on the goods specified the rein and drawback has not been allowed on the same article in any previous bill. 2.4.9 Transport Assistance Railways give freight concession on export cargoes i n respect of certain commodities. In order to claim the refund of the railway fr eight, each export consignment should be accompanied by declaration in the presc ribed form by the exporter that the goods are meant for export. The declaration should mention the name and other particulars of the consignee. Endorsement on d ifferent copies of the declaration form will be made by: (i) The Station Master of the accepting station to the effect that the goods described in the declarati on from have been received for movement from station to station. The station mas ter of the port station to the effect that the goods described in the declaratio n form have been moved from the station to the port for export; and The customs authorities at the port to the effect that the goods have actually been exported . On the production of these documents to the appropriate railway authorities, o ne gets refund of 50 percent or less, as the case may be, of the railway freight paid by the exporter. 36 (ii) (iii) Unit - I

5 SUMMARY The success of export/import finally depends on the proper use o f the documents and following correct form and action at every stage. You should be thoroughly familiar with forms. Collect more specimen form your friend working in an export company or by making a personal visit. the extents. Inspection Certificate : Issued after in spoken of the quality of goods b y Export Inspection agency/Export Inspection Council LC (Letter of Credit) : Iss ued as a guarantee by the Importers Bank Mates Receipt : Issued by commanding of ficer of the ship. Export invoice : Giv en full details of the contents of the shipment. Write any two types of LC 4. All principal documents. forms for export assistance are explained with specimen forms for export assis tance are explained with specimen forms. Shipping bill and bill of lading ar e same True/False 3.6 KEYWORDS Bill of Exchange : It is an unconditional order by a person to pay the stated amount to him or to the person ordered by him Certificate of origin : Indicates the origin of goods COD : Cash on Delivery Drawee (Importer) : The person on whom the bill is drawn and who is required to meet the terms of document Drawer (Exporter) : The person wh o executes the bill of exchange and to whom payment is due. There could be slight variation in form at by different companies.PGD-IB Check Your Progress 2 EXIM Financing and Documentation 1. cases. 2. auxiliary documents . What is the purpose of AR-4 fo rm? 2. It is not equal to bill of leading Packing List Payee VPP Uni t . with weight an d description : The party who receive the payment : Value Payable Parcel 37 . LC is a principal documents True/False 2. containers.I : List giving term by item. It is like a commercial bill of good.

import and export promotion. Principal.8 QUESTIONS Could you put forth your a greements for the need of any three principal documents Proper documents are esse ntial to minimise dispute in foreign trade Discuss the validity of the agreement What do you mean by principal document explain any 3 of them Why auxiliary docum ents are required explain with two examples Narrate the Procedure to claim duty drawback What are the documents which must accompany an export shipment. New Delhi. 2. 3. False Confirmed LC. Auxiliary.7 ANSWERS 1. Unit . 4. 1. 7. Himalayas. 7. consular invoi ce (a) False (b) True (c) False 4. 2. 5. New Delhi. Describ e them briefly Write short notes on (a) Certificate of origin(DOUBT) (b) Inspect ion certificate (c) Packing List (d) Shipping Bill (e) Mater‘s Receipt 2.I 38 . Transferable LC To claim rebate of excise duty from CEO 2. and for export assistance Proforma invoice. 1. Govt of Indi a: Handbook of procedures. 2. False 5. 3. 6.9 FURTHER READING Cherian and Parab: Export marketing.PGD-IB EXIM Financing and Documentation 2. 6.

2 An Overview of FERA 3.4.I 39 .4.2 D efinition 3.3 FOREIGN EXCHANGE REGULATIONS Objectives To understand the concepts under foreign exchange regulations. Questions 3.4.3 Objectives 3.3 Transaction regulated under exchang e control 3.7 Keyword s 3.4.5 Foreign Exchange Market in Indi a 3. To an lyse the sections of FERA / FEMA To various restrictions of FERA To list out the transactions regulated infer under exchange control To Recognise the objective on methods of exchange control To analyze the measure of exchange control of rec epts and payment To explain the concept of LERMS and its management Structure 3.4.5 Administrator 3.5.1 How regulation was introduced 3.6 Control of ex change earnings 3.7 Control over spendings 3.3 Advantage 3.1 Introduction 3.4.10 Further Reading Unit .6 Summary 3.2 How Managed 3.1 Modified LERMS 3.4 Methods 3.8 Answers 3.4 Forex control in India 3.PGD-IB EXIM Financing and Documentation LESSON .

However in the present global scen ario. In the present interdependent World. the settlement is done by exchange of currencies. international trade was based on barter-exchange of goods and service for goods and services. one cannot imagine trading on barter basis.1 INTRODUCTION EXIM Financing and Documentation Trade among different countries of the world is known from the past and exchange of goods and services among different nations have been taking place form ancie nt days. When economic liberalization was introduced an am endment act was legislated in 1993. The F oreign Exchange Regulations Act was evolved based on British system first in 194 7 and then modified in 1973. Unit . Let us examine the major sections of FERA and the subject which they deal i n order to get an overall glimpse of the FERA 1993. it should be simple to adopt and transparent to avoid misuse of the regulati ons. In the initial stages. H ence there is need to enact all regulations to control forex transactions. The need for foreign exchange arises for settlement of trade and non trade transact ions.PGD-IB 3.I 40 . It underwent many changes to match with the increas ing demand for simplification. Every country in the world has a currency of its own which is the legal tender in the country of issue but not outside its territory. The exchange rate played important role in influencing the forex (foreign exchange) transactions and the stability of the currency in the global market. This in turn gives birth to the exchange and the whole world has becom e a global village and hence there is need to exchange currencies for trade. it is impossible fo r a country to remain self sufficient and deny itself the advantages of comparat ive cost. The system of Foreign Exchange Control must be effective to strengthen and stabilize the national economy but at the same ti me. Hence when trade takes place.

Entrustment of funct ions of Directors or other officer of Enforcement is given 6. at the option of the drawee or holder thereof or any other party thereto either in Indi an currency or in foreign currency or partly in one and partly in the other. the instruments claima ble in foreign currency payable abroad. Appoint ment and powers of officers of Enforcement are explained 5. For eign exchange includes foreign currency. 2 (h) of the Foreign Exchang e Regulation Act (as amended by the Foreign Exchange Regulation Amendment Act. In India Sec. expressed or drawn in Indian c urrency but payable in any foreign currency.I 41 . letters of credit and Bills of exchange. Short title. (b) Any instrument payable. Sections: 1. e xtent.1. and any drafts. (a) all deposits. Foreign Exchange EXIM Financing and Documentation The mechanism of converting currency of one country into another country‘s currenc y is known as Foreign exchange forex. balances abroad. for the conse rvation of the foreign exchange reserves and proper utilization thereof in the i nterests of the economic development of the country.PGD-IB 3. Definitions: All connected definitions st arting from Appellate Board‘ to transfer‘ are given. 3. How they are appointed and their role and functions are ex plained Unit . credits and balances payable in any foreign currency. Authorised Dealers in Foreign Exchange. transactions indirectly affecting f oreign exchange and the import and export of currency and bullion. Classes of officers of Enforce ment: Starting from the Directors of Enforcement to Assistant Directors of Enfor cement along with other officers who may be appointed have the powers 4. 1 993) defines Foreign exchange as Foreign currency and includes. 3.2 AN OVERVIEW OF FERA The purpose The act was legislated to consolidate and amend the laws regulating certain payment dealings in foreign exchange and securities.1. traveller‘s cheques. application and commencement 2.

Payment for exported goods. this section must be thoroughly understood by exporters for adopting the cor rect procedures. 19. The central Government has authority to tran sact on forex in order to control the exchange rate. In the context of Foreign Tra de. Without the general/specific permission of RBI no transaction could be made 17.e . Both omitted by Amendment Act 1993 22. 23. Omitted by Amendment. Restrictions on holding of immovable property outside India 26. Power of Central Government to direct payment in foreign currency in certain cases is exp lained. Payment for lease. Duty of persons entitled to receive foreign ex change etc. Acquisition by Central Government of foreign securities: omitted by the Amendment Act 1993 24. 12.f 8-1-93 13. omitted by Amendment. or other arrangement: Inserted by amendment Act 1993. Restrictions on dealing in Foreign Exchange: Transactions which ca n be done and which should not be done are stated.I 42 . Restrictions on payment in respect of certain securities 21. 16. The detailed procedure fo r getting payment for exported goods is explained. 18. Restrictions on payment: T his section elaborately gives details on what are the payments and who could mak e such payments. 20. Acquisition by Cent ral Government of foreign exchange. associating themselves with or partic ipating in concerns outside India: (omitted) Unit . 15. hire. 14. Power to regulate uses etc of imported gold and silver is explained. Restrictions regarding assets held by non -residents. Blocked Accounts: The Blocked account is defined and how it should be operated is also stated 11. Restrictions on persons resident in India. movement etc. Certai n provisions as to guarantee in respect of debit or other obligation The perviou s relating to companies has been substituted by this.PGD-IB EXIM Financing and Documentation 7. Money changers: Apart from Ads. Custody of securities: 20 & 21. 10. Rest rictions on issue of bearer securities is explained. 9. Special Accounts: 11 & 12 Both omitted by Amendment Act 1993 w. Restrictions on import and export of certain currency and bullion Currency and bullion cannot be imported/exported freely. RBI authorizes money changers with restricted functions 8. by Amendment Act 1993 27. Restrict ions on Settlement etc: This is relating to settlement of properties which shoul d not be done without the permission of RBI when the person is resident outside India 25.

PGD-IB EXIM Financing and Documentation 28. Restrictions on the appointment of certain persons and companies as agents o r technical or management advisers in India: The definition of agent, company, p rocessing are also explained along with details on restrictions 29. Restrictions on establishment of place of business in India A person resident outside India cannot start business without the permission of the RBI. The procedures are narr ated in detail. 30. Prior permission of RBI required for taking up employment et c in India by nationals of foreign state Even employment of foreign nationals in volves forex movement and hence restricted 31. Restrictions on acquisition, hold ing etc of immovable property in India Any person who is not a citizen of India, cannot freely acquire properties. The restrictions are explained 32. Restrictio n of booking of passages outside India and restrictions on foreign travels: omit ted by Amendment Act 1993 33. Power to call for Information. This is very vital because the adoption of regulations can be verified only on the basis of facts a nd figures. 34. Power to search suspected persons and to seize documents. Most o f the people using foreign exchange are rich and could try to defy the enforceme nt officers. Hence they should have statutory powers to search and seize documen ts to produce as evidence in the case of offence. 35. Power to arrest: Otherwise the culprits may stay outside and try to distort the evidences 36. Power to sto p and search conveyance: The culprits may try to escape in vehicles/ship/plane a nd hence this power becomes essential. 37. Power to search premises: They may hi de material evidences in premises/house/factory/office 38. Power to seize docume nts. Even on knowing certain documents would be useful the enforcement officers can seize the documents 39. Power to examine persons. This enables to enquire, s earch individuals 40. Power to summon person to give evidence and produce docume nts. It is also related to getting the document by calling individuals. 41. Cust ody of documents: Officers can have the documents for a period not exceeding one year 42. Encashment of cheque, draft, etc: The procedure for encashment is expl ained 43. Inspection: Who could inspect and how they could inspect are explained 44. Prohibition of disclosure of documents/information except in certain cases: Keeping secrecy is essential for effective control and implementation of regula tions. 45. Power of police officers and other officers to enter, search etc. som etimes police and other officers help is necessary for enforcement. Unit - I 43

PGD-IB EXIM Financing and Documentation This provision helps in this regard 46. Procedure in respect of foreign exchange or any other goods seized by police officers: In order to avoid untoward behavi our of police officers and to guide them in the case of seizure, detailed proced ures have been formulated 47. Contracts in evasion of the Act Such contracts sho uld not be made. 48. False statements: No false statement should be given by any body connected with forex 49. Failure to comply with conditions subject to whic h permission or licences have been given or granted under the Act to be contrave ntion of the Acts: Failure to comply with conditions will be treated as contrave ntion 50. Penalty for contravention is explained 51. Power to Adjudicate: Enquir y can be held in the prescribed manner 52. Appeal to Appellate Board: Freedom to appeal is given to know the truth. 53. Powers of the adjudicating officer and t he Appellate Board to summon witnesses: The Board has powers to summon witnesses 54. Appeal to High Court: over and above the board, appeal to High court is per mitted. 55. Continuance of proceedings in the event of death or insolvency. The procedure in such events to be followed is explained 56. Offences and prosecutio ns: When offence is proved, the procedure for prosecution is stated 57. Penalty for contravention of order made by adjudicating officer, Appellate Board, High C ourt is imprisonment for a term extending up to two years with fine or both may be imposed 58. Vexatious search: False information etc will also attract prisonm ent up to two years with/without fine 59. Presumption of culpable mental state w hich means, intention, motive, knowledge of fact and belief etc. but it shall be a defense for the accused to prove that he was not so. 60. Power to tender immu nity from prosecution: Procedure to provide immunity is explained. 61. Cognizanc e of offences: Once offences are cognized, the culprits are punishable under cod e of criminal procedure (CCP) 1898. 62. Certain offences to be non-cognizable: S ubject to provisions of section 45 and notwithstanding anything contained in the CCP, an offence punishable under section 56 shall be decided to be non-cognizab le 63. Confiscation of currency: security etc can also be done 64. Preparation: Attempt etc These are also treated as contraventions. 65. Corrections of clerica l errors can be done if found before 2 years. Unit - I 44

PGD-IB EXIM Financing and Documentation 66. Application of section 360 of the CCP 1973 and of the probation of offenders Act 1958. This is applicable to persons below 18 years of age 67. Application o f the customs Act 1962. 68. Offences by companies are explained 69. Power of cou rt to publish name: place of business etc of companies convicted under the Act i s described 70. Recovery of sums due to Government can be done as if it were an arrear of land revenue. 71. Burden of proof in certain cases would be on the acc used. 72. Presumption as to documents in certain cases where any document is pro duced/furnished/seized. The signature/handwriting of the documents can be presum ed as that of accused 73. Supplemental provisions in which the RBIs powers to de clare residents etc are explained 74. Penalty for contravention of direction of Reserve Bank or failure to file returns is added. 75. Delegation of powers and t he procedures are explained. 76. Power of Central Government to give directions is stated. 77. Factors to be taken into account by the Central Government and th e RBI, while giving or granting permission or licence under the Act are narrated . 78. Certain officers to assist officers of enforcement: Officers of customs, c entral excise police, State Government officers, local authority, can help them 79. Bar of legal proceedings. Central Govt./RBI the enforcement officers are imm une to legal proceedings 80. Power to make Rules. The Central Government has pow er to make rules. 81. Power to remove difficulties is explained. 82. Repeal and saving: The previous FERA of 1947 is repealed These heading with brief comments give a birds-eye-view of the FERA 1973 which has been amended in 1993 taking int o consideration the new developments due to liberalization of Indian Economy aro und 1991-92. Sections 11, 12, 15, 17, 20, 21 and 32 have been omitted by the Ame ndment Act 1993 w.e.f. 8-10-93. Sections 18A, 73A have been added afresh. Sectio n 26 has been substituted by the previous one In order to get a complete picture about the FERA, you may get any one of latest Unit - I 45

2. cheque or other instrument) Rules 1997 have bee n published under GSR 553 dt 15-04-1977 with the following sections: 1.74 which deals on the following subjects: Unit . 4. Foreign exchange regulations rules (1974) w as notified G. The Foreign Exchange Regulation (Encashment of Draft. Short title 2.I 46 .PGD-IB EXIM Financing and Documentation bare Act. cheque or other instrument Indemnity Direction for payment of the proceeds Payment of the proceeds and inte rest The Government of India has published further rules and clarifications under FER A apart from the 1993 amendment act. Publication of names and other particular of persons 4. Short title and commencement Definitions Delivery of draft. 5. published by several agencies like Commercial Law Publishers (India) p vt. 3. Ltd. The amendment details will be incorporated in such updated bare Act boo ks and comments and case studies will also be available under relevant sections. cheque or other instrument for encashment Encashment of draft. Definitions 3. 6.1.R 80 dt 1. 7. Public ation under rule 3 to be made after specified period Another legislation entitle d Foreign Exchange Regulations (Authentication of Documents) Rules 1976 has been framed with two section one is on short title and the other is on authority for authentication and manner of authentication of documents.S. In addition to the general rules under the Foreign Exchange regul ations specific rules have been arrange we will discuss that here Publication of names rules 1975. It may be noted that the FERA has since been named as FEMA (Foreign Exchange Ma nagement Act). have been framed with the following sections: 1.

. travelers‘ chequ es and other financial instruments. orders o r notices made or issued under the Act. V & VII have been omitted. Authority to whom declaration to be furnished 7. Form of declarations 6. schedule s IV. cheques. Indication of import-export code number 5. Service of direction. persons of Indian origin and corporate bodies predominantly owned b y such persons.I 47 . Period within which export value of goods to be realized 9. sale an d other dealings in foreign exchange and maintenance of balances at foreign cent ers. Acquisition. out-of-which. drafts.PGD-IB Sections EXIM Financing and Documentation 1. holding of foreign securities Foreign tra vel with exchange Export and import of currency. Activities in India of bran ches of Foreign firms and companies and foreign nationals Foreign direct investm ent and portfolio investment in India including investment by non-resident India n nationals.3 TRANSACTIONS REGULATED BY EXCHANGE CONTROL In a nut-shell. Transfer of securities between res idents and non-residents. Setting up of Joint ventures/Subsidiaries outside In dia by Indian companies. Short title and commencement 2. Purchase. Appointment of non-resident and foreign nationals and foreign co mpanies as agents in India. Manner of payment of export value of goods 10 & 11 omitted 10. Application f or permission to practice any profession or carry on any occupation. Acquisition. Evidence in su pport of declaration 8. holding and disposal of immovable property in India by foreign nationals and foreign companies Unit . securities etc. trade or bu siness in India Along with VII schedules have been given. or these rules or under any order or not ification made there under 4. Definitions 3. 3. the following types of transactions having international financi al implications are regulated by FERA 1973 as amended in 1993. Procedure for conducting export business Export-import of securities Export -import formalities Procedure for realization of proceeds of exports Payments to Non-residents or to their accounts in India.

though India. jute. Hence. led to large deficits in India‟s balance of payments. foodstuffs . the freezing of the sterling bala nce vis-à-vis the needed imports of plant and machinery. to conserve the country‘s scarce foreign exchange resources for use to the best national advan tage according to a scheme of priorities and to correct the balance of payments deficits. raw materials.12 St ate any two transaction regulated under FERA.11 After independence FERA was encoded in __________________(year) 2. etc. even when the countr y‘s foreign balances were supplemented by borrowings from abroad. etc. Government.10 The first forex Regulation was framed in ___________________(ye ar) 2. So.‘s war efforts.K.PGD-IB EXIM Financing and Documentation Acquisition. Unit . It embraced the transactions betwe en India and the then onsterling area countries.4. 3.4 FOREX CONTROL IN INDIA 3. 1939. as an adjunct to the British system to help the U. Now let us see briefly how the regulatory system wa s evolved over a period and how the control functions are carried out Check Your Progress 1 2. after Independence.K. At the end of the war.I 48 .. the war time control was continued. holding and disposal of immovable property outside India by Indian nationals resident in India. on September 3. the huge sterling balance accumulated on India‟s account in London during the war years we re frozen by the U. needed forei gn exchange most to meet the requirements of her developing economy. The country‘s sources of foreign exchange earnings were limited to the exports of a few tradi tional commodities like tea.1 How Regulation Was Introduced? BK Choudhury tra ces the historic development as follows: Exchange control system was introduced in India during the Second World War.

invo lves a rationing of foreign exchange among various competing demands for it. as a pea ce time control system under the Foreign Exchange Regulation Act.4. methods of payment. etc. 1947. The control may extend over a wide area. Objectives: The main objects of exch ange control are to maintain the value of the country‘s currency in terms of other currencies and to bring about and maintain as far as practicable equilibrium in the country‘s balance of payments.4. 1947. rate of exchange. effectiv e March 25. The control of receipts is intended to centralize the country‘s means of externa l payments in a common pool in the hands of its monetary authorities to facilita te judicious use thereof. the other methods used for exchange control are: Unit I 49 . The operations of the Exchange Control system have now come to encompass transa ctions with all countries outside India excepting Nepal and Bhutan. Exchange control. 3.4 Methods: Besides the control on the impo rt and export of goods. financial relation ship between residents and non-residents. or of payments. This has since been replaced by the Foreign Exchange Regulatio n Act. The control of payments is intended to restrain the de mand for foreign exchange broadly in consonance with the national interest withi n the limits of available resources. acquisition and holding of foreign securities. 1973. remittances from the country..2 Defini tion: Exchange Control means official interference in the foreign exchange deali ngs of a country.PGD-IB EXIM Financing and Documentation This was done using the provisions of Article XIV of the IMF Agreement. maintenance of balance at fo reign centers. 3. 3.4. and is effected through control of receipts. in short. now amended under Foreign Exchange Regulation (Amendment) Act 1993.3. inflow and outflo w of capital. or of both as in India . covering the import a nd export of goods and services.

EXIM Financing and Documentation Control of the exchange rate.e. trade agreements between tw o countries contracted principally for the purpose of avoiding the balance of pa yments deficits. firm. Such fixing. while the day-to-day administration thereof is left to the R eserve Bank. company or authority in India earning fore ign expressed in any currency other than the currency of Nepal or Bhutan by the export of goods or services or in any other way is required to surrender the for eign exchange to an authorized dealer and obtain payment in rupees within three months from the date of acquisition thereof. respectively. i. Bilateral agreements. settlement. fixing the currencies in which payments for imports and exports should be m ade and received. exchange pegging. the Reserve Bank has made it obligatory for any person a cquiring foreign exchange by way of income on assets held outside India. remuneration for services or by wayof Unit . 3. the Exchange Control Depa rtment works hand in hand with the Trade Control authorities who control the imp ort and export of goods. c. 1993. i. Fixing currency areas. i .6 Control of Exchange Earning: (iii) Surrender of f orex through exports: For the purpose of control of foreign exchange. helps the growt h of foreign exchange resources in approved currencies considered necessary in t he national interest. Government of India.e. gift.4. on the basis of the Fore ign Exchange Regulation Act.PGD-IB a.4.. amended under Foreign Exchange Regulation (Am endment) Act. 3.I 50 . by restricting t he convertibility of home currency in terms of other currencies.5 Administration: The Exchange Control policy is determined by the Ministry of Foreign Trade. to and from specified countries.e. (iii) By its notification No. FERA 47/77-RB and FERA 48/77-RB of 24th November 1977 under Sections 8 and 9 of the F ERA 1973. b. every person. 1973. fixing the exchange rate of the country‘s curr ency in terms of other currencies. To achieve the objectives of the Control.. inherit ance..

Foreign exchange hel d by authorized dealers. Foreign exchange held in the form of coins. $500. c. Foreign currency or currencies held for personal purposes up to the total value of U. exporters are required to declare the export value of the goods before t hey are shipped and to lodge the shipping documents for collection of the export proceeds with an authorized dealer. the export of goods from shipmen t till the receiving of payment as well as the currency in which such payments c an be received is under control. Unit .PGD-IB EXIM Financing and Documentation payments made on behalf of persons resident outside India. in his turn.S. f . Foreign exchange and any income there on earned by persons under employmen t. d. or under deferred payment arrangements is free. or any foreign exchan ge sent to or brought into India-to offer the same for sale to an authorized dea ler within seven days from the date of receipt in or being brought to India. exceptions to the general rule: a. (iii) Declare export value: Though the export of goods other than those essentially needed for use within th e country as listed in Schedule I to the Export (Control) Order. 1968. Foreign currency or currencies held for personal purposes up to the total valu e of U. b.. $ 500. The following are. however. The authorized dealer.S. Thus. Foreign exchange held or acquired by persons from bu siness or any other purpose within the scope of authorisation by the Reserve Ban k.S. g.e. e. i. may be made without any permit or l icence. $500 or its equivalent.I 51 . business or vocation outside India taken up or commenced while they were resi dent outside India and such stay outside India was for a continuous period of no t less than one year. Foreign currency or currencies held for numismatic purpose up to a total of U. has to report the collection (or non-collection) to the Reserve Bank in due course. (iv ) Fixing currencies for receipt: The Reserve Bank has listed the currencies in w hich payment for exports can be received.

Such as traveller‘s cheques. or for the foreign exchange required for foreign travel. New D elhi.5 FOREIGN EXCHANGE MARKET IN INDIA There is no ph ysical market for foreign exchange and the Banks having forex business dealing w ith import/export customers. telex. Deutschemark (DM). and thus create a market for foreign exchange. c are should be taken to curb misuse. while the Reserve Bank prescribe. and the import license. But. Madras..4. (iii) For the import of services. Such licences are issued by the Director General of Foreign Trade. Calcutta. the market is developing fast. (iii) The issue of foreign exchange in an y form. or for remittances otherwise than in payment of imported goods. Bangalore. Pound St erling (GBP). Exc ept for the few items listed in the Open General Licence (OGL) in operation for the time being. the licensing authority is the Reserve Bank and in some cases. carries with it p ermission to pay for them. the most important center bei ng Bombay. more correctly has prescribed.7 Control Over Spendings: EXIM Financing and Documentation Import of goods The spending of foreign exchange is almost fully controlled. The control is exercised through permits granted by the Reserve Bank agains t an application in a prescribed form.I 52 (i) . while the re ceipt into India of goods of a value equivalent to the amount of foreign currenc y paid out abroad is looked after by the Reserve Bank. Hyderabad etc. goods can be imported from outside India only against a licence. 3. the Government of In dia. Let us have a brief view of exchange market in India. The major currencies traded in our forex market are U. French Francs (FRF). the currencies as well as the manner in which payment should be made . Dollar (USD). Japanese Yen (JPY). notes. In view of moder n advancement of communication technology. Indian Forex market has been growing faster in the recent past to mat ch the global market. Unit . deal with each other through telephones.. a well functioning market with greater depth and maturity. The import policy is anno unced annually by the Central Government. Reu ter system etc. to persons resident in Indi a even under instructions from an overseas branch/correspondent of an authorized dealer requires prior permission of the Reserve Bank.PGD-IB 3. granted by the Director General of Foreign Trade permitting import of goods.S.. Such markets exist in India in Bombay. coins etc. Swiss francs (CHF) etc.

RBI announced a new system of exchange rate known as Liber alised Exchange Rate Management System (LERMS).PGD-IB EXIM Financing and Documentation 3. 1993. be subject to exchange control regulations. How managed? The Liberalised Exchange Rate Ma nagement System (LERMS) which became effective from 1st March 1992 has been modi fied with effect from March 1. The external value o f rupees is calculated on the basis of market rates and even the RBI rates are q uoted on the basis of market rate. sweeping all sectors including forex fro nt.5. Modified Liberalised Exchange Rate Management System (LERMS) The Balance of payment problems and the liquidity crisis in 1990 and 1991 brought about refo rms in the economy with liberalization. The dual exchange rate was abolished from March 1993 and the rupee was allowed to float relatively and the external value of rupee was determined entirely by the forces of demand and supply in the market. 60% foreign exchange remittances including export earnings were conver ted at market rates determined by the forces of demand and supply and the balanc e 40% were to be converted at official rate which was the rate quoted by RBI. dollar was adopted as intervention currency in the place of po und sterling.I 53 . Certain imports by Government and im port of life saving drugs were to be met at the market rates. The main features of the new arrangement ar e discussed below. however. Th e 60% portion can be retained by the authorized dealer to sell in the market whi le the 40% is to be surrendered to the RBI. With the introduction of LERMS i n March 1992 U. The rupee was partially with the introduction of dual exchange rat e system. All foreign exchange transactions (receipts/payments both und er current and capital accounts of Balance of payments) would be put through by authorized dealers at market-determined rates of exchange. The official rate was abolished. On March 1. 1992.S. Foreign exchange rece ipts payments would.1. Foreig n Unit .

000.S. or abroad. T he exchange rate reflects the true value of rupee as the rate is decided by the market forces of demand and supply. with a minimum of U. dollar from any authorized person at its offices/branches referred to in the aforesaid order at its exchange rate. doller for meeting foreign currency payments at its exchange rate based on the market rate. only for such purposes a s are approved by the Central Government. dolla r 5.000 3. RBI will sell to any authorized person at its offices/branches referred to there in. U. Any offer o f foreign currency to the Reserve Bank will be governed by the provisions of the Exchange Control Manual. Under Section 40 of the RBI Act.5. Deutsche Ma rk or Japanese Yen. Authorised dea lers will be free to retain the entire foreign exchange receipts surrendered to them for being sold for permissible transactions and are not required to surrend er to RBI any portion of such receipts. 1934. It will not ordinarily buy forward any currency. But will. Government of India has issued a general order in super cession of all its pervious orders. No forward sale in any currency will be made by the RB I to authorized dealers. RBI will buy spot U. Pursuant to the order. either under a general or special permiss ion of RBI.S.S.S. dollar 25. dollar will be made by the RBI in multiples of U. dollar spot and forward for two to six months. The p urchases/sales of U.I 54 . to retain them either with banks in India.PGD-IB EXIM Financing and Documentation exchange receipts should be surrendered by residents to authorized dealers excep t where residents have been permitted.3 Advantages The new system is a step towards full convertibility of current account transactions with a view to reap the benefits to integrating the Indian economy with the world economy. Unit . be prepared to enter into swap transactions u nder which it will buy U.S.S. RBI will not ordinarily buy spot Pound Sterling.

Foreign exchange held in the form of coin must be han ded over to Authorised Deater True/False 8. Unit . Who determines the E xchange control policy? 7. This system. The e xpatriate Indians (NRI‘s)could get market exchange rates for their remittances whi ch made capital inflows more attractive for NRI‘s This system was a great boon to the exporters as it provided incentive in the form of higher rate. Tracing an historic persp ective of evolving FERA. control of earnings and spending s.I 55 . along with relaxation in exchange controls made havala business less attractive. the objective methods. Hence the foreign exchange regulation have been formul ated used for forex the FERA(FEMA) as amended in 1993. Check You r Progress 2 5. The modified LERMS is a further step in the direction of freeing external trans actions from cumbersome administrative controls. these is need for foreign exchange regulations and the control of forex. The exchange rate reflects__________ ______of rupees.6 SUMMARY In the context of export import financing. However LERMS doesn‘t mean comple te abolition of trade and exchange control but LERMS has opened up the economy a nd has brought about greater transparency in the exchange rate system. as otherwise it may affect the v ery basis of development. modified LERMS and its management are discussed. when decoded by Market forces 3.PGD-IB EXIM Financing and Documentation This system has removed a lot of trade restrictions and exchange controls. What are major methods of forex control? 6. the forced market in India.

Exporters Handbook Indian Institue of Foreign Trade. Delhi. Battacharya. consolidate the powers of Go vt. Export Import Procedures (Re vised) Unit . of India. Finance of Foreign Trade and Foreign Exchange. of India Under FERA 1973 (as amended in 1993) (Get some bear Acts book and a nalyse) 5. Explain LERMS 6. How forex regulations have been evolved 3. What are the advantages of modified LERMS 3. comment an few sections of FERA 1973 as amended in 1993 4. What is the need for co ntrolling foreign exchange 2. RBI E xchange control Manual (Revised) 5.I 56 . Choudhury B.8 ANSWERS (1) 1947 (2) 1973 (3) (i) Payments to Non – Residents to their account s in India (ii) Foreign Travel with exchange (4) (i) Control of the exchange rat e (ii) Fixing currency areas (iii) Bilateral agreements (5) The Ministry of Fore ign Trade (6) False (7) The True value. 3.7 KEYWORDS Exim: Forex: FERA: Export Import Foreign Exchange Foreign Exchange Regulation Act (Now Known as For eign exchange Management Act) LERMS: Liberalised Exchange Rate Management system(1992) 3. Govt.9 QUESTIONS 1.K. Bangalore 4.PGD-IB EXIM Financing and Documentation 3. Himalaya Publishing House.10 FUTHE R READING 1. 3. Bear Act of Foreign Exchange Regulations 2.

PGD-IB EXIM Financing and Documentation Lesson 4 ISO 9000 SERIES AND OTHER CERTIFICATES Objectives To list out various needs of standards To recall the m ion of ISO To state the historic perspective of ISO 9000 To enumerate the benefi ts to the society To analyse the hallmark features To identify the link between WTO AND ISO To synthesize the various applications of ISO To differentiate diffe rent certificates of 9000 series To recognize the 20 elements of ISO 9000 system To distinguish ISO 9000 And Balridge certificate To explain the management of t he ISO To analyse the process of development of standards.1 ISO 9000 and ISO 14 000 4.7.4 Meaning of ISO and uniform name 4. To recall ISO‘S partner s Structure 4.8 Where to fin d information on standards 4. 4.1 Need for standards 4.9 Who can join ISO.2 Importance of conformity assessm ent 4.5 Brief historic perspective 4.1.6 Wide application/uses of ISO standards 4.4 ISO and world trade 4.3 ISO 9000 and Balridge criteria.7.2 Benefits to society 4.7 Different types of certifications 4.3 What is ISO 4.10 Management of ISO 4.I 57 .2 ISO 9000 series 4.11 How ISO is financed Unit .7.1.5 ISO and developing countries 4.1 Introduction 4.3 Hall mark features of the ISO brand 4.

12 The standards development process 4.12. ISO (International Orga nization for Standardization) is the world‘s largest developer of standards. their importance is brought hom e i.15 Keywords 4. It is when there is an absence of standards.1 Need of standards: Standards make an enormous contributio n to most aspects of our lives although very often. and other regulatory bodies to trade officials to conformity assessment pro fessionals to suppliers and customers of products and services in Unit .18 Further reading EXIM Financing and Documentation 4.3 How developed 4. we tend to take this for granted.1 International partners 4. For example. ISO standa rds also have important economic and social repercussions. are unreliable or dangerous.14 Summary 4.17 Questions 4.12. w e soon notice when they turn out to be of poor quality.12.1.1 How developed 4.2 Who de velops 4. to governme nts. do not fit.I 58 . Altho ugh ISO principle activity is the development of technical standards.13 ISO partners 4. that contribution is invisib le.13. They ar e very useful to industrial and business organizations of all types. as purchasers or users of products. When products meet our expectations.13 .16 Answers 4.e conspicuous by absence.2 Regional partners 4.1 INTRODUCTION 4.PGD-IB 4. are incompat ible with equipment we already have. ISO standards make a positive difference not just to engineers and manufacturers for whom they solve basic problems in production and distribution but to society as a whole.

3 What is ISO ISO is a network of the national standards institutes of 157 countries on the basis of one member p er country with a Central Secretariat in Geneva. se rvices. Nevert heless. of products and services – as w ell as to make their lives simples. materials. systems or people measure up to the specifications of a relevant standar d. Their us e contributes to the consistency and coherence of conformity assessment worldwid e and so facilitates trade across borders. Unit .2 IMPORTA NCE OF CONFORMITY Conformity assessment means checking the products. They make trade between countries easier and fairer. many products require testing for conformance with specifications or c ompliance with safety or other regulations before they can be put on many market s. and users in general. Switzerland.government organization: its members are not. And the organization responsible for many thousands of the standards which benefit society worldwide is ISO.PGD-IB EXIM Financing and Documentation both public and private sectors and ultimately. ISO standards contribute to making the developme nt. delegations of national governments.I 59 .1. manufacturing and supply of products and services more efficient. When systems. safety and environmental legislation. T hey aid in transferring technology to developing countries. ISO is a non . that coordinates t he system. as is th e case in the united nations system. Today.1. ISO standards also s erve to safeguard consumers. ISO occupies a special position between the public and private sectors. 4. to people in general in their ro les as consumers and end users. They provide gover nments with a technical base for health. 4. The voluntary criteria contained in these guides and standards represent an international consensus on what constitutes best practice. machinery and devices work wel l and safely – then it is because they conform to standards. safer and cleaner.

whatever be the country whatever be the language. The British standards institution adopted these standards and expanded them to include the entire business process in 1979 and called them British Standards Unit . such as the needs of stakeholder groups like consumers a nd users. The new organization. OIN in French for organization international de normalization).1. t hat ISO 9000 originated from the quality standards of the US dept of defence (MI LQ98558) in the 1950‘s.I 60 . ISA‘s activities came to an end in 1942.PGD-IB EXIM Financing and Documentation Therefore. 4. ISO.1. it was decided at the outset to use a word derived from the greek isos. officially began operations on 23 Feb ruary 1947. of which the obje ct would be to facillates the international coordination and unification of indus trial standards . delegrates from 25 countries met in London and decided to create a new international organization. Because international organizati on for standardization would have different abbreviations in different languages ( IOS in English. Historians there claim.5 Brief Historic Perspective Internat ional standardization began in the electrotechnical field: international electro chemical commission (IEC) the was established in 1906. In 1946. There is another version of the Americans. 4.4 Meaning of ISO and uniform name. ISO is able to act as a bridging organization in which a consensus ca n be reached on solutions that meet both the requirements of business and the br oader needs of society. Pioneering work in other fields was carried out by the international federation of the national standardizing associations (ISA). Therefore. The emphasis within ISA was laid heavily on mechanical engineering. meaning equ al . the short form o f the organisation‘s name is always ISO. which was set up in 1926.

water and soil qua lity. 4. Businesses using international standards are increasingly free t o compete on many more markets around the world. safety and environmental legislation. For everyone. International Standards on air.2 BENEFIT TO SOCIETY For businesses. Conformity of products and services to In ternational Standards provides assurance about their quality. For consumers. For trade officials. For the planet. For customers. machinery and tools we use are safe .3 Equal Footing Every participating ISO Member Institute (full members) has the right to take part in the development of any standard wh ich it judges to be important to its Unit . can contribute to efforts to pres erve the environment. safety and reliabi lity.PGD-IB EXIM Financing and Documentation 5750. For gover nments. We inhabit. The international organization for standardization adopted it in 1987 and called it the ISO 9000 Series. In ternational Standards are the technical means by which political trade agreement s can be put into practice removing technical barriers created by divergent nati onal and regional standards. International standards provide the technological and scientific bases e mphasising health.I 61 HALL MARK FEATURES OF THE ISO B RAND . The world wide c ompatibility of technology which is achieved when products and services are base d on international standards brings them an increasingly wide choice of offers. and on emissions of gases and radiation. International Standards g ive developing countries a basis for making the right decisions when investing t heir scarce resources by adopting the state of the art technological know how in the form of standards. and they also benefit from the effects of competition among suppliers. International Standards can contribute to the quality of lif e in general by ensuring that the transport. 4. For developing countries.

as has happened in the case of ISO 9000 quality management systems. Worldwide ISO standards are technical agreements which provides the framework fo r compatible technology worldwide. Consensus Although ISO standards are voluntary.PGD-IB EXIM Financing and Documentation country‘s economy. The work is c arried out by experts from the industrial. Some ISO standards may be adopted as regulatory framework by legislation by the ir own decision. the fact that they are developed in response to market demand. However. ensures widespread applicability of the standards . or of dimensions of freight containers and bank cards. and are based on consensus among the interested parties. as well as the technical content of its individual standards. Market -driven ISO devel ops only those standards for which there is a market requirements. technical and business sectors which have asked for the standards and which subsequently put them to use. ISO itself does not regulate or legislate. In all. ISO has no legal authority to enforce their implementation. consumer organizations. Standards are reviewed every five years to make it a state of the out standard agreed by all. they may be come a market requirement. academia and testing laboratories. each parti cipating member in ISO has one vote. No matter what the size or strength of that economy. Voluntary ISO standards are voluntary. ISO‘s activities are thus carried out in a de mocratic framework where each country is on an equal footing to influence the di rection of ISO‘s work at the strategic level. there are some 3000 ISO technica l Unit . Developing technical consensus on this international scale is major operation. As a non-govern mental organization. It may incl ude representatives of government agencies.I 62 .

adoption and applications of standards. with th eir scarce resources. stand to gain from this wealth of knowledge. The whole spectrum of ISO‘s ac tivities in favour of developing countries is encompassed in the ISO Action plan for developing countries 2005-2010. Developing countries.6 Unit . subcommittees.5 ISO AND DEVELOPING COUNTRIES ISO standards represent a reservoir of technology. 4. The political agreements reached within the framework of the WTO require underpinning by technical agreements. DEVCO. 4. ISO has a policy committee on developing co untry matters. For them. Therefore.) in which some 50000 exports participate annually to develop ISO standards. ISO standards are an important means both of acquiring technological knowhow that i s backed by international consensus as the state of the art and of raising their capability to export and compete on globe markets. 4.4 ISO AND WORLD W IDE ISO – together with IEC (International Electronic Commission) and ITU (Interna tional telecommunication union) – has built a strategic partnership with the WTO ( World Wide Organisation ) with the common goal of promoting a free and fair glob al trading system.I 63 .PGD-IB EXIM Financing and Documentation groups (technical committees. working groups etc. with a membership of nearly 117 standards institutes from both industrialized and developing countries. where International Standards exists or their completion is imminent. The WTO‘s agreement on technical barriers to trade (TBT) includes the code of good practice for the preparation. the code states that standardizing bodies should use them as a basis for standards they develop. The TBT Agreement recognizes the import ant contribution that International Standards and conformity assessment systems can make to improving efficiency of production and facilitating international tr ade.

Without the standardized di mensions of freight containers. Standardization of connections and interfaces of all types e nsures the compatibility of equipment of diverse origins and the interoperabilit y of different technologies. ISO published more than 15000 International St andards.7 EXIM Financing and Documentation WIDE APPLICATIONS / USES OF ISO STANDARDS. Standardization of performance or s afety requirements of diverse equipment makes sure that users needs are met whil e allowing individual manufacturers the freedom to design their own solution on how to meet those needs. international trade would be slower and more exp ensive. such as the digital coding of audio-visual signals for multimedia applications Standardi zation of screw threads helps to keep chairs. Standardized symbols provide danger warnings and information across linguistic frontiers consensus on grades of various materials give a com mon reference for suppliers and clients in business dealings. Between 1947 and the present day. or identify sensitive or dangerous cargoes that may be handled by people speaking d ifferent languages.PGD-IB 4. Unit . Agreement on a suf ficient number of variations of a product to meet most current applications allo ws economies of scale with cost benefits for both producers and consumers.I 64 . Without the standardization of telephone and banking cards. Standardizations documents speed up the transit o f goods. through mechanical engineering to medical devices. to the newest information technology developments. such as agriculture and construction. Standards make technology transfer easier. ISO-work programme ranges form standards for traditional activities. An ex ample is the standardization of paper sizes. children‘s bicycles and aircraft tog ether and solves the repair and maintenance problems caused by a lack of standar dization. life would b e more complicated. Standardizations protocols allow computer from differen t vendors to talk to each other.

vibration or emission s. ISO 9000 series was adopted in _________________ 4. 4.. in helping organizations to meet th eir environmental challenges. Without ISO standards on quantities and units. Check your progress1 1. material or process. How ISO is beneficial to the consumers? 5. Safety standards for machinery protect people at work. ISO official ly began operations in 23 Feb _______________ 3. at sea.I 65 .8 DIFFERENT TYPES OF CERTIFICATES. if not more. However.PGD-IB EXIM Financing and Documentation Agreement on test methods allows meaningful comparisons of products. science would be unscientific and technological developmen t would be handicapped. (a) ISO is a govt. ISO 9000 has become an international reference for quality requirements in business to business dealings. and at the dentist‘s. organization True/False (b) ISO 14000 is for maintaining quality in business True/false 2. the standards that h ave earned the ISO 9000 and Unit . From 1947 to the present day more than _______________ International standards have been publish ed 4. at play. shopping and trad e would be haphazard. The vast majority of ISO standards are highly spec ific to a particular product. More than half a million organizations is more 149 count ries are implementing ISO 9000 which provides a framework for quality management throughout the processes of producing and delivering products and services for the customer.7. and ISO 14000 looks s et to achieve at least as much.1 ISO 9000 and ISO 14000 The ISO 9000 and ISO 14000 families are among ISO‘s m ost widely known standards ever. or plays an important part in controlling pollution – whether by noise.

9004: Quality Management and Quality System Element-Guidelines for Performance Improvement.7. ISO 9000 Series Systems and G uidelines for Use Quality System 9001: Model for Quality Assurance in Design.Chase et. ISO 9000 consists of five primary parts numbered as 9000 through 9004. (To be used when conformance to s pecified requirements is to be assured by the supplier during production and ins tallation) 9003: Model for Quality Assurance in Final Inspection Test. Guidelines for Selection and Use.I 66 . Unit . Pr oduction Installation. (To be used when conformance to specified requirements is to be assured by the supplier during several stages which may in clude design/development. 4. (To be us ed when conformance to specified requirements is to be assured by the supplier s olely at final inspection and test) Guidelines for Use 9000: Quality Management and Quality Assurance Standards. installation.P .2 ISO 9000 Series The book production Operating Management by R.PGD-IB EXIM Financing and Documentation ISO 14000 families a world wide reputation are known as “generic management system standards”. lucidly explains the elements of the series. al. and Servicing. and servicing) 9002: Model for Qua lity Assurance in Production and Installation. production.

production. Each of these elements applies in varyi ng degrees to the three standards 9001. There are 20 elements in the ISO 9000 standards that relat e to how the system operates and how well it is performing. and ser vicing. Furthermore. For example. A br oader accreditation would be 9002. 7. ISO 900 1. 2. ISO 9003 covers quality in production‘s final inspection and testing. 3. Unit . and 9003 are well-defined standards. Quite a bit of work and expense ma y be needed to be accredited at the highest level. 9002. the series would range fr om design and development through procurement. which extends from purchasing and production through installation. While ISO 9000 and 9004 only establish guidelines for operation. 9002. A firm can be accredited at this level of final production only. 6. note that in the fig ure. 5. and 9003. This would essentially guarantee the firm‘s quality of final output and be attractive to customers.PGD-IB EXIM Financing and Documentation (ISO 9000 Standards and Their Areas of Application in Production Flow) If we wer e to display them on a continuum of an operating firm. (ISO 9001 contains all o f them. which is 9001. s ome firms may not need ISO 9001 accreditation. 4. installation. These are contained in section 4 of the ISO 9000 Guidelines.) The 20 Elements to be Addressed in an ISO 9000 Quality System 1.I Management Responsibility Quality System Contract Review De sign Control Document Control Purchasing Customer-Supplied Material 67 .

Quality Records 17. reflecting a well organized operation with trained. Control of Nonconforming Product 14.7. A firm interprets the requirements as they relate to its business . which awards a few points for q uality control under ISO series. Internal Quality Audits 1 8.I Through these website. 4. From a practical and useful standpoint for businesses. Product Identification and Traceability 9. The site also provides access to the world standards services network (WSSN) which is a network of publicly accessible web services of standards orga nizations around the world. Servicing 20. Corrective Action 15. especially manuf acturing. Inspection. and Test Equipment 12. and Delivery 16. administration technical service and support.8 WHERE TO FIND INFORMATION ON STANDARDS ISO‘s entire portfolio of standards is listed in the ISO catalogue which can be access ed online. Ther e are so many sub divisions: ISO 10006: 1997 is guidelines to quality in Project Management ISO/TS 16949: 1999 is specific to automotive industry 4. Packaging.PGD-IB EXIM Financing and Documentation 8. Process Control 10. Inspection and Test S tatus 13. sales. ISO 9000 is valuable to firms because it provides a framework so they can assess where they are and whe re they would like to be The ISO intended the 9000 series to be more than a stan dard. Statistical Techniques ISO 9000 is somewhat intent ionally vague. Measuring. motivated people. The Balridge plac es more emphasis on customer satisfaction and business results. Unit . Handing. So it is called to adopt first ISO 9000 and their approach for Balridge. Inspection and Testing 11.3 ISO 9000 and Balridge criteria ISO focuses closely on internal process. WSSN 68 . St orage. Training 19.

In addition. The secretary – general reports to the ISO council. In many countries. with no voting rights. the ISO info rmation network. the isonet and WTO enq uiry points are one and the same. ISO has two categories of membersh ip for countries which do not yet have a fully developed national standards acti vity. the latter being Unit . Finding information about these. who meet fo r an annual general assembly. or about rel ated conformity assessment activities.9 Who can join ISO Membership of ISO is open to National Standards Institutes most representatives of standardization in their country (one member in each country). They pay reduced membership fees. which is a permanent appointment . Isonet.I 69 . 4. each have one vote. In fact. Full members. “correspondent members” are entitled to part icipate in any policy or technical body as observers. The proposals put to the members are developed by the ISO council. can ease the problem.PGD-IB EXIM Financing and Documentation provides information on international. known as member bodies . WTO/TBT wants to have national enquiry point i n member countries 4. regional and national standardization and related activities and services. drawn from the membership as a whole. there are several hundred thousand st andards and technical regulations in the world containing special requirements f or a particular country or region. can be a heavy task. “subs criber members” are institutes from countries with very small economies that never theless wish to maintain contact with international standardization. ISO council meets two times a year and its membership is rotated to ensure that it is representative of ISO‘s membership operations are managed by a secretary – general.10 Manage ment of ISO All strategic decisions are referred to the ISO members. which resembles the board of directors of a business organization. whatever the size or strength of the e conomy of the country concerned.

PGD-IB EXIM Financing and Documentation chaired by the president who is a prominent figure in standardization or in busi ness.12. Another source of revenue is the sale of standards. Unit . The main costs are borne by the member bodies which ma nage the specific standards development projects and the business organizations which provides experts to participate in the technical work. Switzerland. with a compact staff which provides administ rative and technical support to the ISO members.11 HOW THE ISO IS FIN ISHED ISO‘s national members pay subscriptions that meet the operational cost of I SO‘s central secretariat.I In addition others wi th relevant 70 . coordinates the decentralized s tandards development programme and publishes the output. 4. The work item is assigned to an existing techn ical committee or to new technical committee ISO only launches the development o f new standards for which there is clearly a market requirement.1 How decided What happens is that the need for a stand ard is felt by an industry or business sector which communicates the requirement s to one of ISO‘s national members.general based at ISO central secretariat in Geneva. Special committ ee: CASCO (conformity assessment). The subscription paid by each member is in proportion to the country‘s gross national income and trade figures. technical and business sectors which have asked for the s tandards.12. 4. elected two years.2 Wh o develops ISO standards are developed by technical committees comprising expert s from the industrial. and DEVCO (develop ing country matters). 4.12 THE STANDARDS DEVELOPMENT PROCESS 4. The secretary. and which subsequently put them to use. These committees help to ensure that the specific technica l work is aligned with broader market and stakeholder group interests. COPOLCO (Consumer policy).

all based in Geneva. ISO collaborates with the Uni ted Nations Organization and its specialized agencies and commissions. consumer associations.3 H ow developed The national delegations of experts of a technical committee meet t o discuss. UNIDO.13 ISO’s PARTNERS 4. the IEC (International Electrotechnical Commission) and ITU (International Telecommunication Union). Its contribution is increasingly solicited in relation to the elimination of technical barriers to trade.I 71 . 4.13. such as representatives of government agencies. as well as the implementation of International Standards. Ev ery working day of the year.1 International partners ISO collabo rates with its partners in international standardization. 4. They ascertain views of connected people. environmentalists. the document is then published as an international standard. academic circles and so on . with eventual modifications. I f the voting is in favour. the document. Thi s is then circulated as a Draft International Standard (DIS) to ISO‘s membership a s a whole for comment and balloting. is circula ted to the ISO members as a Final Draft International Standard (FDIS). ISO is one of the few non-governmental organizations having an observer status in the W orld Trade Organization. The three organization.PGD-IB EXIM Financing and Documentation knowledge. testing laboratories. If that v ote is positive. Switzerla nd have formed the World Standards Cooperation in order to better coordinate the ir activities. debate and argue until they reach consensus on a draft agreement. UNCTAD.12. particula rly those involved in the harmonization of regulations and public policies like WHO. an average of ten ISO meetings are taking place som ewhere in the world. WMO (Maritime Organization Tourism) and Unit .

ISO 9000 series formally launched 1987. ISO is now an institutional member of the World E conomic Forum. are discussed. The Major types of partners of ISO are _____________ __________ 4.2 Regional Partn ers Many of ISO‘s members also belong to regional standardization organizations. quality and conformity assessment. Correspondent members have vo ting rights (True/False) 5. ISO 9000 consists of _________ primary parts from _____ _____ to ___________ 2. and how it functions why and how it was started etc. the World Business Co uncil on sustainable Development or the international Federation of Standards Us ers (IFAN) and collaborates regularly with the major international organizations involved in metrology. consumers customers. has increased its collaboration with NGOs representing societal o r professional interests.. E xpansion of WSSN is _____________________________ 4. 4.13.14 SUMMARY What is ISO. trade officials. are useful for internatio nal business. Unit . govt. T his makes it easier for ISO to build bridges with regional standardization activ ities throughout the world. ISO 9000 is model for _____________________________ 3. ISO has recognized regional standards organizations Check Your Progress 2 1.I 72 . developing countries a nd to the planet by reducing environment pollution. such as Consumers International.PGD-IB EXIM Financing and Documentation ISO‘s technical committees have formal liaison relations with some 580 internation al and regional organizations.

16 ANSWERS 1. and from where to get more information are also d iscussed The management.I 73 . 4. Organisation as expansion of ISO WTO :World Trade Organisati on ISO9000 series: It consists of 5 standards 9000 to 9004 of which 9001 to 9003 on e specific nature IEC: International Electrotechnical Commission ITU: Internatio nal Telecommunication Union TBT: Technical Barriers on Trade DIS: Draft Internat ional Standards WMO: World Maritime Organisation WSSN: World Standards Service N etwork 4. details on who can join ISO. 1987 4. transp arent process.Conformity of products and services to International Standards provides assurance about their quality safe ty and reliability 5. finance systems of ISO are described apart from explain up the whole process of developing standards by ISO.PGD-IB EXIM Financing and Documentation How ISO and WTO Coordinate for Maintenance of Standards what are the different t ypes of ISO 9000 series are discussed.15 KEYWORDS ISO :International Organisation for Standards some. use it as Inte rnational Standard. It is a scientific. Finally how ISO collaborates Coordinates with international and r egional organizations in also described. ISO/4000 to meet the challenges of their environment. five. For the sake of the practical application when you became a manager . 1947 3. 15000 6. (a) false (b) false 2. 9000 to 9004 Unit .

Total Quality Ma nagement area. What are needs for Standards? 2. Who are Internationa l Partners? 14. How ISO‘s useful for developing countries 7 . Compare ISO and Badridge award? 10. McGraw Hill Unit .17 QUESTIONS 1. Chase et. What are the benefits to Society? 4. International and Regional 4.18 FURTHER READING/REFERENCES 1.frontpag e provides all details 2. http://www.. False 10. Who are regional Partners? 4..pounds etc. Who can join ISO? 12.. 9. What are different types o f Certification Differentiate the Operational areas. Production and operating Management (Manufacturing and Service) Richard P. What is ISO? 3. Quality Assurance in Final Inspection Test Tata McGraw Hill NewDelhi 3.I 74 . How the Standards are developed explain in detail? 13.World Standards Service Network 9. What are hall mark features of ISO brand? 5. Bring out t he Coordination between ISO and LTO 6. What are the wide applications of ISO standards? 8.PGD-IB EXIM Financing and Documentation 7. Where from information an ISO can be obtained? 11.

6 Export inspection council of I ndia 5.1.2 Quality control 5.5.1 What is EIC 5.1.2 Countries which request PSI 5.I 75 .1.8 WTO.8 Keywords 5.5 The proc ess 5. Statistical quality control (SQC) 5.3. PSI body 5.2 EIC-A network with global agenda Scope of using quality control techniques 5.PGD-IB EXIM Financing and Documentation Lesson 5 QUALITY CONTROL AND RESHIPMENT INSPECT ION Objectives To recall what is quality To list out dimensions of quality To distin guish inspection of production and preshipment inspection To explain scope of us ing quality control techniques To recognize countries requesting PSI To analyse the process of PSI To illustrate SQC To find relation between WTO and preshipmen t inspection To recall definition of PSI To list out services provided by EIC St ructure 5. Quality assurance Aims of quality control 5.3 Services pro vided 5.7 Summary 5.5.4 Who is responsible for arranging PSI 5.10 Questions Unit .1 What is quality 5. Uses of Inspection 5.7 PSI for agricul tural and food production 5.5.6 What to do when a problem or disagreement arises 5.5.1 Introduction 5.9 Answers 5.3 Who conducts PSI Pre shipment inspection (PSI) When required 5.2.

The quali ty of products / services can be evaluated in several ways. The first one can be easily controll ed by identifying the causes or by measuring the deficiency and the rectifying t hem. 4. 6. Th is phenomenon is wide spread regardless of the fact whether the consumer is an i ndividual organisation.PGD-IB EXIM Financing and Documentation 5. It is important to i dentify different dimensions of quality Garrin (1987) discusses eight components or dimensions of quality as follows. 5. durability could also be tested through some methods. In the case of chance causes. 2. 3. 8.1. or a military defense programme. Unit . next. The oth ers are additional aspects to augment the quality of a product / service.1 INTRODUCTION 5.2 Quality Control Quality may b e affected due two types of causes: (i) (ii) Measurable / identifiable causes In finitesimal. 7. Performance (will the product do intended job?) Reliability (how often does the product fail?) Durability (How long does t he product last?) Serviceability (How easy is it to repair the products?) Aesthe tics (How the product looks like?) Features (What does the product do?) Perceive d Quality (what is the reputation of the company?) Conformance to standards (Is the product made exactly as the design indented Performance and conformance to s tandards are too major aspects which could be evaluated through some objective m easurements. methods to minimize the effect of chance causes.1 What is quality? Quality has become one of the most important factors of c onsumers decision in selecting a product among competing products (services).I . unidentifiable chances causes. we have to adopt special Quality control 76 1 . retail store.1. The ev aluation of quality helps to control quality 5.

Thus for a sophisticated machine tool are an automobile par t or aircraft component or a ball bearing the highest precision. The size of the plant merely determines the size and organ ization of the quality control scheme or department. The nature of the product. The consumer or user satisfaction tha t is expected of it.PGD-IB EXIM Financing and Documentation segregates the measurable or identifiable causes from chance cause and adopts me thods to minimise the influence of chance causes reflected as variance.1. a. The next point is to ensure that both excess quality and under-quality is avoided.I 77 . Since it is fundamental attack on adjusting methods and op erations to predetermined limits of variability. Each article carries with it a quality assurance.1. 2. b. 4. Aim of Quality Control – The Quality Control Technique (also call ed Statistical Quality Control because statistical methods are applied) aims at Unit . Quality control mean s several things 1. 5. quality and rig id tolerance are necessary. This factor again is composed of two at tributes.4. To lay down the desirable q uality. Meaning of Quality – Quality in this context does not mean achieving the highest quality or maintaining it ir respective of the need for such quality and the cost of it. In fac t almost any quality can be achieved if the price is paid for it No businessman aims at achieving quality at any cost. Cost and quality have to be optimally matched. S cope of using quality control techniques Quality Control methods can be introduc ed in any plant size.3. Good business consists in co-ordinating c ost and quality which leaves the best margin between cost and sales. it can be adopted even to a sin gle process or plant. 5. To lay down the desirable norm or standard of quality expect ed of the article or product or service. For an ordinary kerosene stove the different compone nts need not observe such rigid quality standard. Quality control seeks to establish production condition by which variations form the expected quality standard are minimized. 3. Also the range and frequency of variability is minimized form the prescribes quality standard.

3) Reduction in inspection cost. In the case of foreign trade there is third aspect known as preshipment inspection. this l eads to better consumer satisfaction. scrap rejection. 2) Through better assurance standards a greater d egree of standardization and inter-changeability is achieved. methods and operation by bringing out where improvement or modification is necessary. Unit . Assurance of quality and the goodwill for the brand name reduces se lling and advertisement cost. spare parts or intermedia ry stores supplied by the company.I 78 . Spoilage and minimizing re-work cost. 5) It helps design efficiency by standardizing qua lity and identifying variables which operate in the quality area. Quality control aims at laying down norms of quality and est ablishing working condition which reduce the chance of variability and therefore aid conformity of result with the predetermined norm.PGD-IB EXIM Financing and Documentation systematizing the data collection and data processing method on the shop floor f rom which objective interpretation can be made and conclusions drawn with measur able variances from the standard or ideal quality. both within the ow n work and also among outside users of the components. The benefits of quality C ontrol can be summed up thus1) Reducing faulty manufacture and therefore improvi ng material usage. In this sense it is to be distinguished from inspection. 6) It leads to improvement in prices. Acceptance inspe ction or control inspection operates by correcting methods and operations throug h observed results. Quality control aims at preve ntion. 7) It improves quality-consciousness and a healthy rivalry for achievable quality in the works. 4) By stabil ising quality higher sales is obtained at the same price or an equal sale at a h igher price.2 QUALITY ASSURANCE: Quality ass urance can be done in two ways (1) inspection after production to identify defec tives and rectify or reject them (2) adopting quality control methods like stati stical quality control (SQC) to minimize the deficiency. consumer reliability. 5. reduced complaints a nd lower after sales services.

Where faults can only be assessed by d estructive inspection such as. offers a mea ns of dynamic control which prevents rather than corrects faults developing late r on . Wit h more standardization the result of sample testing may improve but can never re ach 100% satisfaction. hundred per cent screening test is imposs ible. Unit .PGD-IB EXIM Financing and Documentation Quality assurance Inspection after Production Quality Control (SQC) Preshipment Inspection Quality control versus acceptance inspection-inspection after the production is completed is costly and sometimes inexpedient.It detects and isolates the factors and causes which develop fault and tri es to eliminate them . Quality control. In production. defects detected in inspection is always after manufacture which leaves no room for correction. on the other hand. the firing test or the user test of ammunition or drop test for petroleum barrels etc. Sample inspection or test checks of finished product may not bring out the defects in all the units produced. Moreover.I 79 . to be finally rejected by the user.. inter-stage or interoperation inspection w ould be necessary to avoid faculty components being passed on the next process o r being marketed. it is not possibl e to detect all the faults in inspection. Further.Quality control prevents complacence and uncertainty in pr oduct quality. It is a source of assurance to the producers and a mark of confid ence to the users.

9) Caution and quality consci ousness in staff and workmen.PGD-IB EXIM Financing and Documentation Uses of inspection – there is no doubt that screening inspection is costly and ine xpedient in many cases . 6) To identify the controllable causes of variation or faults from the uncontrollable or chance causes. If the variances are due to wrong machine ad justments or faulty equipment it may be corrected. without inspection. Unit . 4) To separate scrap . seconds or poor quality products. also the basis for locating bad workers from g ood or modifying or improving equipment. 2) To screen good products which can be marked out from rejects.I 80 . 3) To select items for re-work and to assign re-work cost. if faulty material or a faulty component is passed on.if the vari ance is minor and inherent in the process and the product can be accepted with t his minor variation. a change in the standard or specification may be indicated 8) Improving the method or process. 5) To judge whether fault is due to the machine or method or process or bad material or faulty workmanship.However the results of acceptance or screening inspectio n can be used for improvement and control. This is the cue of suggesting changes in process or equipment. 7) They suggest variation in standards. wastage or spoilage. to the next process-subsequent labou r. Some of these uses are— 1) To detect a mistake or fault at an early stage of operation. overheads and any materials added thereon would be wasted. As workmen are paid for the good pieces which pass inspection. specification or tolerances of the product .

4 STATISTICAL QUALITY CONTROL(SQC) Suppose we have to produce a part which sho uld weigh only 100mg. Using the normal distribution properties the control chart could be scientifically decided instead of arbitrarily our self fixing the difference (va riation) limits.In production all items may be 100mg.I 81 .some may be 101 or105m g or others may be 99 or 95mg.27% which will be in terms of specification.We may find on the basis of experience. if it lies between 97mg to 103mg. it may not affect the efficiency of the part. If 100 units are produced in a sample and the aver age the quality pro variance unit because in a normal rejection will be only 0. Thus.PGD-IB EXIM Financing and Documentation acceptance inspection provides a moral check or deterrent against loose or faulty work. Unit . 5. not suitab le for use. But every time we cannot arbitrarily decide a experiments with the defective parts. All pr oduction should normally conform to the statistical normal distribution which yo u have studied in statistics. inspection is a tool of management control and should be used as such.

9973 level.99973*……0.7631 which means totally putting all 100 parts together the efficiency/quality level will be on 76.In general it is called statistical quality control. If this technique is used in a process it is called statistical p rocess control (SPC).Units which exceed either the UCL or LCL.9973*0. this will be reduced as shown be low 0.I 82 . for using 100parts. If you are interested study books on SQC. Thus the SQC is a vast field with several complex concepts and innumerable applicati ons. Unit .9973)100 = 0.example units 7 to 8. are rejected.9973=(0.PGD-IB EXIM Financing and Documentation In the control chart method of SQC. This m ethod is scientific using samples and then adopted for SQC Some organistaion because.31% which is dangerou s In order avoid such deficiency 6 level is used (Motorolo used this level). we fix 3 limit(UCL)and this range are select ed (units 1 to 6). if one part is efficient at 0.

level Unit .I 83 .PGD-IB EXIM Financing and Documentation Now we will study about preshipment Inspection Check your Progress . Desirable norm/ standard of quality is composed of (a) ………………… (b)……………………… 4.1 1. SQC is appl icable to control defects caused by chance causes (True/False 3. which are two major aspects quality dimensions which could be evaluated 2. Normally the Upper and Lowe ixed at…………….

Cote d‘I voire Ecuador. Burkina Faso. Cambodia.5. However. Cameroon. Ma uritania. Uzbekista n.PGD-IB EXIM Financing and Documentation 5.I 84 . in some instances inspections are necessary for all imported products. 5. Mexico Moldova (under review). For example. OR To ensure that the quantity and quality of goods to be traded conform to the specifications of the contract. Guinea. Democratic Republic of Congo (Kinshasa). Rwand a. Republic of Congo (Brazzaville). India requires a PSI only f or certain steel products. Ethiopia. and mitigate attempts to avoid the payment of customs duties. Benin . Bangladesh. Niger. India Indonesia.1 When required? Definition of preshipment inspection Certification of the v alue. Pre-shipment inspections (PSI) a re required when mandated by the government of the importing country. prevent substandard goods from enteri ng their country. a country may requir e PSIs only for certain types of goods. Peru. Saudi Arabia. Senegal. Central African Republic. it is now being used as a se curity measure.2 Countries which request pre-shipment inspections Angola. Tanzania (Zazibar only). In some cases. Mexico r equires a PSI for a variety of goods such as Unit . Burundi. Most countries on the list above request inspections for shipments above a certain value. Iran. Kenya (under review). and/or identity of traded goods done in the exporting country by specialized agencies or firms on behalf of the importing country. Venezuela. regardless of value. Indonesia for some steel and waste products. Comoros. Sierra Leone.5 PRESHIPMENT INSPECTION 5. Nigeria.5. Mozambique. Traditionally used as a means to prevent over-or under-invoicing. Togo. Government s assert that pre-shipment inspections ensure that the price charged by the expo rter reflects the true value of the goods. quality.

5. importers can select from a short l ist of these organizations when planning inspections. Delays in the process can lead to problems with the shipment and /or increased costs for the e xporter. handling. testing. the exporter must make the goods available for inspection in the country of origin. the inspection agency may invoice the seller in the event of supplementary insp ection visits.3 who conducts the pre-shipment inspection Pre-shipment inspections are typically performed by cont racted private organizations. Exporters can contact the Commerce Department‘s Trade Information freight forwarders for more information on current regulations. Ship ments to Saudi Arabia and Kuwait must contain a certificate of conformity for a sm all number of products. The list could be obtained export Inspection council of India private inspect ion companies: Who pays for PSI Inspection costs are generally paid either by th e importer or by the government of the importing country. However in some cases.I 85 . The costs associated with presenting the goods for inspection (su ch as unpacking. it is in the best interest of exporters to work with their f reight forwarder to ensure that all information is accurate and Unit . sometimes one fir m is appointed to carry out inspections for a given country on an exclusive base s. and bicycles only if they do not qualify for NAFTA. Therefore. textiles. PSI regulat ions change often. Though not referred to as a preshipment inspection.4 who is responsible for arranging PSI ? Although the impor ter is responsible for arranging the pre-shipment inspection. sampling. However. steel. 5.5. this certification verifies that the product conforms with the relevant standard by testing and inspection prior to shipment from the exporting country. In most cases.5. and contracts for pre-shipment inspections are reviewed perio dically.PGD-IB EXIM Financing and Documentation shoes. repackaging) are the responsibilit y of the seller.

5. The importer informs the inspection service in the country of import of a pending shipment.I 86 . time. 7.5. the country of supply. 5 . and once all final documents are received from the importer and exporter. 8.5 The Process The steps of t he inspection process are usually as follows: 1. The goods are sh ipped to the importing country. The importer opens an import do cument or license 2. If no discrepa ncies are noted during the inspection.6 What to do when a problem or disagreement arises Unit . The importer uses the inspection report to ge t the imported goods released from customs. The inspe ction company contacts the exporter to arrange date. 5. Generally. The inspection company then contacts the e xporter to arrange an inspection site and time. Requirements for pre-shipment inspections are sometimes spelle d out in letters of credit or other documents. The final documents re quired for issuance of the Clean Report of Findings vary by contract but most ofte n include a final invoice and bill of lading or airway bill. a Clean Report of Findings is issued confirming t he shipment‘s value.PGD-IB EXIM Financing and Documentation is provided to the inspection company immediately after notification of the requ ested inspection.5. 6. and clearance. The inspection is performed. and either pays for the inspection up front or pays a percentage based on the value of the commercial invoice. the inspection company starts the inspection process once it receives a copy of the inspection order f rom the importing country. An inspection order is f orwarded to the inspection company office in the country of export. depending on the terms of the importing country‘s inspection contract. 4. the na me and address of the importer and the exporter. An inspection order states the value of goods. The exporter must provide these documents in a timely manner to avoid demurrage or other penalties. It also requests all required shipping documents and price information ( invoices). If goods reach the border of the imp orting country without inspection. and location for insp ection. and the importer‘s declaration of customs code. 3. customs classification. they usually have to be re-exported to a near by country for inspection prior to re-entry or are subject to heavy penalties.

Unit .8 WTO PSI body The WTO mechanism for settling disputes between exporters and preshipment inspection companies – the Independent Entity (IE) . and is administered by the WTO. 5. and one from the section of independent trade experts).7 PSI for agricultural and food products Specific regulations are prescribed in every country according to their needs. IE‘s rules of procedure call for quick resolution of disputes. by a majo rity vote. if exporting to a World Trade Organization (WTO) member country. The panel is required to make a decision. Howev er.I 87 . either a single independent trade expert or a three-member panel.5. w hich calls for an independent review procedure to resolve disputes between an ex porter and a preshipment inspection (PSI) agency. The IE was established in December 1995 by the General Council pursuant to Article 4 of the WTO Agreement on Preshipment Inspection. The Agreement requires the inspection company to a ppoint an appeals official and comply with the Agreement guidelines when carryin g out their pre-shipment inspection services for signatory countries. depen ding upon the agreement of the parties. the International Chamber of Comme rce (ICC) and the International Federation of Inspection Agencies (IFIA). respectively.PGD-IB EXIM Financing and Documentation If a disagreement arises on the findings of the pre-shipment inspection. the IE appoints. Once a complaint is filed.became operation al.5. The details could be obtained from EIC India. a resol ution to the discrepancy should be negotiated with the inspection company. 5. selected from the List of Experts (one each from the s ections nominated by the ICC and IFIA. The IE is constituted jointly by the WTO. within eight working days from the filing of the dispute. the WTO Agr eement on Pre-shipment Inspection spells out the responsibilities of the exporte r and the inspection company.

You can access our services through our field organizations.6. a statutory body set up by the Government of India. 1963(22 of 1963). for sound development of export trade of India through Quality Control and Insp ection and for matters connected therewith. These decisions would be binding on the parties on the parties to the dispute. and are rendered within eight working days of the request for the independent review.6. The cost of the independent review would be apportioned based on the merits of the case by the panel or the independent trade expert. Mumbai.2 EIC-a network with a global agenda As globalization intensifies with mor e and more countries and sectors getting swept-up in its momentum. guarantees quality of Indian exports through Certification schemes. 5.1 What is it? It is India‘s official pre-shipment and certification body EIC-E xport Inspection Council of India. Chennai and Kochi with a network of 44 sub-o ffices including laboratories which can provide you with the required logistic s upport and testing facilities at all major ports and industrial centers in India . EIC is a world-class service provide r when it comes to pre-shipment inspection and certification.6 EXPORT INSPECTION COUNCIL OF INDIA 5. details can be obtained from WTO Secretariat Decisions by the panel are taken by majority vote. EIC seeks to enhance India‘s stature in the world market. Unit .I 88 . the Export Inspection Agencies (EIAs) . through its belief in total quality m anagement a strategy not only for strengthening its current position but also ga ining access to new markets. 5.PGD-IB EXIM Financing and Documentation In specific cases. which combine the best of product certification integrated with a systems approach. Kolkaa. located at Delhi. T he Export Inspection Council (EIC) was set up by the Government of India under S ection (3) of the Export (Quality Control and Inspection) Act.

It provid es market access to exporters through export certification based on Internationa l Standards. we have radically transformed our activities from the regulatory domai n of pre-shipment inspection to that of a facilitator of export trade.I 89 . 5. Service’s provided Pre-shipment Inspection and Certification We provide a whole range of pre-shipment inspection and certification services fro m consignment-wise inspection to quality assurance and food safety management sy stems based certification covering nearly 1000 notified items ranging from food products to chemicals to footwear to jute and jute products to engineering produ cts. thus providing a green channel entry into the international markets . Notwithstanding the liberalization of compulsory pre-shipment inspection. As the official certification ag ency. Unit .6. many countries rely for pre-shipment inspection and certification with confidence. This certification. Today.PGD-IB EXIM Financing and Documentation Our endeavor towards quality assurance programmes began as early as 1963. This helps eliminate re-inspection of goods on arrival at foreign d estinations. giving t he importing agencies and overseas buyers an added protection in assuring qualit y of goods. For instance been re cognized by United States Food and Drug Administration (USFDA) for black pepper and by European Commission (EC) for basmati rice. avoiding rejections and high costs of recall.3. EIC continues to operate mandatory pre-shipment inspection and certi fication in food sector for products like fish and fishery products. as an assurance from an official agency. improves marke t access for the exporters while enhancing importer‘s confidence in the quality of Indian products. Over t he years. milk produc ts and meat and meat products and egg products in view of growing importance of health and safety parameters under SPS Agreement. EIC has the mandate to resolve export related quality complaints.

product testing and c ertification under preferential tariff schemes. Good Hygiene/Manufacturing Practices (Gypsy/GMPs). 8. additives and all other relevant parameters. Training and technical assistance to industry in installation of food safety/quality/environment/lab management systems meeti ng HACCP/ISO 9000/ISO 14000/ISO 17025 standards and norms. Inspection for all commodities Authenticity for Basmati Rice .(Year) 90 . Bangkok Agreement. Approval and certification of processing and manufacturing unit s based on Food Safety Management Systems like HACCP. A pool of highly qualified technical person nel at ECI/EIAs share. 7. biotoxins. Saarc Preferential Trading Arrangement (SAPTA) and Indo-Sri Lanka Free Trade Agreement (ISFTA). Issue of Certificates of Orgin u nder preferential tariff schemes like Generalized System of Preferences (GSP).I India requires PSI only for certain types of goods (True/False) who is responsible for arranging PSI shich is the W TO organization which settles dispute in PSI EIC was set up in…………. 6. Unit . Hea lth for food items. Check your Progress 2 5.PGD-IB EXIM Financing and Documentation EIC‘s commitment to internationally accepted food safety management systems based certification incorporating GMPs/GHPs/HACCP has already earned credibility to ac t on behalf of many international agencies. biochemical. heavy metals. pesticide residues. chemical. G lobal System of Trade Preferences (GSTP). Summary of Services Offered by EIC Certification of Product Quality in accordance with the norms and legislations of different destinations worldwide through consignmentwise inspec tion or systems approach including In process Quality Control (IPQC) or Self Cer tification (SC). Product Testing-microbiological. integrate and develop expertise to provide not only consi gnment-wise inspection but inspection but systems based certification as well to stand through a constantly changing world of export trade. physical contamination. EIC has gained recognition from EC f or marine products and egg products.

com 3. What are the uses of Inspection? Explain SQC with an illustration W hen PSI in required Explain the process of PSI Examine: How to settle a problem when it arise What is EIC? Describe in detail the services provided by EIC. 4. why and how of these process o f quality SQC and PSI. (a) The Nature of Product (b) consumer satisfaction 5. What is quality? Explain scope of using quality control techniques. It comprises of production inspection. True 3. 3.PGD-IB EXIM Financing and Documentation 5. 8. http://www.8 KEYWORD S SQC: Statistical Quality Control PSI: Preshipement Inspection EIC: Export Insp ection Council of India 5.shipabichitra. http://www.export. Montgomery.I 91 . 5.7. 7. 9. SUMMARY Quality assurance is essential for business development and also for consumer sa tisfaction. what. 6. At the end the functioning of EIC is elaborated 5. Introduction to SQC by Douglas C.10 QUESTIONS 1. Performance and conformance to standards 2.asp 2. 5. 2.11 FURTHER READING/REFERENCE 1. All the three as pects are discussed elaborately explaining. John Wiley & Sons Inc Singapore Unit .9 ANSWERS 1.

Direct to importer in case of perishable 6.2.3. Export of gold and others 6 . Goods under Lease hire 6.2.1.PGD-IB EXIM Financing and Documentation Lesson 6 EXPORT TRADE CONTROL Objective Structure 6.7. Forms of Declaration Units of UTI 6. Periods prescribed 6.6. Gold/securities 6. Code Number of Expo rters 6. Categories exempted 6.8.1. Caution list of Exporters 6. Computer software 6.7. Despatch of shipping Doc uments 6. Through Banks 6. Declaration 6.5. Obje 3. unit of UTI from goods export To describe the procedure for exp ort of complete software To analyse the methods of payment for goods exported To recall/recognize the periods prescribed for different types of exports To illus trate exempted categories To understand various aspect of declaration forms To e lucidate GR/PP procedure To ucall the utility of GR procedure To enumerate as to when the counter signature on PP forms should be obtained 92 .3.5. Currency notes/foreign exchange Export Control 6.9.2 Copies Introduction 6.3. 9.3 Particulars Unit .I To recall the objectives of trade control To explain th e general procedure of export control To distinguish the procedures for export o f gold currency.1 Description Payment Methods 6.

is under control. Here the export control measures stipulated by the Govt. PSI and international standards of quality are necessary for improving export.16. Keywords 6. proc edures.15. Answer 6. Question 6.3. the documents required for organizing export/import effectively and efficiently.17. Use of ER Procedure 6. e xcept to Nepal and Bhutan.2 EXPORT CONTROL Objectives: The export of goods to countries outside India. GR form the preliminaries of Export Import trade (Intern ational Trade).11. Counter s ignature on PP Form 6.PGD-IB EXIM Financing and Documentation 6. Exchange control Regulation for Nepal Bhutan 6. any time you may make a mistake in your organization which may result in huge damage.I 93 .11.1. regulations.2.14. are discussed in detail Unless you know these export methods. and Unit .11. Sum mary 6. how quality control. 6. PP Form 6 . rules.20. So you should be thorough with the export cont rol measures also. Further Reading 6.1 INTROD UCTION You have studied so far. Disposal by Banker 6. Shortshipment case 6. GR/PP procedure 6.13. VP/COD 6. The main purposes of the control ar e: (a) to prevent the export of the goods which are essential for the developmen t and/ or maintenance of the country‘s economy.10. Try to take efforts that your organization is not coming unde r caution list of exporters which will reduce your image.18.

2 Declaration: The exporters are required. to the conditions stipul ated in clauses (b) and (d) of Section 18/9 of FERA. (c) When a caution-listed exporter firm or company is removed from the list by the RBI a de-caution-listing order will be issued to the AD customs etc. If a caution-listed exporter presents docu ments to an AD together with GR form which does not bear Reserve bank‘s approval. They should not accept for negotiatio n/collection shipping documents covering exports declared on GR form completed b y such exporters nor countersign PP forms completed by them unless the GR/PP for ms bear approval of the Reserve Bank. The Uni t . ADs will be advise d whenever any exporter is caution-listed. i.I 94 .PGD-IB EXIM Financing and Documentation (b) to ensure that the full value of the export ed goods is received in India within the prescribed time limit and in a permitte d method of payment. 1973. the value which the exporter expects to receive on the sale of the goods should be stated.2. to all Customs authorities in India.2. If the full value is not asce rtainable at the time of export. currency 6. If an AD comes to know of any other associate concern of caution-listed exporter w hich is in the export field he should bring the matter to the notice of the RBI. the RB I will issue a caution-listing order directing that the exporter should submit G R/PP forms through an authorized dealer to the Reserve Bank for prior approval. in order to ensure th at the full export value of further exports to be made by them will be realized in proper time or without delay as required under the law. (b) The caution listing order of RBI will contain not only the names of the concerned exporter and the name of th e proprietor partners in the case of firms but also their associate concerns. 6. the AD should withhold the documents under advice to RBI pending receipt of the latter‘s instruction as to the disposal thereof.e. among others. Copies of the caution-listing order will be sent.3 Caution List of Exporters (a) The Reserve Bank may subject exports of certain exporters who have come to its a dverse notice in regard to realization of export value. under the Exchange Control Regula tion. for the purpos e of ensuring that the conditions of the order are fulfilled. to declare on a prescribed form that the full value of the exports to be m ade will be realized within the prescribed period.. supported by documentary evidence which should indicate that the exporter has re ceived advance payment or an irrevocable letter of credit in his favour covering the full value of the goods to be exported. In such cases.

I 95 .3. The export of silver bullion and manufactures is regulated by the Director Gene ral of Foreign Trade (DGFT) whose permission is necessary for the export of silv er and silverware. otherwise regulating export 6.1000 Unit . There i s. for better security be consigned to the branch / correspondent of the A D through whom the proceeds are intended to be collected.4 Export Trade not ices : The office of the Director General of Foreign Trade issues export trade n otices as and when required a. prescribing the minimum export prices for some commodities and / o r the methods by which payment for the export of some commodities should be rece ived. c. and for a fo reigner to take out gold / jewellery purchased in India up to a prescribe limit.2 Currency Notes / Foreign Exchange: No person can. prohibiting the export of certain commodities b.3.3 EXPORT OF GOLD AND OTHERS 6. however. Exports to be dispatched by airway should.PGD-IB EXIM Financing and Documentation shipping documents etc. The RBI permits any person res ident in India to take or send out of India to any country other than Nepal curr ency notes or Reserve Bank notes up to RS. submitted by a de-caution listed exporter may be dealt w ith by an AD according to normal regulations.1 Gol d / Securities: The export of gold from India to any destination. a general permission of the RBI bank for any person permanently resi dent in India to take out of the country personal gold / jewellary. or taking or s ending of sending of securities to any place outside India (including the transf er of securities to a non-resident). 6.2. and d. excep t with the general or special permission of the RBI or the written permission of any person authorized in this behalf by the RBI take or send out of India any I ndian currency or foreign exchange other than the foreign exchange obtained by h im from an AD dealer or a money changer in India. 6. making the export of certain commodities subject to licence from the export trad e control. requires the permission of the RBI.

100 and i n Indian coins and in other notes or coins which are the currency of Nepal. 6.3. i.e. The procedure of ex port of computer software in physical form is the same as that of goods subject to declaration on GR / PP form. 3 unit of UTI: The Unit Trust of India has been granted general permission be th e RBI to export certificates covering units purchased by non-resident investors out of foreign exchange remittance from abroad or out of funds held in their non -resident account in India.. the full export value. and retain the triplicate copy for office record. or in non-physical form. Unit . return the du plicate copy duly certified by him together with the export documents to exporte r. Government of Ind ia for the purpose of valuation.I 96 . or and irr evocable letter of credit for. 6.4 Computer Software Physical form: Computer soft ware can be exported either in physical form.PGD-IB EXIM Financing and Documentation per person at any one time. direct data transmission abroad through dedicated earth stations / satellite links .3. The authorized official of the Department will forward the original copy after verification of the set to the office the office of the RBI under the jurisdiction of which the exporter operates. i. Secondly. The amount that can be taken to Nepal in Government of India or Reserve Bank notes should be in denominations not over Rs. A copy of the export agreem ent / contract has to be submitted to the concerned office of the RBI. Non-Physical form : The export of computer softw are in non-physical form can be made only against advance payment of.e.. the export has t o be declared in serially numbered sortex form in triplicate and the full set to gether with the relevant export documents and a copy of the export agreement or contract has to be submitted to the Department of Electronics. software prepared on magneti c tapes and paper media.

basis under agreement with the overseas lessee/hirer etc.5 PAYMENT METHODS Payment for good exported from India h as to be realized in accordance with the methods prescribed by the RBI. banker‘s cheque. a gainst collection of hire charges and ultimate re-import of the goods exported. personal cheque. on application on a prescribed form. a code Number to every person. should be tendered to a previously designated branch of an ad for negotiation or collec tion of the bill. be in order for an AD to handle documents in cases (a) where the expor ter has received payment of exports directly from the overseas buyer in the form of bank draft. 6. hire etc. 6. equipment etc.4 CODE NUMBE R OF EXPORTS The RBI allots. are sometimes required to be exported on lease. however.I 97 . So me good. the office of the RBI Bank under the jur isdiction of which the exporter operates giving full particulars. Forwarding the documents for collection requires previous perm ission of the RBI and providing by the buyer a guarantee from an acceptable bank in favour of the exporter for the payment of the export on due date or within six months whic hever is earlier.e. foreign Unit . exporters desirous of exporting goods on such terms should approach. firm or company engaged in export business. through an AD the concerned office of the RBI i. hire etc.5 Goods under lease. The basi c rule is that the payment must be received through the medium of an AD It will. 6.PGD-IB EXIM Financing and Documentation The duplicate copy of the SOFTEX form together with the export bill etc. Application for the permission of RBI has to be made in duplic ate together with a copy of the guarantee. The code number so allotted is required to be cited by the exporter on the prescribed exchange cont rol declaration form. pay order. such as machinery.3.

The financing of exports in a manner other than the permitted methods requir es the prior permission of the RBI.PGD-IB EXIM Financing and Documentation currency notes.50. foreign currency traveler‘s cheque etc wit hout any monetary limit. as the case may be Wh ere the goods are exported to a warehouse established outside India with the per mission of the RBI. irrespective of the country of resi dence of the buyer For example. THE PERIOD PRESCRIBED. Bangladesh and Afghanistan is three months and of exports to all other countries is six mo nths. foreign currency notes. provided the exporter‘s track record is good. receive payment in any perm itted currency for exports to the countries in the Asian clearing union. or from a rupee account held in the name of an Exp ort House 2with an AD up to Rs. if the goods are shipped to Germany respecting t he order of a buyer in France. the amount representing the full export value of the Unit .000 per transaction in the country of destinat ion of the foods as declared on the GR form. if the payment clearing is offered voluntarily in a permitted currency by the overseas buyer. 6. AD may.6. however. or Where the payment of export is made out of funds held in a Non-Resid ent (External) Rupee account. The RBI may. The pres cribed period for realization of the proceeds of exports to Pakistan.I 98 . for a sufficient and reasonable ca use. This provision is subject to review. from the date of shipment. Belgium including Luxembourg. the payment must be made in a permitted currency or from a bank situated in a country in the erstwhile external group of countrie s such as Austria. he is a cus tomer of the concerned AD and prima facie the instrument represents payment for exports. etc as notified by the bank / R BI. extend the said period of three months or six months.

7 DESPATCH OF SHIPPING DOCUMENTS Through Banks: All shipping documents covering the export of good from India must be su bmitted within 21 days from the date or export to the AD (bank0mentioned in the relevant declaration form. however. except where the export falls within one of the exemp ted categories. if accompanied by the ex porter‘s invoice and duplicate and triplicate copies of the relative EP or GR form . where the buyer‘s country does not p ermit payment of imports form India on cash‘ terms with 6 months the overseas buyer will then unavailable ask for extension of the period of payment. Direct to importer in case of perishables: Railway receipts. be sent direct to the importer with the prior appro val of the RBL. Deferred payment The realisation period for exports under deferred payments arrangement may be ex tended by the RBI to two years in the case of consumer durable and other enginee ring goods. Clean bills in respect of such exports. may. where the exports consis t of perishable commodities. ste amer receipts. are to be realize d within 6 months or within 15 months when the goods are stored in overseas ware houses owned by India In some cases. to eleven years in the case of capital and producer goods.I 99 . and to tw elve years in the case of turnkey projects. bills of lading. other than the project exports. airway bills or any other document conveying tit le to the foods exported to Pakistan or Bangladesh may. 6.PGD-IB EXIM Financing and Documentation goods exported should be paid to the AD as soon as it is realized but in no case beyond fifteen months from the date of shipment of the goods. In such cases the exporter concerned should approach the RBI for permission of the extended p eriod of payment of the exports made. if Unit . t he proceeds of exported goods. Good other them projects Normally.

give an example for exempted category Unit . f. Nepalese goods expo rted from Nepal to countries outside India through Indian ports are covered by t his exemption e.e. SOFTEX form is used in the export of _ _______ 3. Parcels dispatched by post or by air freight and accompanied by a declaration by a declaration by the sender that their value in each case is less than Rs. Whether accompanied or unaccompanied. the RBI may extend the period of co llection to _____ year 4. d. naval and air forc e authorities or of the central government. The se are a. Check your progress 1 1. 6. h. known as the GR wa iver. g. Trade samples supplied free of payment. i. be accepted for negotiation or collection by a bank er. Transshipment cargo. Goods exported under orders of the military.CATEGORIES EXEMPTED Certain kinds of exports the declaration on a prescr ibed form regarding the realistion of the value of exports is not necessary.I 100 . Ship‘s stores carried on board vessels for their own use during the voyag e. Goo ds in respect of which the reserve bank has waived the requirement of declaratio n. and i.8. b. Goods exported by the United Nations Organization and its affiliate bo dies in India for their official use abroad when covered by a certificate to tha t effect by the body concerned. c. curios. Parcels dispatched by post or by air freigh t and covered by a certificate issued by an authorized dealer (banker) that the export of the parcel does no involve any transaction in foreign exchange. Passengers wishing to take these articles should obtain prior permission of the Reserve Bank.50 and that their despatch involves no transaction in foreign exchange. silve rware and such other articles of high value. in the case of turn key projects.PGD-IB EXIM Financing and Documentation advised by the reserve Bank. excepting unused carpets. the two main purposes o f export control are (a)____ (b)______ 2. Personal effect of traveler s. e. goods shipped from counties outside India and tr ansshipped in any Indian port for destination outside India.

Unit . MA.9. if any. CHN.I 101 . each with a separate serial number prefixed by such combination of l etters as Ah. 6. The details of commission and discount due to the foreign agent or buyer should be correctl y declared on the form.15 (b) above should be made are given below: Sl. c. being recorded in the appropriate place therein.2 Copies: The GR and PP forms are required to be completed in d uplicate. CA.9 FORMS OF DECLARATION Description: The forms prescribed under the Exchange Control Regulations in whic h the declaration for exports. OR DEL. the infor mation should be furnished on the other copy of the form. Where the goods are exported on consignment bases. vide paragraph 3. For exports to Nepal or Bhutan no declaration form is required. the details of short s hipment. the word c onsignor as well as clause (b) of the form should by struck out. while only one copy of the VP/COD form is required for the exchange co ntrol purpose. b. and the exact quantity of the goods to be shipped should be given in the original copy in the space pr ovided therefore. th e word seller appearing in the form as also clause (a) thereof should be struck ou t. Particulars : a.PGD-IB EXIM Financing and Documentation 6. These forms are printed in distinctive colou rs of inks. Where it is not possible to give the exact quantity.No. Form 1 GR Form Mode For shipments made otherwise than by pos t to all countries 2 PP Form For exports to all countries by parcel post except when made on value payable or cash on delivery basis. The name and address of the AD dealer (banker) t hrough whom the proceeds of the exports will be realized. indicating the office of the reserve bank at which these are domiciled. 3 VP/COD Form For exports to a ll counties by parcel post under arrangement to realize the proceeds through pos tal channels on value delivery basis. Where the goods are exported against a firm order or sale contract. The number with the prefix should be quoted in al l reference to Reserve Bank. BY.

No shipment of goods. When a shipment has been entirely shut and there is delay in making arrangements for re-shipment. 6.21 above ..e. vide Paragraph 3. 6. The permission should be applied for on a prescrib ed form in duplicate. retaining the original for transmi ssion to the Reserve Bank later on.o. the GR form already filed with the Customs authority requires to be can celled.PGD-IB EXIM Financing and Documentation d. for which the permissio n of the Customs is required.10 SHORT S HIPMENT CASE (i) If an export covered by a GR form already filed with the Custom s is short-shipped . After examining the goods and certifying the quantity passed for shipment on the dupli cate copy the Customs will return it to the exporter for submission to the AD na med therein together with the shipping documents within 21 days from the date of shipment of the export for negotiation or collection of the export bill. the name of the vessel as given in the GR form should be changed. if satisfied with the entries made. c) The exporter will resubmit the duplicate copy of the GR form at the Customs together with the cargo to be shipped. b) The Customs. and after noting their running serial of ten numerals denoting the code number of the port of shipment. or when the consignment is not to be reshipped. will admit th e shipping bill. a fresh form must be used to declare the shipment when the short-shipped portion is subsequently shipped by another vessel. irrespective of the terms of contract. will be permitted by the Customs authorities unless the full set of the GR for m is produced. i.11 GR/PP PROCEDURE (ii) (iii) a) GR Form: The two copies of the GR form should be given along with the shippin g bill to the Customs authorities at the port of shipment. contract shoul d be furnished in all cases. value. Under the item Analysis of full export value. Docume nts presented after the prescribed period of 21 days will be acceptable the AD i s satisfied that the delay is due to circumstances beyond the exporter‘s control. the calendar year and a six-digit seria l number and certifying the value of the export on both the copies of the GR for m. freight and insurance.b. for which an application on a prescribed form in duplicate should be mad e. a break-up of the full export val ue of the goods under f. the documents will be acceptable even if the original Unit . When a shipment is entirely shut out and is intended to be shipped by another vessel. return the duplicate copy to the exporter.I 102 . excepting those belonging to the exempted categories..

i.o. or in the abs ence thereof.. In case the exporter has been placed by the RBE Bank on the exporter‘s ca ution list. He should also make sure that the dupl icate copy of the GR form has been duly verified and authenticated by appropriat e Customs authorities. or f. the documents may be negotiated only where the shipment is covered b y an irrevocable letter of credit and the documents conform strictly to the term s of the letter of credit d) The AD should verify the genuineness of the export in the manner detailed in paragraph 312 © (iv) above.e. Where th e export is under deferred credit arrangement or to a joint venture abroad again st equity participation or under rupee credit the number and date of the RBI Res erve Bank Unit . on inspection of the o riginal sale contract between the exporter and his overseas buyer.PGD-IB EXIM Financing and Documentation declaration on the GR form is signed by some other party provided the constituen t drawing the bill countersigns the duplicate copy there of undertaking to deliv er to the AD the foreign exchange proceeds of the shipment within the prescribed period.b. on inspection of any of the following documents: Order of the over seas buyer together with the order confirmation by the exporter. basis where freight is sought to be paid at destination. i. Proforma invoic e of the exporter duly countersigned by the overseas buyer or Indent/Order of th e overseas buyer or his authorized agent.. When the marine insurance is taken by the exporter on buyer‘s accou nt the actual amount paid is received through the invoice and the bill.b. the d eduction made is only to the extent of freight declared on the GR form or the ac tual amount of freight indicated in the bill of lading (or the airway bill) whic hever is less. and the number thereof is the same as that of the origina l by a reference to the bill of lading The AD dealer should make sure as follows : the bill of lading (or the airway bill) has been issued on freight prepaid‘ basis where the sale contract is on f.I 103 .a. c & f etc.f. In the case of contract on c . basis and the amount of freight paid has been included in the invoice and the bill.

be presented by the exporter in duplicate to an AD for countersignature. supplementary Return.2 PP Form: The PP form sh ould. The original copy.12 DISPOSAL BY BANKER Immediately after the shipping documents are negotiated or despatched overseas for collection the AD should report the transaction to th e RBI in statement ENC under cover of appropriate R.11. in the first instance.PGD-IB EXIM Financing and Documentation approval and/ or the number and date of the relative A.11. The documents presented do not rev eal any material inter se discrepancy in regard to the description of the goods exported. 10. should be re turned to the exporter by the banker.3 VP/COD Form: The VP/COD form. with his countersignature. Th e original copy of the form countersigned by the AD should be submitted by the e xporter to the postal authorities together with the relative parcel at the time of despatch there of. and the duplicate copy retained by him. After dispatching the goods the postal authorities should forward the declaration form to the nearest office of the Reserve Bank.13 USE OF GR PROCEDURE The GR/PP procedure thus ensures control f rom the stage of the passing of the goods through the Customs/postal authorities till the receipt of the proceeds in foreign currency. retai ning the duplicate copy with him until full payment for the export is received.D. 6. the duplicate copy s hould be forwarded to the Reserve Bank after completing the appropriate certific ate thereon. export value or country of destination. of which only one copy needs to be completed. is r equired to be submitted to the postal authorities together with the post parcel 6. or the news of the shipment having been lost in t ransit or destroyed at the port of destination is received. and also enables the Rese rve Bank to make Unit . 6.I 104 . Circular has been reco rded at the appropriate place in the GR form. When such payment is received.

e. When a banker is approached by an exporter for countersignature on th e original copy of the PP form relating to an export by post parcel. The particulars of the advance payment or the letter of credit or the Reserve Ba nk‘s authorization. and that for the export of precious stones or of jewellery other than articles made wholly or mainly of gold of the value of over Rs. provided that: (a) an advance payment has been received for t he export. 6.. as the case may be. polishing. or (b) The export is under an irrevocable letter of credit advised th rough the banker. etc. (iii) A PP form covering re-export of synthetic stones.50. should be furnished on the form duly authe nticated by the banker. The overseas branch/correspondent should be advised to delive r the parcel only against payment or acceptance of the relative bill. (ii)The PP form in respect of a parcel addressed direct to the consignee may be countersig ned by the banker. i. currency. by matching the two copies of each form – the original copies from the Cu stoms or postal authorities and the duplicate copies from the bankerthat the ful l value of the export has been realized and repatriated to India within the pres cribed period in an approved method. may be countersigned by the banker. Unit .PGD-IB EXIM Financing and Documentation certain. subject to prio r permission of the RBI. or (c) the addressing of the parcel direct to the consignee ha s been approved by the Reserve Bank.14 COUNTERSIGNATURE ON PP FORM (i). diamonds and other precious stones imported into India for re-export aft er cutting.. the parcel has been valued and sealed and the invoice stamp ed by the Customs. pearls. he should c ountersign the form after making sure that the parcel is addressed to his branch or correspondent in the country of import.I 105 .

the a mount due in payment of processing charges. 6. of India guidelines. SUMMARY The need for learning export control procedures.17 KEY WORDS AD: Authorised Dealer Caution list: Exporter s under adverse notice. prepared by the RBI Unit . payment methods. If you want to realize the proc eeds through postal channels. ____copies of GR and PP forms will be prepared 7. are d iscussed in details. These countries are not treated as foreign countries for most of the transaction Check your progress 2 5.16. GR/PP procedure. and an undertaking by the banker to ensure the realization of the processing charges. TRUE/FALSE 6.15 EXCHANGE CONTROL REGULATION FOR NEPAL AND B UTAN Of the countries in the immediate neighbourhood of India Nepal and Bhutan i n the north are considered on a special footing in regard to the Exchange Contro l Regulations current in India. 6. the duplicate copies of the GR form and the relevant shipping documents are not received for negotiation or collection with in five working days from the date of the countersignature. If after the countersignature on the original copy of the PP form.PGD-IB EXIM Financing and Documentation The permission may be obtained by making an application furnishing therein the n ames of the consignor and the consignee. The exported will resubmit the duplicate copy of GR fo rm at the customs together with cargo to be shipped. declaration form. you much use _____form 6. proced ure for export of gold and other items obtaining code numbers. the default should b e reported to the Reserve Bank. periods prescribed exempted categories. Some of these special features have been indicat ed above and for other term when necessity arise can be noted from relevant Govt . the number of the import licence. objective.I 106 .

Free Trade sample VP/COD 6.PGD-IB EXIM Financing and Documentation UTI: Unit Trans of India SOFTEX: This is a form to be attached for export of com pany software VP: Value payable COD: Cash on Delivery PP: Parcel Post Form 6.18 ANSWERS 1. 1. 8. 2. Finance o f foreign Trade and Foreign Exchange. 5. 9.20 FURTHER READING 1.19 QUESTIONS What are the objective of Export control Explain caution list Describe export of gold and other items Explain payment method Analyse periods prescribed for vari ous exports What are the exempted categories – illustrate What are forms of declar ation? Explain GR/PP procedure When counter signature on PP for is requires 6. Delhi Unit . 2. 2 7.I 107 . 4. MJ Malhew Management of Export Marketing. 7. (a) To prevent the export of goods e ssential for development (b) to ensure the full value of export in received with in prescribed time Computer Software 3. True 6. 5. 12 4. 6. B.K Chaudhuri. RBSA publishers Jaipur 2. 3. HPH.

6. Practical suggestions 7. Coverage of risks 7.1 Risks covered 7.8.3 General Average 7.4 Types of polices 7. Procedure for claim 7.5.10. Introduction 7. Keywords General Insurance corporation 108 .2 Risks Not Covered 7.3.5 Salvage 7. 2 Partial Loss 7. Further Reading Unit . Prob lems and advantages of open policy 7. 5. marine Insurance policy EXIM Financing and Documentation Lesson 7 MARINE INSURANCE Objectives To identify the meet for marine insurance To list out the cargo risks To recall the definition of marine insurance policy To explain how a policy To compare the risks covered on not covered To enumerate the factors to be consider ed to fix the rates of premium To classify different types of marine losses To a nalyse narious form of clauses To explain the procedures for claim Structure .1 Definition 7.7. Marine losses 7. Sum mary 7. cargo risks 7.13.4 Particular average 7.3.2 Details 7. Answers 7.2. Types of clauses 7. 3.1 Total Loss 7. Questions 7.4. Premium rate 7.

PGD-IB EXIM Financing and Documentation 7. fraudulent or unlawfu l act of master/crew) Spoilage. you have risks in getting the payment s. long term credit. Whe n the transport moves faster. Some of the cargo risks are Fire in any place.1 INTRODUCTION Usually any business will have enormous risks. it is still more and deep. The forex management risks will be separately discussed under forex managem ent. the risk of accident and consequent dangers are mo re. There are specific insurance polices by Export Credit Guarantee corporation ( ECGC) Cargo risk is likely to happen more due to movement of cargo in rough sea. cutting of masts. forc e of waves contact with sea water Collision stranding sinking (perils of sea) Th eft pilferage. non-delivery Piracy Jettisoning (throwing over board. how to manage cargo risks through marine insura nce. Unit . Now let us see various cargo risks CARGO RISKS Now a days cargo risks are m ore because of increased sophistication crime and of the transport carriers.I 109 . rigging of sails etc) Leakage Barratry (misconduct. stock on movement Storm. The risks in foreign trade may be class ified into three major categories: Risks Credit Risks Cargo risk Forex Risk When you get short term. In the case of f oreign trade. We are going to deal in detail.

stating the currency in which. The principle of insurance policy are more or less similar in coverage for both shipment and air lifting. Unit . in consideration of payment by the insured of a specified premium d etermined under tariff rates or otherwise. giving a description thereof. contract. agree to indemnify the latter against any loss incurred by him in respect of the merchandise exposed to the perils of the sea or to the particular perils insured against.PGD-IB EXIM Financing and Documentation Explosion. breakage. value of the go ods.3.f. marine insurance is obligatory. d) Cover all the risks. The policy must be stamped and be ar a date not later than that of the bill of lading. and a) Relate solely to th e goods referred to in the bill of lading and the invoice.3. naming the port of shipment and the port of destination. An insurance policy is freely transferable from one perso n to another by endorsement and delivery.1 Definition: Marine insurance is a contract by which the insurer. unless the buyer specifies the risks to be covered. sweating damage by other cargo. if any ar ises. and the policy must be one which is u sual in the trade and is in a negotiable form. and e) State the period of insurance. it must conform to the terms and conditions laid down in it.I 110 . their shipping marks etc. it must be endorsed in blank when it is handed over to the negotiating bank.i. the claim. damage to machinery. The policy must be issued in favour of the exporter.f.i.3. Cargo risk can be reduced to minimum by ado pting marine insurance which could be covered. generally 10% to 20% over the c. 7. If the policy is made out i n favour of the exporter. MA RINE INSURANCE POLICY 7. leakage. and if the export is under a letter of credit. will be met. c) Be for t he full value of the Cargo. b) Cover the whole of the contractual journey or voyage. heating burst ing.2 Details: In a c. and the place at which. latent defects. 7.

3. i. as under the current Exchange Control Re gulation no person.o.4 Types of Policies: a) Single Cargo risk / Open or Blanket Policy: A marin e insurance policy may be a single cargo risk policy.C.3 General Insurance Corporat ion a. b.e. 7.b or c & f or any other terms under which the l iability on account of marine insurance on the shipment rests with the overseas buyer but the exporter has taken the insurance cover on the nonresident party‘s ac count. In the case of export contracts on f. as a rule.PGD-IB EXIM Financing and Documentation When the trade between two counties is carried on over the land. a policy which covers a single cargo risk or an open or blanket policy i. Firm or company resident in India is permitted to book gener al insurance of any kind with an insurance company in a foreign country. Marine insurance polices authorized to received premiums against such policies in rupees on prod uction of a certificate to the effect thatIn terms of the export contract the in surance charges on the shipment in question have to be borne by the exporting pa rty and that he is not paying on behalf of a non-resident. the overall amount and the period of insurance are specified but not the particulars of the insured cargo.3..I 111 . the authorized dealer handling the documents should verify that the actua l premium paid has been added in the invoice for being recovered from the buyer.C) in India. The particulars of Unit . In an open policy. Or The exporter is de fraying the insurance charges on the shipment in question on account of the over seas buyer of the goods and he undertakes to add the payment so made to the conc erned invoice and recover the amount form the buyer in an approval manner‘. a policy which automatically covers all the shipments of the exporter up to an estimated amount during a give n period. The G. be obtained from the General Insurance Corporation (G.I. the policy has necessarily to be inland.I.e. 7. and not a marine one..

An unvalued policy does not specify the value of the insured goods. c) Valued and unvalued policies: A valued policy is a policy which specifies the agreed value. not necessarily the actual value o f the foods insured. but no amount against anticipated profit is to be included in the c laim.PGD-IB EXIM Financing and Documentation shipments. the amount of premium charged in excess is refunded or the amount undercharged is recovered. as and when made. the insured is entitle d. Under a blanket or open policy. to a refund of a proportionate part of the p remium paid.I 112 . or any of it subsidiaries. Unit . If the goods prove to be overvalued. which then issues a certificate covering the shipments under the policy.. is called a floating policy. b) Floating / Named Policies: An open marine insurance policy. viz. When on obtaining the shipping space the exporter intimates the intimates the name of th e ship to the insurance company and the insurance company issues an endorsement. contingency Marine Insurance Policy. from the G. have to be supplied to the insurance company.I. at the time of claim settlement. the policy becomes a named one. which covers the cargo ready for shipment but for which shipping space is still awaited.C. the exporters in India are therefore. Premium is c harged on the value of the cargo actually shipped during the period of insurance . but su bject to the limit of the sum insured. a lump sum premium is initially charged on the basis of the estimated value of the cargo to be shipped during the period of in surance and at the end of the period. d) Contingency Marine insurance Policy: The Exchange Control Regulatio ns of certain countries do not permit remittances in payment of imports into the m in the event of the cargo getting lost in transit and in consequence not reach ing the destination. required to protect t heir interest in respect of export to such countries by taking a special marine insurance policy. leaves the insurable value to be determin ed later.

I 113 . Assailing thieves means those who take by force rather than stealthy way. The buyer may become insolvent and the claim may be paid to the buyer according to the laws of the buyer‘s country to the creditors in the importers cou ntry.4 GENERAL PROBLEMS AND ADVANTAGES OF OPEN POLICY The buyer‘s insurance may be in adequate.1 Risk Covered By Marine Insurance The follow ing risks are covered under marine insurance.PGD-IB EXIM Financing and Documentation 7. The premium rate is known in advance and hence correct price quotation can be given. collision and dama ge by sea water. most of the exporters take open policy under ma rine insurance. Copies 4 copies are made. which are listed out here. The transfer of claim may become complicated due to the foreign exchange i ssues In view of these problems. The exporter has automatic and continuous protection. 7.5 COVERAGE RISKS 7. It develops continued re lationship between the exporter/shipper and the insurer. Opening of the seams of the vessel by standing or collision. damage as by smoke. Fi re: include both direct fire damage and consequential. The exporter has to furnish evidence of insurance in the form of a certificate to make claims abroad. There are several advantages of the open policy. A brief declaration giving the basic facts about shipm ent is sufficient. or st eam and loss resulting from the action to extinguish it. Perils of the sea: Include risk ou t-of-the-ordinary wind and waves action. They understand the spe cial needs of each other. The original and the second copies are forwarded for negotiation with the shipping document t o the consignee.5. The other two copies are kept as office copy with shipper and t he insurer. lighting. Open policy remains valid until it is cancelled by the exporter. stranding. Unit .

Risks not Covered The following risks are not covered b y marine insurance Loss or damage expected to occur under normal conditions due to inherent nature . Shipping and delivery practic es. Wars. Carriers used. Attitude towards the third party recoveries and Assured‘s experiences as a for eign trader.I 114 . Risks can be classified into _________ Categories 2. Characteristics of the commodity. or damage or deterioration due to delay in transit Unavoidable trade losses like shrinkage. True / False. Value of the commodities. The following factors are considered in fixing the premi um rates. shrinkage. It is based on the risk and the judgem ent of the underwriter. 3. Origin on. 7.6 PREMIUM RATES It is not standardized. All other perils include only perils of the sort list ed in the clause. e. Loss of damage / Deterioration Due to delay is a risk covered.5.g. this ma y be considered) Check your Progress-1 1. breakage to glassware not adequa tely packed. route. (if some special conditions are satisfied. strike risk and civi l commotion are not included as perils. It can be included by special endorsemen t by paying additional premium. 7. Seasona l character of shipment. Packing. Trade loss-loss of weight.2. Unit . Open Policy covers all the shipments of exporters upto an estimat ed amount during a given period True / Flase. Types of coverage. evaporation.PGD-IB EXIM Financing and Documentation Jettison means throwing articles overboard usually to reduce the weight of the s hip due to emergency need. Dangerous drugs clause-losses connected with opi um and other dangerous drugs. Loss of market. imperfectly cured skins.

or to enable the ship to proceed safely to de stination.e. after due deliberation. a part of the cargo should be sacrificed by being thrown overboard. partial average or salvage. in order to protect the whole proper ty (i. that. the ship and the cargo). salvaging and /conveying to d estination.2 Partial Loss: A partial loss is not a complete loss and may be general average . while a constructive total loss refers to a complete loss due to high cost of reconditioning.7.7.1. General Average: When a ship is ca ught up in a storm or heads towards a rock or is leaking. and only to the extent justif iable under the circumstances.PGD-IB EXIM Financing and Documentation 7. An actual total loss is a loss which happens under circumstances beyond control. Unit .3. 7. b) the sacrifice or expenditure is made v oluntarily to avert or minimize the common danger.. such sacrifice or expe nditure would amount to a general average loss. A Total Loss: It means loss arising out of the destruction of the subject insured or when the insured is irretrievably deprived thereof. and the captain of the ship thinks. 7. namely.7 MARINE LOSSES Marine insurance losses may be broadly classified into total losses and partial losses. c) there is a benefit accruable to the interests at the interests at risk. The claim for general average contributions holds good only when: a) the danger is common to all interest. A total loss may be actual or constructive. The term average in marine in marine in urance signifies less than total loss. the vessel (ship-owner).7. 7. by all the interest at risk at the time of the sacrifice or expenditure . and d) there is no fault or contributory negligence on the part of the claimant. The loss is so called because it is to be made good by prorate contribution on the principle of equal sacrifice for all. the freight (carrying company) and the cargo (exporter). o r that some extraordinary expenditure should be incurred.I 115 .

WA.. 7. As in the case of general aver age.PGD-IB EXIM Financing and Documentation 7.5 Salvage: Salvage refers to charges recoverable under maritime law by a salvor independen tly of contract. may be divide d into clauses which exclude the particular average unless the ship is stranded or is involved in a specified casualty.I Institute Cargo Clauses FPA: A policy with th ese clauses insures the goods from the warehouse at the place named in the polic y to the 116 . For instance: (a) Unit . a marine insurance policy may b e endorsed with one or the other of the following clauses: (i) (ii) (iii) FPA. or the shipper for breakage of the cargo through the stowage giv ing way in heavy weather. implying that losses under general average are covered under the policy. or damage to the cargo through sea-water entering the hold containing it. and those which include the particular a verage. i. with part icular average. i . with average. or accident during the process of unloading... implying that the insurer‘s liability does not extend to particular average.e.e.7. FGA. free from particular average.. WPA. 7. salvage awards are usually apportioned over the values of the various inter ests saved and are recoverable from the insurer. etc.e. Such charges do not include expenses for services in the nature of salvage rendered by the assured or his agent. Particular average losses are much more common than general average losses. drawn up by the Institute of London. loss suffered by the insured goods and is caused by a particular peril insured against. i. i. and not a general. such as the ship-owner for damage to the ship through heavy sea waves bre aking over her. implying tha t the insurer‘s liability does not extend to general average.e. (iv) Goods Clauses: These Clauses. implying that the insurer‘s liability covers losses arising out of the perils that come under particular average.7.8 TYPES OF CLAUSES: In order to limit or particularize the insurer‘s liability.4 Particular Average: This is a partial. free from general average. A partic ular average loss affects only a particular interest whose property sustains the loss.

Where a package or packages are found missing.PGD-IB EXIM Financing and Documentation warehouse at the destination. and Copies of correspondence with shipping compan y. a detailed survey by the ship‘s surveyors should be called for and a claim fo r the monetary value of the goods lost or damaged lodged with the shipping compa ny by the consignee. bombs. among other risks. a claim for the value of the package or packages missing should be lod ged with the shipping company and the bailees. (e) All Risks Cover: This clause does not cover all losses whatsoever but only those whi ch are similar to those of the Institute Cargo Clause (WA) Procedure for Claims: In the event of any loss of or damage to the insured goods or to a package or p ackages containing them giving rise to a claim the insured should at once file a claim for compensation with the insurance company. (c) Institute War Clause: The clause is included wh ere the various cargo clauses do not have their own war clauses and extends to t he perils of mines. torpedoes. the insurance company should immediately be informed about the position and the goods together with the packing materials kept intac t. If the loss or damage is noticed while taking delivery of the consignm ent. etc. the following documents should be submitted along with the claim: The insurance policy. the perils of pilferage. but it excludes claims f or particular average or loss or damage caused by strikes. The original invoice and the packing list. etc. damage by oil. an insurance survey o f the loss or damage should be arranged by the insured. As per provisions of the Carriage of Goods by Sea Act of 1925. etc. and the insurance extends for the whole transit pe riod plus 25 to 30 days after discharge at destination. Where the ship survey is time-barred.I 117 . giving details of the loss o r damage. pilferage and loss or damage by strike. A copy of the bill of lading. If the packages are foun d in sound condition and taken delivery of but on unpacking some loss of or dama ge to the goods is noticed. fresh water (rain). (d) Institute Strike Clause: This cla use insures against theft. pending a survey of the loss or damage. etc. damage by ste vedores. (b) Institute Ca rgo Clause (WA): A policy with this clause excludes particular average but cover s. Unit .

increase the limit immediately. Institute strike clause insures against piracy. True / False. It does not cover inherent nature/vice and so take ne cessary extra precautions. 7. 5. mo stly ship or even by air EPA:Free from Particular Average Clause Unit . Check your Progress-2 4.PGD-IB EXIM Financing and Documentation Under the same Act.10 PRACTICAL SUGGESTIONS The following guidelines will be useful to the export er in managing the cargo risks better. Add 10% to the invoice p rice of the merchandise. the time limit for filing a suit against the shipping compan y is one year. Whenever necessary. types of policies are also analysed.11 SUMMARY Various types of car go risks are analysed. True / False 7. Pract ical suggestions will be useful for efficient management of cargo risks 7. what are different types of marine losses are also elaborated. What are different ris ks covered. Premium rates depend on characteristics of commodity also. g eneral theft. then.12 KEY WORDS Cargo risk: Risk relating to the movement of the goods through carrier. For making a claim bill of lading should als o be enclosed. Move insured goods promptly. Immediat ely notify loss to broker.I 118 . True / False 6. Insure with most experienced and reputed marine insurance broker Take open or floating marine insurance policy Terms of t he policy should be broad with regard to merchandise and areas covered. when total risk is exceeding the in surance cover. how to cover the risks through marine insurance is discussed in detail.

Himalaya PH. V. Finance of foreign Trade and Forex. Unit . independent of contract. International Finance Theory and Practice. B. What are risks covered and not covered? 4.13 ANSWERS (1) 3 (2) True (3) False (4) T rue (5) True (6)False 7.14 QUESTIONS 1. What are differ ent types of insurance policies? 3.15 FURTHER READING 1. What are Cargo risks? 2.K Chaudhuri. Delhi. particular average. Delhi 2.PGD-IB EXIM Financing and Documentation FGA: Free from General Average Clause WPA: With Particular Average WA :With Aver age Total Loss: Loss due to destruction or irretrievably deprived goods Partial Loss: Not Complete loss. Ex plain procedure for claim 7. salvage General Average: Sacrifice or extra ordinary expenditure incurred to protect who le property.I 119 . It may be general Average.A Avadhani. This is made good by pro rata contributions Particular Average: Pai d for particular peril insured Salvage: Charges recoverable under maritime law b y a salvor. W hat are different types of losses? 5. 7. Himala ya PH. What are different types of clauses? 6.

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