ASSIGNMENT ON

International Trade & Foreign Exchange
Topic: Procedure of Import Documents

Submitted By

ROMANA NARGUS MBA (Banking & Finance) 4thTerm Class Roll No: 01(A) Exam Roll No: 462 Session 2009-2011
Submitted To

PROF: DR. KHAIR-UZ-ZAMAN

IN THE NAME OF

ALLAH
THE MOST GRACIOUS & BENIFICIAL &THE MOST MERCIFUL

Department of Business Administration Gomal University
Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan

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Imports
The term "import" is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". Thus an import is any good (e.g. a commodity) or service brought in from one country to another country in a legitimate fashion, typically for use in trade. It is a good that is brought in from another country for sale.[2] Import goods or services are provided to domestic consumers by foreign producers. An import in the receiving country is an export to the sending country. Imports, along with exports, form the basis of international trade. Import of goods normally requires involvement of the customs authorities in both the country of import and the country of export and are often subject to import quotas, tariffs and trade agreements. When the "imports" are the set of goods and services imported, "Imports" also means the economic value of all goods and services that are imported. The macroeconomic variable I usually stands for the value of these imports over a given period of time, usually one year.

Types of import
There are two basic types of import: 1. Industrial and consumer goods 2. Intermediate goods and services Companies import goods and services to supply to the domestic market at a cheaper price and better quality than competing goods manufactured in the domestic market. Companies import products that are not available in the local market. There are three broad types of importers: 1. Looking for any product around the world to import and sell. 2. Looking for foreign sourcing to get their products at the cheapest price. 3. Using foreign sourcing as part of their global supply chain. Direct-import refers to a type of business importation involving a major retailer (e.g. Wal-Mart) and an overseas manufacturer. A retailer typically purchases products designed by local companies that can be manufactured overseas. In a direct-import program, the retailer bypasses the local supplier (colloquial middle-man) and buys the final product directly from the manufacturer, possibly saving in added costs. This type of business is fairly recent and follows the trends of the global economy.

Role of the Internet
Many online auction websites are now providing wholesalers through a wholesale list, generally, the lists that require a fee to view, may not be updated frequently, the data may be old, and the companies listed may no longer be in business. Another form of online middlemen are B2B trade companies. These cater mainly to big businesses who are importing large quantities of goods from foreign countries. They also have sister sites that serve smaller orders for small businesses. In addressing the concerns of listed companies' legitimacy and dependability, such B2B portals may inspect suppliers at their actual premises before they list suppliers. Alternatively, these companies may also branch out of cyberspace and organize their own sourcing fairs, where thousands of buyers and suppliers can meet face-to-face.

Letter of credit
A standard, commercial letter of credit ("LC") is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking.

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The LC can also be source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, storm water ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or cancelled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to giros and Traveler's cheques. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and documents proving the shipment was insured against loss or damage in transit. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin.

Terminology
The English name “letter of credit” derives from the French word “accreditation”, a power to do something, which in turn is derivative of the Latin word “accreditivus”, meaning trust. The Application any defense relating to the underlying contract of sale. This is as long as the seller performs their duties to an extent that meets the requirements contained in the LC.

International Trade Payment methods
 Advance payment (most secure for seller)

Where the buyer parts with money first and waits for the seller to forward the goods  Documentary Credit (more secure for seller as well as buyer) Subject to ICC's UCP 600, where the bank gives an undertaking (on behalf of buyer and at the request of applicant ) to pay the shipper ( beneficiary ) the value of the goods shipped if certain documents are submitted and if the stipulated terms and conditions are strictly complied. Here the buyer can be confident that the goods he is expecting only will be received since it will be evidenced in the form of certain documents called for meeting the specified terms and conditions while the supplier can be confident that if he meets the stipulations his payment for the shipment is guaranteed by bank, who is independent of the parties to the contract.  Documentary collection (more secure for buyer and to a certain extent to seller) Also called "Cash Against Documents". Subject to ICC's URC 525, sight and usance, for delivery of shipping documents against payment or acceptances of draft, where shipment happens first, then the title documents are sent to the [collecting bank] buyer's bank by seller's bank [remitting bank], for delivering documents against collection of payment/acceptance  Direct payment (most secure for buyer) Where the supplier ships the goods and waits for the buyer to remit the bill proceeds, on open account terms.

Department of Business Administration Gomal University
Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan

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Documents & Procedure Required for Import of a Commodity

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Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan

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Pro forma Invoice
A pro forma Invoice is much the same as a commercial invoice which, when used in international trade, represents the details of an international sale to the Customs authorities. A pro forma

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invoice is presented in the place of a commercial invoice when there is no sale between the sender and the importer, or if the terms of the sale between the seller and the buyer are such that a commercial invoice is not yet available at the time of the international shipment. A pro forma invoice is required to state the same facts that the commercial invoice would and the content is prescribed by the governments who are a party to the transaction.

INCO Terms
Incoterms rules are standard trade definitions most commonly used in international sales contracts. Devised and published by the International Chamber of Commerce, they are at the heart of world trade. Among the best known Incoterms rules are, FOB (Free on Board), CIF (Cost, Insurance and Freight), and CPT (Carriage Paid To). ICC is currently revising Incoterms 2000. The new edition, Incoterms® 2010, is expected to enter into force on 1 January 2011.

H.S. Code
The Harmonized Commodity Description and Coding System (HS) of tariff nomenclature is an internationally standardized system of names and numbers for classifying traded products developed and maintained by the World Customs Organization (WCO) (formerly the Customs Co-operation Council), an independent intergovernmental organization with over 170 member countries based in Brussels, Belgium. Pro forma invoice includes: • Name of Importer • Name of Exporter • Description of goods • There Tarrif number (HS code) • Quantity • Price in currency agreed and Packing • INCO Terms • Origin of Merchandise • Payment condition i.e Irrevocable LC at sight • Last date of Shipment • Country of origin • Final Destination • Advising bank details • Signature of Exporter

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Application Form
This is the form given by the Advising bank and is filled by the importer. A special adhesive stamp of 100PKR is pasted.

LC at sight
LC becomes payable once it is presented along with the necessary documents, e.g. goods orders, shipping documents.

Transhipment
Transshipment or Transhipment is the shipment of goods or container to an intermediate destination, and then from there to yet another destination.

Partial shipment
Delivery of an order in two or more consignments, if allowed by the customer or under theterms of a letter of credit. Following information is filled: • Applicat’s name and full address • Benificiary’s name and full address • Type of LC i.e. LC at sight • Total amount including C&F • Shipment destination from origin to final • Date of expiry • All other charges amount and due written In case of india shipment and transshipment cant be on Israeli/Indian vessels/Airlines is Prohibited

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Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan

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Department of Business Administration Gomal University
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I-Form
This is a form for imports and is basically used of taxation purpose. It is the application for permission under the foreign exchange regulation act 1947 to purchase foreign exchange for the payment of imports.

Beneficary
Person or other legal entity for whose present or future interest (benefit) an annuity,assignment (such as a letter of credit), contract, insurance policy, judgment, promise, trust, will, etc., is made.

Indentor
The purchaser of the commodity the buyer of the goods. The following information is posted in this document: • Authorized dealer name • Beneficiary’s name and address • Indentor’s name and registration number • Description of goods • ITC No. (HS code) • Quantity • Port of Shipment • Date of shipment • Invoice value in Foreign currency • Other terms and conditions • Stamp and signature of the importer

Department of Business Administration Gomal University
Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan

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Insurance Cover Note
Document evidencing issuance of an insurance the informationgiven in a certificate of insurance. policy and gives a summary of

Insurance cover note is issued on pro forma invoice, its is required for the bank to issue the LC. First the schedule is made then the Final receipt is issued to importer. War and SRCC War, Strikes, Riots, and Civil Commotions Risks

C&F
(Cost and Freight.) Seller owns goods until they are loaded on vessel; selling price includes all costs so far plus cost of ocean freight. The conditions required for Cover note • Name of the bank

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• • • • • • • • •

Name of participant Detail of goods covered with their HS code The period insuraed Mode of convance Sum covered Contribution calculation Exchange rate Declaration Other conditions and warrities like Computer millium charges, radio active exclusion clause, war, strike clause etc.

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Department of Business Administration Gomal University
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LC Document
What Does Irrevocable Letter Of Credit - ILOC Mean A letter of credit that can't be canceled. This guarantees that a buyer's payment to a seller will be received on time and for the correct amount. This is the document called the ‘LC’ it shows did different conditions and terms on which both the parties are agreed upon.

UCP Rules
The Uniform Customs and Practice for Documentary Credits (UCP) is a set of rules on the issuance and use of letters of credit. The UCP is utilised by bankers and commercial parties in more than 175 countries in trade finance. Some 11-15% of international trade utilises letters of credit, totalling over a trillion dollars (US) each year.

Reimbursement bank
A bank providing cover for a payment order. Explaination • First of all the SWIFT code is displayed • Form of LC i.e Irrevocalbe LC • Date of Issue; it is read in opposte direction i.e. 080328 this means 28 th of 3rd month march of year 2008 • Rules that are applicable are mentioned that are UCP Latest version i.e. UCP 600 • Applicatn’s name • Beneficary name • Currency code and amount • Partial shipments allowed or not • Port of loading • Last date of shipment • Descriptions of goods • Charges outside Pakistan are on beneficy’s account • Period of presentation • Reimbursement bank name

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SWIFT Code (Society for Worldwide Interbank Financial Telecommunication)
The SWIFT Bank Identification Code is an internationally-recognized system of codes for identifying banks (see ISO 9362). These codes are commonly used to identify the banks involved in an international wire transfer. It is not the only coding system for banks - individual countries also have their own sets of codes which are used to identify banks in national interbank business. For example, ABA numbers (or routing codes) identify banks in the US and Canada, Sort Codes identify banks in the UK. SWIFT is the Society for Worldwide Interbank Financial Telecommunication, a member-owned cooperative through which the financial world conducts its business operations with speed, certainty and confidence. More than 9,000 banking organisations, securities institutions and

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corporate customers in 209 countries trust us every day to exchange millions of standardised financial messages.

Bill of Lading/ Railway Bill/ Airway Bill
A bill of lading (sometimes referred to as a Bloor B/L) is a document issued by a carrier to a shipper, acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified. A thorough bill of lading involves the use of at least two different modes of transport from road, rail, air, and sea. The term derives from the verb "to lade" which means to load a cargo onto a ship or other form of transportation. The bill of lading issued when the merchandise is loaded on the carrier and is the guarantee that the goods has been sent by the exporter Bill of lading: The bill issued will the shipments arrives in ships through sea way. Airway Bill: When the goods are shipped through airline, airway bill is issued.

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Railway Receipt: When the goods are dispatched by railway track, railway receipt is issued. Ports: Their there two kinds of ports. Dry Port: In Pakistan there are many dry port like At present, there are six dry ports running under the management of Railways: Lahore’s Established in 1973, Karachi Dry Port Established in 1974, Quetta Dry Port Established in 1984, Peshawar Dry Port Established in 1986, Multan Dry Port Established in 1988, Rawalpindi Dry Port Established in 1990 Sea Port: There are three sea ports in Pakistan that are Port Qasim and Port Gwadar, port keti Bander, port karachi. Port Qasim maximum sea weight capacity is 25,000 MT. The mentioned terms required. • Consignee name • Notify address • Currency agreed upon • Goods details and HS Code number • Packing list • Detailed packing list

Department of Business Administration Gomal University
Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan

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Commercial Invoice
A commercial invoice is a document used in foreign trade. It is used as a customs declaration provided by the person or corporation that is exporting an item across international borders. Although there is no standard format, the document must include a few specific pieces of information such as the parties involved in the shipping transaction, the goods being transported, the country of manufacture, and the Harmonized codes for those goods. A commercial invoice must also include a statement certifying that the invoice is true, and a signature. The invoice is the receipt for the goods shipped. The mentioned things on Commercial invoice • Exporter name • Importer name • Pro forma Number • Vessel number • Port of loading • Final destination • Terms and delivery of payment • Marks and number of container • Description of goods • Quantity • Tariff and HS code • Rate per KG and amount in currency decided • Stamped by exporter bank Invoice contains amount due to the importer Whereas the packing list includes only the information about packing, no amount is shown in this list.

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Packing List
A shipping list, packing list, packing slip (also known as a bill of parcel, unpacking note, packaging slip, (delivery) docket, delivery list, or customer receipt), is a shipping document that accompanies delivery packages, usually inside an attached shipping pouch or inside the package itself. It commonly includes an itemized detail of the package contents and does not include customer pricing. It serves to inform all parties, including transport agencies, government authorities, and customers, about the contents of the package. It helps them deal with the package accordingly. The mentioned things on Commercial invoice • Exporter name • Importer name • Pro forma Number • Vessel number • Port of loading • Final destination • Terms and delivery of payment • Marks and number of container • Description of goods • Quantity • Packing further details • Tariff and HS code • Stamped by exporter bank Packing list includes only the information about packing, no amount is shown in this list.Whereas the Invoice contains amount due to the importer

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Bill of Entry
Declaration (on a prescribed form) by an importer or exporter of the exact nature, precise quantity and value of goods that have landed (entered inwards) or are being shipped out (entered outwards). Prepared by a qualified customs clerk or broker, it is examined by customs authorities for its accuracy and conformity with the tariff and regulations. See also customs entry. When all the duties and charges are paid the Custom Duty officer (CDO) issues a bill of entry. And now the importer is allowed to ship the commodity to the desired place. Declared Value: It is a value that is declared by the importer Assessed Value: It is the value that is calculated by the CDO and duties are charged on Assessed rate.The bill of entry contains following information • Exporter/ Consignor’s name • Importer/Consignee’s names • NTN number • HS Code • Currency name and code • Description of goods • Number of cartons • Declared value, rate • Assessed rate and value • Port of shipment • Delivery terms • Marks and Container numbers

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Indemnity Bond
It's a bond to repay a lender in the event of a shortfall in a loan repayment. Coverage for loss of an oblige in the event that the principal fails to perform according to standards agreed upon between the oblige and the principal. • The indemnity Bond is issued for the collector of customs in the custom house • Warehouse name and license number • Date of deed of indemnity • Importer’s name • Total sum amount • 2 witnesses are also required • The bond must be on a stamp paper of above 50PKR or so • A post dated cherub must be attached with this bond

Certificate of Origin
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A Certificate of Origin (often abbreviated to CO or COO) is a document used in international trade. It traditionally states from what country the shipped goods originate, but "originate" in a CO does not mean the country the goods are shipped from, but the country where their goods are actually made. This raises a definition problem in cases where less than 100% of the raw materials and processes and value are not all from one country. An often used practice is that if more than 50% of the sales price of the goods originates from one country, that country is acceptable as the country of origin (then the "national content" is more than 50%). In various international agreements, other percentages of national content are acceptable. Certificate of origin is a proof that the goods made are purely manufactured into final good where they are claimed This document shows the following details • Consignor Name • Consignee • Consigned through • Packages detail is given with their HS Code • Description of goods is given • Detailed packing list is given i.e. Bags numbers and kinds of packing • Gross weight in KGs • Number of pieces • Value in Rupees and in dollars • Stamped by the origin country

Detailed Procedure
Eligibility The least criteria for importing a commodity are that: • Account Number; LC can also be issued on cash basis • Member of ICC; Company must have Membership in international Chamber of Commerce • Company’s STN and NTN • SECP Registered Company Dealing First of all the both parties who want to purchase and sell the Commodity deal with each other and bargain on different points. They settle the product price INCO Terms, its quantity, Weight, Shipment date, payment methods, type of LC, Exchange rate, Freight charges and other information. Issuance of Performa Invoice When the dealing is finalized all the agreed conditions settled are then written in printed form called the preformed invoice. Insuring the Commodity To issues a LC against a commodity mostly large in quantity, insurance of the commodity must be taken, a copy of preformed invoice is given to the insurance company for the issuance of insurance cover note. Insurance is issued on some reserve or goodwill of the importer. Documents required are • Performa invoice • Certificate of Origin

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Certificate of origin is the document assuring the concerned that the goods/commodity shipped are fully made by the claiming country’s company Application for issuance of LC Once the preformed invoice and cover note is issued, an application is written to a bank for the issuance of letter of credit against it. The documents that are required are as below • Performa Invoice • Insurance Cover Note • Application Form • I- Form Here the I-Form is used for the eligibility of importing a commodity and for deduction of tax, nowadays only STN and NTN is used, the use of I-Form is very rare. LC Draft After this procedure an LC Draft is issued based on all the information given to bank, it is a almost a letter of credit but not yet approved, this is presented to importer to make some corrections and changes, once approved by importer and stamped the final LC document is sent to beneficiary bank/exporter for his confirmation through SWIFT code. SWIFT/ TELEX The advising bank then sends this Letter of credit advice to the Beneficiary bank in SWIFT Coding, the bank communicate with each other in this coding. Other formalities and payments are also made in this code. Exporter will take notice When the exporter receive the letter of credit advice, if he agrees on it the LC is approved if not then further amendments will be done up till finalization of terms and conditions. The exporter always gives 7 days ‘free time’ to pay all the duties and expenses to clearing agent. This time period can be expanded on request up to 14 and then 21 days in this period no dammar age is charged. Shipment Documents sent When the dealing gets final, the exporter sends original shipping documents to importer’s bank and copies to importer. And set of original documents placed in the ‘container’ of commodities it. The shipping documents contain: • Bill of lading/ Airway Bill/ Railway Receipt • Commercial Invoice • Packing List • Detailed packing list Payment to the Advising Bank and retirement: When payment is made to the advising bank, the bank then releases the original shipping documents. Then bank then issues a retirement note and after that the LC is closed on payment.

Further Procedure after retirement of LC
Clearing of Shipment: Once the payment is made the original documents received are given to clearing agent. Assessments of Value of Commodity: Now as the documents are handed over, the duties are calculated on assessed rate on the exchange rate decided. Duties charged are
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• • • •

Custom duty(CD) i.e. according to the H.S. Code (mentioned in FBR) Sales tax (ST) i.e. 16% of the total value. Its fixed Income tax(IT) i.e. 4% (for commercial), 3% (for manufactures) of the total value, it’s also fixed Federal excise duty(FED) i.e. 1% Additional sales tax i.e. 2%

There are also other charges like Dammar age charged on not clearing the shipment on due date Issuance of bill of Entry: When all the duties and charges are paid the Custom Duty officer (CDO) issues a bill of entry. And now the importer is allowed to ship the commodity to the desired place. Bonded Warehouse: Bonded warehouse is used when the importer is not willing or doesn’t want to pay the due amount in full. The importer stores the commodity in the bonded warehouse where he can pay for commodity and ship the goods in installment. It requires following documents: •

Indemnity bond Post dated cherub

Indemnity bond is the guarantee by the importer that he will pay the full amount as scheduled otherwise the commodities can be confiscated.

Payment Flow Chart based on original Documents
Beneficiary/Exporter: Payment is made to importer when the original shipping documents are handed over to its bank. Beneficiary Bank: The beneficiary bank sends these documents to the advising bank and receives the payment form it. Guarantee of State Bank The state bank gives the guarantee to the beneficiary bank on the behalf of Government of Pakistan. Advising bank: The advising bank charges the importer and receives the money and distributes the documents Importer: When the importer pays its due amount the bank hands over the original shipping documents to it.

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Flow of Documents

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