Ashwin’s Commerce World

Export traDE
MEANING OF EXPORT TRADE
Export trade involves selling goods and services to foreign countries. These days every country has to buy certain
commodities from other countries. In order to make payment to foreign countries, a nation requires foreign exchange.
Therefore, a country must export and earn foreign exchange.
THE MAIN OBJECTIVES OF EXPORT TRADE ARE AS FOLLOWS
(i)To sell surplus goods. A country may produce a commodity in such quantities that are more than its needs. The
country can sell its surplus output to foreign countries. In this way export trade is undertaken to make fruitful use of
surplus goods.
(ii)To make better utilisation of resources. Export trade widens the market for goods. A country can make better
utilisation of its resources by producing goods on a large scale both for domestic use and exports.
(iii)To earn foreign exchange. A country can earn valuable foreign exchange through exports. The amount of foreign
exchange so earned can be utilised to import scarce capital goods. Such imports are necessary for rapid economic
development of the country.
(iv)To increase national income. Export trade helps a country increase its national income. Increase in national income
improves the quality of life of the people.
(v)To generate employment. The growth of export trade creates employment opportunities for a large number of
people.
Export–Import (EXIM) Bank of India was established as a specialised financial institution for promoting exports. The
main objective of the Exim Bank is to coordinate the activities of various institutions engaged in financing foreign trade.
The main functions of the Exim Bank are as follows:
(i) It provides medium term and long term credit to Indian exporters.
(ii) It provides finance for export of consultancy and related services.
(iii) It assists in setting up joint ventures in other countries and promotion of export oriented industries in India.
(iv) It offers merchant banking services to exporters and importers
KINDLY NOTE: THIS PORTION IS NOT MENTIONED IN THE SYLLABUS
EXPORT PROCEDURE & DOCUMENTS
Stage 1 → Receiving Trade Enquiry and Sending Quotation
First of all the exporter receives a trade enquiry (written request) from the intending importer or his agent.
In the letter of enquiry the importer requests the exporter to supply the following information:
(a)Specifications of goods such as size, design, quality, brand name, etc.
(b)Quantity of goods available
(c)Price per unit , etc.
The exporter sends a quotation or proforma invoice. It contains the name and address of the importer, information
sought by the importer in his enquiry and any other information which the exporter wants to convey.

Stage 2 → Receiving an indent and sending confirmation

The intending buyer importer, after scrutiny of quotation/proforma invoice, sends an indent. The exporter may receive
an indent directly from the importer or through an indent house. An indent house is an agent which imports goods on
behalf of importers. It serves as a middleman or intermediary between the importers and exporters. Indent houses
charge commissions for their services from importers.
An indent refers to an order received from abroad for sale (export) of goods. It contains the following details:
(a)Quantity of goods to be sent (b)Quality, size and design of goods (c)Price etc.

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An indent can be of the following types:

(i) Open indent. In this type of indent, the importer authorises the exporter to decide the quality and price of goods to
be sent. The exporter is expected to exercise his best judgment in the choice of goods.
(ii) Closed indent. In a closed indent the importer gives full details regarding the quality and price of goods to be sent.
The exporter is not allowed to exercise his discretion in the choice of goods or in their packing.
(iii) Confirmatory indent. An indent which is subject to confirmation by the importer or his agent is known as
confirmatory indent. In such a case, the final indent is sent after confirmation.

Stage 3 → Securing Letter of Credit

A letter of credit (L/C) is an undertaking by its issuer (the importer’s bank) that the bills of exchange drawn by the
foreign dealer on the importer will be honoured on presentation upto the specified amount. It is a guarantee by the
bank to the foreign dealer that his bills upto the amount mentioned therein will be honoured.
A letter of credit may be of the following types:
1. Clean letter of credit. In this type of letter of credit no conditions are laid down for the acceptance and payment of
the bill of exchange.
2. Documentary letter of credit. It lays down the condition that the documents of title to goods must be sent along with
the bill of exchange without which the bill will not be honoured.
3. Revocable letter of credit. It can be cancelled or withdrawn at the discretion of the issuing bank at any time without
the prior consent of the foreign dealer or exporter in whose favour it has been issued. It is also known as unconfirmed
letter of credit.
4. Irrevocable letter of credit. It cannot be withdrawn by the issuing bank without the prior consent of the foreign
dealer concerned. It is also known as confirmed letter of credit.
5. Revolving letter of credit. When the amount stated in a revolving letter of credit drawn by the foreign dealer, it is
automatically renewed again for the original amount.

Stage 4 → Obtaining IEC Number and RBI Code Number

Importer Exporter code (IEC) number is to be filled in various import export formalities. In order to obtain this number,
an exporter has to apply to the Regional Import-Export Licensing Authority in the prescribed form.

Stage 5 → Obtaining RCMC Certificate from Export Promotion Council/Commodity Board

In order to avail of export incentives, concessions and facilities (e.g., cash compensatory support, REP licenses, etc.) an
exporter is required to obtain a Registration-cum-membership certificate (RCMC). This certificate is issued by Export
Promotion Councils-Commodity Boards/Federation of Indian Export Organisations, etc.

Stage 6 → Manufacturing/Procuring Goods and Packing

Them now the exporter starts manufacturing or procuring the goods as required by the importer. Then the goods are
properly packed in accordance with the instructions given by the importer. In the absence of such instructions, goods
must be packed keeping in mind the safety of goods and cost of freight. These packages should be properly marked
according to instructions, if any, so that they may be easily distinguished from the goods belonging to others.

Stage 7 → Procuring Export Inspection Certificate

After the goods are packed in accordance with the prescribed specifications the exporter applies to the Export
Inspection Agency. The agency sends an inspector for inspecting the export consignment. Once the inspector is satisfied
that the goods confirm to the prescribed specifications, an Export Inspection Certificate is issued. This certificate is
required by the customs authorities for the shipment of goods.

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Stage 8 → Appointing Forwarding Agents

Once Export Inspection Certificate is obtained, the goods can be exported. But before the goods are shipped the
exporters are required to get clearance from customs authorities. Generally, it is not possible or convenient for the
exporter to go to the port and perform these formalities.

Stage 9 → Dispatching Goods to Port and Sending Receipt to Agent

After appointing the forwarding agent, the exporter will despatch the goods by rail or truck to the port town. He will
then endorse the railway receipt (R/R) Lorry Receipt (L/R) in the agent’s favour along with the necessary instructions to
the forwarding agent and send the same.

Stage 10 → Formalities by forwarding agent

(i) Taking delivery of goods at port town. When the goods arrive at the port town, the forwarding agent takes delivery
from the railway truck on submission of R/R or L/R. He then arranges for storage of the consignment in a warehouse.
(ii) Obtaining shipping order. The forwarding agent approaches a shipping company or its agent to hire space in the
ship. He enters into an agreement with the shipping company. The shipping company issues a document called the
‘shipping order’ to him. The shipping order is a document containing an instruction to the captain of the ship to accept
the specified goods on board the ship from the exporter whose name is mentioned in it.
(iii) Obtaining customs clearance. In order to obtain customs clearance, the exporter or his agent prepares three
copies of shipping bill in printed forms. A shipping bill contains information about name and address of the exporter
port of loading, port of destination, name of the ship, description and value of goods, identification marks in packages.
(iv) Paying dock dues. After paying the export duty, the forwarding agent makes arrangement for carrying goods to the
docks. For this purpose, he fills two copies of ‘Dock Challan’ and submits them to the dock authorities
(v) Obtaining permission for shipment. Then the forwarding agent brings goods at the docks. The Customs Preventive
Officer at the docks inspects the goods on the basis of declaration given in the Shipping Bill. If the officer is satisfied he
gives permission to load the goods on the ship by issuing a ‘Customs Export Pass’ or by an endorsement ‘Let Ship’ on
the duplicate copy of the shipping bill.
(vi) Securing mate’s receipt. When the goods have been loaded on the ship the captain of the ship or his assistant
(called ‘mate’) issues a receipt called the ‘Mate’s Receipt’. This receipt is an acknowledgment of receipt of goods on the
ship for carrying them to the port of destination. If the mate is satisfied about packing, he gives a receipt without any
remark. Such a receipt is called ‘clean receipt’. But if he is not satisfied with the condition of packing, he makes a
remark to that effect on the receipt. Such a receipt is known as ‘foul receipt’. The forwarding agent should always try to
get a clean receipt because the insurance company may not bear liability for loss in case of a foul receipt. The foul
receipt may be converted into a clean receipt by making some payment to the shipping company or by submitting an
indemnity bond.
(vii)Obtaining bill of lading. After despatching the goods, the forwarding agent goes to the office of the shipping
company. He submits the mate’s receipt and gets in exchange a Bill of Lading. He has to fill in three forms of bill of
lading giving details regarding the goods, name of the ship, port of destination, etc.
Bill of lading is a document in writing signed by the shipowner or his agent stating that the specified goods have been
shipped and contains the terms and conditions on which goods are to be delivered at the port of destination.
(viii)Getting insurance policy. The forwarding agent gets the goods insured against Marine risks. Marine insurance
should be done strictly according to the importer’s instructions.

Stage 11 → Getting Certificate of Origin

Import regulations of a foreign country may require that all import consignments must carry a certificate of origin.
Trade agreements between two countries may offer a preferential treatment in respect of import duties on goods
produced in such countries. Goods manufactured in a particular country may be banned for import in the foreign

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market. In such cases, the exporter is required to send a certificate of origin to the importer. The Government of India
has authorised the Chambers of Commerce.

Stage 12 → Getting consular invoice

When the import duties are charged ad valorem (on the basis of the value of goods) the customs authorities will have to
open the packages to calculate duties. To avoid this problem, the exporter procures a consular invoice and sends it to
the importer.

Stage 13 → Preparing Commercial Invoice and Submitting Documents to Bank

Now the exporter prepares a commercial invoice for the goods shipped. After preparing the invoice, the exporter
submits all relevant documents to his bank for transmission to the importer’s bank.

Stage 14 → Securing Payment

The exporter obtains payment either by means of documentary letter of credit or through documentary bill of exchange
(D/A or D/P).

Stage 15 → Claiming Export Incentives

In the last step, the exporter claims export incentives offered by the Government for export promotion. These
incentives are as under:
(a)Cash compensatory support. Exporters of specified products are paid cash compensation.
(b)Duty Drawback. The import duty paid by the exporter on imported raw materials and excise duty paid on
manufactured goods which are exported are refunded.
(c)Import replenishment. An import licence for import of raw materials is issued to the exporter so that he may
produce export goods.

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