Common Payment Methods

in International Trade

By:
Prashant Rishi (PGP26357)
Preetham N (PGP26358)
Puneet Singh (PGP26359)
Riku Sayuj (ABM07023)
Sunil Kumar HS (PGP26372)
Sushil Darveshi (PGP26374)
Manjunath Muddaraju (PGP26373)
 Common Payment Methods used in foreign
trade
Cash in advance
 Cash paid before receipt of goods/shipment
 Easiest, fastest and cheapest, but very high risk
 Used only in cases of established mutual trust

Letter of credit
 A 3-dimensional payment system
 Involves the buyer, the seller and the bank
 Bank pays the role of an intermediary between buyer and seller

Countertrade or barter
 Seller accepts goods/services as full or partial payment of the initial trade
 Very uncommon in international trade

Escrow Account
 Used when importer and exporter are unknown to each other
 Escrow agent (3rd party) holds the payment
 On receipt of goods by buyer, it releases the payment to seller
 Common Payment Methods used in foreign
trade

Documentary Collection

Open account or credit: High risk to seller

Other Payment Methods
Consignment
Foreign distributor sells goods on behalf of exporter
Exporter retains title of the goods
After sale, payment is sent to exporter
Credit Cards
Corporate credit cards to make substantial payments
Electronic Money
Involves use of internet and digital stored value systems
Examples include EFT, RTGS and Direct Deposit
Laws related to International Trade
Laws
Laws Governing
Governing
International
International Trade
Trade

Indian
Indian International
International

FEMA
FEMA FTA
FTA WTO
WTO Regulations
Regulations UNCITRAL
UNCITRAL
Indian Laws
FEMA
Foreign Exchange Management Act, 1999
 Came into existence in June 2000, when it replaced Foreign Exchange
Regulation Act (FERA)
 Compatible with the policies of pro- liberalization of the Indian government
 Criminal violations of FERA became civil in nature in FEMA
 Provisions and penalties defined in 49 sections

FEMA deals with

 Transactions
 Various categories of persons
 Various categories of assets
 Procedural requirements
Foreign Exchange Management Act
Provisions, Rules and Regulations
Section Provisions Description
3 Dealings in foreign Only “authorized person” under the government terms
exchange can deal in foreign exchange in India
4 Holding of foreign All persons who are provided authority only can hold or
exchange purchase foreign exchange in India or outside India
5 Current Account There is no restriction regarding sale or deal of foreign
transactions exchange , if it is a current account transaction
6 Capital Account Capital account transactions are prohibited (except to the
transactions extent permitted), one still cannot invest funds in
overseas investments (unless one is an employee of a
foreign company or its subsidiary and has been offered
stock options in the foreign company)

7 Export of goods and It is the duty of exporter to declare the true and correct
services detail of goods which, he has to sell the market outside
India and must send complete report to RBI

8 Authorized Personnel RBI can authorize anybody who can deal in money
exchange or off-shore transaction and foreign exchange
Foreign Exchange Management Act
Administration, Adjunction and Appeal (Section 18)
Adjudicating Authorities Hold enquiries related to contravention of the
FEMA act

Special Directors Hear appeals against the order of the

Adjudicating Authorities
Hear appeals against orders of Adjudicating
Appellate Tribunal & High Court Authorities and the Special Directors

Penalties (Sections 13-15)

Contravention
Contravention by authorized persons
Contravention by others
Penalty
Rs. 10,000 penalty and Rs. 2,000 for every day
during which such contravention continues
3 times of sum involved. If contravention
continues, penalty of Rs 5000/day is imposed
Civil imprisonment of maximum 6 months if
case is with demanded value less than Rs 1 crore
Civil imprisonment of 3 years, if demanded
value is more than Rs 1 crore
 FEMA: Important Judgments
Convergence from FERA to FEMA
Case No Appeal (crl) 540 of 2002 Union of India Vs.Venkateshan S.
Date of Judgment 22/04/2002
Court (Bench) The Supreme Court of India (M.B. Shah & D.M. Dharmadhikari)
Case History A person was detained under COFEPOSA, and his detention order was
challenged in High Court of Karnataka
- High Court quashed it on the grounds that offence which was a criminal offence
under FERA, was no longer a criminal offence with the replacement of FERA by
FEMA 1999.
This order was challenged by filing an appeal.

Judgment The court held that the order passed by High Court to detain was based on
criminal nature of violation under FERA that has ceased to be a criminal offence
under FEMA 1999. Thus the detention cannot be continued and is not justified.

Implications 1. Detention under COFEPOSA is a preventive measure and the authorities have
the power to detain in cases when COEFPOSA is applicable.
2. The violation under FEMA should not be treated as a criminal offence as was
under FERA.
 Foreign Trade (Development and Regulation)
Act 1992 (FTA)
The act provides for the development & regulation of foreign
trade by:
1. Facilitating imports into India
2. Augmenting exports from India
3. Adjudicate on matters related to imports and exports
Provisions
Government may make provisions for facilitating and controlling foreign trade
Government may prohibit, restrict and regulate exports and imports, in all or specified cases
as well as subject them to exemptions
Government is authorized to formulate and announce an export and import policy and also
amend the same from time to time, by notification in the Official Gazette
Government is also authorized to appoint a 'Director General of Foreign Trade' for the
purpose of the Act, including formulation and implementation of the export-import policy
 International Laws
WTO Regulations
Establish a framework for trade policies
Do not define or specify outcomes
Deal with inter-governmental trade policies and laws

Based on the principles of:

Non-Discrimination
Reciprocity
Binding and enforceable commitments.
Transparency
Safety valves
UN Commission on International Trade Law (UNCITRAL)
UN Convention on International Guarantees and Stand-by Letters of
Credit
Applicable to all member states (known as Contracting States) upon ratification
Applies to guarantees and standby letters of credit as understood in the usual sense
Does not include accessory and conditional guarantees as well letters of credit other than
standby letters
Provisional Court Measures Entitles the principal/applicant /instructing party to
provisional court measures such blocking payments and
freezing proceeds of an undertaking on availability of
evidence of fraudulent or abusive circumstances

Conflict of Laws Rules
Allows the courts of Contracting States to apply domestic
laws even when the most apparent law to be applied is the
Convention, provided a choice of law is agreed between the
guarantor/issuer and the beneficiary, or is stipulated in their
undertaking.
In the absence of a choice of law, the Convention allows the
law of the Contracting State where the guarantor/issuer has
the place of business to be applied.
UN Commission on International Trade Law (UNCITRAL)
UNCITRAL Model Law on International Credit Transfers (1992)
Adopted by UNCITRAL on 15 May 1992
Deals with operations beginning with an instruction by an originator to a
bank to transfer to a beneficiary a specified amount of money
Covers matters like the obligations of a sender of the instruction and of a
receiving bank, time of payment of a receiving bank and liability of a bank to
its sender or to the originator when the transfer is delayed or other error
occurs
UN Convention on International Bills of Exchange & International
Promissory Notes
Adopted by the General Assembly on 9 December 1988
Addresses disparities and uncertainties that exist in relation to instruments
used for international payments
The Convention applies if the parties use a particular form of a negotiable
instrument indicating that the instrument is subject to the UNCITRAL
Convention
Does not apply to cheques
Thank you