International Trade Procedures & Documentation

Dr. A.K. Sengupta Former Dean, Indian Institute of Foreign Trade
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International Trade Procedures & Documentation
Export Documentation plays a vital role in international marketing as it facilitates: 
Smooth flow of cargo from the exporter to the importer, and Ensure receipt of payment from the importer

‡International managers are required to follow a certain set of procedures and deal with a wide range of documents ‡Exporters need to comply with rules, regulations and trade customs of both the exporting and importing countries ‡Exporter-to ensure receiving timely payment and importer to receive cargo in good condition 2

‡Step by step of Export transaction framework Identify an importer 
Strike a deal (Export Contract) Description of goods Price of each item Net & gross shipping weight The terms of delivery The terms of payment Insurance & shipping cost Currency of sales Port of loading Port of discharge Estimated shipping date Validity period of contract
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‡In an export transaction Documents are routed through banking institutions to avoid the risk of non-payment by importer and non-receipt of goods from exporter 
As soon as export contract is finalized exporter initiates action for procurement or manufacturing of goods. As documentary requirements and procedures for export transactions is complex ± exporter avails services of C&F agents who specialize in these operations Bill of Lading: Export Cargo is delivered to the carrier against the receipt of Bill of Lading which serves as: Receipt of cargo by the shipping company Contract of transport ³Documents of title´
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Goods can be claimed at destination only by lawful holder of Bill of Lading Bill of Lading is handed over to the importer by the importers bank only after payments is made or in case of DA, when importer makes a commitment to make the payment on a future date

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Exports Transaction Framework
Payment

Exporter¶s banks

Documents

Importer¶s bank

Exporter

Export contract

Importer

Manufacturin g/ purchase of goods Port of loading Port of discharge

Carrier

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Export Import Procedures The Procedures adopted for export are as follows

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Compliance with legal framework Concluding an export deal

Arranging export finance

Procuring/Manufacturing of goods

Appointing C&F agent

Arranging cargo insurance

Booking shipping space

Sending documents to C&F agent

Dispatching of goods to C&F agent (at the port)

Receipt of documents and cargo by C&F agent

Customs clearance, completion of port formalities, and cargo loading by C&F agent

Sending documents to the exporter by C&F agent Sending shipping adice to the importer Clearing export incentives

Presentation of documents to the negotiating bank 8 Exporter receives payment

Receiving export incentives

Compliance with Legal Framework
Obtaining Importer-Exporter Code Number from DGFT

Registration with EPC

Registration with sales tax authorities

Registration with jurisdiction central excise authorities

Obtaining Import-Export Code Number ‡Mandatory for every exporter to hold a valid import-Export code (IEC) number-without which Indian customs would not permit export ± import transaction. ‡IEC number is obtained from the Regional Authority under DGFT
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‡The number needs to be mentioned in various institutional trade documents including shipping bill, Guaranteed Remittance (GR) form ‡Ayat-Niryat form ‡Bank account ‡PAN

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Registration with Sales Tax and Central Excise authorities ‡Goods shipped out of the country are eligible for exemption from the sales tax and excise duties ‡Indian exporters are required to get themselves registered with Sales Tax Authority of the State under Sales Tax Act ‡Exporters have the option to deposit the central excise duty at the time of taking goods out of the factory and later avail its refund or take the goods out under a ³bond´ to the central excise authority without paying duty

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Registration with Export Promotion Organization ‡For obtaining benefits under Foreign Trade Policy, an exporter is required to get registered with an appropriate agency relating to his/her product line ‡The application for registration is required to accompany by self-certified copy to IEC number. The registration authority include: EPC 
EDA KVIC FIEO (Compulsory for Export house / Trading house)

‡Export Promotion agencies issue a Registration ±Cum ± membership Certificate (RCMC) ± valid for five years.
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Concluding an Export Deal ‡While concluding an Export Deal an exporter should negotiate the terms of the deal in detail ‡The processes of concluding an Export Deal is given below
Identify and negotiate with importer

Confirm the export deal

Receive an export order/contract

Examine thoroughly and ask for amendment, if any

Receive letter of credit

Scrutinize thoroughly, compare with terms of contract, Ask for amendment, if needed

Receive amended letter of credit

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‡While preparing an Export Contract, the exporter needs to take care of the following aspects 
Details of the contracting party Description of products, including quality specifications Quantity Unit price and the total value of the contract Packaging Marking and labeling Inspection of quality, quantity, and packaging by the inspection agency Shipment details such as the choice of carrier, place of delivery, date of shipment/ delivery, port of shipment, trans-shipment, etc
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Payment terms including currency, credit period, if any, and mode of payment such as the letter of credit (including type of letter of credit such as revocable, irrevocable, confirmed, unconfirmed, registered, unregistered, etc) Insurance requirement and risk liabilities Documentary requirement for payment realization include the number and type of invoices, certificate of inspection, certificate of origin, insurance policy, transport document, bill of exchange, etc Last date of negotiating documents with bank Force majeure in case of non-performance of contract Arbitration Jurisdiction
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‡Once the exporter receives the Export Order, he examines it carefully to ensure that it serves his capacity and interest to execute the export deal ‡The exporter should also scrutinize carefully the commercial and legal provisions of the exporting and importing countries ‡In case the exporter finds it difficult to fulfill the contractual obligations, such as the quality specifications, delivery schedule mode of payment availability of the inspection agency etc. he should ask for amendments ‡Generally, an exporter prepares a pro forma invoice mentioning details of the description of goods, number, quantify, rate, amount etc. as per negotiation. The importer returns the signed copy of the pro forma invoice, which becomes an export contract

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Arranging Export Finance ‡The exporter may avail of packing credit facility from commercial banks in India at concessional rates for manufacturing, purchasing and packing of goods. ‡Export credit (Pre-shipment credit) is extended to exporters to meet their working capital requirements ‡Pre-shipment credit is given for the following activities: 
Packing credit in rupee Packing credit advance in foreign currencies Advances against export incentives Import financing for opening L/C for importing goods needed as input for manufacture of export goods Export credit is normally given on collateral security through a third party guarantee or mortgage of immoval property 17

Date of receipt of export order Pre-shipment Credit

Date of shipment

Post-shipment Credit

Date of realization of export proceeds

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Procuring or Manufacturing of Goods ‡After receiving confirmed export order, the exporting firm makes preparations for procurement or production of goods ‡Different companies have their own internal communication systems which generally involve 
Sending a delivery note to the factory manager The delivery note mentions description of goods, the quantity, quality specifications, packaging requirements, date by which the goods should be manufactured, date of shipment In case of merchant exporters similar activities follow for procurement

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Send delivery note to factory/purchase department

Goods manufactured/procured

Pre-shipment inspection

Central excise clearance

Packing, marking, or labeling

Dispatching of goods to the port

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Pre-shipment Inspection ‡At the time of exports before clearing the shipment, customs authorities require submission of an inspection certificate ‡Under the Export Quality Control and Inspection Act, 1963, about 1000 commodities including the major groups like Fisheries, Food & Agriculture, Organic & Inorganic, chemicals, light engineering, jute products, are subject to compulsory pre-shipment inspection ‡Inspection is carried out in any one of the following methods In-process quality control 
Self-certification Consignment-wise quality control

‡The exporter has to obtain an inspection or quality certificate confirming to the prescribed specification
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Central Excise Clearance on Goods for Export ‡Exports are free from the incidence of taxes as per internationally accepted practice ‡All goods exported from India are exempt from payment of excise duties ‡Also provides rebate on excise duty levied on inputs used for manufacture of export products ‡Exporter first makes payments on excise duty and subsequently gets refund ‡The exporters prepares six copies of ARE 1 / ARE 2 forms and submit them to Superintendent of Central Excise ‡The exporter has option to get the goods examined and sealed by Central Excise authorities at his factory so that the goods are not examined in the port.
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Packaging, Marking and Labelling ‡Proper packaging of export cargo is essential to minimize transit and delivery costs and loses ‡Insurance cost also insists on proper packing ‡Marking for identification ‡Labelling contains detailed instructions

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Appointment of Clearing and Forwarding Agents Clearing and forwarding (C&F) agents or freight forwarders are essential links in international trade operations. They carry out a number of functions, including the following: ‡Advising exporters on choice of shipping routes ‡Reservation of shipping space ‡Inland transportation at port ‡Packing ‡Studying provisions of L/C or contract and taking necessary action accordingly ‡Warehousing insurance ‡Complying with port, shipping, and customs formalities ‡Arranging overseas transport service ‡Monitoring movements of goods to the importer ‡General advisory services
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The export department of the company prepares detailed instructions regarding shipment of consignment and sends the following documents to the C&F agent: ‡Original export order/export contract ‡Original letter of credit ‡Commercial invoice ‡GR forms (original and duplicate) indicating the IEC number ‡Certificate of origin ‡Inspection / quality control certificate ‡Purchase memo (in case of merchant exporters) ‡Railway receipt / truck / lorry receipt ‡Consular / customs invoice (if required) ‡ARE-1/ARE-2 forms ‡Declaration form (in triplicate) by the exporters that the value, specifications, quality, and description of goods mentioned in the shipping bill are in accordance with the 25 export contract and statement made in shipping bill are true.

Arranging Cargo Insurance ‡The marine insurance cover is arranged by the export department ‡The liability to take the insurance cover is determined by the conditions of the export contract ‡In case of FOB or CFR contracts, the importer has to obtain the insurance cover once the cargo is loaded ³on board´ the vessel ‡In case of CIF contracts, the insurance is to be arranged by the exporter but the policy is to be endorsed in favour of the importer ‡The nature of risk coverage and value is also specified in the export contract ‡Other procedural formalities such as arranging ECGC cover, certificate of origin, consular invoice are complicated at this state
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Booking of Shipping Space ‡Export Department gets shipping space reserved in the vessel by sending shipping instructions through C&F agent or freight brokers who works on behalf of the shipping company ‡Once the space is reserved, the shipping company issues shipping order as a proof of space reservation Dispatch of goods to Port ‡On receiving information on reservation of shipping space, the production department makes arrangements for transport of goods to the port of shipment either by road or rail. The lorry receipt or railway receipts obtained. ‡Goods generally consigned to the port town in the name of C&F agent ‡Indian Railway allots wagon on priority basis for export shipment
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‡The following documents are required for this facility: 
Forwarding note Shipping order (proof of booking shipping space) Receipt of wagon registration fee

Post Procedures and Customs Clearance ‡Service of C&F agent ‡The activities are given below

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C & F agent receives documents from exporter

C & F agent takes delivery of cargo

C&F agent stores cargo in his warehouse till shipment

C&F agent prepares shipping bill and submits along with other documents to customs house

Documentary check by customs appraiser/examiner who also instructs dock appraiser¶ about extent of physical examination of cargo

Cargo brought to the port shed for loading

Physical examination by dock appraiser who endorses µlet exports¶ on duplicate copy of shipping bill 29

Preventive officer endorses µlet ship¶ on duplicate copy of shipping bill

Cargo loading µon board¶ the vessel

Master of vessel issues µMate¶s receipt¶ to shed superintendent of port

C & F agent collects mate¶s receipt after paying port dues

C & F agent presents mate¶s receipt to shipping company

Shipping company issues bill of lading in exchange for mate¶s receipt

C & F agent dispatches bill of lading along with other documents to the exporter

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‡After receiving documents, C&F agents takes delivery of the consignment from road transportation company or railway station. ‡The cargo is stored in C&F agents¶ warehouse till shipment ‡The C&F agent initiates action to obtain customs clearance and seeks permission fo port authorities for bringing the cargo to the shipment shed ‡Customs Control To ensure that goods exported out of the country or imported in the country company with various regulations related to export-import 
To ensure the authenticity of the value of goods in the export import trade and check under-invoicing or ourinvoicing To accurately assess and collect the customs duty, wherever applicable To compile data
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‡The customs department makes both documentary check and physical examination of goods before clearanace ‡The C&F agent prepare the shipping bill and along with other documents (Export order/contract, commercial invoice, inspection certificate, GR form, ARE form) to customs for clearance ‡Despatch of Documents to Exporter C&F agent sends the following documents to the exporter 
Bill of Lading Commercial invoice attested by customs Duty drawback copy of shipping bill Original Export Order Original L/C
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Copies of consular invoice ARE-1/ARE-2 forms GR forms (duplicate)

Shipment Advice to importer ‡Soon after the shipment, the exporter sends a shipment advice to the importer intimating about: 
Date of shipment Name & vessel Expected time of arrival at the port of discharge

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Presentation of Documents at the Negotiating Bank ‡Soon after the shipment, the has to prevent the following documents to the negotiating bank. 
Bill of Exchange (First and second original copies) Commercial invoice (two copies) Bill of Lading (2 or more copies) GR form (duplicate) Export order (copies) Letter of Credit (original) Packing List Marine insurance policy

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‡The negotiating bank scrutinizes the documents as per the terms and conditions of Letter of Credit and sends the following documents to the issuing (Importers) Bank 
Bill of Exchange Commercial Invoice Bill of Lading Insurance Policy Customs/Consular Invoice Inspection / Quality Control Certificate of origin

‡The payment is made by the negotiating bank ‡Once the payment is received from the importer¶s bank, the duplicate copy of GR form is transmitted by the negotiating Bank to Exchange Control Department of RBI.
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Clearing of Export Incentives ‡Soon after the shipment, the exporter files claims for getting incentives 
Excise rebate Duty drawback

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