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EXPORT DOCUMENTATION AND PROCEDURES

Posted on:1/2/2006
Written By: P.J. SAJI MON
INDIAN RULES & PROCEEDURES OF EXPORT AND DESCRIPTIONS TO INTERNATIONAL BUSINESS TERMS FOR NEW EXPORTERS AND STUDENTS OF INTERNATIONAL BUSINESS.


 

 

EXPORT DOCUMENTATION AND PROCEDURES.

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Author:

 

           

P.J. Sajimon. M.B.A, P.G.D.C.A, D.B.S

I.C.F.A.I UNIVERSITY, Campus Programs, 403-A, 4th Floor, Shyam Anukampa, Opp: H.D.F.C Bank, C-Scheme, Jaipur-1, India. Mobile: 98280-11760

 

 

 

 

 

 

 

 

 

         TABLE OF CONTENTS

 

 

 

Contents                                                                                           Page

 

 

  Acknowledgement                 2

  Introduction                   4

 

          1.New step to start an export business                                                5

 

2.The Sequential Steps Towards Export 11

 

3.Export Documentation             17

 

Commercial Docs                22

 

Insurance Docs                23

 

   Financial Docs                25

 

   Third Party Docs                28

 

   Documents Required By Exchange Control         30

 

4. International Business & Containerisation       31

 

5. World and Indian economy             38

  

   Indian economy                41

 

Appendix                     45

 

 

 

 

 

 

 

 

 

 

 

INTRODUCTION

 

India, the world’s largest democracy with world’s second highest population and 7th largest area is also the 4th largest economy in terms of purchasing power. India’s richness and diversity of culture, geographic and climatic conditions, natural and only few other countries in the world match mineral resources. One of India’s important assets is its vast reservoir of skilled manpower. India’s enduring institutions, rooted in the principles of democracy and justice.

 

India’s known strength in handicrafts, gems & Jewellery, Apparels, software and IT and tremendous e-commerce potential ensures progressive up trend in growth of the Indian economy. The Government’s current Import & Export policies offer a more investor friendly economic environment and are geared towards more investment in promoting Import and export Trade. These measures have had a significant thrust on promoting the development of infrastructure facilities in various parts of India, Like Export Promotion Zones etc.

 

 

 

 

 

 

 

       CHAPTER-1

 

NEW STEP

TO START AN EXPORT BUSINESS

 

 

The first and foremost thing is that one has to form a Company as per the Indian Rules and regulations.  The Company can be Proprietorship, Partnership, Co-operative society, Trust, Private limited Company or Public limited Company. A Brief description of different set-up is as under: -

 

PROPRIETORSHIP/SOLE TRADERSHIP:

 

The sole trader is a person who carries on business exclusively by and for him.  The leading feature of this kind of concern is that the individual assumes full responsibility for all the risks connected with the conduct of the business.  He is not only the owner of capital but is usually the organizer and manager and takes all the profits, responsibility for losses.  There is no legal formality or need for registration to commence the business provided it is a lawful business.

 

PARTNERSHIP FIRM:

 

Partnership has two or members/persons but not more than 20 and 10 in the case of banking business.  Each one has agreed to share the profit and loss of the business in a definite proportion.  The business is carried on by all or any one of them acting for all.  It is governed under the Indian Partnership Act, 1932.  Partner should be a person competent to enter into a contract and business should be legal.  Partnership can be created orally or written.  Though the registration is not legally compulsory but registration can be effected at any time by sending a statement in the prescribed form with prescribed fee to the Registrar of Firms of the locality.  Every partner is jointly and severally liable for all acts of the firm.

 

JOINT HINDU FAMILY FIRM (H.U.F):

 

A joint Hindu family carried on a business inherited from its ancestors. It is governed by Hindu Law.  The head of the family, the Karta, has full authority.  It does not require registration.   The composition changes by births, deaths, marriages and divorces in the family.  The shares of the members are not defined.  The members are liable only to the extent of their share in the family business but the head of family has unlimited liability.

 

TRUST:

 

The business is carried on generally for the benefit of minors, persons of unsoundmind, handicapped etc. Two trustees are appointed.  Trust deed is written and registered with the Registrar of Trust of the State.

 

CO-OPERATIVE SOCIETY:

 

Minimum 7/10 persons competent to enter into a contract are required to form a Co-operative society.  It is a voluntary organization.  It can be registered with the Registrar of Co-operative societies for carrying out lawful business.  Co-operative Societies Act governs it.   It is advantageous from taxation point of view, e.g. Profit is distributed amongst members in the predetermined ratio after transferring of 25% of profit to Reserves.

 

PRIVATE COMPANY:

 

A minimum of two and maximum of 50 persons are required to form a private company.  It may commence business on grant of certificate of Incorporation by the Registrar of Companies on receipt of Memorandum of Association and Article of Association (with certain prescribed restrictions) along with prescribed fee.  It needs to have two Directors.  It may be limited by shares and or by guarantee.  Company has separate entity from its members.  The Companies Act, 1956, governs it.

 

PUBLIC COMPANY

 

A minimum of seven persons required forming a Public Company

After obtaining Certificate of Incorporation, it has to obtain Certificate of Commencement of Business for commencing business.  These certificates are issued by Registrar of Companies on filling certain documents, such as Memorandum of Association and Article of Association, Address of Registered office, Approval for Name, Statutory declaration, along with prescribed fee, it needs to have a minimum of three Directors.  It may be limited by shares and or by guarantee or with unlimited liability.  The Companies Act, 1956, governs it.

 

LETTER HEAD:

 

Once the type of set up has been decided, the next step is to print letterhead.  The entrepreneur may entrust the job to commercial artist to design the letterhead and logo of the company.  The size of the letterhead should be “A-4” as per international practice.

 

RUBBERSTAMP:

 

As soon as the name of the company is decided, a Rubber Stamp of the company is to be made.

 

BANK ACCOUNT:

 

The Company now has to open a Current Account in any Commercial Bank.  While opening account, the entrepreneur may see the facilities, particularly Foreign Exchange transaction facilities in the Bank.  The selection of bank is very important, particularly keeping in view of the long-term relations to be established not only with the concerned heads of the Foreign Exchange Department but also with the staff for getting prompt services.

 

 

 

PERMANENT ACCOUNT NUMBER (P.A.N ):

 

The Company now has to apply for a permanent (Income Tax) number from the local office or via designated agencies of Income tax department, in the prescribed format along with necessary documents and Fee. It will help you to forward with a smooth business without any type of taxation related problems.

 

IMPORTER- EXPORTER CODE NUMBER (IEC):

 

Every person (whether an individual or firm or company etc.) importing or exporting goods into or from India will require a Code Number unless specifically exempted by the Chief Controller of Imports and Exports.  The customs authority will not allow any person to import or export goods into or from India unless such person holds a valid Importer-Exporter Code Number.  The Concerned Regional Licensing Authority, under whose jurisdiction the applicant’s firm is located, will allot code number.

 

Application for allotment of IEC should be made in triplicate in the prescribed form duly accompanied by Bank receipt/Demand draft evidencing payment of fee along with the following documents:

A)    A)    Xerox of income tax PAN.

B)     B) Certificate from the banker in the form as mentioned in the IEC application form.

 

 

BUSINESS IDENTIFICATION NUMBER (BIN):

 

Application for allotment of BIN should be made in duplicate in the prescribed form duly to the Concerned Regional Licensing Authority, under whose jurisdiction the applicant’s firm is located or also can made the application online directly trough the website DGFT to have BIN.

 

 

 

 

S.S.I REGISTRATION (TINY UNIT):

 

All exporters engaged in manufacturing process and whose investment in plant and machinery is less than five lakhs can file an application for Registration as a Small Scale Industrial unit.  The SSI unit registration benefits you in many kinds in your future business. It attracts levies and priority in bank loan interest/electricity rates etc.

 

 

SALES TAX REGISTRATION (TIN):

 

For producing export goods, manufacturers exporters/traders, should get themselves registered with the Local Sales Tax Department of the State/Union Territory where they are located.

 

CENTRAL EXCISE (RBA):

 

All manufacturer-exporters and merchant-exporters engaged in exporting excisable goods under “bond” are required to open and maintain a Running Bond Account (RBA) with the Maritime Collector of Central Excise. However, SSI units whose clearances don’t exceed Rs.25 lakhs consequently are exempt from excise duty.

 

 

REGISTRATION WITH EXPORT PROMOTION COUNCILS:

 

The general policy in respect of the role and functions of the Export promotion Councils is given separately.

 

An exporter may obtain Registration-Cum-Membership Certificate (RCMC) from any one-export promotion council (EPC) relating to his main line of business.  However, if the export product is such that it is not covered by any

 

 

EPC, the Regional Licensing Authority concerned thereof may issue RCMC in respect.  The Federation of Indian Export Organization (FIEO) shall issue the RCMC.

 

The Chief Controller of Imports and Exports may, on his own motion or otherwise, direct an EPC or FIEO to register or de-register an exporter of otherwise issue such other direction to them consistent with and in order to implement the provisions of the Act, the rules and orders made in the Import and Export Policy of Ministry of Commerce, Government of India.

 

 

CLEARING AND FORWARDING AGENT (C&F/C.H.A):

 

Clearing and forwarding agents offer a host of services like preparation of shipping bill, getting the documents authenticated at customs after getting the consignments checked by customs officers. Some other services them are as under: -

 

a)      a)      Door to door services

b)      b) Warehousing facilities

c)      c) Regular air consolidation services in India

d)      d) Booking of shipping space

e)      e)      Arrangements for insurance policies

f)       f)       Arrangements for shipping on board

g)      g)      Handling of exhibition goods, its clearance & display at pavilion.

h)      h)      Preparation and processing of all kinds of shipping documents

i) i)        Efficient shipment tracking systems like availing of Flight details with routes and date etc.

 

Now the exporters have to take special attention to submit the necessary post shipment documents with his bank and concerned customs/ licensing authority for getting Licenses/drawback claims if any.

 

 

CHAPTER-2

 

THE SEQUENTIAL STEPS TOWARDS EXPORT OPERATIONS

 

 

1.                        Preliminary Stage: Procurement of all kinds of registration as mentioned above.

 

2.                        Procurement of an export order and its processing: -

a)                  Terms & conditions of Contract

b)                   Mode of payment

c)                   Confirmation of the order by exporter.

 

3.                        Procurement/Manufacture of goods, as per the specification of the importer, by securing Pre-shipment finance from your bank on the basis of security of L/C or Confirmed Export Order or Personal bond along with ECGC policy.

 

4.                        Clearance of Excise Authorities, from the premise of the exporter after physical verification:

a)                  On payment of duty and subsequent rebate or

b)                  Clearance under bond.

 

5.                        To fulfill the requirement of quality control and pre-shipment Inspection.

 

6.                        Dispatch of goods to the gateway port for shipment by road or Rail and requisite application to be made to the insurance company for obtaining insurance cover for various risks.

 

 

 

 

 

7.                        Completion of formalities relevant to MEP or floor price regulation, canalization, certificate of origin, ECGC cover, consular invoice, export license etc. wherever required.

 

8.                        Forwarding of shipment documents to C&F /CHA agent, along with requisite instructions including booking of space with sea-carrier whose sailing schedule and ports of call suits the exporter’s delivery commitment.   The documents required by C&F agent for processing prior to shipment are: -

 

a)                  a)                  Commercial invoice.

b)                  b)                  Original export order.

c)                  c)                  Original copy of L/C.

d)                  d)                  Original G.R form /SDF (It is now waived off by       R.B.I for shipments values less than US$ 25000).

e)                  e)                  Original AR-4A/AR-4 form with duplicate copies.

f)                   f)                   Original excise gate pass.

g)                  g)                  Packing and weight lists.

h)                  h)                  Certification of inspection.

i) i)                    Declaration form in triplicate.

j) j)                    Consular invoice where necessary.

k)                  k)                  Export license where necessary.

l) l)                    Endorsement regarding floor price, canalization etc. where necessary.

m)                m)                Purchase Memo on demand where necessary.

n)                  n)                  Railway or Lorry receipt.

o)                  o)                  Certificates of origin.

 

 

 

 

 

 

 

 

9.                        9.                        The C&F agent takes delivery of the goods from the rail or road carrier and arranges for storage in a warehouse, till carting order is received from port authorities.  In the meantime prepares the shipping bill with requisite details for customs clearance.  Shipping bill along with other documents mentioned above is submitted to the export department of the Customs House, for examination.

 

10.                    10.                    On clearance of the shipping bill by the Customs Authorities, the C&F agent presents the port trust a copy of the shipping bill to Shed Superintendent of the port authorities and obtains Carting order for bringing the export consignment in the transit shed for physical examination.  Thereafter Dock Challan with requisite details along with assessment of Dock charges payable is prepared.

 

11.                    11.                    Dock Challan and the Shipping Bill are forwarded to the preventive officer for physical examination of the goods and “Let Ship/Let Export” endorsement.

 

12.                    12.                    The Stevedore, and issue of Mate Receipt by the Master or the Mate of the ship bring the cargo alongside the vessel with the help of port labour for loading on the ship.

 

13.                    13.                    On payment of port charges, C&F agent obtains the Mate Receipt from the port authorities. It is then presented to the Customs Preventive Officer for certifying the fact of shipment on all copies of Shipping Bill.  AR-4A/AR-4 form and other

 

 

 

 

 

 

 

 

 

Documents requiring post-shipment endorsement from the Preventive Officer.

 

14.                    14.                    The Mate Receipt is presented usually to the Agent of the shipping company for obtaining requisite number of originals and copies of the Bill of Lading.

 

15.                    15.                    The C&F agent then forwards to the exporter the following documents: -

1.                   1.                   Full set of Bill of lading.

2.                   2.                   Export Promotion copy of the shipping bill.

3.                   3.                   Copies of customs invoice.

4.                   4.                   Duplicate copy of AR-4A/AR-4 form.

5.                   5.                   Duplicate copy of GR /SDF form (where necessary).

6.                   6.                   Copies of commercial invoice duly attested by customs.

7.                   7.                   Original export order.

8.                   8.                   Original L/C.

 

16.                    16.                    On receipt of these documents, the exporter sends to the importer the shipment advice and forward the following documents: -

1.                   1.                   Non-negotiable copy of the Bill of Lading.

2.                   2.                   Customs invoice.

3.                   3.                   Commercial invoice.

4.                   4.                   Packing list.

 

 

 

 

 

 

 

17.                    17.                    He also files a claim with the Maritime collector of Central excise in the port town for rebate of central excise duty or for getting credit in the bond account.

 

18.                    18.                    The exporter secures payment for the value of the export consignment on presentation and processing of the following documents to the negotiating bank.

 

1.                   1.                   Duplicate copy G.R/SDF form.

2.                   2.                   Bill of exchange, first and second exchange.

3.                   3.                   Full set of Bill of Lading (clean on board), all negotiable copies and one non-negotiable copy.

4.                   4.                   Original copy of L/C.

5.                   5.                   Two copies of commercial invoice.

6.                   6.                   Two copies of customs invoice, if necessary.

7.                   7.                   Two copies of Certificates of Origin.

8.                   8.                   Two copies of Packing list.

9.                   9.                   Two copies of Marine Insurance Policy.

10.               10.               Four copies of bank certificate.

11.               11.               Additional copies of commercial invoice to be certified by the bank and returned to the exporter.

12.               12.               Consular invoice, where necessary.

 

19.                    19.                    The negotiating bank transmits/sent the following documents to the banker of the importer by first air mail/express courier followed by a second set of these documents by the second air mail/courier to ensure receipt of at least one set, if the other is lost in transit or delayed. (Now a day Messages through SWIFT are authorized).

 

 

 

1.                   1.                   Bill of exchange.

2.                   2.                   Negotiable Bill of Lading.

3.                   3.                   Commercial Invoice.

4.                   4.                   Customs Invoice.

5.                   5.                   Insurance Policy.

6.                   6.                   Certificate of Origin.

7.                   7.                   Consular invoice, Export certificate. Where necessary.

8.                   8.                   Packing list.

 

  

20.                    20.                    The negotiating bank transmits/send the duplicate copy of

GR/SDF form to the Exchange Control Department of R.B.I.  The original copy of bank certificate, along with attested copies of commercial invoice are returned to the exporter, and the duplicate copy of the bank certificate is forwarded to the Jt. DGFT, Import & Exports of the area on repatriation/ receipt of the bill payment.

 

 

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CHAPTER-3

 

EXPORT DOCUMENTATION

 

An export trade transaction distinguishes itself from a domestic

 Trade transaction in more than one-way. One of the significant variations between the two arises on account of the much heavier documentation work which is characteristic of an export transaction.  Some of the documents are a must in export business, arising as they do on account of “custom of trade” and conventions governing international commercial practices.  Besides, quite few of these owe their existence to certain statutes; rules and regulations governing export trade, which inter alias, include export trade control, foreign exchange regulations, pre shipment inspection, central excise and customs.

 

The documentation and procedures are rendered complex on account of the inevitable involvement of a number of intermediary agencies and government authorities such as freight forwarders, carriers, insurance companies, banks, export promotion councils, Inspection agencies, R.B.I etc. In order to simplify the documentation procedure, a new Aligned Documentation has been developed.

 

ALLIGNED DOCUMENTATION SYSTEM (ADS)

 

Based on UN layout key and the experience gained in many other developed countries, the government of India has decided to introduce the ADS with effect from 1st October-1991.  This system involves the preparation of documents on a uniform and standard A4 size of paper.

 

 

 

 

 

 

 

The documents are aligned to one another in such a way that the common items of information are given the same relative slots in each of the documents included in the system.  This makes it possible to prepare one “Master Document” embodying the information common to all the documents included in the aligned series and to run off all the aligned documents from the same Master Document with the help of suitable masking and reproduction techniques.  The use of masks is intended to blank out such information as is not required in a particular document.

 

 

Standardized and aligned pre-shipment export documents

 

On an average, about 24 commercial and regulatory documents are associated with an export transaction in India.  They include 15 important commercial documents and are discussed as under:

 

a.                   a.                         Performa Invoice

b.                   b.                         Commercial Invoice

c.                   c.                         Packing list

d.                   d.                         Shipping instructions

e.                   e.                         Certification of Inspection/Quality Control

f.                    f.                          Insurance declaration

g.                   g.                         Certificate of insurance

h.                   h.                         Shipping order

i.                     i.                           Mate receipt

j.                     j.                           B/L/ Combined Transport Document

k.                   k.                         Application for certificate of origin

l.                     l.                           Certificate of origin

 

 

 

 

 

 

m.                 m.                       Bill of exchange

n.                   n.                         Shipment advise

o.                   o.                         Letter to the bank for collection/negotiation.

 

                      

The commercial documents are those which, by custom or trade are required for effecting physical transfer of goods and their “title’ from the exporter to the importer and the realization of export sale proceeds.

 

Regulatory Documents   

 

Regulatory Pre-shipment export documents are those, which have been prescribed by different agencies in compliance of the requirements of various rules, and regulations under relevant laws governing export trade such as export inspection, forex, customs etc…. On an average there are 9 regulatory documents.    

 

1. Gate pass-1/gate pass-2 prescribed by: -        

Central excise Dept.

2. AR4-A/AR-4 form -do-

3. Shipping bill/for export    Customs dept.

For export of goods ex bond -do-

For export of duty free goods -do-

For export of dutiable goods -do-

For export of goods under claim for -do-

Duty drawback

 

 

 

 

 

 

 

4. Export application/Dock Challan    Port trust

Port trust copy of shipping bill

5. Receipt for payment of

Port charges -do-

                                    6.            Vehicle ticket                                        -do-     

                                    7.            GR/PP/SDF forms                                R.B.I

                                    8.            Freight payment certificate

9.                   9.                   Insurance premium payment

Certificate.

DOCUMENT CONNECTED WITH TRANSPORTATION OF GOODS.

 

1.                        1.                        Air Way Bill (AWB) Air consignment Note.

 

The receipt issued by an airline or its agent for the carriage of goods is called airway bill or air consignment note. It is issued in terms and conditions of the contract of carriage of goods.  It is not a document of title and it is not issued in a negotiable form.

 

Generally AWB is issued in three copies, viz; for the carrier, for the consignee and for the consignor.

 

2.                        2.                        Postal Parcel Receipt (PPR).

 

Like the AWB, the PPR evidence merely the receipt of the goods to be exported to the buyer and is not a document of title.

 

 

 

 

 

 

 

 

3.                        3.                        Bill of Lading (B/L).

 

A Bill of Lading is the most important document in Foreign Trade. It is generally issued by a shipping company. It services as a receipt  from the shipping company who undertakes to deliver the goods at agreed destination on payment of freight in a prearranged manner and also a document of  title to the goods.  B/L is generally made out in the sets of two or three originals.  All the originals are duly signed by the master of ship  or the agent of the steamship company and all the originals are equally valid for taking the delivery of goods and once one original copy is utilized the other originals become full and void.

 

B/L is  nor a negotiable instrument in terms of Negotiable  instrument Act, However, it is a practice to call the original copies as negotiable copies.

 

4.                        4.                        Combined Transport Document (CTD)

 

With the introduction of multimode movement of goods in container on the basis of single contract from and to interior of the country, government has established Inland Container Depot (ICDs) at selected center.  These dry depots have made it possible to cover the entire movement of goods, from ICD to destination, under one transport document called CTD.  Rules governing combined transport document are designed by International Chamber of Commerce (Brochure No.298) considering the international practices.

 

 

 

 

 

 

 

 

 

 

 

COMMERCIAL DOCUMENTS.

 

1.                        1.                        Performa Invoice

 

As the name denotes, it is an invoice in established Performa, payment of which is not intended.  These invoices are used for obtaining financial assistance like Packing Credit from a banking institution, as Performa invoice together with an offer, acceptance on which will form a legal contract.

 

2.                        2.                        Commercial Invoice

 

It is the most widely used invoice in commercial transactions.  It is the statement of account of sale rendered by the seller to the buyer and is prepared on seller’s letterhead or in the prescribed form on A-4 size paper. It contains the name of the buyer and his address, date, reference number, quantity, marks description of goods unit price, total value of goods, terms of payment/C  & B/L no. Etc.

 

3.                        3.                        Consular Invoice

 

A consular invoice is required by some countries like Canda, USA, etc…a consul for invoice is required to be prepared in a prescribed format and it should be signed/certified by the consul of the importing country located in the country of export.  The main purpose of a consular invoice is to enable the importer’s country to collect accurate and authenticated information about the value, volume, quality, source etc; of the import for assessing import duties and for other statistics purposes.

 

 

 

 

 

 

 

4.                        4.                        Customs Invoice

 

Countries like USA, Canada etc. need custom’s invoice. It is generally made out on a special form prescribed by the custom authorities of the importing country and helps for allowing entry of goods in the importing country at preferential tariff rates.  The invoice forms are generally available at the consular office of the importing country and are required to be signed and withenessed after duly filling the same.

 

5.                        5.                        Legalized/ Visaed Invoice

 

These are the invoices sworn for their genuineness by the seller as being correct before the appropriate consulate/chamber of commerce/embassy as the case may be and they bear the stamp and authentication of the consulate/chapter of commerce/embassy as being in order.  They collect a nominal charge from the seller for doing this.

 

 

INSURANCE DOCUMENTS

 

 

1.                        1.                        Letter of insurance.

 

This is analogous to cover note issued by the broker. It is stated that particular subject are placed under insurance and certificate/policy of insurance will be issued later on.

 

 

 

 

 

 

 

 

 

 

2.                        2.                        Broker’s Certificate

 

This is also not acceptable as broker issues the same, as broker acts for the insured and cannot compel insurer to accept the proposal of insurance.

 

3.                        3.                        Insurance Certificate.

 

The insurance on “open cover” or “floating” policy covering all shipment on certain terms and subjects to conditions laid down.  Unless the insurance certificate gives details of the conditions of cover it is not so much value to third party who negotiate the shipping documents.

 

4.                        4.                        Insurance Policy.

 

This is a basic legal document-evidencing contract of insurance between the insurer and insured.   It gives full details of all the risks covered.  Marine or transit insurance policies can be assigned by the insured merely by endorsement and delivery.   Insurance policies are issued in different forms like floating policy, open policy or cover, specific policy etc…

 

A floating policy is a contract of insurance for covering a number of shipments, the details of which are not finalized when the contract of insurance is conclude.  The relevant details like name of the vessel, destination, description of cargo etc. is therefore required to be declared subsequently and endorse in the policy.

 

An open cover /policy is valid for a given period of time or permanently open.  As per this policy the insurer undertakes to insure all the shipments for which the details are already intimated to the insurer.

 

 

 

 

 

A specific policy covers specific shipments and such policy is readily available for submitting with the export documents.

 

The coverage of risks is classified into categories like A, B, C etc. and the insurance policies are issued accordingly.

 

 

FINANCIAL DOCUMENTS

 

 

1.                        1.                        Draft

 

It is bill of exchange.  According to section 5 of the Negotiable Instruments Act, 1881 a bill of exchange is “ an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only on or to the order of a person to the bearer of the instrument.”

 

A bill of exchange contains an order from the Creditor to the debtor to pay a specific amount to a person mentioned therein.  The make of the bill is called the “drawer” the person who is directed to pay is called the “drawee”.  The person who is entitled to receive payment is called “payee”.

 

 

 

In an export transaction it is advisable that an exporter draws a draft, which may either “at sight/on demand or usance”. Drafts are mainly make in two sets with all other concerned documents and mailed to the foreign correspondent through an authorized dealer for presentation to the drawee/importer, When any of the drafts is paid on presentation it is called an “at sight/on demand draft and if accepted when it is a usance draft by the drawee, then the second draft becomes null and void.

 

 

2.                        2.                        Clean Bill and Documentary Bill

 

When the drawer of a bill encloses with it a document of title to goods or any other equivalent document it is called a documentary bill.  In an export transaction the exporter delivers to the banker, documents like full set of B/L, AWB, PPR etc… together with documents like drafts, invoices, packing list etc… for presentment to the drawee. Depending upon the tender of the bill i.e. D/P or D/A, the documents are delivered to the drawee against payment or acceptance.  If no such documents are attached with the bill, then it is called as a clean bill.

 

3.                        3.                        Stamp Duty

 

All drafts are drawn on the drawee. Unlike in most of the foreign countries, the Indian stamp Act does not required the sight drafts to be “stamped”. I.e no stamp duty is applicable to drafts drawn at sight/demand bills.  Drafts drawn on usance basis require to be adequately stamped.  Stamp duty is the same no matter whether the bills is drawn or negotiated in India.

 

 

 

4.                        4.                        Acceptance of Bill

 

A bill of exchange payable on demand or at sight or on a fixed date does not need acceptance and hence presentment for acceptance is unnecessary unless such presentation is specifically desired.  A draft payable after sight must be presented for acceptance since the maturity date of the bill can only be determined after such acceptance.

 

When the drawee of a bill signified his consent to the drawer’s order in the bill of writing his name across the face of the bill with or without the word “accepted” the bill is said to be accepted.  Acceptance of a bill, therefore,

 

means that the drawee gives his consent to pay the amount mentioned therein on the due date/maturity date.  The foreign correspondent bank usually advises the due date to the exporter through his banker in India.

 

5.                        5.                        Noting/Protesting of Foreign Bills

 

At the time the bills are forwarded to the exporter’s bank, it is advisable to provide the bank with clear instructions/steps to be taken in case the bills are dishonored on presentation or maturity as the case may be.  The drawer/holder for value may cause the dishonor to be noted by a Notary Public on the instrument or upon a paper attached thereto or partly upon each.  The notary formally makes a demand of acceptance or payment upon the acceptor or drawee and on his refusal to do so notes the same on the bill.  Thus “Noting” means the fact that the bill has been dishonored is recorded on it and puts the drawer/holder for value on a higher pedestal in the eyes of law.  This is done within a reasonable time after dishonor.  Usually the notary makes the following observations: -

 

 

a)                       a)                       The date of dishonor.

b)                       b)                       The reason, if any assigned for such dishonor.

c)                       c)                       The Notary’s charges.

 

The foreign bills must, thereafter Protested for dishonor, for it is to be placed as documentary evidence in the court of law.  In other words the observations made thereon by the notary will be taken at face value.  A protest is a certificate issued by the Notary Public attesting that the bill has been dishonored and will usually contain: -

 

 

 

 

a)                  a)                       The name of the person for whom and against whom the instrument has been protested.

b)                  b)                       A statement that the Notary Public and the reason for dishonor demanded acceptance or payment from the acceptor or drawee.

c)                  c)                       The place and time of dishonor of the bill

d)                  d)                       The signature of the Notary Public.

 

 

THIRD PARTY DOCUMENTS

 

1.                   1.                   Certificate of Origin.

 

Generally the importer to furnish to him a certificate stating that the goods are of his country’s origin will call upon an exporter.  Independent bodies like, the Chamber of Commerce, Handicrafts Board, Export inspection Council etc, will give this certificate…  Who Issue them against payment or nominal fees after being satisfied of the origin of goods.  There may be a preferential tariff in favour of goods from particular countries and therefore, it has to be ensured that the exporter who has brought them into his own country from some other place of origin has not reshipped the goods; which is not eligible for the preference.

 

2.                   2.                   Black List Certificate.

 

This is to certify that the ship/aircraft carrying the goods has not touched a particular country on its journey or that the goods are not of a particular country.  This certificate is usually called where countries have strained political relations with another.

 

 

 

  

3.                   3.                   Packing List.

 

This document showing details of goods contained in each parcel/shipment.  It shows item-by-item the contents of the containers or parcels shipped to enable the buyer/receiver of the shipment to check the shipment.

 

4.                   4.                   Manufacturer’s/Supplier’s quality/Inspection Certificate.

 

This is a certificate to the effect that the goods, which have been manufactured/supplied, are as per the requirement of the contract of sale.

 

5.                   5.                   Certificate of Inspection.

 

Inspection certificate, indicating that goods have been inspected before some countries need under some contracts or shipment.  This certificate is generally required to be issued by one of the authorized independent Inspection Agencies like Export Inspection Agency, Textile Committee, and Central Silk Board etc.

 

6.                   6.                   Certificate of Analysis.

 

Certificate regarding the chemical analysis of the goods issued by a competent office.  Certificate of shipping agent that a certain lot of goods have been shipped.

 

7.                   7.                   Health/Veterinary/Sanitary Certificate.

 

When the goods imported are foodstuffs, marine products, livestock etc. a certificate from the health/veterinary/sanitary/authorities is called for.  This is because the importer desires to know if the goods are fit for human consumption.

 

 

  

 

 

DOCUMENTS REQUIRED BY EXCHANGE CONTROL

 

 

1.                   1.                   GR/ EXCHANGE CONTROL COPY /SDF FORM.

 

 This is one of the most important documents required by Reserve bank of India for Exchange Control Purpose.  But now GR/SDF forms has been waived off incase the total value of shipment is less US$-25000.

The GR form contains the brief details of shipment same as mentioned in the shipping bill. This comes under the Foreign Exchange Management Act.  But SDF is a self-declaration made by the exporter the repatriation of the amount within the stipulated time, under the Indian Customs EDI systems for Exports (ICES/E).

 

 

2.                   2.                   P.P FORM

 

This is also one of the most important documents for exchange control, prescribed by RBI, if the export parcel/shipment is routed through Authorized Foreign Post office, as a postal parcel.  But now PP forms has been waived off incase the total value of shipment is less US$-25000.

 

 

 

 

********* 

 

 

 

 

 

CHAPTER-4

 

 

INTERNATIONAL BUSINESS & CONTAINERISATION

 

 

 

More than 90 per cent of India’s foreign trade in terms of volume moves by sea-routes.  These movements consists of Dry and Wet bulk cargoes such as iron ore, coal, fertilizer, foodgrains, crude oil & petroleum products and manufactured and semi-processed items classified as general cargoes.

 

To facilitate the movement and marketing of these commodities and products, two distinct systems of transportation have been established on the following patterns: -

 

1)            1)                       Tramp Services for bulk cargoes; and

2)            2)                       Liner Services for general cargoes.

 

 

     

Modern ship building technology has brought forth dry cargo bulk carriers and tankers to reduce per unit cost of transportation in tramp shipping.  Likewise the container technology has brought in the cellular ships to carry general cargo in containers to reduce cargo-handling cost and promote faster movements.

 

 

 

 

 

 

 

 

 

 

The container system of transportation involves bulking of the break-bulk cargoes by putting them in containers of standard sizes shown below: -

 

Length Streadth Height

 

10’ X 8’ X 8’

20’ X 8’ X 8’-81/2’-9’-91/2’

30’ X 8’ X 8’

40’ X 8’ X 8’

 

Sometimes height increased up to 91/2’ to improve load factor for voluminous products.  The International Standard Organization for facilitating the use and acceptability of containers internationally standardizes the dimensions.  A gantry grane of requisite capacity is designed for loading and unloading of containers.  Similarly for stacking and movement of containers in the port premises Tran strainers and spreaders are also designed.  The containers are lifted from four corners, which are fitted with automatic locking devices.   Aluminium, steel and other alloys of metal are used in manufacture of containers.  The tare weight of a 20’ container is kept within 2 to 21/2 tones.

 

The container technology is expected to bring in economies of scale through bulking of the break-bulk liner carries.  An average container vessel will have four times care carrying capacity of a conventional vessel with fast speed and fewer ports of all the turnover of its capacity is also higher.  The latter an aspectios further augmented by loss time spent at loading and discharge ports.  However it is highly capital-intensive technology and therefore capacity utilization assumes a critical aspect.  The efficiency and effectiveness of the container transportation system is also largely depending upon the availability of suitable port and inland infrastructure, for handling and movements of containers.  Containerization usually has to pass through three stages in its

 

development.  The movement of containers would progress in the following phases: -

 

 

a)                  a)                       From port to port (Pier to Pier)- the carriage of containers is confined to the scalage of journey.

b)                  b)                       From Inland Container Depot (ICD) in one country to ICD in another country- the movement of containers is extended to the interior parts of the country and

c)                  c)                       Door to Door-the movement of containers is further extended right to the factory gates of the manufacturer/exporter to the door of the importer’s warehouse in a foreign country.

  

Thus the container transportation system through effective co-ordination of international movements operates on a much wider scale and endeavors to provide maximum convenience to cargo owners.  The system aims at: -

 

a)                  a)                  Faster and reliable delivery of goods.

b)                  b)                  Better protection of fragile & containable cargoes.

c)                  c)                  Ensuring original quality of goods.

d)                  d)                  Reduction in pilferage.

e)                  e)                  Physical separation of dirty cargoes.

f)                   f)                   Simplification of documents & procedures.

g)                  g)                  Reduction in the Packing cost of the cargo.

h)                  h)                  Reduction in cargo handling cost & ship’s time at ports.

 

 

 

 

 

 

The total impact of the resulting benefits of container is loads to quick turn-round of vessels and larger turnover.  In the second stage of container technology, with the establishment of ICDs at Anapanti, Amigaon, Ahmedabad, Coimbatore, Delhi, Jaipur, Ludiana and other centers, major disabilities of the upcountry shippers would be removed.  About 25 per cent of

 

the general cargo is containerized.  Four major ports in India; Bombay (Mumbai) and Cochin on west coast and Madras (Chennai) and Calcutta (Kolkatta)/Haldia on east coast handle over 4 lakhs containers annually.

 

 Half of them are handled at Bombay. Special types of containers are designed for specific types of cargo when required by the trade.  The examples of them are: -

 

a)                       a)                       Open top containers or flats for machinery and unpacked heavy pieces.

b)                       b)                       Bulk containers for dry bulk cargoes.

c)                       c)                       Tank containers for liquid bulk cargoes.

d)                       d)                       Refer containers for temperature controlled cargoes

e)                       e)                       Perforated containers for cargoes with moisture.

f)                        f)                        Insulated containers for fruits & vegetables and

g)                       g)                       Hi-tech containers for voluminous cargo.

  

Usually the most common size in use is the 20’ container.  The capacity of a container vessel is expressed and tally of containers is made in terms of this size by use of the short form TEUs (twenty feet equivalent units).  The technical details of these containers are given below: -

 

 

 

 

Category-I

 

Length Width Height Cube

 

Overall 20’ 8’ 8’

6058mm 2438mm 2438mm

Internal 19’-51/2” 7’-8” 7’-4” 1105 Cu.Ft.

5929mm 2337mm 2235mm 31.3M

 

Max. Payload 18000 Kgs.

 

 

 

Category-II

 

Overall 20’ 8’ 8’-6”

6058mm 2438mm 2591mm

Internal 19’-51/2” 7’-8” 7’-91/2” 1174 Cu.Ft.

5929mm 2337mm 2376mm 33.3M

Max. Payload   18000 Kgs.

 

Volumetric Calculation of Weight for charging: -

 

When shipping lightweight and bulky packages, use the following formula to help you determine their volumetric weight:

 

Multiply the width by the length by depth of your shipment and divide the total by 6000.

 

 

 

 

For example

 

If the width is 50cm, length 40cm and the depth 30cm.

 

 Vol. Wt. = 50cm x 40cm x 30cm  = 10 Kgs

6000

 

 

Now, see the role of Railways and Warehousing Agencies in the container transportation system: -

 

a)                       a)                       Terminal operators at inland Container Depots, Container

Freight Stations and Container yards.

b)                       b)                       Stuffing and Destuffing of containers.

c)                       c)                       Croup age and aggregation of Cargoes for LCL/FCL containers.

d)                       d)                       Repair, clearing and marking of containers.

e)                       e)                       Leasing of containers.

f)                        f)                        Warehousing and storage.

g)                       g)                       Local transportation and handling of containers at various transit and intermediate points in the intermodel circuit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Extend of Containerization feasible for different product groups of general cargo.

 

 

Commodity. Percentage Containerisable.

 

1.Coffe, Tea, Spices, Dairy products, eggs 100%

Fish and fish preparation, fruits, and vegetable

Leather and leather products, medicines, drugs

And pharmaceutics, plastics and plastic products

Tobacco and textile manufacturers.

 

2.Cereal and cereal preparations, chemicals 75%

Crude animal and vegetable products,

Electrical machinery, non-ferrous metals,

Oil seeds, nuts and kernels textile fibers.

 

3.Chemical elements, machinery, fixed vegetable oils 50%

And fats, non-metallic mineral manufacturers.

 

4.Crude fertilizers and minerals, animal 25%

Feedstuffs, mineral tars and crude chemicals,

Pgeen and pgeen boards, pulp and waste pgeen,

Sugar and sugar preparation, transport equipment,

Iron & steel products.

 

 

 

 

 

 

 

CHAPTER-5

 

              WORLD AND INDIAN ECONOMY

 

Due to the strong demand in the United States and vibrant Asian economies, merchandise trade grew by 2.5% in 2002, up from a 1% decline in 2001. But trade growth was uneven and masked the sluggish trade performance in many regions. The trade downside risks on predictions for 2003 are large, bearing in mind the continued sluggishness in the world economy, the conflict in Iraq and the setback caused by the spread of the Severe Acute Respiratory Syndrome (SARS).

 

In value terms measured, exports rose by 4% to USD 6,240 billion nearly offsetting the decline of the preceding year. Commercial services trade expanded a little faster than merchandise trade reaching a new record level of USD 1,540 billion.  The merchandise trade of developing economies in Asia grew by about 12.5 per cent in volume terms, driving the entire continent’s exports and imports to grow by double digits.

 

 

 

 

 

 The region also saw diverging growth paths between Japan, still Asia’s largest economy, and China and India, the two most populous nations in the world. In value terms, China’s merchandise exports and imports increased by more than 20 per cent while India’s also grew at double-digit rates. China has over taken the U.K to become the fifth largest trader in the world.  Japan’s merchandise export growth was only 3 per cent while imports contracted.

 

The imports into the US grew by 3 per cent driven by continuing consumer spending and increasingly expansionary fiscal stances. But exports declined by nearly 4 per cent partly reflecting reduced demand from some key trading partners whose economies were either hardly growing, such as Western Europe and Japan, or in outright contraction, as in Latin America.

 

Western Europe’s trade stagnated in volume terms with merchandise exports increasing by just 0.6 per cent and imports declining by 0.5 per cent.

 

 

 

 

 

 Latin America saw on of its worst years with the crises in Argentina, Venezuela and difficulties in Brazil in the run-up to the national elections. Latin America’s merchandise imports declined by over 5 per cent in 2002 although merchandise exports rose by about 2 per cent with the decline in intra-regional trade being balanced by increased shipment to other regions.

 

Oil exporting LDC saw a strong increase in the dollar value of their shipments as they increased their production and volume of trade.  Exports of the non-fuel commodity exporting countries continued to rise after marked gains in 2001.  However, exporters of manufactured goods experienced stagnation.

 

In the year 2002, the real effective exchange rate of the UD dollar depreciated while that of the Euro and Yen appreciated.  However, the realignments did not seem to have materially affected the US trade deficit, nor current account surpluses being accumulated by the Euro Zone Countries, Japan and developing Asia.

The tune of Foreign Direct Investment (FDI) has been rise in 1990’s and peaked in 2000. But there is till good rate of FDI inflows to China, Central/Eastern Europe that continued to increase very strongly.

 

INDIAN ECONOMY

 

The Actual GDP growth is estimated to be at 4.4 per cent in 2002-03, down from 5.6 per cent in 2001-02.  According to these estimates, the impact of the adverse supply shock from drought conditions following a weak southwest monsoon turned out to be worse than initially anticipated.  The rate of savings of the private sector declined marginally from 4.1 per cent in 2000-01 to 4.00 per cent in 2001-02 while the public sector dis-saving continued to worsen from 2.3 per cent in 2000-01 to 2.5 per cent in 2001-02.    For the first time after 1975-78 period, the overall saving investment balance turned around in 2001-02 into a surplus of 0.2 per cent of GDP.  While the public sector savings gap widened in 2001-02 from 8.7 per cent of the GDP in 2000-01 to 8.8 per cent, the private sector surplus increased from 9.5 per cent to 10.3 per cent of GDP.

 

The foreign exchange reserves increased by US $ 21.3billion during 2002-03 to US$ 75.4 billion, equivalent to more than a year imports. The increase in reserves was almost entirely on account of foreign currency assets despite prepayment of the multilateral debt amounting US$ 3.0billion.

 

 

 

The sharp increases in the reserves in the recent period have raised issues about the costs and benefits of reserves.  The financial   cost of additional reserve accretion is estimated to be low.  These costs are likely to be more than offset by the return on additional reserves.  Furthermore, high reserves have provided important benefits in the form of precautionary lines of defense against unforeseen external shocks, the welfare gains from smoothing domestic consumption and investment, and the more visible benefits of ensuring financial stability despite an unsatisfactory international environment.

 

The external debt increased by US$ 3.5 billion during April-September 2002 mainly on account of non-resident deposits and official aid.  The external debt to GDP ratio is estimated to have declined from 20.0 per cent at end March 2002 to 20.1 per cent at end-September-2002.

 

 The ratio of short-term debt to total debt as well as to total reserves continued to remain comfortable at 3.0 per cent and 4.8 per cent respectively as at end of September 2002.  The strength of the foreign exchange reserves enabled prepayment of foreign currency loans from the Asian Development bank (ADB) and the World Bank amounting to US$ 3.0 billion in February 2003 by the Government of India.

 

 

 

As per the data’s from the Directorate General of Commercial Intelligence and Statistics (DGCI&S) indicative a vigorous recovery of merchandise exports from a slump in the preceding year.  Export growth of over 18 per cent during 2002-03 was broad-based, led by gems and Jewellery, engineering goods, chemicals and related products, textiles and ores and minerals.  In terms of market destinations, growth of exports was mainly to USA, China, the Organization of Petroleum Exporting Countries (OPEC), European Union and Singapore.

 

In the year 2002-03, our exports has been increased by 18 per cent over the previous year from US$ 43.8 billion to US$ 51.7 billion, imports rose by over 17 per cent to from US$ 50.7 billion to US$ 59.4 billion. 

 

 In tune with the changing financial architecture and the trends in business environment and to consolidate the economic gains, Reserve Bank of India ushered in several policy initiatives during 2002-03 including allowing banks and financial institutions to issue Certificates of deposits on floating rate basis, freedom to banks to decide the period of reset on variable rate deposits, permission to banks to open Offshore Banking Units in special Economic Zones.

 

 

 

Meanwhile, the process of liberalization of the insurance sector continued during the year 2002-03.  More insurance companies were registered with IRDA taking the total number of insurers to twenty-seven, thirteen each of life insurance and general insurance companies and one reinsurance company.  IRDA reported a growth of 38.9 per cent and 26.3 per cent during the year 2002-03 for life insurance and general insurance sector respectively.

 

 

  **************

 

 

 

 

N.B: All rights of this article reserves with author.


  
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