Import

---------- Forwarded message ---------From: lalwani preeti <[email protected]> Date: Wed, 14 Mar 2012 20:41:17 +0800 (SGT) Subject: Fw: b.com 3rd year import project To: "[email protected]" <[email protected]>

----- Forwarded Message ----From: lalwani preeti <[email protected]> To: preeti lalwani <[email protected]> Sent: Friday, 13 August 2010 11:16 PM Subject: b.com 3rd year import project

ACKNOWLEDGEMENT I gratefully acknowledge the profound intellectual debt to my guide Mr. Miza Raheel Hassan for his able guidance and encouragement all the way to successfully complete my study paper. I also take this precious chance to express my hearty thanks to Dr.(Sr.)Alphonsa vattoly, Principal of St.Francis College for providing me the valuable opportunity to work on this project. I express my gratitude to Commerce Department of St.Francis College for Women for giving me the opportunity to work on such an interesting project. It has been a rewarding experience for me. I also take this golden opportunity to thank Ms. S. Sunita for guiding me in my project work.

CERTIFICATE This is to certify that Miss Preeti Lalwani student of B.com III ft of St. Francis College for women has successfully completed her on the job training in import procedure and documentation at Global Import and Export Co as a part of her curriculum. Date: Signature: Mrs.Sunita Department of Commerce St.Francis College for Women Begumpet, Hyderabad

INDEX ØIntroduction to foreign trade and imports ØCompany profile ØProduct profile ØPre-requisites of an importer ØImport finance ØSchemes and incentives ØEXIM policy ØCustoms duty ØImport procedure ØSWOT analysis ØMode of payment ØINCO terms ØDocumentation ØConclusion ØBibliography ØAnnexure

ØRemarks

INTRODUCTION TO FOREIGN TRADE Foreign trade can be considered a number of different things, depending on the type of trade one is talking about. Generally speaking, foreign trade means trading goods and services that are destined for a country other than their country of origin. Foreign trade can also be investing in foreign securities, though this is a less common use of the term. Foreign trade is all about imports and exports. The backbones of any foreign trade between nations are those products and services which are being traded to some other location outside a particular country’s borders. Some nations are adept at producing certain products at a cost – effective price. Perhaps it is because they have the labor supply or abundant natural resources which make up the raw materials needed. No matter what the reason, the ability of some nations to produce what other nations want is what makes foreign trade work. In some cases, the products produced in a foreign trade situation are very similar to other products being produced around the world, at least in their raw form. Therefore, these products know as commodities are often pooled together in one mass market and sold. This is called trading commodities. The most common commodities often sold in foreign trade are oil and grain. There are a number of issues with imports and exports that must be taken into consideration when conducting foreign trade. For example, some countries have industries they may want to protect. These industries may be in competition with foreign companies for the opportunity to sell products domestically. To protect domestic trade, countries may institute tariffs, which are taxes on certain foreign goods. While this way to generate revenue, its real value lies in helping those domestic companies.

For example, to encourage domestic production of ethanol in the United States, a tariff has been imposed on Brazilian ethanol. This protects the ethanol market in the United States, which would not otherwise be able to compete with Brazilian ethanol based on cost. In Brazil, ethanol is made fromsugar, which produces far more ethanol gallons per acre than corn, the primary crop used for ethanol in the United States. KINDS OF FOREIGN TRADE 1. Export trade

When a country sells goods to another country, it is called export trade. In other words, export trade involves supplying home goods for foreign use. For example, India sells poultry products to gulf countries and tea to the U.S.A. for India such selling of goods to other countries is called export trade.

2.

Import trade

When a country buys goods from another country it is called import trade. It consists of procuring foreign goods for home use. For example, India buys machinery from West Germany; it is an import trade for India.

3.

Entrepot trade

When the goods are imported from one country and the same are exported to another country, such trade is called Entrepot trade. This is also called as “re-export trade”. This trade is done when the ports are conveniently situated to serve as a distributing point for neighbouring countries or when the relations between two countries are not harmonious, then a third country can engage in this Entrepot trade and facilitate the flow of goods between the hostile countries.

IMPORTANCE OF FOREIGN TRADE Foreign trade plays a very crucial role in country’s economic development. Foreign trade is beneficial to a country in the following ways. Its importance lies in its advantages to both the trading partners. 1. It leads to better utilization of resources in the country and this improves the standard of living of the people. This is possible due to import of goods which are produced more efficiently elsewhere and production of goods of which the country possesses necessary resources and skills for economical production. 2. Economically under developed countries can develop faster with the help of imported machinery, equipments and technical skills from developed countries.

3. Import and export of essential goods often reduce violent fluctuation of prices of those commodities in the country, when there is domestic shortage or surplus deficiency of supply or shortage of goods due to natural calamities can also be met by import of surplus available in other countries. 4. Foreign trade relation facilities cultural contract with the people of other countries, which automatically lead to spread of knowledge and skill.

INDIA AND FOREIGN TRADE Foreign trade has played a crucial role in India’s economic development. India’s export covers a wide range of items in agricultural and industrial sector as also handlooms, cottage, and handicraft articles. Project export which includes consultancy, civil construction and turnkey contracts has also made a significant progress in recent years. Computer software exports have also increased significantly. Import have increased substantially, bulk of which comprise items like petroleum and petroleum product, fertilizers and semi precious stores for export and capital goods, raw material, consumables and intermediaries for industrial production and technological upgradation. India is the major world exporter of cut and polished diamonds though bulk of rough diamonds are imported. India is a major exporter of tea because of fertile land in Assam and Darjeeling. India’s trade turnover increased from US$95bn in FY02 to US$391bn in FY08.India’s export increased from US$44bn in FY02 to US$156bn in FY08.India’s import increased from US$51bn in FY02 to US$236bn in FY08. INTRODUCTION TO IMPORTS The term “import” is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an “importer” who is based in the country of import whereas the overseas based seller is referred to as an “exporter”. Thus an import is any good (e.g. a commodity) or services brought in from one country to another in a legitimate fashion, typically for use in trade. It is a good that is brought in from another country for sale. Import goods or services are provided to domestic consumers by foreign producers. An import in the receiving country is an export to the sending country. Import, along with exports, form the basis of international trade. Import of goods normally requires involvement of the customs authorities in both the country of import and the country of export and is often subject to import quotas, tariffs and trade agreements. When the “imports” are the set of goods and services imported, “imports” also means the economic value of all goods and services that are imported. TYPES OF IMPORT There are two basic types of import:

1) Industrial and consumer goods 2) Intermediate goods and services

Companies import goods and services to supply to the domestic market at a cheaper price and better quality than competing goods manufactured in the domestic market. Companies import products that are not available in the local market.

There are three broad types of importers:

1) Looking for any product around the world to import and sell. 2) Looking for foreign sourcing to get their products at the cheapest price. 3) Using foreign sourcing as part of their global supply chain.

Direct import refers to a type of business importation involving a major retailer (e.g. Wal-Mart) and an overseas manufacturer. A retailer typically purchases products designed by local companies that can be manufactured overseas. In a direct import program, the retailer by passes the local supplier (colloquial middle-man) and buys the final product directly from the manufacturer, possibly saving in added costs. This type of business is fairly recent and followsthe trends of the global economy.

REASONS FOR IMPORT There are number of supporting reasons why import business and services is growing at such a fast rate:

1) Availability An individual or business man or an importer needs to import because there are certain things that he can’t grow or manufacture in his home country. For example Bananas in Alaska, Mahogany Lumber in Maine and Ball Park franks in France.

2) Cachet

A lot of things, like caviar and champagne, pack more cachet, more of an “image”, if they are imported rather than home-grown. Think Scandinavian furniture, German beer, French perfume, Egyptian cotton. It all seems classier when it comes from distant place.

3) Price Price factor is also an important reason for import of products. Some products are cheaper when imported from foreign country. For example Korean toys, Taiwanese electronics and Mexican clothing, to rattle off a few, can often be manufactured or assembled in foreign factories for far less money than if they were made on the domestic country.

IMPORT IN INDIA

The rising middle income groups of consumers in India and their increasing levels on expenditure on various products has resulted a faster rising demand of the Indian import business. Major imports of India include Cereals, edible oils, machineries, fertilizers and petroleum products. Total import from India estimated to be around US$187.9 billion. India is also bulk importer of edible oil, sugar, pulp and paper, newsprint, crude rubber and Iron and steel.

IMPORT REGULATORY BODY

In India, all the activities related to import are handled by the Directorate General of Foreign Trade (DGFT), a government organization that also controls the export business in India. DGFT and all its regional offices work under the Ministry of Commerce and Industries, Department of Commerce, Government of India. All the procedure and policies in matter related to the import is announced by the DGFT through its notification, appendices and forms.

CATEGORIES OF IMPORT All types of imported goods come under the following four categories:

1) FREELY IMPORTABLE ITEM

Most capital goods fall into this category. Any product declared as Freely Importable Items does not require import licenses.

2) LICENSED IMPORTS There are number of goods, which can only be imported under an import license. This category includes several broad product groups that are classified as consumer goods; precious and semi-precious stones; products related to safety and security; seeds, plants and animals; some insecticides, pharmaceuticals and chemicals; some electronically items; several items reserved for production by the small scale sector; and 17 miscellaneous or special category items.

3) CANALISED ITEMS There are certain canalized items that can only be importer in India through specified channels or government agencies. These include petroleum products (to be imported only by the Indian Oil Corporation); nitrogenous phosphatic, potassic and complex chemical fertilizers (by the Minerals and Metals Trading Corporation) vitamin-A drugs (by the State Trading Corporation); oils and seeds (by the State Trading Corporation and Hindustan Vegetable Oils); and cereals (by the Food Corporation of India).

4) PROHIBITED ITEMS Only four items-tallow fat, animal rennet, wild animals and unprocessed ivory are completely banned from importation.

CATEGORY OF IMPORTER On the basis of product to be imported and its target buyer, importers categories are divided into three groups for the purpose of obtaining import licensing:

1) ACTUAL USERS An actual user applies for and receives a license to import of any item for personal use rather for business or trade purpose.

2) REGISTERED EXPORTERS

It is defined as those who have a valid registration certificate issued by an export promotion council, commodity board or other registered authority designated by the government for purpose of exportpromotion.

3) OTHERS The two types of actual user license are:

a) GENERAL LICENSES This license can be used for the imports of goods from all countries, except those countries from which imports are prohibited.

b) SPECIFIED LICENSES This license can only be used for imports from a specific country.

COMPANY PROFILE

Global Import and Export Co 5-6-253/1, Aghapura, Nampally, Hyderabad, AP 500001 Global Import and Export Company was established in 2007. Within a short period it has created such an image that people are able to recognize the company in the global market. The company is an import as well as export company. Presently the company is dealing with South Africa and China. The company has its own firm in China because of which the trade between both the countries becomes more feasible and it does not require any Letter of Credit. The office address of China is: K17, 6/f Nanfung Dasha 2nd Xidi road,GZ The company receives the products and sells in bulk to the retailers. The company is expanding not only through car accessories distribution and sales to retailers but also by integrating other range of products

like Weighing Scales, Gems and Pearls. Recently the company has imported the car accessories like HID HI/LO, LED Roll, LED Bulb, LED Stickers, LED Logo, and LED Show Piece. As an importer, they have been able to achieve confidence of their buyers, by providing them the products which are quality products at a reasonable price. Their aim is not merely to get the turnover, but also to get total satisfaction of their customers. Now India is emerging as an Industrial Nation, and is able to produce almost all kinds of goods at reasonable rate and best quality but it imports goods which are cheaper in other countries and more in India. The government also provides various incentives for earning valuable foreign exchange for the country for meeting the requirement for importing major technology and essential inputs. In today’s generation as the demand for 4 wheelers are increasing due to the high level of income, people are able to afford to buy the product because of which there is a demand for the product. In the present business situations, when market is slashing down, the company is able not only to maintain but also to develop their selves at a rapid pace. And the company still aims at exploring new markets and maintains the current ones. The company thrives to give the best every time and is able to do that, due to a large network of agent’s allover India which makes possible for the company to give best product at reasonable time. Matching the world-class standard is what the company forever strives for and this tempts them to procure all their products from the leading names to stay put on the top. Objectives: The objectives of Global Import and Export Company are: Respond more quickly to the needs of the trade Computerization of customs related functions including import/export, general manifest control, ex-bond clearance of warehoused goods, goods imported against export promotion schemes, monitoring of export promotion schemes. Reduce interaction of the trade with Government agencies Provide retrieval of information from other custom locations to have uniformity in assessment and valuation Provide management information system for policy making and its effective revenue and pendency monitoring and Provide quick and correct information on import/export statistics to Director General of Commercial Intelligence and Statistics

PRODUCT PROFILE The products imported by Global Import Export Company are as follows: Weighing Scales Car Accessories/electrical appliances HID HI/LO LED ROLL LED STICKERS LED BULB LED LOGO Gems Pearls From the past one year the importing goods are: 1) HID HI/LO

Details:

Voltage: 12V

Place of origin: China

Features:

ØUV cut glass for headlight protection ØLuminous flux: 3200lem ØHigh brightness: 3 times of the luminous flux as halogen lamps ØLong life time: 3000 hours ØLower power consumption Ø100% compatible with original halogen system ØWaterproof, dust resistant and anti-vibration ØHigh safety

2) LED ROLL

Place of origin: China

Led is a short for light-emitting diode. It isan electronic semiconductor device that emits light when an electric current passes through it. They are considerably more efficient than incandescent bulbs, and rarely burn out. LEDs are used in many applications such as flat-screen video displays, and increasingly as general sources of light.

Features 1.1000mm*12mm SMD strip led (60PCS RGB LED strip) 2. Working Voltage ; DC 12 3. Working Current ; 1020-1140mA 4. LED View Angle: 120 5. Grade of Water proof IP68 6. Package: 5meters /Reel

3) LED STICKERS Place of origin: China Specifications LED Sticker Light Flexible Soft Used as car body decoration White PCB or Black PCB available Soft and flexible surface Size: 30cm, 60cm, 90cm, 120cm Colour: white, blue, red, green, rainbow

4) LED BULB LED light bulbs are made by arranging identical light emitting diodes closely to form the shape of a light bulb. The visible light thus produced closely resembles day light and is very capable of replacing the traditional light bulbs such as incandescent light bulbs and compact fluorescent lamps. These bulbs are adjustable into the normal bulb holders and available in 1.5 w and 3.2 w. These bulbs can be used for mains [230 v ac] operation and 12 v dc operation [for solar powered home lights]. It can be used in place of incandescent lamps or cfl lamps. It consumes negligible power up to 3 w because it is base on led and has approximately 50000 hours life. 5) LED LOGO Details: Place of origin: China Voltage: 12V Colour: red, blue, yellow, etc Material: LED Specifications

ØLED car logo, auto logo, car led sign ØThe latest amazing car accessory ØVarious colours are available

PRE – REQUISITES OF AN IMPORTER Registration of importer is a pre – requisite for import of goods. No person can import goods without obtaining an Importer- Exporter Code Number from regional licensing authority, unless he has been specifically exempted from obtaining the same. In other words, registration with the Regional Licensing Authority is a pre – requisite for import of goods. Customers will not clear the goods unless the importer has obtained Import Export Code Number. However, no such registration is necessary for persons importing gods for their personal use or for persons importing goods from/to Nepal provided the C.I.F value of a single consignment does not exceed Indian Rs 25,000/-. In India, IEC number or Importer- Exporter Code Number is issued by DGFT i.e. Director General of Foreign Trade. 1. OBTAINING IMPORTER-EXPORTER CODE NUMBER

1) APPLICATION FOR IEC NUMBER An application for grant of IEC code number should be made in the prescribed form. The application duly signed by the applicant should be supported by the following documents:

a) Bank receipt (in duplicate) / Indian demand draft for payment of the fee of Rs. 1000/- certificate from the banker of the applicant firm as per Annexure 1 to the form. b) Two copies of passport size photographs of the applicant duly attested by the banker of the applicant. c) A copy of Permanent Account Number issued by Income Tax Authorities, if PAN has not been allotted, a copy of the letter of legal authority may be furnished. d) Declaration by the applicant that the proprietors/partners/directors of the applicant firm/company, as the case may be, are not associated as proprietor/partner/directors with any other firm/company the IEC number is allotted with a condition that be can export only with the prior approval of the RBI India.

2) PROCESS OF ONLINE APPLICATION

Online form has been designed to ensure feeding of all the required information by prompting user wherever a field is left blank. Application has to submit scanned copies of PAN (Permanent Account Number) and bank certificate of deposits along with their application.

There are 2 options for payment of fee.

1) DEMAND DRAFT If fee is paid by Demand Draft, IEC will be generated only after receipt of the physical copy of the application.

2) ELECTRONIC FUND TRANSFER If IEC application fee is paid through Electronic Fund Transfer facility, IEC number will be generated b the licensing office automatically and the number can be viewed online by the applicant.

3) GUIDELINES FOR FILLING UP IEC FORM

1) All applications must be made in the prescribed form in duplicate, duly accompanied by Bank Receipt/Demand Draft evidencing payment of fee. 2) Application form should be submitted in neatly typed bold letters. Handwriting forms are also accepted. 3) Each page of the document must have the signature of the authorized person with an ink pen. 4) Supporting documents in duplicate, duly self attested as specified earlier must be enclosed wherever applicable. 5) Items of information relevant to applicable should only be filled in and remaining items may be marked ‘Not Applicable’. 6) Two copies of the passport size photograph of the applicant duly attested by the applicant’s banker shall be submitted. 7) Modifications of particulars of the applicant should also be furnished on this form by filling the relevant items.

4) DUPLICATE COPY OF IEC NUMBER Duplicate copy of IEC number is issued to those importer (or exporter) who had lost their original IEC number. Importers are required to submit an affidavit and a fee of Rs 200 to obtain a duplicate copy of IEC number.

5) SURRENDER OF IEC NUMBER Any importer who doesn’t wants to continue his import business may surrender the IRC number to the issuing authority. On receipt of such intimation, the issuing authority shall immediately cancel the same and electronically transmit it to DGFT for onward transmission to the Customs and Regional Authorities.

However the following categories of importers or exporters are exempt from obtaining the ImporterExporter code number (IEC).

1) Importer covered by clause 3(1) [Except sub-clause (e) and (1) and exporters covered by clause 3(2)[Except sub-clause (i) and (k) of Foreign Trade] order 1993. 2) Ministers/Departments of the central or a state government.

3) Persons importing/exporting goods for their personal use not connected with trade or manufacture or agriculture. 4) Persons importing/exporting goods from/to Nepal provided the CIF value of a single consignment does not exceed Indian Rs 25,000/-. 5) Persons importing/exporting goods from/to Myanmar through Indo Myanmar border areas provided the CIF value of a single consignment does not exceed Indian Rs. 25,000/-.

2. OBTAINING IMPORT LICENSE

While the majority of the goods are freely importable, the Exim Policy (2007) of Indian prohibits import of certain categories of products as well as conditional import of certain items. In such a situation it becomes important for the importer to have an import license issued by the issuing authorities of the Government of India.

vIMPORT LICENSE ISSUING AUTHORITY

In India, Import License is issued by the Director General of Foreign Trade. DGFT Delhi office is situated in Udyog Bhawan, New Delhi 110011.

vVALIDITY OF IMPORT LICENSE

Import licenses are valid for 24 months for capital goods and 18 months for raw materials components, consumables and spares, with the license term renewable.

vSAMPLE OF IMPORT LICENSE A typical sample of import license consists of two copies:1) FOREIGN EXCHANGE CONTROL COPY It is utilized for effecting remittance to foreign seller or for opening letter of credit.

2) CUSTOMS COPY It is utilized for presenting to customs authority enabling them to clear the goods. In the absence of custom copy, import will be declared as an unauthorized import, liable for confiscation and or penalty.

CASE STUDY The Import-Export code number or the IEC number of Global Import and Export Company is 0907013953. IMPORT FINANCE

INTRODUCTION Imports can be financed in several ways. Importer can request his banker to open a letter of credit in favour of his supplier. Under this system supplier gets paid immediately upon submission of specified documents to the bank. Importer obtains release of these documents either upon payment or debit to his loan account. He can ask the supplier to send the documents to the banker, whom he instructs to make payment by debiting his account. Importer gets loan either on Trust receipt or hypothecation of imported goods to pay for the imports. Where an importer contracts to pay installments, permission of RBI need to be taken, he can obtain a loan from the bank to pay for the instalments. Import under credit extended by International Financial institution and Foreign Governments can be financed either through commitment (i.e. government of India commits a part of loan to the importer and gets paid in Indian rupees) or reimbursement method i.e. after the supplier, the bank gets reimbursed by loan giving agency. Export import Bank of India lends to importers to finance their export related imports. vIMPORT FINANCING India followed a restricted import policy till mid eighties. Nothing could be imported without a license involving cumbersome procedures along with intricate documentation. Although some liberalization measures were taken in second half of eighties, real breakthrough came only in 1991. Steady progress has been made in nineties in replacement of quantitative restrictions, licensing and discretionary control over imports by deregulation, simplification of procedures and protection through tariff and exchange rates. Export import policies of 1992-97 and 1997-2002 were the steps in this direction. It is against the background of nature and significance of India’s import trade, one has to understand import financing methods and techniques. Import financing involves making payment to foreign entities for the goods purchased from them. From the management decision making viewpoint, it means making decisions regarding terms of payment, arranging funds,

involving choice of financial institution and the instrument to be used for making payment and involving choice of intermediary, through whom the payment is to be made.

It is advisable that financial planning for the imports should be made much in advance so as to avoid unnecessary huge demurrages on the imported goods lying uncleared for want of payment for the documents/customs duty. Moreover, further losses may result due to fall in prices of the import consignment. It is therefore essential that either the importer should own sufficient funds for completing the import transactions or have obtained necessary credit limits from financial institutions/ banks in India. Obtaining funds from the bank will entail submission of credit proposals to the bank enabling it to sanction a suitable limit for the importer.

Banks normally do not extend any fund based finance to meet import needs of their customers, barring few exceptions. However, they enable industrial units and others to have access to imported inputs and machinery by establishing letters of credit in favor of the overseas supplier/sellers. Letter of credit is a non-fund credit facility offered by banks to their constituents of integrity and proven track record in meeting their commitments promptly, without need for any post import finance.

Banks establish L/Cs only on account of their customers, who hold a valid Importer-Exporter Code Number from the Regional Licensing Authorities and produce underlying sales contract between the Indian importer and the overseas sellers, accompanied by valid import license in the name of the importers, wherever necessary. Banks take into account the norms for holding imported inventory, make an appraisal of the request for opening an L/C like any other fund based working capital facility, prescribe suitable margin/securities and then decide to establish the L/C.

Banks have simplified the documentation procedures for L/C limits sanctioned to their customers and usually, every time when an L/C is to be established, an L/C application-cum-agreement is obtained from the importer which will also serve as an advance document for the L/C.

Banks also ensure that the terms of import as per underlying sales contract do not contradict the current Trade/Exchange Control Regulations in force.

vMETHODS OF IMPORT FINANCE

The methods of import financing include: financing under L/C, financing against bills under collection, financing against deferred payment, financing under foreign credit and finance by EXIM bank of India. These following things are discussed as under:

1) FINANCING IMPORT UNDER LETTER OF CREDIT Letter of credit can be defined as a commitment of bank to pay seller of goods or services a certain amount provided he presents stipulated documents evidencing the shipment of goods or the performance of services within prescribed period of time. As a credit instrument and as a means of making and securing payment, the letter of credit is an essential instrument for conducting world trade today. It fulfills all the requirements Railway Receipts sent to the bank, the relative goods or Railway provided the conditions regarding its use are stated in clear and unambiguous terms. Import letters of credit financing involves three principal stages: i) ii) iii) Requesting bank to open letter of credit Retiring documents under letter of credit Import Trust receipt facility

Each time a letter of credit is opened, the importer has to file a formal stamped “Letter of credit application and agreement” in the prescribed form. The application should set forth the precise, terms and conditions under which the importer wishes his bank to establish the credit, and describe the documents covering the goods purchased which the bank is to receive in exchange for payments. As the correct opening of the credit is the first essential to the ultimate success of the transaction and as the L/C will be issued on the basis of information supplied by the importer in the L/C application, it is absolutely necessary that the information supplied by him must be complete and precise. After due scrutiny of the application form the relevant letters are issued by the bankers subject to the Uniform Customs and Practice for Documentary Credits, in order to guard against confusion and misunderstanding. Letters of credit may be opened by mail or fax depending upon the urgency of the situation. It may be revocable or irrevocable. Irrevocable letter of credit implies that the terms and conditions of the credit can be amended only with the consent of all the concerned parties. At times, the importer may ask the issuing bank to get the credit confirmed by another bank. It means that in addition to the issuing bank (the confirming bank) assumes the commitment to pay provided the terms of the credit are fulfilled. Letter of credit is sent by the issuing bank to a bank in the supplier’s country with a request to deliver the same to the supplier, called the beneficiary. If the beneficiary is satisfied with terms and conditions mentioned in L/C he ships the goods, obtains the required documents and submits them to bank, usually his own, unless a name has been specified in the credit. Bank scrutinizes the documents and if he finds them in conformity with the L/C and the reimbursement instructions, he

pays the suppliers. Thereafter he sends the documents to the issuing banker who again scrutinizes the documents with references to the terms of the credit. If he is satisfied, he pays the negotiating banker. After paying the negotiating banker the issuing banker releases documents of title to the importer on his executing a stamped. LETTER OF TRUST (TRUST RECEIPT) It means that the importer undertakes to deposit with the bank the sale proceeds immediately on realisation but in no case later then period stipulated in the trust letter. The import trust receipt facility is given by the banks to first class customers only. Bankers also grant import loans to their approved customers and undertaken the clearance of goods on their behalf. In such cases, the bills received under letter of credit are retire to debit of loan account of the customer by the bank and the relative documents forwarded to an approved clearing agents for clearance of goods. After the goods are cleared, dispatched and receipts are delivered to the importer after receiving the due amount. Where arrangements exist, the goods may be stored in the bank go down under bank’s lock and released against proportionate payments as and when desired by the importer.

2)

FINANCING AGAINST BILLS UNDER COLLECTION

In the case of imports not covered by letters of credit, the documents are forwarded by a bank in the supplier’s country, known as the collecting bank, for collection of proceeds from the importer and payment to the supplier through the remitting bank. In such cases, the collecting bank would examine the documents and the instructions stated in the covering schedule to ensure that all the stated documents have been received intact and the bill of lading and the bill of exchange are endorsed in its favour or blank endorsed to enable the bank to handle the documents. The bank than presents the documents to the importer on payments (in case of sight or D/P bill) or against written acceptance (in case of usance or D/P bill) where the importer is eligible to receive the documents only on payment, he can avail an import loan or a trust are provided in Uniform Rules for Collection (URC) publication No. 322 issued by International Chamber of Commerce, Paris sometimes, shipping documents may be sent by the exporter directly to his importer. In such a case, banks are required to call for documentary evidence of import license, if any. Payment for bills in respect of imports through post can also be arranged through a bank. In such cases, the relative postal receipts must be produced as evidence of shipment through post and an undertaking to submit postal wrappers within three months from the date of wrappers.

3) FINANCING IMPORTS AGAINST DEFERRD PAYMENT

Import under deferred payment implies that the supplier has agreed to supply goods on credit terms extending beyond six month. In such cases, authorized dealers has to refer each deferred payment case to RBI for prior approval of advance payment, bank guarantee and installments (principal and interest) with documents viz. exchange control copy of import license, if any, contracts copy and statement of desired facilities. Appraisal for issue of guarantees or loans is similar to term finance. For importing under deferred payment, the importer should have sufficient cash generated to pay the due installments. He should arrange for payment of advance and down payments from his own resources which would cover bank’s margin requirement. Imported machinery has to be hypothecated to the bank and the importer should counter guarantee the transaction.

4) FINANCING UNDER FOREIGN CREDIT Government of India gets assistance in the form of loans and development credits from international financial institutions as also foreign governments. These loans are of two types ---- tied loans and loans in free foreign currencies. Terms and conditions of each loan along with detailed instructions regarding the procedure to be followed for opening letters of credit, submission of documents etc. are set out in public notices issued by DGFT. RBI also issues circulars for each foreign credit giving important instructions relating to such imports. Payment under foreign credit may be made under (a) Letter of commitment method or (b)Reimbursement method Under the letter of commitment procedure, remittances from India for the relative imports are not permitted. The importer in India obtains a letter of commitment from the Government of India after furnishing a bank guarantee for payment of rupee equivalent of the import value. The importer furnishes the letter of commitment to the bank opening L/C. Then the usual procedure follows. The shipping documents are delivered to the importer on payment. Where no L/C is opened at all and no receipt of document covering imports rupee deposits are made to Government account by the importer through the bank. Under the reimbursement method, the aid giving the country makes available to the Government of India by submitting the required documents.

5) IMPORT LOANS BY EXPORT IMPORT BANK OF INDIA Bank finances imports from third countries required for executing projects overseas for which Indian exporters have won contracts. Regarding imports into India, Exim Bank finances such as imports which are export related, i.e. imports by Export Oriented Units, import of computer system for development and export of software, import of plant, machinery, technology for up gradation/expansion of production capability for export markets. Exim bank also finances bulk imports of consumable input and canalized items. Under this scheme, promissory notes drawn in favour of commercial banks by their importer borrowers are discounted, Exim bank will issue letter of commitment for finance on request

from commercial bank indicating its requirement. The quantum of finance depends on the condition that import order should not be les than Rupees one Crore.

vIMPORT TRADE FINANCING SERVICES

ØPre-Import Working Capital Program can be used for the purchase of materials, services and labor to fulfill an import sales contract. ØAccounts Receivable Factoring provides immediate cash for importers in return for domestic accounts receivable. ØAsset Based Line Of Credit provides an effective tool to finance imports by advancing funds based on a percentage of the importers qualified receivables, inventory and other assets. ØInventory Finance provides specialized financing of inventory for importers in a variety of industries yielding the highest advance rate in the inventory finance industry. ØPurchase order Financing is a short term solution for importers to finance the purchase or manufacture of goods that have been pre-sold to a creditworthy customer. Ø Equipment Leasing provides specialized leasing program for importation of capital equipment. ØImport Letters of Credit Financing Programprovides an importer a payment system as well as a financing mechanism through structured letter of credit terms of Deferred Payment and Acceptance credits. POST IMPORT FINANCE Issuing bank, on receipt of documents under the L/C established by it, examines them and ensures that they conform to the terms of the L/C. If so; they intimate the importer to pay for and retire the documents. The applicant, at this stage, may utilize the balance in his Cash Credit Account (if the item of import is a raw material, etc.) or Term loan limit (if the item of import is capital good or equipment) and retire the documents. In respect of the imports made by the exporters, banks may grant packing credit advances to meet the cost of import documents. Otherwise, normally banks do not extend any specific post import finance to the importers who have to suitably manage their fund flows to meet the bills in time/on the due dates.

Before handling over the import documents to the applicant, banks collect charges by way of interest (including surcharge @ 25% of interest), commission, etc. to the debit of applicant’s account.

Within 3 months from the date of retirement of import documents, importers are required to submit the documentary proof of import in the form of Customs certified Exchange Control copy of the Bill of Entry to the bank, failing which the banks will report importer as defaulters to the RBI. CASE STUDY The finance will be taken by the exporter of another country so the finance or inspection details could not be obtained.

SCHEMES AND INCENTIVES

INTRODUCTION The Government of India offers many incentives to Indian importer under special schemes. These schemes are mostly available on those imported product, which will be latter on used for manufacturing of goods meant for export. This not only stimulates the industrial growth and development but also brings the foreign currency after the final export process. The following are some of the important import incentives offered by the Government of India, which significantly reduce the effective tax rates for the import companies: vPREFERENTIAL RATES

Any type of import incentive under preferential rate is only applicable for the import of goods from certain preferential countries such as Mauritius, Seychelles and Tonga provided certain conditions are satisfied. The certificate of origin is very important in order to avail of the benefits of such concessional rates of duty.

vDEPB ( Duty Entitlement Pass Book)

Duty Entitlement Pass Book in short DEPB is basically an export incentives scheme. The objective of DEPB scheme is to neutralize the incidence of basic custom duty on the import content of the exported products. Notified on i-4-1997, the DEPB scheme consisted of -(a) Post-export DEPB and (b)Pre-export DEPB The pre-export DEPB scheme was abolished w.e.f. 1-4-2000. Under the post-export DEPB, which is issued after exports, the exporter is given a Duty Entitlement Pas Book at a pre-determined credit on the FOB value. The DEPB allows import of any items except the items which are otherwise restricted for imports.

vDUTY DRAWBACK

Duty Drawback rates in India is the special rebate given under the section 75 of Indian Customs Act on exported products or materials. Duty drawback rates or concession are only applicable on products which are used in the processing of goods manufactured in India and then exported to foreign countries. Duty drawback is not given on inputs obtained without payment of customs or excise duty. In case of reexport of goods, it should be done within 2 years from the date of payment of duty when they were imported. 98% of the duty is allowable as drawback, only after inspection. If the goods imported are used before its re-export, the drawback will be allowed as at reduced per cent.

All industry drawback rates are fixed by Directorate of Drawback, Dept. of Revenue, Ministry of Finance and Government of India and are periodically revised-normally on 1st June every year. Section 37 of Central Excise Act allows Central Government to frame rules for purpose of the act. Under these powers, ‘Customs and Central Excise Duties Drawback Rules, 1995’ have been framed.

vDFRC ( Duty Replenishment Certificate)

Under the DFRC schemes, import incentives are given to the exporter for the import of inputs used in the manufacture of goods without payment of basic customs duty. Such inputs shall be subject to the payment of additional customs duty equal to the excise duty at the time of import. Duty Free Replenishment Certificate shall be available for exports only upto 30.04.2006 and from 01.05.2006 this scheme is being replaced by the Duty Free Import Authorisation (DFIA).

vDFIA (Duty Import Authorisation)

Effective from 1st May,2006, DFIA in short is issued to allow duty free import of inputs which are used in the manufacture of the export product (making normal allowance for wastage), and fuel, energy, catalyst etc. which are consumed or utilized in the course of their use to obtain the export product. DFIA is issued on the basis of inputs and export items given under Standard Input and Output Norms (SION).

vDEEMED EXPORT

Deemed export is a special type of transaction in which the payment is received before the goods are delivered. The payment can be done in Indian Rupees or in Foreign Exchange. As the deemed export is also a source of foreign exchange, so the Government if India has given the benefit duty free import of inputs.

vAGRI EXPORT ZONES

Various importers that come under the Agri Export Zones are entitled to all the import facilities and incentives.

vSERVED FROM INDIA

In order to create a powerful “Served from India” brand all over the word, the government has provided different type of import incentive to the invisible export providers. Under the Served from India Scheme, import incentive is given for import of any capital goods, spares, office equipment and professional equipment.

vMANUFACTURE UNDER BOND

Under the manufacture under Bond Scheme, all factories registered to produce their goods for export are exempted from import duty and other taxes on inputs used to manufacture such goods. Against this the manufacturer is allowed to import goods without paying any customs duty. The production is made under the supervision of customs or excise authority.

vExport Promotion Capital Goods Scheme (EPCG)

EPCG is a special type of incentive given to the EPCG license holder. Capital goods imported under EPCG Scheme are subject to actual user condition and the same cannot be transferred /sold till the fulfillment of export obligation specific in the license. In order to ensure that the capital goods imported under EPCG Scheme, the license holder is required to produce certificate from the jurisdiction Central Excise Authority (CEA) or Chartered Engineer (CE) confirming installation of such capital goods in the declared premises. Under Export Promotion Capital Goods (EPCG) scheme, a license holder can import capital goods such as plant, machinery, equipment, components and spare parts of the machinery at concessional rate of customs duty of 5% and without CVD and special duty.

vADVANCE LICENSE SCHEME

An advance license is granted for the import of inputs without payment of basics customs duty. Such licenses shall be issued in accordance with the policy and procedure in force on the date of issue of the license and shall be subject to the fulfillment of a time bound export obligation, and value addition as may be specified. Advance licenses may be either value based or quantity based.

As per the latest amendments to the EXIM Policy, the facility of Bank to Back Inland Letter of Credit has been introduced, to enable an Advance License holder to source his inputs from domestic suppliers.

vVALUE BASED ADVANCE LICENSE

Under a value based advance license, any of the inputs specified in the license may be imported within the total CIF value indicated for those inputs, expect inputs specified as sensitive items.

Under a value based advance license, both the quantity and the FOB value of the export to be achieved shall be specified. It shall be obligatory on the part of the license holder to achieve both the quantity and FOB value of the exports specified in the license.

vAMENDMENTS TO THE ADVANCE LICENSE SCHEME

The Advance License Scheme has been expanded and liberalized with the amendments made to the EXIM Policy, announced on 31st March, 1995.

CASE STUDY

Global Import and Export Company import under EPCG (Export Promotion Credit Guarantee) and DEPB (Duty Entitlement Pass Book) scheme.

EXIM POLICY Exim policy or Foreign Trade Policyis a set of guidelines and instructions established by theDGFTinmatters related to the import and export of goods in India. The Foreign TradePolicyof India is guided by the Export Import in known as in short Exim Policyof the Indian Government and is regulated by the Foreign Trade Development and Regulation Act, 1992. DGFT (Directorate General of Foreign Trade)is the main governing body in matters related to Exim Policy. The main objective of the Foreign Trade (Development and Regulation) Act is to provide the development and regulation of foreign trade by facilitating imports into, and augmenting exports from India. Foreign Trade Act has replaced the earlier law known as the imports and Exports (Control) Act 1947. INDIAN EXIM POLICY Indian Exim Policycontains various policy related decisions taken by the government in the sphere of Foreign Trade, i.e., with respect to imports and exports from the country and more especially export promotion measures, policies and procedures related thereto. Trade Policy is prepared and announced by the Central Government (Ministry of Commerce). India's Export Import Policy also know as Foreign Trade Policy, in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position.

HISTORY OF EXIM POLICY OF INDIA

In the year 1962, the Government of India appointed a special Committee to review the government previous export import policies. The committee was later on approved by the Government of India. Mr. V. P. Singh, the then Commerce Minister and announced the Exim Policy on the 12th of April, 1985. Initially the EXIM Policy was introduced for the period of three years with main objective to boost theexport businessin India. OBJECTIVES OF THE EXIM POLICY At the same time, all-out efforts are made to promote exports. Thus, there are two aspects of Exim Policy; the import policy which is concerned with regulation and management of imports and the export policy which is concerned with exports not only promotion but also regulation. The main objective of the Government's EXIM Policy is to promote exports to the maximum extent. Exports should be promoted in such a manner that the economy of the country is not affected by unregulated exportable itemsspecially needed within the country. Export control is, therefore, exercised in respect of a limited number of items whose supply position demands that their exports should be regulated in the larger interests of the country. In other words, the main objective of the Exim Policy is: * To accelerate the economy from low level of economic activities to high level of economic activities by making it a globally oriented vibrant economy and to derive maximum benefits from expanding global market opportunities. * To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components,' consumables and capital goods required for augmenting production. * To enhance the techno local strength and efficiency of Indian agriculture, industry and services, thereby, improving their competitiveness. * To generate new employment. * Opportunities and encourage the attainment of internationally accepted standards of quality. * To provide quality consumer products at reasonable prices.

INDIA NEW FOREIGN TRADE POLICY 2009-2014 HIGHLIGHTS

ØDEPB Scheme upto December 2010. ØTo encourage value addition in our manufactured exports and towards this end, have stipulated a minimum 15%. Ø100% export oriented units for one additional year till 31st March 2011.

ØThe government seeks to promote Brand India through six or more ‘Made in India’ shoes to be organized across the world every year. ØForeign Trade Policy is to help exporters for technological upgradation export sector infrastructure; ‘Towns of Export Excellence’ and units located there in would be granted additional focused support and incentives. ØTo encourage production and export of ‘green products’ through measures such as phased manufacturing program for green vehicles, zero duty EPCG scheme and incentives for exports. ØT e-Trade project would be implemented in a time bound manner to bring all stake holders on a common platform. Addition ports/ locations would be enabled on the Electronic Data Interchange over the next few years. ØIncentive available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%. ØIncentive available under Focus Product Scheme (FPS) has been raised from 1.25% to 2%. Ø26 new markets have been added under Focus Market Scheme. These include 16 new markets in Latin America and 10 in Asia-Oceania. Ø153 ITC (HS) Codes at 4 digit level Product classified for Market Linked Focus Product Scheme (MLFPS) ØFocus Product Scheme benefit extended for export of ‘green products’; and for exports of some products originating from the North East. ØTo accelerate exports and encourage technological upgradation, additional Duty Credit Scrip’s shall be given to Status Holders @ 1% of the FOB value of past exports. ØIncome Tax exemption to 100% EOUs and to STPI units under section 10B and 10A of Income Tax Act has been extended for the financial year 2010-11 in the Budget 2009-10. ØIn Tea Sector Minimum value addition under advance authorisation scheme for export of tea has been reduced from the existing 100% to 50%. ØDTA sale limit of instant tea by EOU units has been increased from the existing 30% to 50%. ØEOUs will now be allowed CENVAT Credit facility for the component of SAD and Education Cess on DTA sale. ØTime limit of 60 days for re-import of exported gems and jewellery items, for participation in exhibitions has been extended to 90 days in case of USA. ØDuty Free Import of samples by exporters, number of samples/ pieces has been increased from the existing 15 to 50.

ØExemption for up to two stages from payment of excise duty in lieu of refund, in case of supply to an advance authorisation holder (against invalidation letter) by the domestic intermediate manufacturer. ØReduce transaction costs, dispatch of imported goods directly from the port t o the site has been allowed under Advance Authorisation scheme for deemed supplies. ØFree Sale Certificate has been simplified and the validity of the Certificate has been increased from 1 year to 2 years.

HIGHER SUPPORT FOR MARKET AND PRODUCT DIVERSIFICATION

1) Incentive scheme under chapter 3 have been expanded by way of addition of new products and markets. 2) 26 new markets have been added under Focus Market Scheme. These include 16 new market in Latin America and 10 in Asia-Oceania. 3) The incentive available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%. 4) The incentive available under Focus Product Scheme (FPS) has been raised from 1.25% to 2%. 5) A large number of products from various sectors have been included for benefits under FPS. These include, Engineering products (agricultural machinery, parts of trailers, sewing machines, hand tools, garden tools, musical instruments, clocks and watches, railway locomotives etc.), plastic (value added products), Jute and Sisal products, Technical Textiles, Green Technology products (wind mills, wind turbines, electric operated vehicles etc.), project goods, vegetable textiles and Electronic items. 6) Market Linked Focus Product Scheme (MLFPS) has been greatly expanded by inclusion of products classified under as many as 153 ITC (HS) at 4 digit level. Some major products include; Pharmaceuticals, Synthetic textile fabrics, value added rubber products, value added plastic goods, textile makeup’s, knitted and crocheted fabrics, glass products, certain iron and steel products and certain articles of aluminium among others. Benefits to these products will be provided, if exports are made to 13 identified markets (Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Ukraine, Cambodia, Australia and New Zealand). 7) MLFPS benefits also extended for export to additional new markets for certain products. These products include auto components, motor cars, bicycle and its parts, and apparels among others. 8) A common simplified application form has been introduced for taking benefits under FPS, FMS, MLFPS and VKGUY. 9) Higher allocation for Market Development Assistance (MDA) and Market Initiative (MAI) schemes is being provided.

TECHNOLOGICAL UPGRADATION

1) To aid technological upgradation of our export sector, EPCG Scheme at Zero Duty has been introduced. This scheme will be available for engineering and electronic products, basic chemicals and pharmaceuticals, apparels and textiles, plastics, handicrafts, chemicals and allied products and leather and leather products ( subject to exclusion of current beneficiaries under Technological Upgradation Fund Schemes (TUFS), administered by Ministry of Textiles and beneficiaries of Statue Holder Incentive Scheme in that particular year). The scheme shall be in operation till 31.03.2011. 2) Jaipur, Srinagar and Anantnag have been recognized as ‘Towns of Export Excellence’ for handicrafts; Kanpur, Dewas; and Malihabad for horticulture products.

EPCG SCHEME RELAXATIONS

1) To increase the life of existing plant and machinery, export obligation on import of spares, moulds etc. under ECPG Scheme has been reduced to 50% of the normal specific export obligation. 2) Taking into account the decline in export, the facility of re-fixation of Annual Average Export Obligation for a particular financial year in which there is decline in export from the country, has been extended for the 5 years Policy period 2009-14.

SUPPORT FOR GREEN PRODUCTS AND PRODUCTS FROM NORTH EAST

1) Focus Product Scheme benefit extended for export of ‘green products’; and for export of some products originating from the North East.

STATUS HOLDERS

1) To accelerate export and encourage technological upgradation, additional Duty Scrip’s shall be given to Status Holders @ 1% of the FOB value of past exports. The duty credit scrip’s can be used for procurement of capital goods with Actual User condition. This facility shall be available for sectors of leather (excluding finished leather), textiles and jute, handicrafts, engineering (excluding Iron and steel

and non-ferrous metals in primary and intermediate form, automobiles and two wheelers, nuclear reactors and parts, and ships, boats and floating structures), plastics and basic chemicals (excluding Pharma products)[subject to exclusions of current beneficiaries under Technological Upgradation Fund Schemes (TUFS)]. This facility shall be available upto 31.3.2011.

2) Transferability for the Duty Credit scrip’s being issued to Status Holders under paragraph 3.8.6 of FTP under VKGUYS Scheme has been permitted. This is subject to the condition that transfer would be only to Status Holders and scrip’s would be utilized for the procurement of cold chain equipment(s) only.

STABILITY/ CONTINUITY OF THE FOREIGN TRADE POLICY

1) To impact stability to the policy regime, Duty Entitlement Passbook (DEPB) scheme is extended beyond 31.12.2009 till 31.12.2010. 2) Interest subvention of 2% for pre-shipment credit for 7 specified sectors has been extended till 31.3.2010 in the budget 2009-10. 3) Income Tax exemption to 100% EOUs and to STPI units under section 10B and 10A of Income Tax Act has been extended for the financial year 2010-11 in the budget 2009-10. 4) The adjustment assistance scheme initiated in December, 2008 to provide enhanced ECGC cover at 95%, to the adversely affected sectors, is continued till March, 2010.

MARINE SECTOR

1) Fisheries have been included in the sectors which are exempted from maintenance of average EO under EPCG scheme, subject to the condition that Fishing Trawlers, ships and other similar items shall not be allowed to be imported under this provision. This would provide a fillip to the marine sector which has been affected by the present downturn in exports. 2) Additional flexibility under Target Plus Scheme (TPS)/ Duty Free Certificate of Entitlement (DFCE) scheme for Status Holders has been given to Marine Sector.

GEMS AND JEWELLERY SECTOR

1) To neutralize duty incidence on gold jewellery export, it has now been decided to allow Duty Drawback on such exports. 2) In an Endeavour to make India a diamond international trading hub, it is planned to establish “Diamond Bourse (s)”. 3) A new facility to allow import on consignment basis of cut and polished diamonds for the purpose of grading 4) To promote export of Gems and Jewellery products, the value limits of personal carriage have been increased from US$ 2 million to US$ 5 million in case of participation in overseas exhibitions. The limit in case of personal carriage, as samples, for export promotion tours, has also been increased from US$ 0.1 million to US$ 1 million.

AGRICULTURE SECTOR

1) To reduce transaction and handling costs, a single window system to facilitate export of perishable agriculture produce has been introduced. The system will involve creation of multi-functional nodal agencies to be accredited by APEDA.

LEATHER SECTOR

1) Leather sector shall be allowed re-export of unsold imported raw hides and skins and semi finished leather from public bonded ware houses, subject to payment of 50% of the applicable export duty. 2) Enhancement of FPS rate to 2% would also significantly benefit the leather sector.

TEA

1) Minimum value addition under advance authorization scheme for export of tea has been reduced from the existing 100% to 50%. 2) DTA sale limit of instant tea by EOU units has been increased from the existing 30% to 50%. 3) Export of tea has been covered under VKGUY Scheme benefits.

PHARMACEUTICAL SECTOR

1) Export obligation period for advance authorizations issued with 6-APA as input has been increased from existing 6 months to 36 months, as is available for other products. 2) Pharma sector extensively covered under MLFPS for countries in Africa and Latin America; some countries in Oceania and Far East.

HANDLOOM SECTOR

1) To simplify claims under FPS, requirement of ‘Handloom Mark’ for availing benefits under FPS has been removed.

EOUs

1) EOUs have been allowed to sell products manufactured by them in DTA upto a limit of 90% instead of existing 75%, without changing the criteria of ‘similar goods’, within the overall entitlement of 50% for DTA sale. 2) To provide clarity to the customs field formations, DOR shall issue a clarification to enable procurement of spares beyond 5% by granite sector EOUs. 3) EOUs will now be allowed to procure finished goods for consolidation along with their manufactured goods, subject to certain safeguards. 4) During this period of downturn, Board of Approvals (BOA) to consider, extension of block period by one year for calculation of net Foreign Exchange earning of EOUs. 5) EOUs will now be allowed CENVAT credit facility for the component of SAD and Education on DTA sale.

THRUST TO VALUE ADDED MANUFACTURING

1) To encourage value added manufactured export, a minimum 15% value addition on imported inputs under Advance Authorization Scheme has now been prescribed. 2) Coverage of Project Exports and a large number of manufactured goods under FPS and MLFPS.

DEPB

1) DEPB rate shall also include factoring of customs duty component on fuel where fuel is allowed as a consumable in Standard Input-Output Norms.

FLEXIBILITY PROVIDED TO EXPORTERS

1) Payment for customs duty for Export Obligation (EO) shortfall under Advance Authorisation/ DFIA/ EPCG Authorisation has been allowed by way of debit of Duty Credit scrip’s. Earlier the payment was allowed in cash only. 2) Import of restricted items, as replenishment, shall now be allowed against transferred DFIAs, in line with the erstwhile DFRC scheme. 3) Time limit of 60 days for re-import of exported gems and jewellery items, for participation in exhibitions has been extended to 90 days in case of USA. 4) Transit loss claims received from private approved insurance companies in India will now be allowed for the purpose of EO fulfillment under Export Promotion Schemes. At present, the facility has been limited to public sector general insurance companies only.

WAIVER OF INCENTIVES RECOVERY, ON RBI SPECIFIC WRITE OFF

1) In case, where RBI specifically writes off the export proceeds realisation, the incentives under the FTP shall now not be recovered from the exporters subject to certain conditions.

SIMPLIFICATION OF PROCEDURES

1) To facilitate duty free import of samples by exporters, number of samples/ pieces has been increased from the existing 15 to 50. Customs clearance of such samples shall be based on declarations given by the importers with regard to the limit of value and quantity of samples. 2) To allow exemption for up to two stages from payment of excise duty in lieu of refund, in case of supply to an authorisation holder (against invalidation letter) by the domestic intermediate manufacturer. It would allow exemption for supplies made to a manufacturer, if such manufacturer in turn supplies the products to an ultimate exporter. At present, exemption is allowed upto one stage only. 3) Greater flexibility has been permitted to allow conversation of shipping bills from one export promotion scheme to other scheme. Customs shall now permit this conversation within three months, instead of the present limited period of only one month. 4) To reduce transaction costs, dispatch of imported goods directly from the port to the site has been allowed under advance authorisation scheme for deemed supplies. At present, the duty free imported goods could be taken only to the manufacturing unit of the authorisation holder or its supporting manufacturer. 5) Disposal of manufacturing wastes/ scrap will now be allowed after payment of application excise duty, even before fulfillment of export obligation under Advance Authorisation and EPCG Scheme. 6) Regional Authorities have now been authorized to issue licenses for import of sports weapons by ‘renowned shooters’, on the basis of NOC from the Ministry of Sport and Youth Affairs. Now there will be no need to approach DGFT in such cases. 7) The procedure for issue of Free Sale Certificate has been simplified and the validity of the Certificate has been increased from 1 year to 2 years. This will solve the problems faced by the medical devices industry. 8) Automobile industry, having their own R and D establishment, would be allowed free import of reference fuels (petrol and diesel), upto a maximum of 5 KL per annum, which are not manufactured in India. 9) Acceding to the demand of trade and industry, the application and redemption forms under EPCG scheme have been simplified.

REDUCTION OF TRANSACTION COSTS

1) No fee shall now be charged for grant of incentives under the schemes in chapter 3 of FTP. Further, for all other Authorizations/ license applications, maximum applicable fee is being reduced to Rs. 1, 00,000 from the existing Rs. 1,50,000 (for manual applications) and Rs. 50,000 from the existing Rs. 75,000 (for EDI applications). 2) To further EDI initiatives, Export Promotion Councils/ Commodity Boards have been advised RCMC through a web based online system. It is expected that issuance of RCMC would become EDI enabled before the end of 2009. 3) Electronic Message between Customs and DGFT in respect of incentive schemes under chapter 3 will become operational by 31.12.2009. This will obviate the need for verification of scrip’s by customs facilitating faster clearances. 4) For EDI ports, with effect December 2009, double verification of shipping bills by customs for any of the DGFT schemes shall be dispensed with. 5) In case, where the earlier authorisation has been cancelled and a new authorisation has been issued in lieu of the earlier authorisation, application fee paid already for the cancelled authorisation will now be adjusted against the application fee for the new authorisation subject to payment of minimum fee of rs.200. 6) An Inter Ministerial Committee will be formed to redress/ resolve problems/ issues of exporters. 7) An updated compilation of Standard Input Output Norms (SION) and ITC (HS) Classification of Export and Import Items has been published.

DIRECTORATE OF TRADE REMEDY MEASURES

1) To enable support to Indian industry and exporters, especially the MSMEs, in availing their rights through trade remedy instruments, a Directorate of Trade remedy Measures shall be set up.

CUSTOMS DUTY INTRODUCTION The concept of import duty is very wide and is almost applicable to every product or item imported to India barring a few goods like food, grains, fertilizers, life saving drugs and equipment etc. Import duties from a significant source of revenue for the country and are levied on the goods and at the rates specified in the schedules to the Customs Tariff. IMPORT THROUGH SEA Territorial water extends up to 12 nautical miles into the sea from the coast of India and so the liability to pay import duty commences as soon as goods enter the territorial waters of India. No duty is livable on goods which are in transit in the same ship or if goods are in transit from one ship to another. LEVY OF THE CUSTOMS DUTY There are various types of custom’s duty Basic duty Additional duty and Specific duty

The government can also levy other types of duties such as Safeguard duty Anti-dumping duties etc are in accordance with the multi lateral agreements.

BASIC DUTY Basic duty is a type of duty or tax imposed under the Customs Act 1962. Basic Customs Duty varies for different items from 5% to 40%. The duty rates are mentioned in the First Schedule of the Customs Tariff Act, 1975 and have been amended from time to time under the Finance Act. The duty may be fixed on ad-valorem basis or specific rate basis. The Central Government has the power to reduce or exempt any good from these duties. ADDITIONAL CUSTOMS DUTY Additional customs duty also known as countervailing duty or C.V.D is equal to excise duty imposed on a like product manufactured or produced in India. It is implemented under the section 3 (1) of the Indian Custom Tariff Act. The government has exempted all goods, when imported into India for subsequent sale, from the whole of the additional duty of customs leviable thereon under Sub-section (5) of section 3 of the Customs Tariff Act vide Customs Tariff Notification No. 102/2007 dated 14th September 2007. However, the importers will be first required to pay the said duty and thereafter required to claim the refund. SPECIAL ADDITIONAL DUTY Special Additional Duty of Customs is imposed at the rate of 4% in order to provide a level playing field to indigenous goods which have to bear sales tax. This duty is to computed on the aggregate of – Assessable value; Basic duty of customs; Surcharge; and Additional duty of Customs leviable under section 3 of the customs tariff act, 1975 (C.V.D) ANTI-DUMPING DUTY Dumping means exporting goods in a foreign market at a price which is less than their cost of production or below their “fair” market value. Dumping gives a hard competition to a domestic goods manufacturer. So, to counteract this dumping, the Indian government has formulated certain guidelines and policies. Imposing duty on imported goods is also one of them and is known as Anti-dumping Duty.

All the laws related to anti-dumping duties are mention in the sections 9A, 9B and 9C of the Indian Customs Tariff Act (1975), and the Indian Customs Tariff Rules (1995). These laws are based on the agreement on Anti-dumping which is in pursuance of Article VI of GATT 1994. OBJECTIVES OF CUSTOM DUTIES ØRegulating the amount of import in India in order to protect the domestic market. ØProtecting Indian Industry from undue under competition. ØProhibiting certain imports of goods for achieving the policy objectives of the government. ØRegulating imports. ØCoordinating legal provisions with other laws dealing with foreign exchange such as Foreign Trade Act, Foreign Exchange Regulation Act, Conversation of Foreign Exchange and Prevention of Smuggling Act, etc. All import goods are classified into categories known called as “headings” and “subheadings” (Harmonised System Codes) for the purpose of levy of duty. For each sub-heading, a specific rate of duty has been prescribed in the Customs Tariff Act, 1975. IMPORT RISKS INTRODUCTION Like an export, import of goods is also associated with various types of risks. Some of these are: ØTransport Risk – This risk is associated with the loss of goods during transportation. ØQuality Risk – This risk is associated with the final quality of the products. ØDelivery Risk – This risk arises when the goods are not delivered on time. ØExchange Risk – This risk arises due to the change in the value of currency. ØThese risks are explained more fully below.

vTRANSPORT RISK For a better transport risk management, an importer must ensure that the goods supplied by the exporter is insured. Whether the goods are transported by sea or by air, the risk can be covered by Insurance. It is always advisable to set out the agreement between the parties as to the type of cover to be obtained in the Contract of Sale. Often importers will wish to obtain insurance cover from their own Insurance Company under a ‘Blanket Cover’ called an ‘Open Policy’ thus taking advantage of bulk billing and other relationship.

vQUALITY RISK The proper quality risk analysis is important to ensure that the final products are as good as sample. Occasionally, it has been found that the goods are not in accordance with samples, quality is not as specified, or they are otherwise unsatisfactory. To handle such situations in future, importer must take necessary protective measures in advance. One the best method to avoid such situations is to investigate the reputation and standing of the supplier. Even before receiving the final product, inspection can be done from the importer side or exporter side or by a third party agency. If the importer has an agent in the Supplier’s country it may be possible for closer supervision to be maintained over shipments.

vDELIVERY RISK Delivery of goods on time is important factor for the importer to reach the target market. For example any product or item which has been ordered for Christmas is of no use of it is received after Christmas. Importer must make the import contract very specific, so that importer always has an option of refusing payment if it is apparent that goods have not been shipped by the specific shipment date. Where an importer is paying for goods by means of a Documentary Credit, the issuing bank can be instructed to include a ‘latest date for shipment’ in the terms of the credit.

vEXCHANGE RISK Before entering into commercial contracts, it is always advisable for the importer to determine the value of the product in domestic currency. As there is always a gap between the time of entering into the contract and the actual payment for the goods is received, so determining the value of the good in domestic currency will help an exporter to quote the right price for the product.

ØContracting to import in Indian Rupees. ØEntering into a Foreign Exchange Contract through Bank. ØOffsetting Export receivables against Import payables in the same currency by using a Foreign Currency Account. Where Pre / Post-shipment Finance is provided with a Foreign Currency Loan in the currency of the transaction and Export receipts repay the loan. The procedure for the assessment of the customs duty is as follows:

CIF value Add 1% of F.O.B value as landing charges Assessable Value (AV) 1. Basic Duty (BD)

: xxx : xxx : xxx

(AV x Rate of basic duty) 2. Additional Duty (AD)

: xxx

[(AV + BD) x Rate of Additional Duty]

: xxx

3.

Special Additional Duty (SAD) : xxx

[(AV+BD+AD) x Rate of SAD]

Total duty: (1+2+3)

: xxx

CASE STUDY

The customs duty paid by the importer is 10% in which educational cess is 2%, higher educational cess is 2%, customs educational cess is 3% and additional duty on import is 4%.

SWOT ANALYSIS

SWOT analysis is a useful method of summaries all the information generated during the export planning. SWOT stands for strengths, weakness, opportunities and threats, which helps to isolate the strong and week areas within an export strategy. SWOT also indicates the future opportunities or threats that may exist in the chosen markets and is instrumental in strategy formulation and selection. Environmental factors internal to the company can be classified as strengths or weaknesses, and those external to the company can be classified as opportunities or threats. A thorough analysis of Strength, Weakness, Opportunities and Threats of a business plays a very important role in the formulation of various strategic policies and management processes.

STRENGTHS ØGood reputation ØHas its own firm in china for easy movement of goods ØHigh quality products ØStrong brand name ØMarket a diversified product WEAKNESS ØWeak brand name ØHigh cost structure OPPORTUNITY ØThe market is recovering from a slump which gives the opportunity to gain ground in the market share. ØRemoval of international trade barriers ØAn unfulfilled customer need ØIt offers an opportunity to work in a high professional environment THREATS ØNew regulation ØStricter registration procedure ØReduction in import duties ØIncreased trade barriers ØEmergence of substitute products

IMPORT PROCEDURE Foreign Trade Policy offers facilities for the import of raw materials, parts, components other inputs and capital goods to facilitate production of goods for the purpose of promotion of exports. The facility of import is allowed under the following categories: ØImport of unrestricted items ØImport of restricted items ØImport of capital goods ØImport of inputs under the Duty Exemption Scheme ØImport by 100% EOU/EPZ/SEZ units IMPORT OF UNRESTRICTED ITEMS The business firms having IEC number are allowed to import the goods which do not attract any kind of restricted under the Foreign Trade Policy: 2004-2009 as amended from time to time. There is no permission on approval required to import such items. The importer intending to import a certain items should first of all, ascertain the ITC (HS) classification number of the item by referring to the ITC(HS) classifications of Import and Export Items.

IMPORT OF RESTRICTED ITEMS Any business firm intending to import restricted items shall be required to apply for import license under the negative list. (Negative list refers to the list of restricted items). The importer has to give reasons as to why he needs to import the restricted items. In other words, justification for the import has to be provided because import license cannot be claimed as a matter of right. It is a privileged extended by the Government to the importer.

PROCEDURE FOR THE GRANT OF IMPORT LICENSE UNDER NEGATIVE LIST ØBank receipt ( in duplicate) / demand draft for payment of application fee ØSelf certificate copy of the proforma invoice from the supplier showing the CIF value of the goods ØSelf certificate copy of the Registration certificate issued by the concerned authority ØCopy of recommendation from the recommending authority, if any ØDonor’s letter in original in case of import of gift. ØThe following details to be furnished for the import of ammunition: a. b. Fire Arms Dealers Licence number, date and validity, Issuing Authority of Fire Arms Dealer’s Licence

c. Certificate from the Chartered Accountant/ cost and works Accountant/ Company Secretary regarding the turnover for the last three years. ØA statement giving reasons for import. IMPORT OF CAPITAL GOODS: NEW AND SECOND HAND The policy regarding the import of capital goods is very liberal. Both the new and second hand capital goods are allowed for import freely without any restriction. The only requirement for an importer is to arrange for the customs clearance of the import consignment against the payment of the applicable import tariff. IMPORT OF CAPITAL GOODS UNDER EPCG SCHEME An exporter has to apply for the grant of an Authorisation called EPCG Authorisation to avail of this facility. APPLICATION UNDER EPCG SCHEME

The application should be accompanied by the following documents / information Bank receipt ( in duplicate) / demand draft for the payment of application fee Self certificate copy of Drug manufacturing Authorisation in case of export of Pharmaceutical product or self certified copy of IEM/SSI registration number in case of other products or a self certified copy of service tax registration in case of service providers. Certificate from Chartered Engineer in the format given in Appendix 32A certifying:

ØThe end use/ nexus of machinery sought for import under EPCG scheme in the pre-production/ production/ post production activity of the exported goods/ services; and ØThe essentiality of spare parts sought for import and its required quantity for existing machinery manufacturing the goods to be exported/ machinery sought for import; and ØComplete usage of equipments/ goods sought for import under the EPCG scheme for supply of service to overseas customers/ service consumer of any other county in India to earn free foreign exchange. Statement of exports made/ services rendered by the applicant firm in respect of same or similar export product/ services rendered during the preceding three licensing years duly certified by a chartered accountant In case of import of spares for existing plant and machinery, a list of plant/ machinery already installed in the factory In case the applicant is an EOU/ SEZ unit, a self certified copy of the ‘No Objection Certificate’ from Development Commissioner concerned showing the details of the capital goods imported/ indigenously procured by the applicant firm, its value at the time of import/ sourcing and the depreciated value for the purpose of assessment of duty under the scheme is to be submitted. Under this scheme, the importer has to execute the following documents before clearance of the goods through customs: Indemnity-cum-surely Bond for fulfillment of export obligation. Bank guarantee for the amount equal to the full value of duly saved. Failure to fulfill export obligations implies that: Bank guarantee can be invoked Interest at the rate of 15% is charged on the amount of duty saved from the date of import and Action can be initiated under the Foreign Trade Act, 1992 and the customs Act, 1962.

IMPORT UNDER DUTY EXEMPTION SCHEME: ADVANCE AUTHORISATION Under the Duty Exemption Scheme, an exporter is entitled to the grant of duty free Authorisation for the import of raw materials, components, spares, packing material etc. for the purpose of export as well as import of mandatory spares up to 10% of the CIF value of the Authorisation, if required. Application for the grant of Advance Authorisation Two copies of the application (if standard Input-Output Norms fixed and 10 copies if the norms are not fixed.) should be submitted along with: a) Bank receipt/ demand draft for payment of application fee.

b) Export order/ letter of credit. c) Surety Bond-cum-Legal Undertaking.

d) Photocopy of the valid RCMC. In case of advance authorization for annual requirements, the following additional documents are also required to be submitted: 1. Statement of export made in the preceding licensing year duly certified by a Chartered Accountant / cost and works accountant 2. Self certified copy of the manufacturing licence of the applicant firm or his supporting manufacturer. Under Advance Authorisation, the export obligation is imposed in terms of value addition to be achieved. The standard input-output and value addition norms have been prescribed for individual products. The value of exports to be achieved as export obligation is mentioned in the Advance Authorisation. The period allowed to fulfill export obligations is mentioned in the Advance Authorisation. The period allowed to fulfill export obligation is 24 months for all the items. the above time period can be extended up to 6 months by the Regional Licensing Authority and beyond 6 months by the Director General Foreign Trade. APPLICATION FEE FOR IMPORT AUTHORISATIONS The application fee for the grant of import authorization / licence is based on the value of goods applied for import. The details of the application fee as given in Appendix 21B are as follows: Value of goods · Up to Rs. 50,000 Amount of fee = Rs.200 (minimum)

·

More than Rs. 50,000

= Rs. 2.00 per thousand or part thereof subject to a minimum of Rs. 200 and Maximum of Rs. 1,50,000

·

Application for grant

= Rs. 200

Of duplication Authorisation PROCEDURE FOR CUSTOMS CLEARANCE vARRIVAL OF THE GOODS On the arrival of the goods the shipping company or the airliner files Import General Manifest (IGM) with the customer’s authorities and intimate the importer about arrival of the goods through cargo arrival notice.

vPREPARING THE BILL OF ENTRY The basic documents used for obtaining customs clearance of import is Bill of Entry (B/E).

The bill of entry contains the following particulars as regards the import consignment:

ØVessel’s name, rotation number and date, line number; ØCountry of origin and its code, country of consignment ( if different from country of origin and its code); ØBill of lading number and its date, details of goods description, packages, quantity and gross weight of the consignment; ØCustoms tariff heading and exemption notification number and year, duty code, and details of basis and additional duties; ØAssessable value under section 14 of the customs Act, 1962 and ØDetails as regards entry port code, importer’s name and address and its code and custom house agent code; ØDeclaration to be signed by the importer regarding correctness of the contents of goods described in the Bill of Entry.

The entire process of customs clearance is complex, and it is, therefore, desirable that services of an accredited Customs House Agent are taken for clearance of the import consignment. RETIREMENT OF DOCUMENTS On receipt on the information from the airliner or the shipping company regarding the arrival of the goods the exporter approaches the bank for retirement of documents sent by the exporter. PRESENTATION OF BILL OF ENTRY AND ITS NOTING The bill of entry signed by the importer should be presented to Import Noting Department (IND) to conduct a scrutiny in regard to the entries in the bill of entry and other documents presented by the exporter. The bill of entry is accompanied by the following documents: ØCommercial invoice ØLetter of credit ØImport license ØBill of lading/Air way bill ØPacking list ØCertificate of origin ØInsurance certificate ØImporter exporter code number PROCESSING OF BILL OF ENTRY In the docks or shed the officer concerned will examine the goods and also compare the details mentioned in the bill of entry with the goods that are present in the docks. There are two systems of assessment. Section 17(2) provides for assessment after examination of goods andsection 17(4) provides for assessment on basis of documents, followed by inspection and testing of goods.

“First appraisement system” or 'first check procedure' is followed if the appraiser is not able to make assessment on the basis of documents submitted and deems that inspection is necessary. Goods are examined first and then these are assessed. This method is followed only if assessment is not possible on basis of documents. - - The importer himself may also request 'first check procedure', if he cannot give all required details regarding description / value of goods. He has to make request for first check

examination at the time of filing of Bill of Entry or at data entry stage in case of EDI. He has to give reason for seeking first appraisement. The examination order is recorded on Bill of Entry and then returned to importer / CHA. It is then presented to import shed for examination. The shed appraiser / Dock examiner examines the goods as per examination order and records his findings. If samples are required, they are taken out. In case of EDI system, the report of examination is given in the computer itself. The goods are then assessed to duty by appraiser. - Chapter 3 Para 23 of CBE&C’s Customs Manual, 2001.

In “Second Appraisement System” or 'second check procedure', which is normally followed, assessment is done on basis of documents and then goods are examined. Such examination is not mandatory. It is done on selective basis on the basis of ‘risk assessment’ or specific intelligence report. Section 17(4) of Customs Act specifically provides that if initially assessment is done on basis of documents, reassessment can be done after examination or testing of goods or otherwise, if it is found subsequent to examination or testing or otherwise, that any statement made on Bill of Entry or any information supplied is not true in respect of matter relevant to assessment of duty.

First appraisement is generally carried out in following case: ØIf complete documents are not submitted ØGoods are to be tested for correct classification ØGoods are re-imported ØGoods are damaged or deteriorated and abatement is claimed ØGoods are abandoned and remission of duty is applied for ØWhen goods are provisionally assessed ØWhen importer himself requests for examination of goods before payment of duty.

PAYMENT OF IMPORT DUTY The import duty assessed by the customs is paid by the importer in the designated bank. RELEASE OF THE GOODS Once the import duty is paid the importer takes delivery of the goods after payment of warehouse charges.

IMPORT OF GOODS BY POST When the goods are imported by post parcel, the postal authorities transfer such goods on receipt to the customs office attached to the Foreign Post Office. A Demand-cum-Show Cause notice is issued to the importer to file requisite documents, namely: ØBank attested Commercial Invoice from the supplier ØPacking list ØCopy of Registered Post Parcel Receipt ØCertificate of Origin ØCustoms purposes copy of Import Authorisation in original, if applicable ØAny other documents/registration certificate in support of eligibility of the importer to import such goods WAREHOUSING OF IMPORTED GOODS An importer may not like to clear or may have certain problems in clearing the goods imported immediately on payment of duty for home consumption. The object of warehousing is to allow the facility of deferring payment of duty on imported goods pending actual clearance for Home Consumption payment of duty or their without payment of duty to any foreign port. The importers are required to file a set of yellow coloured bill of entry commonly known as warehousing or Into bond Bill of Entry if they want the facility of warehousing of the imported goods. After the assessment of goods for the levy of the import duty is completed, the scrutinizing appraiser debits the import Authorisatio(s)/licence where necessary, and the set of warehousing Bill of Entry undergoes usual counter checks by the Assistance Collector of Customs. The goods are thereafter examined by the Dock Appraising staff on the basis of orders of the scrutinizing Appraiser on Duplicate copy, and if found in order, the same are allowed to be physically warehoused by the Dock Appraiser under the escort of Preventive Officer. CLEARANCE OF WAREHOUSED GOODS FOR HOME CONSUMPTION UNDER EX-BOND B/E In order to clear the duplicate imported goods from warehouse, the importer is required to present an ex-bond bill of entry, printed on green paper in the Imported Bond Department. The importer after getting the Ex-bond Bills of Entry registered in the Import Bond Department submits it to Appraising Department along with Triplicate copy of related Into Bond B/E and invoice/packing list, for verification of the particulars furnished on the B/E. the concerned Group Appraiser classifies and reassesses, if necessary.

IMPORT BY 100% EOUs/SEZ UNITS The government of India decided to establish export processing zones in 1965 in order to provide all facilities to the exporter to promote exports from India. The entire scheme was reviewed in 1980 when it was decided by the Government to introduce the scheme of export oriented units and provide them with all facilities in order to achieve faster rate of growth in exports. The 100% EOUs located in export processing zones were known as EPZ units. The basic requirement of the units to be established under these Zones or for the export oriented units outside the zones is that these units shall undertake to export their entire production of goods and services. The units established as export oriented units or units in the export processing zones may be engaged in the manufacture, services, trading, development of software, agriculture, agro-processing, aqua-culture, animal husbandry etc. such units are allowed to export all products except banned items. All the export processing zones have now been converted into special economic zones w.e.f. 1.12003. DUTY FREE IMPORTS The most significant feature of the units in these zones or export oriented units is that these units are allowed to make duty free import of all types of goods including capital goods required by the units for the manufacture of goods or trading of goods or supply of services. The EOU/ EHTP/ STP units are allowed to import without payment of import duty all other goods besides capital goods required by them for their activities. The list of items permitted for export is as follows: 1) Capital goods, as defined in the policy including the following and their spares. ØDG sets, captive power plants, transformers and accessories, ØPollution control equipment, ØQuality assurance equipment, ØMaterial handling equipment, like fork lifts and overhead cranes, ØUn-interrupted Power Supply System (UPS), special racks for storage, storage systems, modular furniture, computer furniture etc for electrical goods. ØSecurity system. ØTools, jigs, fixtures, gauges, moulds, dyes, instruments and accessories;

2)

Raw materials, components, consumables, intermediates, spares and packing materials;

3) Prototypes and technical samples for product diversification, development or evaluation;

4) Drawings, blue prints, charts, microfilms and technical data; 5) Office equipment, including PABX, fax machines, video projection system; 6) Spares and consumables for the above items The obligations of these units are at two different levels as explained below: 1) These units have to achieve the minimum levels of net foreign exchange as a percentage (NFEP) of exports. The NFEP is defined as follows:

NFEP = (A-B) / A x 100 A = FOB value of exports B = CIF value of all the imported inputs, imported capital goods, all payments made in foreign exchange by way of commission, royalty, fees, dividends, interest on external commercial borrowings during the first five years.

2) Each unit is expected to achieve a certain minimum level of export performance for the first five years

The minimum level of NFEP and the minimum level of export performance vary from industry to industry.

Each zone is headed by a Development Commissioner and each EOU is under the supervision and administrative control of the designated Development Commissioner.

SPECIAL ECONOMIC ZONE SCHEME (SEZ)

SEZ is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purpose of trade operations and duties and tariffs. An exporter can set up a unit in SEZ for manufacturing, trading or for rendering services.

At present, the Special Economic Zones functioning in the country are as follows:

ØCochin SEZ ØKandla SEZ ØNoida SEZ ØSurat SEZ ØFalta SEZ ØMadras SEZ ØSEEPZ SEZ ØVisakhapatnam SEZ ØIndore SEZ ØManikanchan—Saltlake SEZ ØJaipur SEZ Salient features of SEZ units: The salient features of SEZ units, in brief, are as follows: Sales from Domestic Tariff Area (DTA) to SEZs shall be treated as exports. Agriculture/horticulture processing SEZ units will now be allowed to provide inputs and equipments to contract farmers in DTA to promote production of goods as per the requirement of importing countries. Foreign bound passengers will now be allowed to take goods from SEZs to promote trade, tourism and exports. Domestic sales by SEZ units will now be except from special additional duty. Restriction of one year period for remittance of export proceeds has been removed for SEZ units. Netting of export proceeds permitted for SEZ unit provided it is between same exporter and importer over a period of 12 months. SEZ units are permitted to take job work abroad and exports goods from there only. SEZ units can capitalize import payables by way issue of equity shares to non-residents against import of capital goods subject to specified conditions.

Wastage for subcontracting / exchange by gem and jewellery units in transactions between SEZ and DTA is allowed. Export/import of all products through post parcel/courier by SEZ units is allowed. The value of capital goods imported by SEZ units can be amortised uniformly over 10 years. SEZ units are allowed to sell all products including gems and jewellery through exhibitions and duty free shops set up broad. Goods required for operation and maintenance of SEZ units shall be allowed duty free entry. Corporate tax holiday upto U/S 10-B of the Income Tax Act. 1961. 100% Foreign direct investment in manufacturing sector through automatic route. Profit repatriation without any dividend balancing requirement. Imports and export are cleared by the customs on self declaration basis. Imports by SEZ units are allowed duty free. IMPORT OF COMMERCIAL SAMPLES The import of commercial samples is exempt from the levy of import duty as provided vide General Exemption No. 42. The samples may be paid for or imported free of any charge. The exemptions from import duty are different in both the cases. COMMERCIAL SAMPLES (PAID FOR) A bonafide commercial traveler or businessman may import commercial samples without payment of import duty upto a value limit of Rs.75, 000 or 15 units in number, within a period of twelve months subject to the following conditions: 1. 2. 3. 4. a) The samples are imported as a part of personal baggage or by post or by air. The importer produces Importer- Exporter code number at the time of importation. The goods are clearly marked as samples. The importer, at the time of importation Declares that:

i) The samples have been imported into India solely for the purpose of being shown in India for the guidance of exporters or for securing or executing an export order. ii) The total import value of samples does not exceed Rs. 60,000 or 15units in number, within the period of last twelve months; and

b) Produces an undertaking to the appropriate customs authority to pay the duty leviable on the said goods but for the exemptions contained herein, if the declaration under clause (a) is found to e false. COMMERCIAL SAMPLES AND PROTOTYPES (FREE OF CHARGE) A bonafide business firm may import, without payment of import duty, bonafide commercial samples and prototypes by post or by air or by courier service upto a value limit of Rs. 10,000 provided the said goods have been supplied free of charge. The postal charges or the air freight is not taken into account for determining the value of commercial samples and prototypes. EXCHANGE CONTROL REGULATIONS AND IMPORTS Every importer is required to comply with various exchange control regulations governing imports. These regulations are given in RBI circular A.P circular number.106 dated 19th June 2003. The salient points of these regulations are as follows: I) EVIDENCE OF IMPORT

Importer should submit evidence of import to the authorized dealer, in the form specified below, in all cases where the value of import exceeds USD 25,000: ØExchange control copy of bill of entry for home consumption or, ØExchange control copy of bill of entry for warehousing in the case of 100% EOUs or ØCustoms assessment certificate or postal appraisal form, in the case of import by post. ØA certificate from chartered accountant in the case of import of software or data. The evidence should be submitted within three months from the date of remittance against import bill. II) TIME LIMIT FOR SETTLEMENT OF IMPORT PAYMENTS

Remittance against import should be made within 6 months from the date of shipment. In case the importer has entered into deferred payment arrangements, i.e., remittance to be sent within the time period exceeding six months, then the remittance is treated as External Commercial Borrowing and can be made as per RBI guidelines as in force from time to time.

III)

ADVANCE REMITTANCE

In case the importer wants to remit more than USD 1,00,000 or its equivalent, then he will have to submit the following documents to the bank: a) An unconditional irrevocable stand by letter of credit or a guarantee from an international bank of repute situated outside India.

b) An undertaking from the importer to furnish documentary evidence of physical import of goods into India within 15 days from the close of the relevant period for making import. The relevant period is six months (three years in case of capital goods) from the date of remittance.

IV)

REFUND OF ADVANCE REMITTANCE

In case importer fails to import goods into India against advance remittance, then he will have to repatriate the amount of advance into India.

V)

RECEIPT OF IMPORT BILLS/DOCUMENTS

The authorized dealer shall make remittance against in respect of import bills/documents received directly by the importer in the following cases:

ØThe value of import bill does not exceed USD 10,000; ØImport bills received by wholly owned Indian subsidiaries of foreign companies from their principals; ØImport bills received by one to Five Star Export Houses, 100%_EQUs/units in special economic zones, public sector undertakings; ØImport bills received by joint stock companies ØImport bills for value up to USD 25,000 in respect of import of books and magazines, imports by hospitals and other scientific research and development institutes/universities.

VI)

INTEREST ON IMPORT BILLS

Authorized dealers may allow payment of interest on usance bills for a period of less than three years from the date of shipment at the following rates of interest: (a) Not exceeding LIBOR + 50 basis points for credit up to one year and (b)Not exceeding LIBOR + 125 basis points for periods beyond one year but less than three years, for the currency of credit. These rates of interest are subject to change from time to time.

CASE STUDY

The purchase order will be given to the export company by raising a Performa invoice with the bank details. The company then transfers the money through SWISS transfer within 30 days for marketing. Then they will raise invoice, packing list and shipping bill. The importer inspects the goods before realizing them by the goods inspector. They will check the quantity and items with the invoice given by the company and only then make the full payment for the goods. Later the import company sells these goods in bulk to the other retailers.

METHODS OF PAYMENT/ PAYMENT TERMS In international trade, payment for the goods can be made by means of any of the following methods of payment. These payment methods are also known as payment terms. 1) Advance payment 2) Open payment 3) Documentary collection: a) Documents against payment (D/P)

b) Documents against acceptance (D/A) 4) Documentary credits (letter of credits)

1) ADVANCE PAYMENT OR CASH IN ADVANCE

Under this method, the exporter receives from the overseas importer in advance in the form of demand draft or cheque denominated in foreign currency or by way of direct telegraphic transfer against the supply of goods to be made later on. In case of huge payments in advance, the importer demands that an advance payment guarantee be provided through a bank. It is the safest mode of payment from the point of view of the exporter. The exporter may ask for advance payment only when he is in strong trading position and able to dictate terms in case when the particular product is not available elsewhere. However, the importer would be willing to make advance payment if he can rely on the integrity of the exporter. When an exporter receives advance payment then he must have an evidence of advance payment in the form of certificate of foreign inward remittance (CFIR). This certificate is issued by the exporter’s bank i.e. the authorized dealer in foreign exchange, where the advance payment was deposited. This certificate is issued when the money is credited to the account of the exporter.

2) OPEN ACCOUNT

Open account is an arrangement between the exporter and importer whereby the goods are manufactured and delivered even before the payment is required. This mode of payment provides for payment at some specific future date. The importer does not accept any negotiable instrument and thus, does not provide any evidence to the exporter of his legal commitment to make the payment. The importee makes the payment only when he has received the goods and inspected them to be of quality to his satisfaction. The exporter should agree to such an arrangement only in those cases where he has absolute trust in the importer that he will be paid in future. This mode of payment is the most disadvantageous to the exporter because he transfers the title to the goods without even getting any assurance of payment from the importer. There is also the added risk emanating from the possibility that the political event may impose some restriction on the remittance of funds from the importing country to the exporter’s country. Besides, these disadvantages, the exporter would also find that his funds are tied up till such time the goods are received and found to be acceptable by the foreign importer.

3) DOCUMENTARY COLLECTION

The documentary collection involves collection of a given sum of money by a bank due from the importer against delivery of certain documents at the instruction of the exporter. The parties involved in the documentary collection are as follows: 1) The exporter i.e., he presents documents to his bank along with bill of exchange for collection of payment/ acceptance. 2) The collecting bank i.e., the bank which forwards the documents for collection or obtaining acceptance of the draft from the importer as per instructions of the exporter. 3) The remitting bank i.e., the bank which presents documents to the importer for the collection of payment/ acceptance of the draft as per instructions of the collecting bank. 4) The importer i.e., the party entitled to receive documents against payment/ acceptance. Documentary collections may take either of the two forms detailed below: ØDocuments against payment (D/P) ØDocuments against acceptance (D/A)

DOCUMENTS AGAINST PAYMENT (D/P) Under this method, shipping documents concerning the shipment of goods are given to the importer against payment for the goods the payment is made by the importer against sight draft sent along with the shipping documents. If the importer does not honour the draft, he is not given the shipping documents.

PROCEDURE FOR COLLECTION OF PAYMENT UNDER D/P

The following procedure for collection of payment under D/P i.e., documents against payment are:

1) The exporter sends the shipment and obtains shipping documents from the clearing and forwarding agent. 2) He prepares a sight draft on the importer for the value of the goods. 3) The exporter submits the sight draft along with other shipping documents to his bank. The exporter’s bank acknowledges that all the documents as noted by the exporter are presented. 4) The exporter’s bank sends the shipping documents and the draft along as remitting bank which is usually located in the importers country. 5) The remitting bank notifies to the importer upon receipt of the draft and the documents and requires him to make the payment against the draft is that the documents are released to him. 6) All the documents including those establishing the importers title to the goods are released to him upon his payment of the amount of the sight draft. 7) The remitting bank sends the remittance to the exporter’s bank which, in turn, credits the account of the exporter. 8) In case, the importer doesn’t make the payment, the set of documents are returned to the exporter.

DOCUMENTS AGAINST ACCEPTANCE (D/A)

In this case, the remitting bank hands over the shipping documents to the importer only upon acceptance of the accompanying draft. The acceptance implies that he agrees to pay the amount of the draft on the due date. Under D/A terms, there is always a period of credit on the expiry of which the importer is required to make payment. The disadvantage of D/A term is that it enables the importer to take delivery of the goods before making payment. He may not pay on due date and may not pay at all for a number of reasons, i.e. having become bankrupt or on account of his dishonesty. D/A terms should be given only to very reliable parties.

PROCEDURE FOR COLLECTION OF PAYMENT UNDER D/A

The collection of payment under D/A i.e., documents against acceptance is completed in two stages i.e. a) Acceptance

b) Collection In the first stage, the sequence of steps is the same as outlined above for D/A mode of payment with the only difference being that importer conveys his acceptance on the usance draft instead of making payment, and then the documents are released to him. The remitting bank sends the acceptance to the collecting bank and the same is given to the exporter. The exporter waits for the expiry of the usance period and then submits the acceptance to his bank for collection of payment. After the expiry of the usance period, the exporter submits the acceptance to his bank for collection of payment. The collection bank credits the account of the exporter upon realisation.

5) DOCUMENTARY CREDIT (LETTER OF CREDIT)

A letter of credit is a bank’s promise of paying the exporter to that of the foreign buyer when the exporter has complied with all the terms and conditions of the letter of credit. The foreign buyer applies for issuance of a letter of credit to the exporter and therefore is called the applicant; the exporter is called beneficiary.

A letter of credit may be irrevocable that is, it cannot be changed unless both the buyer and the seller agree to make the change or revocable that is, either party may unilaterally make changes. A revocable letter of credit is inadvisable. A letter of credit may be a sight, which means immediate payment upon

presentation of documents, or it may be a time or date letter of credit with payment upon presentation of documents, or it may be a time or date letter of credit with payment to be made in the future. Any change made to letter of credit after it has been issued is called an amendment. The fees charged by the banks involved in amending the letter of credit may be paid by either the exporter or the foreign buyer, but who is to pay which charges should be specified in the letter of credit. Since changes can be timeconsuming and expensive, every effort should be made to get the letter of credit right the first time.

An exporter is usually not paid until the advising or confirming bank receives the fund from the issuing bank. To expedite the receipt of funds, wire transfers may be used. Bank practices vary, however, and the exporter may be able to receive funds by discounting the letter of credit at the bank, which involves paying a fee to the bank for this service. Exporters should consult with their international bankers about bank policy.

Letter of credit refers to a written undertaking given by the importers bank at the request and instructions of importer (i.e., applicant), to the exporter (i.e., beneficiary) that the payment shall be made to him against stipulated documents provided that the same appear on their face to be in accordance with the terms and conditions of the credit. These terms and conditions are indicated by the importer to the bank issuing the letter of credit. An essential characteristic of the letter of credit is that it relies on the doctrine of strict compliance for making payment to the exporter against the documents stipulated in the credit. The banks do not deal in goods they deal in documents. As such, the importer has to specify to the bank the documents which it should examine to conclude that the exporter has sent the shipment in strict compliance with the terms and conditions of the credit.

Important points to be kept in mind while using a Letter of Credit

When preparing quotations for prospective customers, exporters should keep in mind that banks pay only the amount specified in the letter of credit – even if higher charges for shipping, insurance, or other factors are documented.

Upon receiving a letter of credit, the exporter should carefully compare the letter’s terms with the terms of the exporter’s pro forma quotation. This point is extremely important, since the terms must be precisely met or the letter of credit may be valid and the exporter may not be paid. If meeting the terms

of the letter of credit is impossible or any of the information is incorrect or misspelled, the exporter should get in touch with the customer immediately and ask for an amendment to the letter of credit.

The exporter must provide documentation showing that the goods were shipped by the date specified in the letter of credit or the exporter may not be paid. Exporters should check with their freight forwarders to make sure that no unusual conditions may arise that would delay shipment. Exporters should always request that the letter of credit specify that partial shipments and transshipment will be allowed. Doing so prevents unforeseen problems at the last minute.

PROCEDURE FOR THE ISSUE OF LETTER OF CREDIT

The procedure for the issue of letter of credit is as follows: 1) The exporter and the importer enter into an export contract which provides for payment by means of letter of credit. 2) The importer approaches his bank to open the letter of credit in favour of the exporter. 3) The importers bank sends the letter of credit to the exporter through one of its corresponding banks in the exporter’s country, known as advising bank. 4) Advising bank authenticates the letter of credit and sends it to the exporter.

CONTENTS OF LETTER OF CREDIT

A letter of credit generally contains the following information: ØComplete and correct name and address of the beneficiary i.e., the exporter. ØComplete and correct name and address of the applicant i.e., the importer. ØType of letter of credit. ØAmount of credit.

ØHow the credit shall be available e.g., by sight payment, acceptance or the negotiation, deferred payment. ØName of the nominated bank, that is, the bank with which the credit is available. ØThe name of the drawee of the draft and tenor of the draft. ØDescription of goods, quantity of the items and the unit price. ØList of documents require to be submitted by the beneficiary. ØPort of discharge and the place of final destination. ØTerms of delivery i.e., FOB, CFR, CIF etc. ØStatus of transshipment i.e., whether allowed or not. ØStatus of partial shipment i.e., whether allowed or not. ØThe last date of sending shipment. ØTime period for the presentation of documents for negotiation by the beneficiary after the dispatch of the shipment. ØThe date and place of the expiry of the letter of credit. ØTransfer of the letter of the credit allowed or not. ØMode of advice of the letter of credit i.e., by mail or tele transmission.

KINDS OF LETTER OF CREDIT

There are various kinds of letter of credit depending upon the features added to it as desired by the applicant. The various kinds of letter of credit are as follows:

1) SIGHT OR USANCE LETTER OF CREDIT

A letter of credit is known as sight letter of credit or the letter of credit at sight if it involves payment to the exporter against sight draft. On the other hand, if the payment is to be made against usance draft, then the letter of credit is known as usance letter of credit. In this case the usance draft is accepted by the issuing bank. Once, the draft is accepted by the bank, it becomes the first class commercial paper

which can be discounted through any commercial bank before the due date. This enables an exporter to obtain funds in advance before waiting for the due date.

2) CONFIRMED OR UNCONFIRMED LETTER OF CREDIT

An irrevocable letter of credit is confirmed when other bank adds its confirmation to the letter of credit upon the request of the issuing bank. The primary bank assumes the primary liability for making payment to the beneficiary as if it were the issuing bank. This arrangement is beneficial to the exporter as it enables him to protect himself against the political risk involved in transfer of funds from the importers country to exporter’s country. Confirmation of letter of credit is possible only if there is a clause in the letter of credit which permits the advising bank to add its confirmation. Thus if an exporter wants confirmation of letter of credit then he must negotiate for this with the importer so that he can get this clause included in the letter of credit.

Once the payment is made by the confirming bank, then it claims the amount of letter of credit from the issuing bank. In case it fails to obtain the payment from issuing bank, then it cannot claim the amount from the exporter, i.e. the beneficiary under the letter of credit.

On the other hand, if the irrevocable letter of credit does not provide for its confirmation, then it would be known as unconfirmed letter of credit.

3) NEGOTIABLE LETTER OF CREDIT

A letter of credit is known as negotiable if the issuing bank organizes the negotiating bank to honour the draft drawn under the terms of credit. In such a case the exporter gets the payment even before the documents are scrutinized by the issuing bank. The bank which negotiates documents under the credit purchases the bill of exchange and pays the beneficiary who tenders the documents. The negotiating bank is re-inversed by the issuing bank.

The negotiating bank i.e. the bank through which the document are presented for negotiation for the realisation of export proceed would examine the document and if the same are found to be nondiscrepant, then it would release a payment under the terms of the credit to the exporter subject to an undertaking from the exporter than in case the issuing bank does not release payment, then he would refund the amount to the negotiating bank.

In case the name of the negotiating bank is stated in the letter of credit, then the negotiation is restricted to the nominated bank and the credit is then called the restricted credit. In case the issuing bank agrees for negotiation by any bank then the credit would be called unrestricted or open letter of credit.

4) REVOLVING LETTER OF CREDIT

A revolving letter of credit is one which provides for the renewal of the amount of the credit without any amendments to the letter of credit in relation to a given time period or a given amount. The revolving letter of credit may be revocable or irrevocable. For example, a letter of credit may revolve initially for an amount up to $20,000 month for a fixed period of say, three months. In this case, the amount of credit shall be renewed for $20,000 every month for a period of three months irrespective of whether any credit was utilized or not by the beneficiary during the month. Thus, while the face value of the letter of credit is $20,000, the undertaking of the issuing bank is for the total amount of $60,000 in revolving periods each for $20,000 for three months.

The revolving credits are opened in those cases where the importer regularly imports goods from a certain exporter. Instead of opening letter of credit for each import, the importer saves on the transaction costs by opening the revolving credit. The disadvantage of revolving credit from the point of view of the importer is that he enters into long term commitment with a particular supplier and there by deprives at competitive rates in future.

The revolving credit may be cumulative or non-cumulative. The credit is considered cumulative if the unutilized amount of one time period can be carried over to the next period. If the unutilized amount cannot be carried over, then the credit would be called non-cumulative.

5) RED CLAUSE AND GREEN CLAUSE LETTER OF CREDIT

A red clause letter of credit is a kind of credit which enables the bank or the nominated bank to make advances to the presentation of the documents. Since this clause used to be written customarily in red ink hence the name Red Clause letter of credit. This clause states the amount that can be advanced to the beneficiary and in certain case it may cover even the full amount of the letter of credit. The confirming or the nominated bank recovers the amount of advance with interest out of the payment realized under the credit. In case the documents presented by the exporter are found to be discrepant, then the bank which had given the advance will have the right to demand repayment of the advance amount with interest from the issuing bank. The issuing bank would have the right of recourse against the applicant i.e. the importer. This means that the liability will fall on the applicant clause would be included in the letter of credit or not depends upon the agreement between the exporter and the importer.

An extension of the red clause letter of credit is the green clause credit which not only permits preshipment advances but also covers storage of goods at the sea port in the name of the bank. Both red clause and green clause credit are used extensively in Australian wool trade.

6) TRANSFERABLE LETTER OF CREDIT

Transferable letter of credit means a credit that specially states it is “transferable”. A transferable credit may be made available in whole or in a part to another beneficiary (“second beneficiary”) at the request of the beneficiary (“first beneficiary”) by the transferring bank. Transferring bank means a nominated bank that transfers the credit. An issuing bank may also be a transferring bank. Thus, in a transferring credit, the amount of credit may be transferred either in full or in a part to a second beneficiary at the request of the first beneficiary. In this case, the importer runs the risk of accepting the shipment of goods from a party other than with whom the order was placed and the party supplying the goods may not have had any business dealings in the past with the importer. However, once the credit is transferred, the transferee gets the right to make presentation of the draft/s and the documents and claim payment for the goods

supplied. This kind of credit is very useful in those cases where the importer is making imports through an agent in the exporting country. Such agents, known as buying agents in the exporting country, maintain the list of reliable exporters for the supply of goods to their principals in the foreign country. The transferable credits help the buying agent to transfer part of the credit amount to different exporters who have been given the orders for the supply of goods to the importer.

7) BACK-TO-BACK LETTER OF CREDIT

Back-to-back letter of credit is a credit which is issued at the strength of another letter of credit. For example, an exporter who has received a letter of credit for the export of goods may have to import goods from another country for the execution of the order. The foreign supplier may ask for payment against letter of credit. The exporter can request for the issue of import letter of credit on the strength of the export letter of credit. The second letter of credit is known as the back-to-back letter of credit. Thus, the back-to-back letter of credit involves two separate letters of credits as follows: 1) One opened in favour of the second beneficiary or the original exporter. 2) The credit opened in favour of the second beneficiary who would supply goods to the first beneficiary becomes the applicant for opening of the second letter of credit. It is important to ensure that the second letter of credit specifies all the documents required by the first credit and the limits set for presentation of the documents in such a manner that it will enable the primary beneficiary i.e., original exporter to present the documents within the time limits set by the primary letter of credit.

8) WITH RECOURSE OR WITHOUT RECOURSE LETTER OF CREDIT

A letter of credit is with recourse when under the terms of the credit, the negotiating bank or the nominated bank can approach the beneficiary for the refund of the payment made under the letter of credit. It is without recourse when the negotiating or the nominated bank can not approach the beneficiary to refund the payment under the letter of credit. A confirmed letter of credit is without recourse to the beneficiary and the unconfirmed or the negotiable credits are always with recourse to the beneficiary.

9) STANDBY LETTER OF CREDIT

Standby letter of credit is as assurance to the beneficiary that the applicant shall perform his part of the obligation undertaken by him under the contract between the applicant and the beneficiary. It is, in fact, a kind of performance guarantee to support the beneficiary in the event of default by the applicant. Thus, in the case of supply of goods over a long period of time under a given contract, the importer may require the exporter to open a letter of credit as a performance guarantee. The subject matter of this kind of letter of credit could be:

a)

Repayment of the money borrowed by the applicant from the beneficiary or

b) Payment on account of any indebtedness undertaken by the applicant or c) Payment on account of any default by the applicant in the performance of any obligation undertaken by the applicant.

CASE STUDY

The Global Import and Export Company use D/A mode of payment. 30% of the amount is paid in advance at the time of order and the remaining amount will be paid on shipment date.

EXPORT PRICE QUOTATIONS: INCO TERMS

The process of securing the export order begins with the exporter sending a price quotation to the prospective importer. The export price quotation defines a) The terms of delivery for the export of goods and

b) The rights and obligation of the exporter and the importer. The prospective exporter is to bear in mind that his price should be as competitive as possible. Since in the international trade, there is every chance of the presence of other sellers like him. While quoting the price, the exporter, has to consider in addition to the cost of commodities, product processing, packing and labelling charges, cost of documents and services etc. Thus the price quotation should be stated in unambiguous terms as any ambiguity can make a lot of difference between profit and loss for the export firm. Such terms are referred to as Terms of Delivery.

The international chamber of commerce had prepared a set of standard terms of delivery in 1953 these terms were revised in 1980, 1990 and 2000. There are 14 Inco terms as amended in 2000. These terms, their definition explaining the obligations of exporter and importer and their international codes are given below: 1) EX-WORKS (… NAMED PLACE) EXW

“Ex-Work” means that the exporter undertakes to deliver the goods to the importer at gate of his factory or works. Thus, the obligations of the exporter is only upto the point of delivery the goods at the works or factory gate. That is to say, he undertakes to pay for all the expenses to make the goods available at his premises. He is not responsible for loading the goods on the vehicle provided by the importer or for clearing the goods for export, unless otherwise agreed. The importer bears all costs and risks involved in taking the goods from the exporter’s premises to the desired destination. This term thus, represents the minimum obligations on the part of the exporter.

2) FREE CARRIER (…NAMED PORT) FCA

“Free Carrier” means that the exporter fulfils his obligations to deliver when he has handed over the goods, cleared for export, into the charge of the carrier named by the importer at the named place or point. If no precise point is indicated by the importer, the exporter may choose within the place or range stipulated where the carrier shall take the goods into his charge. This term may be used for any mode of transport, including multi modal transport.

“Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of carriage by road, rail, sea, air, inland waterway or by a combination of such modes. If the importer instructs the exporter to deliver the cargo to a person, e.g. a freight forwarder who is not a “carrier”, the exporter is deemed to have fulfilled his obligation to deliver the goods when they are in the custody of that person.

“Transport Terminal” means a railway terminal, a freight station, a container terminal or yard or any similar receiving point. “Container” includes any equipment used to pack the cargo, e.g. all types of container and/ or flats, whether ISO accepted or not, trailers swap bodies, igloos, and applies to all modes of transport.

3) FREE ON RAIL(FOR)/FREE ON TRUCK(FOT)

F.O.R term is used when the goods are to be send by the rail and F.O.T term is used when the goods are to be send by the truck. The seller’s obligations are fulfilled as and when the goods are delivered to the carrier.

4) FREE ALONGSIDE SHIP(…NAMED PORT OF SHIPMENT)FAS “Free Alongside Ship” means that the exporter fulfills his obligation to deliver when the goods has been placed alongside the vessel at the named port of shipment. This means that the importer has to bear all cost and risks of loss of or damage to the goods from that moment.

The FAS term requires the exporter to clear the goods for exports. The term can also be used for sea or inland water way transport

5) FREE ON BOARD(…NAMED PORT OF SHIPMENT) FOB

“Free On Board” means that the exporter fulfills his obligations to deliver when the goods have passed over the ship’s railed at the named port of shipment. This means that the importer has to bear all costs and risk of loss of or damage to the goods for that point i.e. after the goods have been loaded.

The FOB term requires the exporter to clear the goods for export and ensure their loading on the plane or the ship or any other carrier in case of road transport. This term can only be used for sea or inland water way transport.

6) COST AND FREIGHT(…NAMED PORT OF DESTINATION)CFR

“Cost And Freight” means that the exporter must pay the cost and freight necessary to bring the goods to the named port of destination but the risk of loss or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is

transferred from the exporter to the importer when the goods pass the ship’s rail in the port of shipment.

The CFR term requires the exporter to clear the goods for export. The term can also be used for sea and inland waterways transport.

7) COST, INSURANCE AND FREIGHT(…NAMED PORT OF DESTINATION)CIF

“Cost, Insurance and Freight” means that the exporter has the same obligation as under CFR but with the additional that he has to procure marine insurance against the importers risk of loss or damage to the goods during the carriage. The exporter contracts for insurance and pays the insurance premium. The importer should note that under the CIF term the exporter is only required to obtain insurance in minimum coverage. The CIF term requires the exporter to clear the goods for exports. The term can only be used for sea and inland water ways transport.

8) CARRIAGE PAID TO(…NAMED PLACE TO DESTINATION)CPT

“Carriage paid to…..” means that the exporter pays the freight for the carriage of the goods to the named destination. The risk of the loss of or of damage to the goods as well as any additional costs due to events occurring after the time the goods have been delivered to the carrier is transferred from the exporter to the importer when the goods have been delivered into the custody of the carrier.

If subsequent carriers are used for the carriage to the agreed destination, the risks pass when the goods have been delivered to the first carrier. The CPT term requires the exporter to clear the goods for export. This term may be used for any mode of transport including multi modal transport.

9) CARRIAGE AND INSURANCE PAID TO(…NAMED PLACE OF DESTINATION)CIP

“Carriage and insurance paid to…” means that the exporter has the same obligations as under CPT but with the addition that the exporter has to procure cargo insurance against the importers risk of loss of damage to the goods during the carriage. The exporter contracts for insurance and pays the insurance premium.

The importer should note that under the CIP terms the exporter is only required to obtain insurance on minimum coverage. The CIP term requires the exporter to clear the goods for export. This term may be used for any mode of transport including multi modal transport.

10) DELIVERED AT FRONTIER (…NAMED PLACE) DAF

“Delivered at frontier” means that the exporter fulfils his obligations to deliver when the goods have been made available cleared for export, at the named point and place at the frontier, but before the customer’s border of the adjoining country. The term “frontier” may be used for any frontier including that of the country of export. Therefore, it is of vital importance that the frontier in question be defined precisely by always naming the point and place in the term. The term is primarily intended to be used when the goods are to be carried by rail or road, but it may be used for any mode of transport.

11) DELIVERED EX-SHIP (…NAMED PORT OF DESTINATION) DES

“Delivered Ex-ship” means that the exporter fulfils his obligation to deliver when the goods have been made available to the importer on board the ship uncleared for import at the named port of destination. The exporter has to bear all the costs and risks involved in bringing the goods to the named port of destination. This term can also be used for sea or inland water way transport.

12) DELIVERED EX QUAY (…NAMED PORT OF DESTINATION) DEQ

“Delivered Ex quay” means that the exporter fulfils his obligations to deliver when he has made the goods available to the importer on quay (wharf) at the named port of destination, uncleared for importation. The exporter has to bear the costs and risks involved in bringing the goods to the named port of destination and discharging the goods to the quay. The responsibility of the importer is to clear the goods for imports and to pay for all customs clearance formalities, duties, taxes and other charges

upon import. Thus the exporter should bear the cost of discharging the goods, at the quay in addition to the cost and risk involved as per the term DES.

13) DELIVERED DUTY UNPAID (…NAMED PLACE OF DESTINATION) DDU

“Delivered duty unpaid” means that the exporter fulfils his obligations to deliver when the goods have been made available at the named place in the country of importation. The exporter has to bear the cost and risk involved in bringing the goods there to (excluding duties, taxes and other official charges payable upon importation). The importer has to bear the additional cost and to bear any risk caused by his failure to clear the goods for import on time.

If the parties wish the exporter to carry out customs formalities and bear the costs and risk resulting from there from, this has to be made clear by adding words to that effect.

If the parties wish to include in the exporter’s obligation some of the costs payable upon importation of the goods (such as value added tax, this should be made clear by adding words to this effect: “Delivered duty unpaid, VAT paid (…named place of destination)”. This term may be used irrespective of the mode of transport.

14) DELIVERED DUTY PAID (…NAMED PLACE OF DESTINATION) DDP

“Delivered duty paid” means that the exporter fulfils his obligation to deliver when the goods have been made available at the named place in the country of importation. The exporter has to bear the risk and cost, including duties, taxes and other charges of delivering the goods thereto, cleared for importation. While the EXW term represents the minimum obligation for the exporter, DDP represents the minimum obligation.

This term should not be used if the exporter is unable directly or indirectly to obtain the import license. If the parties wish the importer to clear the goods for importation and to pay the duty, the term DDU should be used. This term may be used irrespective of the mode of transport.

15) FRANO OR RENDU

This price includes all charges and expenses for sending the goods to the place of importer. It means that all the expenses are paid by the exporter and are include in the price.

CASE STUDY

The Inco terms used by the Global Import and Export Company is based on the contract between the exporter and importer. However mostly the company uses the following Inco terms:

§ CIF (cost, insurance and freight) § FOB (free on board) § DDU (delivered duty unpaid) § DDP (delivered duty paid)

DOCUMENTATION Documentation is a key means of conveying information from one person or company to another company, and also serves as permanent proof of tasks and action undertaken throughout the import process. Documentation is not only required for our own business purpose and that of our business partner, but also to satisfy the customs authority in both countries and to facilitate the transportation of and payment for goods sold.

One value of documentation is that copies can be made and shared with the parties involved in the expor5t process (although we should always ensure that we make identical copies from an agreed upon master-it is no use making changes without other party’s agreement and then presenting these as the

latest copies). If the documentation is complete, accurate agreed upon by the parties involved and signed by each of these parties, the documents will represent a legally binding document.

Following are the documents involved in Imports:

1.

IMPORT ORDER

An import order is a commercial transaction which is not only imported to the importer and exporter, but is also of concern to their respective countries, since it affects the “Balance of Payment” position of both the countries. It is therefore, not just a matter of product, manufacturing, packing, shipment and payment but also of one of concern to licensing authorities, exchange control authorities and banks dealing in foreign exchange.

The importer is required to produce copies of import order to various government department/financial institutions e.g. obtaining import licenses when the product is covered under the restricted items or canalized items for imports, arranging import finance and dealing with customs offices and exchange control authorities etc. for various purposes.

2.

ORDER ACCEPTANCE

It is another important commercial document prepared by the exporter confirming the order received from the overseas importer. Under the order acceptance, the exporter gives his confirmation to the order placed by the importer and commits the shipment of products covered at the agreed price during a specific time. Sometimes, the exporter needs a copy of his order acceptance signed by the importer. The order acceptance normally covers the name and address of the indenter, the name and address of the consignee, port of shipment, country of final destination, the description of goods, quantity, price each and total amount of the order, terms of delivery, freight and insurance details, terms of payment, mode of transport, packing and making details etc.

3.

LETTER OF CREDIT

At the request of the importer his bank issues a letter of credit in the favour of the exporter through its correspondents in the country of the exporter giving him the authority to draw bills upto a particular amount covering a specified shipment of goods and assuring him of payment against the delivery of shipping documents. The operations of letters of credit have been regulated and are governed by UCP 500 of International Chamber of Commerce Paris.

4.

TRANSPORT DOCUMENTS

The following documents are used in import trade as transport documents. · · · · · Ocean freight : various types of bill of lading Air freight Rail/Road Post Courier : Airway bills/Air consignment notes : Railway receipt/Consignment note : Waybill issued by Foreign Post Office : Courier receipt/Waybill

5.

BILL OF EXCHANGE

Bill of exchange is also known as ‘Draft’. A bill of exchange is an instrument in writing an unconditional order signed by the maker directing a certain person to pay certain sum of money only to or to the order of a person or the bearer of the instrument.

A bill of exchange contains an order from the creditor to the debtor to pay a specified amount to a person mentioned therein. The maker of the bill is called ‘Drawer’; the person who is directed to pay is called the ‘Drawee’. The person who is entitled to receive payment is called the ‘payee’.

6.

INSURANCE POLICY/CERTIFICATE

Marine insurance policy is a contract where by the insurer (insurance company) in consideration of a payment of premium by the insured agrees to indemnify the latter against the loss incurred by him in respect of goods exposed to perils of the sea. Marine insurance certificate is a document which gives details of the shipment insured together with a shortened version of the provisions of open cover.

7.

CERTIFICATE OF ORIGIN

Many countries require a certificate from the overseas supplier stating the origin of goods and certified by the Chamber of Commerce or any other recognized authority in the exporter’s company.

8.

PACKING LIST/NOTE

A packing list includes the date of packing, connecting invoice number, order number, details of shipping such as the name of the steamer, bill of lading number and date of sailing, case number to which the list relates, detail of goods such as quantity and weight and item wise details. Packing list helps the importer to clear the goods easily from customs authorities.

9.

CERTIFICATE OF INSPECTION

It is issued by the inspection authorities in the exporter’s country certifying that the goods have been inspected under the recognized quality control standards and stratifies the conditions relating to quality control and inspection as applicable to it and its export worthy. The importer may also demand for a certificate of inspection from his own designated inspection agency in the exporter’s country, if required.

10.

CERTIFICATE OF MEASUREMENT

Freight can be charged on the basis of weight or measurements. When it is charged on weight basis, the weight declared by the overseas supplier is accepted. This certificate contains the name of the vessel, the port of de4stination, description of goods, quantity, length, breadth, depth etc. of the packages.

11.

COMMERCIAL INVOICE

An invoice is a document drawn by the exporter on his overseas importer which contains the detailed description of the goods consigned, the consignor’s name, the consignee’s name, the name of the streamer, number and date of bill of lading, order acceptance or contract number and date, country of origin, shipping marks, number and special marking if any, number of packages, quantity shipped, price each and total, terms of payment, term of sale, amount of freight and insurance etc.

12.

FREIGHT DECLARATION

Freight declaration is required to be obtained from the overseas supplier, in both the cases, when the importer agrees to pay the freight or the overseas supplier pays the freight.

13.

BILL OF ENTRY

The bill of entry is a document, prepared by the importer or his clearing agent in the prescribed form under bill of entry regulations, 1971, on strength of which clearance of imported goods can be made. The different kinds of bill of entry are used for the following purpose:

ØBill of entry for goods imported for home consumption: (white coloured) This kind of bill of entry is used where the imported goods are cleared from the port on payment of customs duty.

ØBill of entry for warehouse: (Yellow coloured) This kind of bill of entry is also known as “Warehouse or Into Bond” bill of entry used where the duty is not paid but the imported goods are transferred to customs recognized bonded warehouses.

ØBill of entry for ex-bond clearance for home consumption: (Green coloured) This kind of bill of entry is used where the importer intend to clear the dutiable goods from a bonded warehouse which were warehoused under a particular Into Bond bill of entry, on payment of customs duty.

CASE STUDY

The documents used by the Global Import and Export Company are:

ØPurchase order ØPerforma invoice ØPacking list ØIEC copy ØBill of Entry ØAirway bill ØDelivery order CONCLUSION Starting an import business is a global of more than thousands of merchants and businessman. Like an export business, import business is also very profitable business, if an importer proceeds with the right strategies. However, the long term success and profitability of an import business greatly depends on the importer’s knowledge and understanding about the international market and foreign market analysis. Today, importing goods from abroad has become a big business. Everything from beverages to cars- and a staggering list of other products that one might have never imagined has now become the part of the global import. Millions of products are bought, sold, represented and distributed somewhere in the world on a daily basis. Imports play an important role in the economy of every country, rich and poor alike. Rich countries need to import capital goods, raw material and technology to ensure an optimum utilization of their production capacity. They need to import a wide variety of consumer goods to enable their people to enjoy a high standard of living. Poor countries need to import technology and capital equipment and sometime strategic raw materials to develop industries for accelerating pace of their development. In

India, for example, the pace of industrialization, level of exports and consequently the rate of economic growth is heavily dependent upon imports. A low level of imports usually indicates low purchasing power of its people and also emergence of recessionary trends in economy. At a firm’s level efficient management of import operations is critical factors in determining the overall profitability of its imports. Therefore, we conclude analyzing that for profitable line of business activity import should be done in a systematic and professional manner. The Global Import and Export Company has created such an image in a short period of time that people are able to recognize the company in the global market with a positive attitude. The company imports various products like weighing scale, car accessories/electrical appliances like HID HI/LO, LED roll, LED bulb, LED stickers, LED logo and LED show piece. The company has its own firm in China, because of which the trade between both the countries becomes more feasible and it does no require any Letter of Credit. As an importer the company has been able to achieve confidence of their buyers, by providing them the products by retailers which are of quality products at a reasonable price and try to provide the products with good quality in future, by which the customer’s are satisfied. The company also helps in the growth and development of the economy.